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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1999
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
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
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
Common Stock, $.0001 Par Value NASDAQ National Market
Indicate by check mark whether the Registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of the voting and non-voting stock held by non-
affiliates of the Registrant, based upon the closing sales price of the Common
Stock on the NASDAQ National Market on March 24, 2000 was $62,031,860.
The number of shares of the Registrant's Common Stock outstanding as of
March 24, 2000 was 8,706,226.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the period
Ended December 31, 1999 are incorporated by reference into Part III.
===============================================================================
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left blank
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TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I
------
1. Business............................................................. 4
2. Properties........................................................... 8
3. Legal Proceedings.................................................... 8
4. Submission of Matters to a Vote of Security Holders.................. 8
PART II
-------
5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................................. 9
6. Selected Financial Data.............................................. 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 10
7A. Quantitative and Qualitative Disclosures about Market Risk........... 16
8. Financial Statements and Supplemental Data........................... 16
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 36
PART III
--------
10. Directors and Executive Officers of the Registrant................... 37
11. Executive Compensation............................................... 37
12. Security Ownership of Certain Beneficial Owners and Management....... 37
13. Certain Relationships and Related Transactions....................... 37
PART IV
-------
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................................... 38
Signatures........................................................... 39
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
View Tech, Inc. ("View Tech"), a Delaware corporation, commenced operations
in July 1992 as a California corporation. In June 1995, the Company completed an
initial public offering of common stock. In November 1996, concurrent with a
merger with USTeleCenters, Inc. ("USTeleCenters"), a Massachusetts corporation,
with and into View Tech Acquisition, Inc. ("VTAI"), a Delaware corporation and a
wholly-owned subsidiary of View Tech, the Company reincorporated in Delaware.
Following the merger, VTAI changed its name to "USTeleCenters, Inc." ("UST"). 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.
On February 18, 2000, the Company completed the sales of its subsidiaries, UST
and NSI, to OC Mergerco 4, Inc. Upon the sale of UST and NSI, the Company
operates in one segment, video product sales and service.
On or about December 1, 1999, the Company announced an agreement in
principle to merge with All Communications, Inc. ("ACUC"). ACUC is a regional
competitor of the Company, headquartered in the State of New Jersey. The merger
agreement was signed by ACUC and the Company on or about December 27, 1999. A
registration statement on Form S-4 relating to the merger was filed with the
Securities & Exchange Commission (the "Commission") on or about January 21, 2000
(the "Registration Statement"). An Amended S-4 will be filed with the Commission
shortly. The merger is expected to be completed following regulatory approval
and stockholder approval by both ACUC and the Company. There is no assurance
that the merger will ultimately be consummated.
NARRATIVE DESCRIPTION OF BUSINESS
The Company is a 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 Accord
Telecommunications, Cisco Systems, Ezenia, FVC.com, Intel(C) Corporation, Lucent
Technologies, Madge Networks, PictureTel Corporation, Polycom, Inc., Tandberg,
VCON and VTEL Corporation. The Company currently has 19 offices nationwide.
The Company is headquartered in Camarillo, California. Its offices are
located at 3760 Calle Tecate, Suite A, Camarillo, California 93012. Its
telephone number is 805/482-8277.
VIDEO COMMUNICATIONS
The Company's video communications group focuses on the sale, installation
and service of video communications systems. Utilizing advanced technology,
these systems enable users at separate locations to engage in face-to-face
discussions and to exchange information with the relative affordability and
convenience of using a telephone. In addition to the use of video conferences as
a corporate communications tool, use of video communications systems is
expanding into numerous productivity enhancing applications, including (i) the
lecturing by teachers to students at multiple locations; (ii) the conduct by
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judges of criminal arraignment proceedings while the accused remains
incarcerated; (iii) the utilization of video technology for the consultation and
surgical applications for the health care industry; (iv) the coordination of
emergency services by public utilities; (v) the conduct by businesses of multi-
location staff training programs; and (vi) the coordination by engineers at
separate design facilities of joint development of products.
PRODUCTS
Video
The Company offers three types of video communications systems: integrated
roll-about and room systems; vertical applications; and desktop computer
systems. Roll-about systems may be moved conveniently from office to office and
placed into operation quickly while room systems are stationary systems.
Vertical applications include distance education and systems utilized in the
healthcare industry. Finally, desktop computer systems involve personal
computers with video communications capabilities which are generally used for
one-on-one personal communications, or for a one-person presentation to a group.
Apart from peripheral components manufactured by others, the Company
primarily sells systems manufactured by PictureTel Corporation, Polycom, Inc.
and VTEL Corporation.
The prices of the complete systems sold by the Company range from $1,500
for a video communications desktop computer, to $30,000 for a roll-about system
for a single location, to as much as $70,000 for a vertical application. Roll-
about systems generally contain a minimum of a video camera, monitor and coding-
decoding device to capture the image, display the image and to encode and decode
the transmission over digital phone lines, respectively. Most installations have
several additional peripherals including some of the following components: an
inverse multiplexer, a multi-point control unit, a document camera, a keypad, a
speakerphone, a videocassette recorder and/or an annotations slate and white
board.
The Company buys the components listed above from manufacturers and
acquires the monitors, document cameras, video scan converters, videocassette
recorders and white boards from various sources depending upon such factors as
price and quality.
Although the Company's desktop-computer systems involve different
components, the desktop system has many of the capabilities of the roll-about
and room systems. The Company's desktop video communications equipment is
manufactured by PictureTel and others such as VCON, Inc.
Data
The Company sells products specifically designed to transmit data through
the established local and long-distance telephone services infrastructure to
business customers. Products from companies such as Adtran, Madge Networks, and
Lucent Technologies allow business customers remote access into local area
networks, and permit them to acquire bandwidth on demand and digitally transmit
data.
Video Services
The Company offers its customers the convenience of single-vendor sourcing
for most aspects of their communications needs and develops customized systems
designed to provide efficient responses to customer communications technology
requirements. The Company provides its customers with a full complement of video
communications and telecommunications services to ensure customer satisfaction.
Prior to the sale of its systems and services, the Company provides consulting
services that include an assessment of customer needs and
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existing communications equipment, as well as cost-justification and return-on-
investment analyses for systems upgrade.
Once the Company has made recommendations with respect to the most
effective method to achieve its customer's objectives and the customer has
ordered a system, the Company delivers, installs and tests the communications
equipment. When the system is functional, the Company provides training to all
levels of its customer's organization, including executives, managers,
management-information-systems and data-processing administrators, technical
staff and end users. Training includes instruction in system operation, as well
as planning and administration meetings. By means of thorough training, the
Company helps to ensure that its customers understand the functionality of the
systems and are able to apply the technology effectively.
The Company's ViewCare(R) service product provides maintenance contracts
and comprehensive customer support with respect to the communications equipment
it provides. The Company offers a toll-free technical support hotline 24 hours a
day, 365 days a year. Customers may also obtain answers to questions or follow-
up training through video conferencing, telephone, facsimile, e-mail or the
mail. The Company also provides onsite support and maintenance.
The Company's service personnel maintain regular contact with customers.
The Company also offers training programs for new users, refresher and advanced
training programs for experienced users and consulting services related to new
equipment and systems expansion and upgrades. Installation, training,
maintenance, remote diagnostics, billing inquiry management, network order
processing, new product introduction and system enhancements creating multi-
purpose solutions are a few of the many after-sale services that the Company
performs for its customers.
During 1998 and 1999, the Company increased its MCU, MultiView Network
Services(R), or bridge services, to its customers nationwide. The Company
employs state-of-the-art conferencing servers in multiple U.S. call centers,
providing seamless connectivity for all switched digital networks across the
globe at an affordable rate. Because bridges cost between $30,000 and $200,000
per unit, the Company's customers typically elect to utilize such services when
more than two locations participate simultaneously in video communication.
Customers
The Company focuses primarily on large organizations with complex application-
specific requirements for video communications.
The Company has installed video communications systems for a diversified
customer base, including Pfizer Pharmaceuticals, PacifiCare, Region 18
Educational Service Center, Raytheon Corporation, and the State of Tennessee.
The Company has attempted to focus its marketing efforts on specific industries.
Among the industries in which the Company believes it has acquired substantial
expertise are health care and distance-education.
Sales and Marketing
The Company has in place a number of programs to promote its video
communications products and services. Representatives of the Company regularly
attend video communications and advanced technology trade shows. The Company
hosts seminars and provides potential customers with the opportunity to learn
about the Company's products and services using video communications
demonstration facilities located in each of the Company's offices. The Company
also places advertisements aimed at selected markets in industry trade
publications and utilizes limited and selective direct mail advertising.
Dependence on Suppliers
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For the twelve months ended December 31, 1999, approximately 29% of the
Company's revenues from continuing operations were attributable to the sale and
servicing of equipment manufactured by PictureTel. Termination of or change of
the Company's business relationships with PictureTel; disruption in supply,
failure of PictureTel to remain competitive in product quality, function or
price or a determination by PictureTel 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 an agreement with PictureTel that authorizes the
Company to serve as a non-exclusive dealer and sales agent, respectively, in
certain geographic territories. The PictureTel agreement can be terminated
without cause upon written notice, subject to certain notification requirements.
There can be no assurance that this agreement will not be terminated, or that it
will be renewed on terms acceptable to the Company. This supplier has no
affiliation with the Company and is a competitor of the Company.
Competition
The video communications industry is highly competitive. The Company competes
with manufacturers of video communications equipment, which include PictureTel,
VTEL 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"), Intel Corporation,
Microsoft Corporation, 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 will have greater resources than the Company, will
enter the video communications market.
A specific manufacturer's network of dealers and distributors typically involves
discrete 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 from other PictureTel dealers, whose customers
elsewhere may have branch facilities in these territories, and from 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
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communications system enable the Company to compete successfully in the
industry.
Employees
At March 1, 2000, the Company had 123 full-time employees. The Company had
41 full-time employees engaged in marketing and sales, 59 in technical services
and 23 in finance, administration and operations. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company's video business leases office facilities in Camarillo, Irvine,
Sacramento and San Diego, California; New York, New York; Baton Rouge,
Louisiana; Chicago, Illinois; Dallas and Houston, Texas; Durham, North Carolina;
Englewood, Colorado; Nashville and Knoxville, Tennessee; Jacksonville, Florida;
Salt Lake City, Utah; and Chesterfield, Missouri. The Durham and Jacksonville
locations were closed during the first quarter of 2000. The rest of locations
are currently principally engaged in video conferencing sales and services. Its
videoconferencing headquarters is located in Camarillo, California and consists
of a total of approximately 19,000 square feet. The Company's other facilities
house sales, technical and administrative personnel and consist of aggregate
square footage of approximately 42,000. When UST and NSI were part of the
Company, they leased office facilities in Boston and Cape Cod, Massachusetts,
and Burlington, Vermont. Such locations were principally engaged in the sale and
service of telephony products and services. Obligations under these leases have
been assumed by OC Mergerco 4, Inc. The Company believes that the facilities it
presently leases, combined with those presently under negotiations, will be
adequate for the foreseeable future and that additional suitable space, if
required, can be located and leased on reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business the Company experiences various types of
claims which sometimes result in litigation or other legal proceedings. The
Company does not anticipate that any of these proceedings that are currently
pending will have any material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS STOCK MARKET AND OTHER INFORMATION
The Company's common stock is traded on The Nasdaq Stock Market[_],
("Nasdaq"), under the symbol "VUTK" on the National Market and has been so
traded since November 18, 1995. Prior to such date, the shares were traded on
Nasdaq's SmallCap Market and also the Pacific Stock Exchange under the symbols
"VUTK" and "VWK," respectively, since the Company's initial public offering on
June 15, 1995 (the "IPO"). In addition, warrants to purchase up to 575,000
shares of the Company's common stock were traded on Nasdaq's National Market and
prior to November 18, 1995 the warrants traded on Nasdaq's SmallCap Market and
the Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively.
The terms of the warrants provided that one warrant plus $5.00 was required to
purchase one additional share of the Company's common stock. The warrants were
redeemable at the Company's option commencing June 15, 1996 upon 30 days notice
to the warrant holders at $0.25 per share if the closing price of the common
stock had been at least $8.00 for a period of 30 consecutive trading days ending
within 10 days of the date the notice of redemption was mailed. The warrants
expired on June 15, 1998.
The following table sets forth the quarterly high and low bids for the
Company's common stock as reported by Nasdaq's National Market for the periods
indicated.
<TABLE>
<CAPTION>
Calendar Year 1998 High Low
---------------------------------------------------
<S> <C> <C>
First Quarter 5.87 4.75
Second Quarter 4.62 3.40
Third Quarter 3.25 1.50
Fourth Quarter 3.00 1.53
Calendar Year 1999 High Low
---------------------------------------------------
First Quarter 4.12 1.87
Second Quarter 2.19 1.50
Third Quarter 2.19 1.37
Fourth Quarter 3.87 1.43
</TABLE>
On March 24, 2000, the last reported bid for the Company's common stock on
the Nasdaq was $7.125. As of March 24, 2000, there were 169 holders of record of
the Company's common stock.
Dividends
The Company has never paid any cash dividends on its common stock. It
presently intends to retain earnings and capital, if any, for use in its
business and does not expect to pay any dividends within the foreseeable future.
Any payment of cash dividends in the future on the common stock will be
dependent on the Company's financial condition, results of operations, current
and anticipated cash requirements, plans for expansion, restrictions under debt
obligations, as well as other factors that the Board of Directors deems
relevant.
Recent Sales of Unregistered Securities
In November 1999, the Company consummated a subordinated debt offering
pursuant to which it issued subordinated secured notes to a limited number of
accredited purchasers from which it received proceeds of approximately $2.0
million. The notes have an interest rate of the prime rate plus 2-1/2%, will
be repaid in seven months, and are secured by a pledge of the Company's assets
on a subordinated position to the Company's other lenders. As partial
consideration for purchase of the notes, the Company issued 5-year warrants to
purchase 925,000 shares of the Company's common stock to these purchasers, on a
proportional basis of each purchaser's purchase of the notes, with an exercise
price of $1.625 a share. The notes and the warrants were issued under Section
4(2) of the Securities Act of 1933, as amended.
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U.S. Stock Transfer Corporation of Glendale, California serves as transfer
agent and registrar of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months
Year Ended December 31 Ended Years Ended June 30,
---------------------------------------- December 31, -------------------------
1999 1998 1997 1996 1996 1995
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Product $ 24,024,119 $27,902,078 $24,851,000 $ 8,925,451 $11,385,437 $ 5,805,368
Service 11,455,488 9,340,000 6,163,000 1,681,140 1,960,666 1,158,319
------------ ----------- ----------- ----------- ----------- -----------
35,479,607 37,242,078 31,014,000 10,606,591 13,346,103 6,963,687
------------ ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of equipment sold 19,438,124 19,991,620 17,689,000 6,959,809 8,095,167 3,953,823
Cost of services provided 5,853,940 4,463,000 2,915,000 941,191 947,755 373,856
Selling and marketing expenses 9,955,816 7,830,654 6,346,000 2,301,000 2,724,000 686,000
General and administrative
expenses 7,089,561 5,728,263 5,635,000 1,250,000 2,627,000 1,198,000
Restructuring costs -- 3,303,998 -- -- -- --
Merger costs -- -- -- 2,563,573 -- --
------------ ----------- ----------- ----------- ----------- -----------
42,337,441 41,317,535 32,585,000 14,015,573 14,393,922 6,211,679
------------ ----------- ----------- ----------- ----------- -----------
Income (Loss) from
Operations (6,857,834) (4,075,457) (1,571,000) (3,408,982) (1,047,819) 752,008
Interest Expense 687,083 246,000 338,000 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income
Taxes (7,544,917) (4,321,457) (1,909,000) (3,408,982) (1,047,819) 752,008
Benefit (Provision) For
Income Taxes (382,798) (4,233) (4,512) 26,000 352,000 (294,000)
------------ ----------- ----------- ----------- ----------- -----------
Net Income (Loss) from
Continuing Operations (7,927,715) (4,325,690) (1,913,512) (3,382,982) (695,819) 458,008
Income (Loss) from
Discontinued Operations (825,000) 1,511,293 2,052,139 366,000 1,120,000 (2,335,000)
Loss on Disposal of
Discontinued Operations (3,237,588) -- -- -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $(11,990,303) $(2,814,397) $ 138,627 $(3,016,982) $ 424,181 $(1,876,992)
============ =========== =========== =========== =========== ===========
Income (Loss) from
Continuing
Operations Per Share
(Basic & Diluted) $ (1.01) $ (0.63) $ (0.30) $ (0.63) $ (0.14) $ 0.12
============ =========== =========== =========== =========== ===========
Income(Loss) Per Share
(Basic & Diluted) $ (1.53) $ (0.41) $ 0.02 $ (0.56) $ 0.08 $ (0.50)
============ =========== =========== =========== =========== ===========
Shares Used in Computing
Earnings
(Loss) Per Share:
Basic and Diluted 7,842,518 6,888,104 6,371,651 5,400,785 5,040,731 3,765,467
Consolidated Balance Sheet
Data:
Cash $ 69,493 $ 302,279 $ 1,028,424 $ 363,000 $ 1,463,000 $ 4,988,000
Total assets 16,497,094 22,622,569 21,585,236 12,328,000 8,220,000 5,883,000
Long-term liabilities 35,630 4,397,299 4,866,775 244,000 250,000 5,000
Stockholders' equity
(deficiency) (3,573,793) 7,070,515 8,276,832 4,419,000 4,222,000 3,403,000
</TABLE>
Item 7. 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-K. All statements contained herein that are not historical facts,
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including, but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain debt, equity or other financing, and the Company's ability to generate
cash from operations, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties that
may cause the Company's actual results in future periods to differ materially
from forecasted results.
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>
Year Ended December 31
-------------------------
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Revenues:
Product 67.7% 74.9% 80.1%
Service 32.3 25.1 19.9
------ ----- -----
100.0 100.0 100.0
------ ----- -----
Costs and Expenses:
Cost of equipment sold 54.8 53.7 57.0
Cost of services provided 16.5 12.0 9.4
Sales and marketing expenses 28.0 21.0 20.5
General and administrative expenses 20.0 15.4 18.2
Restructuring costs -- 8.9 --
------ ----- -----
119.3 111.0 105.1
------ ----- -----
Loss from Operations (19.3) (11.0) (5.1)
Interest Expense (2.0) (0.7) (1.1)
------ ----- -----
Loss Before Income Taxes (21.3) (11.7) (6.2)
Provision for Income Taxes (1.1) (0.0) (0.0)
------ ----- -----
Net Loss from Continuing Operations (22.4) (11.7) (6.2)
Discontinued Operations (11.4) 4.1 6.6
------ ----- -----
Net Income (Loss) (33.8)% (7.6)% 0.4%
====== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------
Revenues
Total revenues for the twelve months ended December 31, 1999 decreased by
$1.8 million, or 5% to $35.5 million from $37.3 million in 1998. Product
revenues fell by $3.9 million, or 14%, to $24.0 million from $27.9 million in
the comparable period for 1998. The decrease in product revenues was primarily
the result of a liquidity crisis which began in September and extended to late
November which disrupted the Company's product supply and ability to fulfill
customer orders. Service revenues for the twelve months ended December 31, 1999
increased by $2.1 million, or 23%, to $11.5 million from $9.4 million in the
comparable period for 1998. The increase in service revenues was due primarily
to the growth in the installed customer base and bridging services.
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Costs and Expenses
Cost of equipment sold for 1999 decreased by $0.6 million, or 3%, to $19.4
million from $20.0 million in 1998. Cost of equipment sold as a percentage of
product revenue increased to 80.9% in 1999 from 71.6% in 1998. During the
fourth quarter of 1999, the Company recorded a $1.6 million inventory reserve
covering demonstration equipment, finished goods, and spare parts inventories.
Approximately 75% of the inventory reserve applied to demonstration equipment
which had not been sold by December 31, 1999. The remainder of the reserve
applied to certain finished goods and excess spare parts. Management believes
such reserves are adequate to reflect inventory at its net realizable value. It
is reasonably possible that a change in the estimate could occur in the near
term. In addition to the reserve causing the unfavorable year-to-year
comparison, equipment margins shrank as part of an industry-wide trend away from
large room systems to desktop systems and due to increased competition. Cost of
services provided for 1999 increased by $1.4 million, or 31%, to $5.9 million
from $4.5 million in 1998. Cost of services provided as a percentage of service
revenue increased to 51.1% in 1999 from 47.8% in 1998. Service margins decreased
as a result of adding personnel and bridging equipment to the cost base in
advance of increased installation and bridging revenues.
Selling and marketing expenses for 1999 increased $2.1 million, or 27%, to
$9.9 million from $7.8 million in 1998. Selling and marketing expenses as a
percentage of revenues increased to 28.0% in 1999 from 21.0% in 1998. The
increase in selling and marketing expenses was primarily due to higher sales
compensation and recruitment fees as a result of hiring additional sales
personnel ($1.2 million) and other operating expenses incurred as a result of
the increased number of sales offices ($0.9 million).
General and administrative expenses for 1999 increased by $1.4 million, or
24%, to $7.1 million from $5.7 million in 1998. General and administrative
expenses as a percentage of total revenues increased to 20.0% in 1999 from 15.4%
in 1998. The increase in general and administrative expenses was primarily due
to incurring an extraordinary amount of legal and consulting fees related to
managing the Company through its liquidity crisis and negotiations with its
bankers, trade creditors, and subordinated lenders ($0.8 million) and a $0.4
million accrual for employee retention bonuses.
The Company recorded a restructuring charge of $3.3 million during 1998.
The components of the restructuring charge were an impairment write-down of
goodwill of $1.5 million, employee termination costs of $1.1 million and other
costs of $0.7 million.
Interest expense for 1999 increased by $0.4 million, or 179%, to $0.7
million from $0.3 million in 1998. Interest expense as a percentage of total
revenues increased to 2.0% in 1999 from 0.7% in 1998. The increase in interest
expense was a result of writing off the unamortized balance of its line of
credit origination fee ($0.3 million) and one month of amortization of debt
issuance costs relating to the forbearance agreement and the subordinated debt
($0.2 million).
Loss from discontinued operations increased by $5.6 million from income of
$1.5 million in the year ended December 31, 1998 to a loss of $4.1 million in
the comparable period for 1999. Discontinued operations incurred an operating
loss of ($0.8) million for the year ended December 31, 1999 compared to
operating income of $1.5 million for the year ended December 31, 1998. The
primary factor driving the year-to-year decline in operating results were
significant commission rate cuts (30-40%) effected by the Regional Bell
Operating Companies in 1999. In addition, for the year ended December 31, 1999,
a $3.3 million loss on disposal of discontinued operations was recognized.
Net loss increased $9.2 million to a loss of $12.0 million in 1999 from a
loss of $2.8 million in 1998. Net loss as a percentage of revenues increased
<PAGE>
View Tech, Inc. Page 13
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to (33.8)% for 1999 compared to (7.6)% for 1998. Net loss per share increased to
a loss of $(1.53) for 1999 compared to loss per share of $(0.41) for 1998. The
weighted average number of shares outstanding increased to 7,842,518 for 1999
from 6,888,104 in 1998, primarily due to the full year impact of the issuance of
common stock through a private placement in November 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
- ---------------------------------------------------------------------
Revenues
Total revenues for the twelve months ended December 31, 1998 increased by
$6.2 million, or 20%, to $37.2 million from $31.0 million in 1997. The increase
in revenues was primarily related to the Company's nationwide expansion of its
videoconferencing business by opening new sales offices and hiring sales
personnel.
Costs and Expenses
Cost of equipment sold for 1998 increased by $2.3 million, or 13%, to $20.0
million from $17.7 million in 1997. Cost of equipment sold as a percentage of
product revenue increased slightly to 71.6% in 1998 from 71.2% in 1997. Cost of
services provided for 1998 increased by $1.6 million, or 53%, to $4.5 million
from $2.9 million in 1998. Cost of services provided as a percentage of service
revenue increased slightly to 47.8% in 1998 from 47.3% in 1997. Cost of
equipment sold and services provided as a percentage of product sales and
service revenues decreased to 65.7% in 1998 from 66.4% in 1997. The percentage
decrease is primarily related to an increase in service business. Service
business provides a higher profit margin than equipment sales.
Selling and marketing expenses for 1998 increased by $1.5 million, or 23%,
to $7.8 million from $6.3 million in 1997. Selling and marketing expenses as a
percentage of revenues remained constant at 21% in 1998 and in 1997. The
increase in selling and marketing expenses was primarily due to higher sales
compensation as a result of hiring additional sales personnel ($1.1 million) and
other operating expenses incurred as a result of the increased number of sales
offices ($0.4 million).
General and administrative expenses for 1998 increased by $0.1 million, or
2%, to $5.7 million from $5.6 million in 1997. General and administrative
expenses as a percentage of total revenues decreased to 15.4% in 1998 from 18.2%
in 1997. The percentage decrease was primarily due to synergies achieved as part
of the integration and restructuring efforts.
The Company recorded a restructuring charge of $4.2 million during 1998
($3.3 million related to video operations and $0.9 million related to
discontinued operations) which resulted in an increase in loss from operations
of $2.5 million from a loss of $1.6 million in 1997 to a loss of $4.1 million in
1998.
The significant components of the restructuring charge were an impairment
write-down of goodwill of $1.5 million, employee termination costs of $1.8
million and facility exit costs of $0.2 million.
Interest expense decreased by $92,000 to $246,000 in 1998 compared to
$338,000 in 1997. This decrease was primarily due to lower borrowings related to
video related credit facilities and capital lease obligations.
Discontinued operations realized a profit for the twelve months ended
December 31, 1998 of $1.5 million, a decrease of $.6 million, or 26%, from the
$2.1 million profit realized for the comparable period in 1997. Two factors
driving the decline in operating results were the declining results of the
outside network sales business (commission rate cuts by RBOC's)
<PAGE>
View Tech, Inc. Page 14
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and the increase in general management costs of the discontinued operation (no
synergies achieved from the mergers/acquisitions).
Net income decreased by $2.9 million to a loss of $2.8 million in 1998 from
net income of $.1 million. Net loss as a percentage of revenues was (7.6)% for
1998 compared to net income as a percentage of revenues of 0.4% for 1997. Net
income (loss) per share decreased to a loss of $(0.41) for 1998 compared to
income per share of $0.02 for 1997. The weighted average number of shares
outstanding increased to 6,888,104 for 1998 from 6,371,651 in 1997, primarily
due to the private placement completed in November 1998.
Liquidity and Capital Resources
View Tech has financed its recent operations with the proceeds from private
placements of equity securities, bank debt, secured interim loans, and vendor
credit arrangements
Effective November 21, 1997, the Company entered into a Credit Agreement
(the "Agreement") with Imperial Bank and BankBoston (now Fleet Bank). On August
5, 1999, the Company received a Notice of Event of Default and Notice of
Reservations of Rights from the lenders. On November 23, 1999, the Company
signed a six-month forbearance agreement with the Banks to be implemented in
conjunction with an infusion of $2.0 million in subordinated debt. During the
term of the forbearance period, the maximum aggregate amount of the facility
will be equal to $4.75 million subject to certain collateral base adjustments.
Subject to certain default provisions, which include the failure to pay certain
obligations, the departure of the current, interim chief executive officer and
president, or a particular material event concerning the Company, the
forbearance would continue until May 31, 2000. Interest on the sum owed is set
at the prime rate plus 2-1/2%. Interest on any over-advances is the prime rate
plus 4%. At December 31, 1999, the interest rate was 11.0%. At December 31,
1999, amounts utilized were $4,363,527.
In return, the lenders received the following consideration: the exercise
price of the lenders' existing 80,000 warrants, which are exercisable until
November 21, 2004, was changed to $1.63 from $4.50. The change was effective as
of the date of the forbearance agreement. Under the forbearance agreement, the
lenders will also receive a supplemental fee of $150,000.
The Company, as noted above, secured interim loans totaling $2.0 million,
of which $1.5 million came from individual investors, and $0.5 million in credit
from one of the Company's suppliers. The individual investors and the supplier
are to be re-paid in seven months with interest at the prime rate plus 2-1/2%
for the $2 million in loans. In return, the Company pledged all of its assets,
in a subordinated position to the Banks, to the subordinated lenders. Further,
the Company issued 925,000 shares of 5-year exercisable warrants to these
subordinated lenders, on a proportional basis of each investor's investment,
with an exercise price of $1.625 a share.
The Company does not believe it has available funds to meet the Company's
working capital requirements for the foreseeable future. It has incurred a net
loss of $11,990,303 during the year ended December 31, 1999, a working capital
deficit of $6,172,005, and stockholders' deficiency of $3,573,793 at December
31, 1999. In addition, the Company is in default of the repayment terms of its
obligations related to a credit agreement and has obtained relief through a
forbearance agreement which expires on May 31, 2000. The Company has
subordinated debt of $2,000,000 due on June 30, 2000. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern and as a consequence, the report of the independent certified public
accountants for the year ended December 31, 1999 includes a going concern
explanatory paragraph.
Management's plan is to complete the proposed merger with ACUC. However,
there is no assurance that the merger will be ultimately consummated.
Accordingly, the consolidated financial statements do not include any
<PAGE>
View Tech, Inc. Page 15
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adjustments related to the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities or any other adjustments
that might be necessary should the Company be unable to continue as a going
concern.
Cash Flow
Net cash used by operating activities for the twelve months ended December
31, 1999 was $1.3 million, primarily caused by the Company's net loss of $12.0
million and a decrease in accrued restructuring charges of $0.9 million,
partially offset by a decrease in accounts receivable of $1.2 million, an
increase in accounts payable of $1.7 million, an increase in deferred revenue of
$1.2 million and an increase in payroll and other accrued liabilities of $1.0
million. The non cash and non operating components of net loss include
depreciation and amortization of $1.1 million, a $1.6 million reserve on
inventory and the loss on discontinued operations of $4.1 million.
Net cash provided by discontinued operations for the twelve months ended
December 31, 1999 was $0.1 million.
Net cash used by investing activities for the twelve months ended December
31, 1999 was $0.9 million, relating to the purchase of office furniture and
computer and bridging equipment.
Net cash provided by financing activities for the twelve months ended
December 31, 1999 was $1.8 million, resulting from the issuance of subordinated
debt ($1.5 million) and common stock ($.3 million).
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133") establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. Statement of Financial Accounting
Standards No. 137 deferred the effective date of FAS 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
does not expect adoption of SFAS 133 to have a material effect, if any, on its
financial position, results of operations, or cash flows.
Year 2000
The statements under this caption include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Many existing computer software programs and operating systems were designed
such that the year 1999 was the maximum date that they would be able to process
accurately. The failure of the Company's computer software programs, operating
systems and product to process the change in calendar year from 1999 to 2000 had
the potential to result in system malfunctions or failures. In the conduct of
operations, the Company relies on equipment and commercial computer software
primarily provided by independent vendors. In anticipation of potential system
malfunctions or failures the Company undertook an assessment of its
vulnerability to the so-called "Year 2000 issue" with respect to equipment,
computer systems and product and with respect to vendors, and other parties with
whom it conducts a substantial amount of business.
To address the Year 2000 issue, management initiated a company-wide program
to prepare the Company's computer systems and applications for the year 2000, as
well as to identify critical third parties and major vendors, such as
PictureTel, Polycom, and VTEL Corporation; and other parties such as Landlords
and utility companies, which the Company relies upon to operate its business to
assess their readiness for the year 2000. The Company's main computer
applications include Platinum accounting software, Clientele customer service
<PAGE>
View Tech, Inc. Page 16
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software, and OMS, the Company's internally developed Order Management System.
Individual desktop computers are running on a Windows 95, 98 or NT operating
system and include desktop applications such as Microsoft Office 97. The
Company uses Dell personal computers on most desktops.
For the year ended December 31, 1999, the Company spent a total of
approximately $50,000 in connection with addressing the Year 2000 problem and
does not anticipate any significant future costs. These costs were largely due
to upgrading software systems and equipment. The Company's policy is to expense
maintenance and modification costs and capitalize hardware and software
purchases and upgrades. The Company funded the foregoing from operating cash
flow.
Since the change in the calendar from 1999 to 2000, the Company has not
experienced any system malfunctions or failures. In addition, the Company has
not experienced any loss in revenues due to the Year 2000 problem. Based on
information to date, the Company is not aware of Third Parties with whom it
conducts a significant amount of business that have experienced a material Year
2000 readiness issue affecting their ability to operate their business or raise
adequate revenue to meet their contractual obligations to us. Although prepared
to commit the necessary resources to enforce its contractual rights in the event
any third parties with whom it conducts business encounter Year 2000 issues, the
Company does not expect to incur any additional amounts to continue to monitor
and prevent Year 2000 malfunctions and failures because it does not expect to
encounter any material Year 2000 issues. Consequently, the Company does not feel
that a contingency plan is necessary.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains borrowings under a forbearance agreement with
Imperial Bank and Fleet Bank and under a subordinated debt agreement which are
not subject to material market risk exposure except for such risks relating to
fluctuations in market interest rates. The carrying value of these borrowings
approximates fair value since they bear interest at a floating rate based on the
"prime" rate. There are no other material qualitative or quantitative market
risks particular to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VIEW TECH, INC.
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements
Reports of Independent Certified Public Accountants ................. 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 ........ 19
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997 ................................. 20
Consolidated Statements of Stockholders' Equity (Deficiency) for the
years ended December 31, 1999, 1998 and 1997....................... 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997 ................................. 22
Notes to Consolidated Financial Statements........................... 23
<PAGE>
View Tech, Inc. Page 17
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
View Tech, Inc.
We have audited the accompanying consolidated balance sheet of View Tech, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of View Tech, Inc. and
subsidiaries at December 31, 1999, and the results of their operations and their
cash flows for the year ended December 31, 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company has incurred a net loss of $11,990,303
during the year ended December 31, 1999, and, as of December 31, 1999, has a
working capital deficit of $6,172,005 and stockholders' deficiency of
$3,573,793. In addition, the Company is in default of the repayment term of its
obligations related to a credit agreement and has obtained relief through a
forbearance agreement which expires on May 31, 2000. The Company has
subordinated debt of $2,000,000 due on June 30, 2000. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ BDO Seidman, LLP
Los Angeles, California
March 10, 2000
<PAGE>
View Tech, Inc. Page 18
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
View Tech, Inc.:
We have audited the accompanying consolidated balance sheets of View Tech, Inc.
and subsidiaries as of December 31, 1998 and 1997, and related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of View
Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results of its
operations and its consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1999
<PAGE>
View Tech, Inc. Page 19
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VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 69,493 $ 302,279
Accounts receivable, net of reserves of $355,000 and
$219,659, respectively 9,201,821 10,594,863
Inventory 2,824,578 4,223,390
Other current assets 1,510,947 509,797
Net assets of discontinued operations 256,412 4,455,351
------------ -----------
Total Current Assets 13,863,251 20,085,680
PROPERTY AND EQUIPMENT, net 2,223,505 1,948,662
OTHER ASSETS 410,338 588,227
------------ -----------
$ 16,497,094 $22,622,569
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,836,416 $ 6,644,930
Current portion of long-term debt 4,510,322 130,794
Subordinated debt 2,000,000 --
Accrued payroll and related costs 1,275,531 956,982
Deferred revenue 3,160,183 1,940,579
Accrued restructuring costs 80,449 1,026,496
Other current liabilities 1,172,356 454,974
------------ -----------
Total Current Liabilities 20,035,257 11,154,755
------------ -----------
LONG-TERM DEBT 35,630 4,397,299
COMMITMENTS AND CONTINGENCIES ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
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 7,921,135 and
7,722,277 shares at December 31, 1999 and 1998, respectively 792 772
Additional paid-in capital 16,607,566 15,261,591
Accumulated deficit (20,182,151) (8,191,848)
------------ -----------
Total Stockholders' Equity (Deficiency) (3,573,793) 7,070,515
------------ -----------
$ 16,497,094 $22,622,569
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
View Tech, Inc. Page 20
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VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Product $ 24,024,119 $27,902,078 $24,851,000
Service 11,455,488 9,340,000 6,163,000
------------ ----------- -----------
35,479,607 37,242,078 31,014,000
------------ ----------- -----------
Costs and Expenses:
Costs of equipment sold 19,438,124 19,991,620 17,689,000
Cost of services provided 5,853,940 4,463,000 2,915,000
Sales and marketing expenses 9,955,816 7,830,654 6,346,000
General and administrative expenses 7,089,561 5,728,263 5,635,000
Restructuring costs -- 3,303,998 --
------------ ----------- -----------
42,337,441 41,317,535 32,585,000
------------ ----------- -----------
Loss from Operations (6,857,834) (4,075,457) (1,571,000)
Interest Expense 687,083 246,000 338,000
------------ ----------- -----------
Loss Before Income Taxes (7,544,917) (4,321,457) (1,909,000)
Provision for Income Taxes (382,798) (4,233) (4,512)
------------ ----------- -----------
Loss from Continuing Operations (7,927,715) (4,325,690) (1,913,512)
Discontinued Operations:
Income (Loss) from Discontinued Operations (825,000) 1,511,293 2,052,139
Loss on Disposal of Discontinued Operations (3,237,588) -- --
------------ ----------- -----------
Net Income (Loss) $(11,990,303) $(2,814,397) $ 138,627
============ =========== ===========
Loss from Continuing Operations
Per Share (Basic and Diluted) $ (1.01) $ (0.63) $ (0.30)
============ =========== ===========
Income (Loss) from Discontinued Operations
Per Share (Basic and Diluted) $ (0.52) $ 0.22 $ 0.32
============ =========== ===========
Earnings (Loss) Per Share (Basic and Diluted) $ (1.53) $ (0.41) $ 0.02
============ =========== ===========
Shares Used In Computing Earnings (Loss)
Per Share:
Basic and diluted 7,842,518 6,888,104 6,371,651
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
View Tech, Inc. Page 21
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VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION> Total
Additional Stockholders'
Common Stock Paid-In Accumulated Equity
------------------
Shares Amount Capital Deficit (Deficiency)
--------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 5,666,814 $ 567 $ 9,934,236 $ (5,516,078) $ 4,418,725
Issuance of common stock 736,662 74 3,172,333 -- 3,172,407
Shares issued under stock
option plan 113,648 11 56,914 -- 56,925
Shares issued in connection with
exercise of warrants 72,447 7 364,853 -- 364,860
Issuance of warrants in connection
with new banking relationship -- -- 125,288 -- 125,288
Net income -- -- -- 138,627 138,627
--------- ------ ----------- ------------ -------------
Balance, December 31, 1997 6,589,571 659 13,653,624 (5,377,451) 8,276,832
Issuance of common stock 985,872 98 1,554,973 -- 1,555,071
Shares issued under stock
option plan 146,584 15 51,744 -- 51,759
Shares issued in connection with
exercise of warrants 250 -- 1,250 -- 1,250
Net loss -- -- -- (2,814,397) (2,814,397)
--------- ------ ----------- ------------ -------------
Balance, December 31, 1998 7,722,277 $ 772 $15,261,591 $ (8,191,848) $ 7,070,515
Shares issued under stock option
and purchase plans 198,858 20 264,570 -- 264,590
Issuance of warrants in connection
with subordinated debt -- -- 1,081,405 -- 1,081,405
Net loss -- -- -- (11,990,303) (11,990,303)
--------- ------ ----------- ------------ -------------
Balance, December 31, 1999 7,921,135 $ 792 $16,607,566 $(20,182,151) $ (3,573,793)
========= ====== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
View Tech, Inc. Page 22
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VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(11,990,303) $(2,814,397) $ 138,627
Adjustments to reconcile net income(loss)
to net cash used by operating activities:
Depreciation and amortization 626,483 559,213 472,245
Non-cash restructuring expenses -- 1,491,392 --
Reserve on accounts receivable 164,307 179,000 51,480
Reserve on inventory 1,602,000 163,020 --
Discontinued operations 4,062,588 (1,511,293) (2,052,139)
Changes in assets and liabilities:
Accounts receivable 1,228,735 (1,705,815) (3,218,242)
Inventory (203,188) (2,282,287) (333,373)
Other assets 258,144 (205,747) (77,695)
Accounts payable 1,691,486 975,586 302,449
Accrued merger costs -- -- (1,160,495)
Accrued restructuring charges (946,047) 1,026,496 --
Accrued payroll and related costs 318,549 (58,364) 1,015,346
Deferred revenue 1,219,604 853,418 1,087,161
Other current liabilities 717,382 134,886 (530,367)
------------ ----------- -----------
Net cash used by operating activities: (1,250,260) (3,194,892) (4,305,003)
------------ ----------- -----------
Net cash provided (used) by discontinued
operations 136,351 2,417,469 (2,578,090)
------------ ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (901,326) (868,430) (856,063)
------------ ----------- -----------
Cash Flows from Financing Activities:
Net borrowings under lines of credit 148,208 (218,896) 63,200
Issuance of subordinated debt 1,500,000 -- --
Issuance of debt -- -- 4,622,061
Repayments of capital lease and
other debt obligations (130,349) (469,476) --
Issuance of common stock, net 264,590 1,608,080 3,719,480
------------ ----------- -----------
Net cash provided by financing activities: 1,782,449 919,708 8,404,741
------------ ----------- -----------
Net Increase (Decrease) in Cash (232,786) (726,145) 665,585
Cash, beginning of period 302,279 1,028,424 362,839
------------ ----------- -----------
Cash, end of period $ 69,493 $ 302,279 $ 1,028,424
============ =========== ===========
Supplemental Disclosures:
Operating activities reflect:
Interest paid $ 467,296 $ 478,102 $ 352,808
============ =========== ===========
Income taxes paid $ 53,286 $ 105,471 $ 7,640
============ =========== ===========
Non-cash financing activity:
Warrants issued in connection with
subordinated debt recorded as debt
issuance costs in other current assets $ 1,081,405 $ -- $ --
============ =========== ===========
Subordinated debt issued in satisfaction
of accounts payable $ 500,000 $ -- $ --
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
View Tech, Inc. Page 23
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View Tech, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE BUSINESS
View Tech, Inc.("the Company"), a Delaware corporation, commenced
operations in July 1992 as a California corporation. In June 1995, the Company
completed an initial public offering of common stock. In November 1996, View
Tech merged with USTeleCenters, Inc. ("UST"), a Massachusetts corporation, 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. ("NSI"), a Vermont corporation
headquartered in Burlington, Vermont. On February 18, 2000, the Company sold its
subsidiaries, UST and NSI, to OC Mergerco 4, Inc. ("OCM") as further described
in Note 6 and has treated these entities as discontinued operations. Upon the
sale of UST and NSI, the Company operates in one segment, video product sales
and service.
The Company entered into a merger agreement in December 1999 with All
Communications, Inc. ("ACUC"), a regional competitor of the Company
headquartered in the State of New Jersey. The merger is pending subject to
regulatory approval and stockholder approval. On completion of the merger, each
outstanding share of ACUC common stock will be converted into the right to
receive 3.3 shares of fully paid and non-assessable Company common stock, $.0001
par value per share. Based on the number of currently outstanding shares of
ACUC and Company stock as of January 11, 2000, assuming that all outstanding
options and warrants of the two companies are exercised, the shareholders of
ACUC, will own approximately 74.5% of the outstanding common stock following
consummation of the merger. There is no assurance that the merger will
ultimately be consummated.
The Company is a single source provider of voice, video and data equipment,
network services and bundled telecommunications solutions for business customers
from its 19 offices throughout the United States. The Company has equipment
distribution partnerships with Accord Telecommunications, Cisco Systems, Ezenia,
FVC.com, Intel Corporation, Lucent Technologies, Madge Networks, PictureTel
Corporation, Polycom, Inc., Tandberg, VCON, and VTEL Corporation.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION. The Company sells both products and services. Product
revenue consists of revenue from the sale of video communications and telephone
equipment and is recognized at the time of shipment. Service revenue is derived
from services rendered in connection with the sale of new systems and from
services rendered with respect to previously installed systems. Services
rendered in connection with the sale of new systems consist of engineering
services related to system integration, installation, technical training, user
training, and one-year parts-and-service warranty. The majority of these
services are rendered at or prior to installation, and all of the revenue is
recognized when services are rendered. Revenue related to extended warranty
contracts is deferred and recognized over the life of the extended warranty
period.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
PER SHARE DATA. Basic earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock
<PAGE>
View Tech, Inc. Page 24
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outstanding. Diluted earnings per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
the effect of the potentially dilutive shares.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with a maturity not exceeding three months at the date of purchase
to be cash equivalents.
INVENTORIES. Inventories are accounted for on the basis of the lower of
cost or market. Cost is determined on a FIFO (first-in, first-out) basis.
Included in inventory is demonstration equipment held for resale in the ordinary
course of business. The Company generally sells its video demonstration
equipment after the six-month holding period required by its primary equipment
supplier.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and
include improvements that significantly add to utility or extend useful lives.
Depreciation of property and equipment is provided using straight-line and
accelerated methods over estimated useful lives ranging from one to ten years.
Expenditures for maintenance and repairs are charged to expense as incurred.
INTANGIBLES. Cost in excess of the fair value of net assets of purchased
businesses (goodwill) is amortized using the straight-line method over 15 years,
its estimated useful life.
LONG-LIVED ASSETS. The Company assesses the realizability of long-lived
assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets To Be Disposed of. SFAS No. 121
requires, among other things, that an entity review its long-lived assets
including intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. During 1998,
the Company recorded charges of approximately $1,465,000 relating to the
impairment of goodwill that is included in restructuring costs in the
consolidated statements of operations. During 1999, the Company recorded charges
of $2.9 million relating to impairment of goodwill and fixed assets in
connection with the sale of its discontinued operations.
INCOME TAXES. The Company accounts for income taxes using SFAS No. 109,
Accounting for Income Taxes, which requires a liability approach to financial
accounting and reporting for income taxes.
Deferred taxes are recognized for timing differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
CONCENTRATION OF RISK. Items that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable and
the dependence on a major equipment vendor.
Accounts receivable subject the Company to potential credit risk with
customers. The Company performs on-going credit evaluations of its customers'
financial condition but does not require collateral.
Approximately 29% of the Company's revenues are attributable to the sale of
equipment manufactured by PictureTel. Termination or change of the Company's
business relationship with PictureTel, disruption in supply, failure of this
supplier to remain competitive in quality, function or price, or a determination
by such supplier to reduce reliance on independent distributors such as the
Company could have a materially adverse effect on the Company.
COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) is comprised of
net income (loss) and all changes to stockholders' equity except those due to
investments by owners and distributions to owners. Other than net income
<PAGE>
View Tech, Inc. Page 25
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(loss), the Company does not have any other components of comprehensive income
(loss) for each of the years ended December 31, 1999, 1998, and 1997.
NEW ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133") establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. Statement
of Financial Accounting Standards No. 137 deferred the effective date of FAS 133
to be effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company does not expect adoption of SFAS 133 to have a material
effect, if any, on its financial position, results of operations, or cash flows.
NOTE 3 - GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred a net loss of $11,990,303 during
the year ended December 31, 1999, and at December 31, 1999 has a working capital
deficit of $6,172,005, and stockholders' deficiency of $3,573,793. In addition,
the Company is in default of the repayment terms of its obligations related to a
credit agreement and has obtained relief through a forbearance agreement which
expires on May 31, 2000 (Note 10). The Company has subordinated debt of
$2,000,000 due on June 30, 2000. These conditions raise substantial doubt about
the ability of the Company to continue as a going concern.
Management's plan is to complete the proposed merger with ACUC (Note 1).
However, there is no assurance that the merger will be ultimately consummated.
Accordingly, the consolidated financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities or any other adjustments
that might be necessary should the Company be unable to continue as a going
concern.
NOTE 4 -- BUSINESS COMBINATION
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the Regional Bell Operating Companies
("RBOCs"). The transaction was accounted for as a pooling of interests in which
USTeleCenters' shareholders exchanged all of their outstanding shares and
options for View Tech common stock and options, respectively. USTeleCenters'
shareholders and option holders (upon exercise of their options) received
2,240,976 shares of View Tech common stock and options to purchase 184,003
shares of View Tech common stock. The value of the transaction was
approximately $16.5 million. In connection with the acquisition, the Company
issued 24,550 shares in January 1997 to certain investment bankers.
NOTE 5 -- ACQUISITIONS
On November 13, 1997, the Company, through its wholly-owned subsidiary,
acquired the net assets of Vermont Telecommunications Network Services, Inc.
("NSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase
Agreement, (the "Agreement"), the Company acquired ownership of the assets and
assumed certain liabilities of NSI, effective November 1, 1997. The aggregate
purchase price for the net assets of NSI consisted of (i) $2,000,000 cash paid
at the closing, (ii) a promissory note in the original amount of $250,000,
bearing interest at the rate of 8% per annum subsequently paid in full on
November 21, 1998, (iii) a contingent note in the original amount of $250,000,
bearing interest at the rate of 8% per annum and payable in full on November 21,
1999, and (iv) $400,000 paid by the issuance of 62,112 shares of the Company's
common stock. The contingent note in the amount of $250,000 is due
<PAGE>
View Tech, Inc. Page 26
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only if NSI, achieves EBIT, as defined, equal to or greater than $700,000 for
the year ended December 31, 1998. In addition, View Tech is required to pay an
additional amount equal to 40% of NSI's EBIT, as defined, in excess of $900,000
per calendar year commencing January 1, 1998 and ending December 31, 2000. The
calculation of NSI's EBIT for the year ended December 31, 1998, was conclusively
determined under the Agreement in December 1999 and a liability was calculated.
This liability of $180,000 was assumed as part of the sale of UST and NSI by OC
Mergerco 4, Inc. (see Note 6). The cash portion of the purchase price of
$2,000,000 was paid utilizing the Company's bank line of credit. The excess of
the acquisition price over the net assets acquired of approximately $2,708,000
was accounted for as goodwill and was being amortized over 15 years until
December 1999 when an impairment loss of $2.1 million related to this goodwill
was recognized as further described in Note 6. NSI, based in Burlington,
Vermont, is an authorized agent selling Bell Atlantic services in Vermont, New
Hampshire, upstate New York and western Massachusetts. The acquisition has been
accounted for as a purchase transaction and, accordingly, the accompanying
financial statements include the accounts and transactions of NSI since the
acquisition date.
NOTE 6 -- DISCONTINUED OPERATIONS
On May 7, 1999, the Company executed a letter of intent to sell the assets
of UST and NSI. However, by the end of September 1999, the negotiations with the
original purchaser relative to said sale were terminated without completing the
sale. The Company, in September 1999, initiated discussions with alternative
parties which ultimately resulted in finding a buyer for UST and NSI. On
February 18, 2000, the Company completed the sale of its subsidiaries to OC
Mergerco 4, Inc. The Company sold net assets of UST and NSI as of December 31,
1999 to OC Mergerco 4, Inc. for cash consideration amounting to $182,147 and
shares of the Common Stock of the Purchaser's parent company, Pentastar
Communications, Inc. which the Company valued at $74,265. This sale resulted in
a loss of $2.9 million. OC Mergerco 4, Inc. also assumed a $180,000 commitment
to Zoltan Keve, the former principal of NSI, related to certain agreements
signed in conjunction with the Company's purchase of NSI in November 1997 (see
Note 5). In addition, the Company assumed the liability of funding the cash
needs of the discontinued operation for the period January 1, 2000 to February
18, 2000 which amounted to $0.3 million. This liability was accrued at December
31, 1999 in the Company's financial statements.
The balance sheets, statements of operations, and statements of cash flows
have been restated to show the net effect of the discontinuance of the network
business. Assets and liabilities to be disposed of consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable.................................. $ 1,807,000 $ 3,497,000
Other current assets................................. 566,400 571,000
Property and equipment............................... 280,012 1,600,000
Goodwill............................................. -0- 2,300,000
Other assets......................................... 84,000 100,351
Current liabilities.................................. (2,316,000) (3,380,000)
Long-term liabilities................................ (165,000) (233,000)
----------- -----------
TOTAL............................................. $ 256,412 $ 4,455,351
=========== ===========
</TABLE>
Results of operations of UST and NSI are as follows:
<PAGE>
View Tech, Inc. Page 27
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<TABLE>
<CAPTION>
Twelve Months Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................................ $12,453,000 $20,739,988 $18,930,306
Cost and expenses.................................... 13,071,000 18,947,102 16,849,164
----------- ----------- -----------
Operating income (loss).............................. (618,000) 1,792,886 2,081,142
Interest expense..................................... 207,000 281,593 29,003
----------- ----------- -----------
(825,000) 1,511,293 2,052,139
Disposal loss and accrual
of future cash obligations.......................... 3,237,588 -- --
----------- ----------- -----------
Net income (loss).................................... $(4,062,588) $ 1,511,293 $ 2,052,139
=========== =========== ===========
</TABLE>
In accordance with EITF 87-24, interest expense has been allocated to
discontinued operations based on the debt that could be identified as
specifically attributable to those operations. No general corporate overhead
has been allocated to these operations.
NOTE 7 -- Restructuring and Other Costs
During 1998, the Company recorded a restructuring and asset impairment
charge of $4.2 million ($3.3 million related to continuing operations and $.9
million related to discontinued operations). The significant components of the
restructuring charge are as follows:
Impairment write-down of goodwill
related to previous acquisitions.............. $1,465,000
Employee termination costs...................... 1,793,000
Facility exit costs............................. 157,000
Write-down of Property and Equipment............ 27,000
Travel related expenses......................... 140,000
Consulting expenses............................. 322,000
Other costs..................................... 297,013
----------
$4,201,013
==========
The impairment write-down of goodwill relates to the Company's
determination that there was no future expected cash flows from two acquisitions
that represented $1,465,000 of goodwill. The employee termination costs relate
to approximately 33 employees and officers of the Company. The Company closed
one of its outside network sales offices. The Company also terminated its
internet service provider reseller agreement. In connection with these
decisions, the Company recorded employee termination, facility exit related
expense, and a write-down of leasehold improvements. In addition, the Company's
decision to eliminate duplicative corporate overhead functions resulted in
employee termination and travel related expenses. The Company utilized the
services of consultants in connection with the plan of restructuring.
The total cash impact of the restructuring amounted to $2,709,621 of which
$80,449 is included in the accompanying balance sheet at December 31, 1999. The
Company anticipates the balance of the restructuring costs will be paid by
February 29, 2000.
The following table summarizes the activity against the restructuring
charge:
Restructuring Charge............................ $ 4,201,013
Cash paid................................... (2,629,172)
Non-cash expenses........................... (1,491,392)
------------
Balance, December 31, 1999...................... $ 80,449
============
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View Tech, Inc. Page 28
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NOTE 8 -- INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
DEMONSTRATION EQUIPMENT.............. $ 2,562,723 $1,664,031
Finished goods....................... 1,301,902 2,261,965
Spare parts.......................... 724,973 460,414
----------- ----------
4,589,598 4,386,410
Reserve.............................. (1,765,020) (163,020)
----------- ----------
$ 2,824,578 $4,223,390
=========== ==========
</TABLE>
During the fourth quarter of 1999, the Company recorded an additional $1.6
million inventory reserve covering demonstration equipment, finished goods and
spare parts inventories. Approximately 75% of the reserve applied to
demonstration equipment which had not been resold by December 31, 1999. The
remainder of the reserve applied to certain finished goods and excess spare
parts. Management believes such reserves are adequate to reflect inventory at
its net realizable value. It is reasonably possible that a change in the
estimate could occur in the near term.
NOTE 9 -- PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Computer equipment and software ..... $ 1,569,619 $ 1,216,462
Equipment............................ 1,508,353 1,138,756
Furniture and fixtures............... 570,777 469,001
Leasehold improvements............... 409,252 332,456
----------- -----------
4,058,001 3,156,675
Less accumulated depreciation ....... (1,834,496) (1,208,013)
----------- -----------
$ 2,223,505 $ 1,948,662
=========== ===========
</TABLE>
Property and equipment under capital lease obligations, net of accumulated
amortization, at December 31, 1999 and 1998 were $300,840 and $365,064,
respectively.
NOTE 10 -- SUBORDINATED DEBT
The Company secured interim loans totaling $2.0 million, of which $1.5
million came from individual investors and $0.5 million in credit from one of
the Company's suppliers (Note 11). The individual investors and the supplier are
to be re-paid in seven months with interest at the prime rate plus 2-1/2% for
the $2.0 million in loans. In return, the Company pledged all of its assets in a
junior position to the Banks, to the subordinated lenders. Further, the Company
issued 925,000 5-year exercisable warrants to the subordinated lenders, on a
proportional basis of each investor's investment with an exercise price of
$1.625 a share (Note 11).
NOTE 11 -- LONG TERM DEBT
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million credit agreement (the "Agreement") with Imperial Bank and BankBoston
(now Fleet Bank) effective November 21, 1997. The Agreement provided for three
separate loan commitments consisting of (i) a Facility A Commitment of up to $7
million for working capital purposes; (ii) a Facility B Commitment of up to $5
million, which expired on December 1, 1998; and (iii) a Facility C Commitment of
up to $3 million for merger/acquisition activities. Amounts under the Agreement
are collateralized by the assets of the Company. Funds available under the
Agreement vary from time to time depending on many variables such as the amount
of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as
such terms are defined in the Agreement.
<PAGE>
View Tech, Inc. Page 29
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On August 5, 1999, the Company received a Notice of Event of Default and
Notice of Reservations of Rights from the lenders. The Facility C Commitment
was terminated. On November 23, 1999, the Company signed a six-month
forbearance agreement to be implemented in conjunction with an infusion of $2.0
million in subordinated debt (Note 10). During the term of the forbearance
period, the maximum aggregate amount of the Facility A facility will be equal to
$4.75 million subject to collateral base adjustments. Subject to certain default
provisions, which include the failure to pay certain obligations, the departure
of the current, interim chief executive officer and president, or a particular
material event concerning the Company, the forbearance continues until May 31,
2000. Interest on the sum owed on Facility A is set at the prime rate plus
2-1/2%. Interest on any over-advances is the prime rate plus 4%. At December 31,
1999, the interest rate on Facility A was 11%. At December 31, 1999, amounts
utilized under the Facility were $4,363,527.
In return, the lenders received the following consideration: the exercise
price of the lenders' existing 80,000 warrants, which are exercisable until
November 21, 2004, was changed to $1.63 from $4.50 as of the date of the
forbearance agreement. Under the forbearance agreement, the lenders will also
receive a supplemental fee of $150,000. The fee was deferred and is being
amortized to expense over the forbearance period.
The change of the exercise price of the lenders' existing warrants and the
issuance of warrants to the subordinated lenders at $1.63 and $1.625,
respectively required the recognition of $1,081,405 in deferred debt issuance
costs and additional paid-in capital. The fair value of the warrants at the
repricing/issuance dates was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life - 1 year;
volatility - 74.08%; dividend yield -0.00%; interest rate - 6.00%. Deferred debt
issuance costs of $901,171 were included in other current assets at December 31,
1999.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
-------- ----------
<S> <C> <C>
LINE OF CREDIT (NOTE 9)................. $4,363,527 $4,215,319
CAPITAL LEASE OBLIGATIONS............... 182,425 312,774
--------- ---------
4,545,952 4,528,093
LESS CURRENT MATURITIES................. 4,510,322 130,794
--------- ---------
$ 35,630 $4,397,299
========= =========
</TABLE>
Capital Lease Obligations
The Company leases certain equipment and furniture under capital lease
arrangements. The following is a schedule of future minimum lease payments
<PAGE>
View Tech, Inc. Page 30
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required under capital leases, together with their present value as of December
31, 1999:
Years Ending December 31,
2000.................................... $ 156,331
2001.................................... 33,596
2002.................................... 5,613
---------
Net minimum lease payments.............. 195,540
Less amount representing interest....... 13,115
---------
Present value of net minimum
lease payments......................... $ 182,425
=========
The current portion due under capital lease obligations at December 31,
1999 and 1998 was $146,795 and $130,794, respectively.
Note Payable to Former NSI Owner
In connection with the Company's acquisition of NSI, part of the purchase
price consisted of a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum which was paid in full on November 21,
1998.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases various facilities under operating leases expiring through
2003. Certain leases require the Company to pay increases in real estate taxes,
operating costs and repairs over certain base year amounts. Lease payments for
the years ended December 31, 1999, 1998, and 1997, were approximately
$1,219,000, $908,000, and $859,000, respectively.
Minimum future rental commitments under non-cancelable operating leases are
as follows:
Years Ending December 31,
2000 ................................... $1,047,894
2001 ................................... 891,566
2002 ................................... 705,155
2003 and thereafter .................... 922,464
----------
$3,567,079
==========
The Company has been named as a defendant in employee-related lawsuits or
claims before administrative boards filed by former employees of UST and/or NSI.
The Company is vigorously defending itself against such matters and does not
expect the outcome to have a material adverse impact on its financial position,
results of operations or cash flow.
NOTE 13 -- COMMON AND PREFERRED STOCK
COMMON STOCK. In November 1996, the Company increased the number of shares
of common stock authorized for issuance from 10,000,000 to 20,000,000 and
changed the par value of its stock from $0.01 to $0.0001 per share.
WARRANTS AND OPTIONS. Included in the public stock offering in June 1995,
was the sale of 575,000 warrants to the public. All warrants were exercisable at
$5.00 per share for a period of two years commencing one year after the
effective date of the registration statement. All unexercised warrants expired
on June 15, 1998.
<PAGE>
View Tech, Inc. Page 31
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Upon consummation of the public offering, the Company issued the
underwriter 120,000 warrants to purchase common stock of the Company at an
exercise price of $6.75 or 135% of the public offering price per share. Such
warrants may be exercised at any time during the period of five years commencing
June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants
at an exercise price of $6.918 per warrant or 138% of the public offering price.
Each warrant is exercisable into one share of common stock at a price of $6.918
per share for a three-year period commencing on June 15, 1995. These warrants
expired on June 15, 1998.
In connection with the Company's credit agreement, the Company issued
common stock warrants for the purchase of 80,000 shares of the Company's common
stock. During 1998, the exercise price of the warrants was reduced to $4.50 per
share. The exercise price was further reduced to $1.63 per share in connection
with the forbearance agreement signed on November 23, 1999. The warrants are
exercisable until November 21, 2004.
PRIVATE OFFERINGS. In the first quarter of 1997, the Company completed a
private placement with Telcom Holding, LLC, a Massachusetts limited liability
company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts
corporation. Telcom purchased (i) 650,000 shares of Common Stock and (ii)
Common Stock Purchase Warrants exercisable at $6.50 per share of the Company to
purchase up to 325,000 shares of Common Stock. The Company issued additional
Common Stock Purchase Warrants to certain managing members of Telcom for the
purchase of 162,500 shares of Common Stock at a purchase price per share of
$6.50.
On August 18, 1998, the Company received a notice (the "Initial Notice")
from NASDAQ that it did not meet the applicable listing requirements as of June
30, 1998 because it did not have $4,000,000 in net tangible assets and therefore
its Common Stock was subject to delisting. The Company sought immediate action
to rectify this situation through the private placement of 826,668 shares of the
Company's Common Stock to accredited investors. The offering was completed on
November 10, 1998 and raised $1.2 million. Subsequently, in February, 1999,
NASDAQ informed the Company that it was closing its de-listing proceedings.
However, in or about January 2000, NASDAQ has informed the Company that it must
re-apply for NASDAQ national market listing after the merger with ACUC and that
it may not be approved to remain on the NASDAQ national market exchange.
PREFERRED STOCK. The Company has 5,000,000 shares of authorized Preferred
Stock. In November 1996, the Company changed the par value of the preferred
stock from $0.01 to $0.0001 per share. The Preferred Stock may be issued in one
or more series with such rights and preferences as may be determined by the
Board of Directors. No shares of preferred stock have been issued.
EMPLOYEE STOCK PURCHASE PLAN. The Company has an Employee Stock Purchase
Plan (the "Purchase Plan") under which a maximum of 500,000 shares of Common
Stock, (pursuant to the Amendment of the Purchase Plan approved by the Board of
Directors of June 3, 1998), may be purchased by eligible employees.
Substantially all full-time employees of the Company are eligible to participate
in the Purchase Plan. Shares are purchased through accumulation of payroll
deductions (of not less than 1% nor more than 10% of the employees compensation,
as defined not to exceed 2,000 shares per purchase period) for the number of
whole shares, determined by dividing the balance in the employee's account by
the purchase price per share which is equal to 85% of the fair market value of
the Common Stock, as defined. In 1999 and 1998, 114,504 and 159,204 shares were
purchased under this Plan. The Company, in February 2000, terminated the
Employee Stock Purchase Plan program.
STOCK OPTION PLAN. In July 1994, the Company began granting stock options
to key employees, consultants and certain non-employee directors. The options
are intended to provide incentive for such persons' service and future services
<PAGE>
View Tech, Inc. Page 32
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to the Company thereby promoting the interest of the Company and its
stockholders.
The Company currently maintains four stock option plans that generally
require the exercise price of options to be not less than the estimated fair
market value of the stock at the date of grant. Options vest over a maximum
period of four years and may be exercised in varying amounts over their
respective terms. In accordance with the provisions of such plans, all
outstanding options become immediately exercisable upon a change in control, as
defined, of the Company. The Company has authorized an aggregate of 2,322,000
shares of common stock to be available under all the current option plans.
On October 20, 1998, the Company's Board of Directors authorized the
repricing of certain options previously issued to employees. In accordance with
APB Opinion 25, which the Company applies in accounting for its stock option
plans, no additional compensation was recognized on the repricing of these
options since the fair value of the common stock on this date was less than or
equal to the revised exercise price of the options.
On April 16, 1999 the Board of Directors authorized the Company to transfer
all unused or returned as unexercised stock options in the 1995 Stock Option
Plan to be transferred into the 1997 Stock Incentive Plan. The stockholders
approved this transfer at the annual meeting on or about May 25, 1999. An S-8
was filed with the Commission to reflect this transfer into the 1997 Stock
Incentive Plan.
On April 16, 1999, the Board of Directors authorized an additional 400,000
stock options to be added to the 1997 Special Non-Officer Stock Option Plan. An
S-8 filing to reflect that addition of stock options is expected to be filed no
later than April 2000.
On or about November 10, 1999, in an addendum to the October 8, 1999
employment contract among the Company, Nightingale & Associates and S. Douglas
Hopkins, the Company agreed to provide stock options in the amount of 195,000 to
S. Douglas Hopkins or his designees. The stock options are to be immediately
vested upon registration and can be exercised over five years from the date of
the grant. The strike or exercise price of the stock option award is $1.75,
which was the fair market value on October 8, 1999 and which amount was above
fair market value of the stock as of November 10, 1999. The Company also
provided additional compensation to Mr. Hopkins or his designees which can be,
and is now expected to be provided in the nature of 156,000 shares of common
stock at the fair market value when Mr. Hopkins satisfactorily completes his
tenure as Chief Executive Officer and President of the Company. The stock
options and stock grant, however, have not, at present been registered with the
Commission in any S-8 or other filing at this time.
Activity in the plans on a consolidated basis is summarized as follows:
<TABLE>
<CAPTION>
Wtd. Avg.
Number of Price Exercise
Shares per Share Price
--------- ------------- --------
<S> <C> <C> <C>
Options Outstanding at January 1, 1997 1,041,605 .250 - 7.250 $4.09
Granted 617,500 3.000 - 5.812 3.21
Exercised (113,535) .250 - 6.250 0.50
Canceled (154,500) 5.812 - 7.625 6.80
--------- ------------- -----
Options Outstanding at December 31, 1997 1,391,070 .250 - 7.625 3.69
Granted 669,960 2.250 - 4.940 2.91
Exercised (146,584) .250 - 5.000 0.35
Canceled (481,130) 3.000 - 7.630 4.83
--------- ------------- -----
Options Outstanding at December 31, 1998 1,433,316 .250 - 7.630 3.21
Granted 1,273,850 1.500 - 2.250 1.89
Exercised (65,700) .250 - 3.000 1.24
Canceled (784,838) 1.750 - 7.625 3.44
--------- ------------- -----
Options Outstanding at December 31, 1999 1,856,628 .250 - 7.500 $2.34
========= ============= =====
</TABLE>
<PAGE>
View Tech, Inc. Page 33
- --------------------------------------------------------------------------------
At December 31, 1999, 741,971 options were exercisable at a weighted
average exercise price of $2.87 per share. The options outstanding at December
31, 1999 have a weighted average remaining contractual life of 7.93 years.
The range of exercise prices for options outstanding and options
exercisable at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ---------------------
Weighted
Average
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
--------------- ----------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.250 - $2.250 1,160,736 7.87 $1.71 205,736 $1.04
2.375 - 2.375 200,000 9.00 2.38 150,000 2.38
2.500 - 2.500 140,310 8.96 2.50 123,098 2.50
2.688 - 2.875 20,000 8.69 2.76 3,500 2.77
3.000 - 3.000 148,582 7.59 3.00 90,137 3.00
3.062 - 6.250 78,000 7.37 3.97 60,500 4.24
6.375 - 6.375 55,000 6.48 6.38 55,000 6.38
6.625 - 6.625 50,000 5.54 6.63 50,000 6.63
7.500 - 7.500 4,000 5.87 7.50 4,000 7.50
--------------- --------- ---- ----- ------- -----
$0.250 - $7.500 1,856,628 7.93 $2.34 741,971 $2.87
</TABLE>
The Company applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the Company's stock option plan been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Net Income (Loss)
As reported $(11,990,303) $(2,814,397) $ 138,627
Pro forma (12,584,803) (3,164,942) (8,531)
Earnings (Loss) Per Share
(Basic and Diluted)
As reported $ (1.53) $ (0.41) $ 0.02
Pro forma (1.60) (0.46) (0.00)
</TABLE>
The weighted average fair value at the date of grant for options granted
during the years ended December 31, 1999, 1998, and 1997, was $1.23, $2.91, and
$4.83, respectively. The fair value of options at the grant date was estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life - 5.0 years; volatility - 74.08%; dividend yield -
0%; interest rate - 6.0%.
NOTE 14 -- EARNINGS (LOSS) PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share. This statement established standards for computing
and presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock.
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income (loss) by
the diluted weighted average number of common and potentially dilutive shares
outstanding during the period. The weighted average number of potentially
dilutive shares has been determined in accordance with the treasury stock
method.
<PAGE>
View Tech, Inc. Page 34
- --------------------------------------------------------------------------------
The reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding 7,842,518 6,888,104 6,371,651
Dilutive effect of options and warrants -- -- --
--------- --------- ---------
Weighted average shares outstanding 7,842,518 6,888,104 6,371,651
========= ========= =========
</TABLE>
Options and warrants to purchase 3,593,128, 2,334,316, and 2,222,056 shares
of common stock were outstanding during the years ended December 31, 1999, 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 from
continuing operations and their effect would have been antidilutive.
NOTE 15 -- PENSION PLAN
The Company participates in 401(k) retirement plans for its employees.
Employer contributions to the 401(k) plans for the years ended December 31,
1999, 1998, and 1997 were approximately $85,000, $102,000, and $105,000,
respectively.
NOTE 16 -- PROVISION FOR INCOME TAXES
The income tax provisions for the years ended December 31, 1999, 1998, and
1997 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Current:
Federal...................... $ -- $ -- $ --
State....................... 6,322 4,233 4,512
-------- ------ ------
6,322 4,233 4,512
Deferred:
Federal..................... 293,766 -- --
State....................... 82,710 -- --
-------- ------ ------
376,476 -- --
-------- ------ ------
Total......................... $382,798 $4,233 $4,512
======== ====== ======
</TABLE>
Total income tax expense differs from the expected tax expense (computed by
multiplying the federal statutory income tax rate of approximately 35, 34 and 34
percent for the periods ended December 31, 1999, 1998, and 1997 to income before
income taxes) as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit $ 2,640,720 $ 1,469,295 $ 649,060
State tax benefit, net of federal benefit 452,995 265,251 117,174
Valuation allowance (3,314,463) (1,602,381) (820,777)
Utilization, net operating losses -- -- --
</TABLE>
<PAGE>
View Tech, Inc. Page 35
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Other, net (162,050) (136,398) 50,031
--------- ---------- --------
Total $(382,798) $ (4,233) $ (4,512)
========= ========== ========
</TABLE>
The Company has recorded a valuation allowance against its deferred tax
asset. The valuation allowance relates primarily to certain deferred tax assets
for which realization is uncertain. The primary components of temporary
differences which give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax asset:
Reserves and allowances $ 977,858 $ 259,965
Compensation and benefits 299,062
Net operating loss carry forward 2,622,310 677,551
Goodwill 564,232 587,959
Deferred tax valuation allowance (4,463,462) (1,148,999)
----------- -----------
Total $ -- $ 376,476
=========== ===========
</TABLE>
Goodwill represents the benefit attributed to the difference between the
Company's book and tax basis of the goodwill impairment charge discussed in Note
4.
At December 31, 1999, the Company has net operating loss (NOL) carry-
forwards of approximately $7,108,316 and $5,345,152 for federal and state income
tax purposes, respectively. The federal NOL has a carryover period of 20 years
and is available to offset future taxable income, if any, through 2019, and may
be subject to an annual statutory limitation.
NOTE 17 -- RELATED PARTY TRANSACTIONS
In October 1997, the Company purchased five (5) videoconferencing systems
from the former CEO and Director of the Company, for a purchase price of
$162,500. The price the Company paid for these units was less than the wholesale
price that the Company would otherwise pay for the same units. The units were
subsequently sold by the Company at a profit.
In March 1999, the Company's Board of Directors approved an investment of
$100,000 in an entity named Concept 5, an information technology services
company. William Shea, a Board member of the Company, is one of the Board
members of Concept 5. This fact was disclosed to the Company's Board at the
time of the Board's unanimous vote to invest said sum into Concept 5. The
investment is carried at cost and is included in Other Assets on the
accompanying balance sheets.
NOTE 18 -- VALUATION ACCOUNTS AND RESERVES
<PAGE>
View Tech, Inc. Page 36
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance
Beginning of Revenues and Accounts at End of
Period Expenses Charged Off Period
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended --
December 31, 1997 $ 35,756 $ 51,480 $ 7,236 $ 80,000
December 31, 1998 80,000 179,000 39,341 219,659
December 31, 1999 219,659 164,307 28,966 355,000
Inventory reserve:
Year ended -
December 31, 1997 $ -0- $ -0- $ -0- $ -0-
December 31, 1998 -0- 163,020 -0- 163,020
December 31, 1999 163,020 1,602,000 -0- 1,765,020
</TABLE>
NOTE 19 - SUBSEQUENT EVENT
On February 18, 2000, the Company completed the sale of its subsidiaries,
UST and NSI, to OC Mergerco 4, Inc. (Note 6)
ITEM 9. CHANGE IN ACCOUNTANTS
As stated in the Form 8-K the Company filed on February 29, 2000, the
Company changed its outside independent auditors from Arthur Andersen, LLP to
BDO Seidman, LLP. The purpose of this change in outside independent auditors was
due to the impending merger and not for any reason related to disagreements with
Arthur Andersen, LLP or to the audit opinions which they issued.
<PAGE>
View Tech, Inc. Page 37
- --------------------------------------------------------------------------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item is hereby incorporated by
reference from the Registrant's definitive Proxy Statement for the period ended
December 31, 1999, which Proxy Statement will be filed with the Securities and
Exchange Commission on or before the end of April 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the period ended December
31, 1999, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the period ended December
31, 1999, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the period ended December
31, 1999, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2000.
<PAGE>
View Tech, Inc. Page 38
- --------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. List of documents filed as part of this Report:
1. Financial Statements included in Item 8:
- Reports of Independent Certified Public Accountants
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
- Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
- Notes to Consolidated Financial Statements
No schedules are included because the required information is inapplicable
or is presented in the consolidated financial statements or related notes
thereto.
2. Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as part
of this Annual Report.
B. Reports on Form 8-K
- None.
<PAGE>
View Tech, Inc. Page 39
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VIEW TECH, INC.
Date: March 30, 2000 By: /s/ Christopher Zigmont
-----------------------
Christopher Zigmont
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant as of this 30th day of March 2000 in the capacities and on the dates
indicated.
Signature Title
- --------- -----
/s/ Paul C. O'Brien Chairman
- --------------------------
Paul C. O'Brien
/s/ S. Douglas Hopkins Chief Executive Officer, Director
- --------------------------
S. Douglas Hopkins (Principal Executive Officer)
/s/Christopher Zigmont CFO
- --------------------------
Christopher Zigmont (Principal Financial and Accounting Officer)
/s/ Franklin A. Reece, III Director
- --------------------------
Franklin A. Reece, III
/s/ William J. Shea Director
- --------------------------
William J. Shea
/s/ Robert F. Leduc Director
- --------------------------
Robert F. Leduc
/s/ David F. Millet Director
- --------------------------
David F. Millet
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Asset Purchase Agreement, dated as of November 13, 1997, as amended by
Amendment No. 1 to the Asset Purchase Agreement, dated as of November
21, 1997, by and among Vermont Network Services Corporation, Vermont
Telecommunications Network Services, Inc. and Zoltan B. Keve. (1)
2.2 Amendment No. 1 to Asset Purchase Agreement, dated as of November 21,
1997, by and among Vermont Network Services Corporation, Vermont
Telecommunications Network Services, Inc. and Zoltan B. Keve. (1)
3.1 Certificate of Incorporation of the Company, as amended by Agreement
and Plan of Merger, dated November 27, 1996. (2)
3.2 Bylaws of the Company. (2)
4.1 Warrant Agreement dated as of June 28, 1995 between the Company and
U.S. Stock Transfer Corporation. (3)
4.2 Form of Warrant between the Company and Telcom Holding, LLC. (2)
10.1 Dealer Agreement between the Company and PictureTel Corporation dated
as of March 30, 1995. (4)
10.2 Employment Agreement between the Company and Franklin A. Reece, III
dated as of November 29, 1996. (2)
10.3 Severance and Consulting Agreement by and between, View Tech, Inc. and
John W. Hammon, dated April 22, 1997. (5)
10.4 Tenth Amendment to Revolving Credit, Term Loan and Security Agreement
between USTeleCenters, Inc. and The First National Bank of Boston,
dated March 31, 1997.(5)
10.5 Employment Agreement between the Company and William M. McKay, dated
as of December 9, 1996. (6)
10.6 1995 Stock Option Plan, as amended. (7)
10.7 Amendment to the Dealer Agreement between the Company and PictureTel
Corporation, dated as of August 1, 1995. (3)
10.8 1997 Stock Incentive Plan. (8)
10.9 Promissory Note, dated November 21, 1997, of Vermont Network Services
Corporation, payable to Vermont Telecommunications Network Services,
Inc. in the amount of $250,000. (1)
10.10 Contingent Note, dated November 21, 1997, of Vermont Network Services
Corporation, payable to Vermont Telecommunications Network Services,
Inc. in the amount of $250,000. (1)
10.11 Subordination Agreement, dated as of July 26, 1996, by and among the
Company, the First National Bank of Boston, BancBoston Leasing, Inc.,
and USTeleCenters, Inc. (9)
10.12 Sublease Agreement dated as of October 11, 1996, by and between
Atlantic Steel Industries, Inc. and the Company, (together with prime
Lease Agreement dated as of November 1, 1993 between Atlantic Steel
Industries, Inc. and the State of California Public Employees'
Retirement System). (2)
1 of 4
<PAGE>
10.13 Common Stock and Common Stock Purchase Warrants Agreement, dated as of
December 31, 1996, by and between the Company and Telcom Holding, LLC, a
Massachusetts limited liability company. (2)
10.14 Letter Agreement, dated as of December 31, 1996, from the Company to Paul
C. O'Brien and Mark P. Kiley. (2)
10.15 Common Stock Purchase Warrant, dated as of November 21, 1997, for the
purchase of 60,000 shares of Common Stock of View Tech, Inc., a Delaware
corporation, by Imperial Bank, a California banking corporation, on or
before November 21, 2004 at a purchase price of $7.08 per share. (10)
10.16 Common Stock Purchase Warrant, dated as of November 21, 1997, for the
purchase of 20,000 shares of Common Stock of View Tech, Inc., a Delaware
corporation, by BankBoston, N.A., a national banking association, a
participating lender, on or before November 21, 2004 at a purchase price
of $7.08 per share. (10)
10.17 Revolving Note with City National Bank, dated February 20, 1996. (11)
10.18 Loan Agreements with Power-Data Services, Inc., dated February 15, 1996
and March 22, 1996. (11)
10.19 Credit Agreement, dated as of November 21, 1997, among, USTeleCenters,
Inc., a Delaware corporation, View Tech, Inc. a Delaware corporation, and
Imperial Bank, a bank organized under the laws of the State of
California. (10)
10.20 Security Agreement, dated as of November 21, 1997, among USTeleCenters,
Inc., a Delaware corporation, View Tech, Inc., a Delaware corporation,
and Imperial Bank, a bank organized under the State of California. (10)
10.21 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). (17)
10.22 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).
(17)
10.23 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). (17)
10.24 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. (17)
10.25 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. (17)
2 of 4
<PAGE>
10.26 Memorandum of Understanding by and between the Company and former Chief
Executive Officer, Robert G. Hatfield, effective April 17, 1998. (15)
10.27 Severance and Consulting Agreement by and between, View Tech, Inc. and
Robert G. Hatfield, dated April 17, 1998. (16)
10.28 Separation Agreement, effective August 31, 1998, by and between View
Tech, Inc. and David A. Kaplan, the former Chief Financial Officer. (17)
10.29 General Release between, David A. Kaplan, former Chief Financial Officer
and View Tech, Inc. (17)
10.30 Settlement Agreement, Consulting Agreement & General Release, effective
February 28, 1999, by and between View Tech, Inc. and Calvin M. Carrera,
former Vice President and General Manager. (12)
10.31 Agreement and Plan of Merger by and between View Tech, Inc. and All
Communications Corporation, dated December 27, 1999. (18)
10.32 Amendment No. 1 to Agreement and Plan of Merger, dated February 29, 2000
10.33 Settlement Agreement and Mutual Release by and between View Tech, Inc.
and Ali Inanilan, dated March 14, 2000
10.34 Asset Purchase Agreement by and between View Tech, Inc. and
OC Mergerco 4, Inc. dated as of December 31, 1999
21.1 Subsidiaries of the Company. (12)
23.1 Consent of Arthur Andersen LLP. (12)
23.2 Consent of BDO Seidman, LLP. (12)
27 Financial Data Schedule. (12)
99.1 View Tech, Inc. Special Non-Officer Stock Option Plan. (13)
99.2 Form of Special Non-Officer Stock Option Agreement. (13)
99.3 Form of Addendum to Stock Option Agreement; Involuntary Termination
Following Corporate Transaction. (13)
99.4 Form of Stock Option Agreement. (14)
99.5 Form of Addendum to Stock Option Agreement: Involuntary Termination
Following Corporate Transaction. (14)
99.6 Form of Addendum to Stock Option Agreement: Involuntary Termination
Following Change in Control. (14)
99.7 1997 Non-Employee Directors Stock Option Plan. (14)
99.8 Form of Automatic Stock Option Agreement. (14)
99.9 Employee Stock Purchase Plan. (14)
99.10 Form of Stock Purchase Agreement under the Employee Stock Purchase Plan.
(14)
- ----------------------
(1) Filed as an exhibit to the Company's Report on Form 8-K dated December 5,
1997, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(Registration No.333-19597) and incorporated herein by reference.
3 of 4
<PAGE>
(3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(registration No.33-91232), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Transitional Report on Form 10-K for
the six month period ended December 31, 1997, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended September 30, 1995, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-13459) and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1996, and incorporated herein by reference.
(10) Filed as an exhibit to the Company's Report on Form 8-K dated February 5,
1998, and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended March 31, 1996, and incorporated herein by
reference.
(12) Filed herewith.
(13) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on November 4, 1997, and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on June 30, 1997, and incorporated herein by reference.
(15) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1998, and incorporated herein by reference.
(16) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended June 30, 1998, and incorporated herein by reference.
(17) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1998, and incorporated herein by
reference.
(18) Filed as an exhibit to the Company's Registration Statement on form S-4
(No. 333-95145) filed on January 21, 2000, and incorporated herein by
reference.
4 of 4
<PAGE>
EXHIBIT 10.32
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO.1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
made and entered into as of February 29, 2000, by and between All Communications
Corporation, a New Jersey corporation ("ACC") and View Tech, Inc., a Delaware
corporation ("VTI").
W I T N E S S E T H:
--------------------
WHEREAS, ACC and VTI have entered into that certain Agreement and Plan of
Merger dated as of December 27, 1999 (the "Merger Agreement") providing for the
merger of ACC with and into VTI (the "Merger") upon the terms and subject to the
conditions set forth therein; and
WHEREAS, ACC and VTI have reinstated and reaffirmed that the Merger
Agreement is in full force and effect; and
WHEREAS, ACC and VTI desire to adjust certain of the terms of the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to, and on the terms and conditions herein set
forth, the parties hereto agree as follows:
1. Final Termination Date. The definition of "Final Termination Date" set
----------------------
forth in Article I of the Merger Agreement is amended by deleting the date
"February 29, 2000" and substituting therefor the following "April 30, 2000;
provided, however, that the Final Termination Date shall be 5:00 PM New York
City time on March 6, 2000 if VTI has not received at least $2,000,000 in gross
proceeds from the exercise of outstanding warrants to purchase VTI Common Stock
on or before March 6, 2000"
2. Extension of Escrow Period. The period during which the Escrow Agent
--------------------------
shall hold the Escrow Shares under the Escrow Agreement shall be increased to
eighteen months and Section 3.5(b) of the Merger Agreement is amended by
deleting the number "twelve" in the third sentence thereof and substituting
therefor the number "eighteen."
3. Extension of Closing Date. The Closing or Closing Date referred to in
-------------------------
Section 3.8 of the Merger Agreement shall occur no later than April 30, 2000 and
Section 3.8 of the Merger Agreement is amended by deleting the date "February
29, 2000" and substituting therefor the following "April 30, 2000; provided,
however,that VTI and ACC may, by mutual written consent, extend such date"
4. Removal of Certain Conditions to Obligations of ACC. Section 7.3(g) of
---------------------------------------------------
the Merger Agreement relating to a private placement of not less than $4,000,000
of equity securities of the Surviving Corporation as a condition of ACC's
obligation to consummate the transactions contemplated under the Merger
Agreement is hereby deleted in its entirety.
5. VTI Indemnification Obligations. VTI's indemnification obligations
-------------------------------
under Section 9.2(a) of the Merger Agreement shall be extended to cover certain
risks in connection with
<PAGE>
VTI's sale of USTelecenters, Inc. and Vermont Network Services Corporation to OC
Mergerco 4, Inc. on February 18, 2000 and Section 9.2(a) is hereby amended to
read in its entirety as follows:
"(a) VTI hereby agrees to indemnify ACC, its successors and assigns, and
the officers, directors, affiliates, employees, controlling persons and agents
of the foregoing (collectively, the "ACC Indemnified Persons"), and hold each of
them harmless against and in respect of any and all debts, obligations and other
liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to become due or otherwise), monetary
damages, fines, fees, penalties, interest obligations, deficiencies, losses and
expenses (including without limitation amounts paid in settlement, interest,
court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) (collectively, "Damages") incurred or suffered by any of them by
reason of (i) a breach of any of the representations or warranties made by VTI
in this Agreement; (ii) the nonperformance (whether partial or total) of any
covenants or agreements made by VTI in this Agreement; (iii) the value of the
Pentastar Communications, Inc. stock received by VTI in connection with the sale
of USTelecenters, Inc. ("UST") and Vermont Network Services Corporation ("VNSC")
to OC Mergerco 4, Inc. ("OCM") under that certain Asset Purchase Agreement dated
as of December 31, 1999 among UST, VNSC, OCM and VTI (the "UST/VNSC Purchase
Agreement") being less than One Hundred Fifty Thousand Dollars ($150,000.00) at
the Termination Date (as defined in the Escrow Agreement (based upon the trading
price for the five day period ending on the Termination Date); and (iv) any
payments by VTI (or Wire One upon closing of the Merger Agreement) with respect
to any of the Excluded Liabilities (as set forth under Section 2.3 of the
UST/VNSC Purchase Agreement; provided, however, that VTI shall not have any
-------- -------
liability under any of the foregoing clauses (i) and (ii) unless the aggregate
of all Damages relating thereto for which VTI would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to $50,000; and provided,
--------
further, that for purposes of determining the amount of Damages under said
- -------
clauses for the breach of any representation, warranty or covenant in this
Agreement that contains a materiality qualifier, such representation, warranty
or covenant shall be deemed breached where the Damages relating thereto,
individually or in the aggregate, are in excess of $20,000 (which Damages, once
such $20,000 threshold has been surpassed, shall be included in full in
determining whether the aggregate amount of Damages exceeds the $50,000 amount
set forth in the next preceding proviso)."
6. Miscellaneous. Capitalized terms not defined herein shall have the
-------------
meanings given to such terms in the Merger Agreement. Except as expressly
modified hereby, the Merger Agreement and the other agreements entered into
thereunder or contemplated thereby shall continue in full force and effect.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement. This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in accordance with
the laws of the State of Delaware without giving effect to any choice of law
rule that would cause the application of the laws of any jurisdiction other than
the internal laws of the State of Delaware to the rights and duties of the
parties.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
ALL COMMUNICATIONS CORPORATION
By:___________________________
Name:
Title:
VIEW TECH, INC.
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.33
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release is entered into as of March
14, 2000 by and among the following parties: ALI INANILAN, an individual, and
VIEW TECH, INC., a Corporation ("Company").
RECITALS
WHEREAS, ALI INANILAN has asserted the following claims against VIEW TECH,
INC.: (a) For reimbursement for losses associated with the sale of his
Massachusetts home; and (b) For the right to currently exercise his stock
options granted to him pursuant to the Company's 1997 Stock Incentive Plan and
to immediately sell the shares of the Company's common stock acquired upon
exercise of said stock options without violation of the registration
requirements of the Securities Act of 1993.
WHEREAS, VIEW TECH, INC. has asserted a claim for reimbursement pursuant to
Section 16(b) of the Securities Exchange Act of 1934 against ALI INANILAN; and
WHEREAS, the parties desire to settle and release those claims, and all
other claims, known or unknown, which they may have against one another on the
terms set forth herein below:
AGREEMENTS AND REPRESENTATIONS
NOW THEREFORE, for and in consideration of the recitals, the agreements and
other terms contained herein, and other good and valuable considerations the
receipt and sufficiency of, which are hereby acknowledged, the parties agree and
represent as follows:
1) In settlement of the Company's 16(b) claims, ALI INANILAN shall pay the
sum of Fifty-Eight Thousand, Five Hundred, Fifteen Dollars and Five Cents
($58,515.05) to VIEW TECH, INC. within 30 calendar days of the execution of this
Agreement.
2) VIEW TECH, INC. shall pay the sum of Fifty-Eight Thousand, Five Hundred,
Fifteen Dollars and Five Cents ($58,515.05) to ALI INANILAN within 30 calendar
days of the execution of this Agreement in settlement of ALI INANILAN'S claim
for reimbursement for losses associated with the sale of his Massachusetts
home.
3) VIEW TECH, INC. acknowledges and agrees that ALI INANILAN is currently
entitled to exercise his stock options for the purchase of 100,000 shares of the
Company's common stock at an exercise price of $1.75 per share, pursuant to the
terms of the 1997 Stock Incentive Plan.
Page 1 of 3
<PAGE>
4) VIEW TECH, INC. represents and acknowledges that said stock options were
granted pursuant to the terms of the 1997 Stock Incentive Plan and that said
shares of the company's common stock acquired upon exercise of said stock
options are covered by a currently effective S-8 Registration Statement filed
with the Securities and Exchange Commission.
5) ALI INANILAN shall have 30 calendar days from the date of execution of
this Agreement, to exercise his stock option shares for the purchase of the
company's stock options at $1.75 per share.
6) Except and save for the obligations created by this Settlement Agreement
and Mutual Release, ALI INANILAN does hereby release, cancel, forgive and
forever discharge VIEW TECH, INC. and its respective predecessors, heirs,
successors and assigns, and all of their current and former officers,
directors, partners and employees acting within the course and scope of their
employment, from any and all actions, claims, demands, damages, obligations, and
liabilities of any kind or nature whatsoever, including but not limited to
claims of breach of contract, breach of fiduciary duty, fraud or negligence,
whether known or unknown, whether suspected or not, which have arisen, or may
have arisen or shall arise in the future by any reason as a result of any past
activity, and ALI INANILAN does specifically waive any claim or right to assert
any cause of action or alleged cause of action or claim or demand which has been
released hereby in any Court, arbitral body or other forum.
7) Except and save for the obligations created by this Settlement Agreement
and Mutual Release. VIEW TECH, INC. does hereby release, cancel, forgive and
forever discharge ALI INANILAN from any and all actions, claims, demands,
damages, obligations, and liabilities of any kind or nature whatsoever,
including but not limited to claims of breach of contract, breach of fiduciary
duty, fraud, or negligence, whether known or unknown, whether suspected or not,
which have arisen, or may have arisen or shall arise in the future by any reason
as a result of any past activity, and VIEW TECH, INC. does specifically waive
any claim or right to assert any cause of action or alleged cause of action or
claim or demand which has been released hereby in any Court, arbitral body or
other forum.
8) Each of the parties understands, acknowledges and agrees that this is a
full and final settlement and release applying to unknown or unanticipated
claims, and waives the provision Section 1542 of the California Civil Code which
---------------------
states:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Page 2 of 3
<PAGE>
9) Additional Terms:
a) This Settlement Agreement and Mutual Release is entered into by each of
the parties in the State of California and shall be construed, governed and
enforced in accordance with California law.
b) Each party understands, acknowledges and agrees that this Settlement
Agreement and Mutual Release is in compromise of a disputed claim, and therefore
is not intended, nor shall it be used or construed, as an admission of liability
on the part of any party hereto.
c) Each party represents that they have not transferred or assigned to
anyone else any of the claims being settled or released hereby, and agrees to
idemnify and hold harmless any party damaged as a result of this representation
not being true.
d) Each person signing this Settlement Agreement and Mutual Release in a
representative capacity, represents that he or she has the authority to execute
this Settlement Agreement and Mutual Release and bind the represented party
thereto on its behalf.
e) Each party shall take such further action as shall be reasonably
necessary and shall be requested by another party in writing to carry out the
terms of this Settlement Agreement and Mutual Release.
f) This Settlement Agreement and Mutual Release may be entered into in
counterparts, each of which shall be deemed an original.
EACH OF THE PARTIES AND SIGNATORIES ACKNOWLEDGE, AGREE AND REPRESENT THAT THEY
HAVE READ THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE, UNDERSTAND EACH AND
EVERY TERM IN THIS AGREEMENT AND ITS CONSEQUENCES, HAS CONSULTED WITH THEIR
ATTORNEYS WITH RESPECT TO THE MEANING AND CONSEQUENCES OF ENTERING INTO THIS
AGREEMENT, AND HAS HAD AN ADEQUATE OPPORTUNITY TO INVESTIGATE THE CLAIMS BEING
RELEASED.
Dated: March __, 2000
------------------------------
ALI INANILAN
VIEW TECH, INC.
Dated: March 14, 2000 By: /s/ S. Douglas Hopkins
-------------------------
Its: President & CEO
------------------------
Page 3 of 3
<PAGE>
EXHIBIT 10.34
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), is dated as of December
31, 1999, and is among OC Mergerco 4, Inc. ("Purchaser"), USTeleCenters, Inc.,
and Vermont Network Services Corporation (collectively, "Sellers") and View
Tech, Inc., owner, whether directly or indirectly, of all of the outstanding
capital stock of each Seller ("Parent").
W I T N E S S E T H :
WHEREAS, Sellers desire to sell, and Purchaser desires to purchase,
substantially all of the assets of Sellers;
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and on the terms and
subject to the conditions herein set forth, the parties hereto hereby agree as
follows:
ARTICLE I
Definitions
Section 1.1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Assets" shall mean, with respect to Sellers as of the
Effective Date, all of the business, properties and assets (real and personal,
tangible and intangible) of Sellers of every kind and wherever situated that are
owned by Sellers or in which either of them has any right or interest, including
without limitation and to the extent owned, its business as a going concern, its
goodwill and franchises; its trade-names (including "USTeleCenters", "Vermont
Network Services" and all derivatives thereof), trade-marks, trade-mark
registrations and trade-mark applications, service marks, service mark
registrations and service mark applications, copyrights, copyright registrations
and copyright applications, patents, patent registrations and patent
applications, processes, formulae, proprietary and technical information,
computer software, web sites, URLs, know-how, permits, licenses, trade secrets,
inventions and royalties (including all rights to sue for past infringement of
any of the foregoing); mailing permits; its leaseholds and other interests in
land; its inventory of finished goods, work-in-process and raw materials,
equipment and supplies; its subscription and other mailing lists; its cash,
money on deposit with banks and others, certificates of deposit, commercial
paper, stocks, bonds and other investments; its accounts receivable; rights
under its insurance policies and warranties; its causes of action, judgments,
claims and demands of whatever nature; its deferred charges, advance payments,
prepaid items, claims for refunds, rights of offset and credits of all kinds;
all credit balances of or inuring to Sellers under any state unemployment
compensation plan or fund; its rights under restrictive covenants and
obligations of present and former officers and employees and of
<PAGE>
individuals and corporations; its rights under partnership or joint venture
agreements or arrangements; its rights under all agreements assumed by
Purchaser; and its files, papers and records relating to the aforesaid business,
properties and assets; other than the Excluded Assets. To the extent that any
stockholder of either Seller owns any assets used in the business of such
Seller, such Seller shall arrange to have such assets transferred to such
Sellers, at no cost, immediately prior to the Closing, and the same shall be
included in the Assets.
(b) "Assigned Commitments" shall mean those Commitments listed
in the Disclosure Schedule pursuant to Section 3.9 that are denoted as
Commitments the rights and obligations under which are to be assigned to, and
assumed by, Purchaser. The parties agree that "Assigned Commitments" shall
include (but is not limited to) Sellers' settlement agreement with Zoltan Keve
dated December 23, 1999 and the payment of $180,000.00 due to Mr. Keve in
connection therewith.
(c) "Assumed Liabilities" shall mean those fixed and
determinable liabilities of Sellers listed on Exhibit A hereto, plus all
obligations assumed by Purchaser as Assigned Commitments.
(d) Intentionally omitted.
(e) "Cash Consideration" shall have the meaning set forth in
Section 2.4.
(f) "Closing" shall mean the closing of the transactions
contemplated by this Agreement, which shall occur at 5:00 p.m., Eastern time, on
the Closing Date at such place as the parties shall agree, or at such other time
and place as shall be mutually agreed in writing by the parties hereto.
(g) "Closing Date" shall mean February 18, 2000, or such other
date as the parties shall mutually agree to in writing.
(h) "Commitments" shall have the meaning set forth in Section
3.9.
(i) "Damages" shall have the meaning set forth in Section 8.1.
(j) "Disclosure Schedule" means the disclosure schedule attached
to this Agreement.
(j) "Effective Date" shall mean 12:01 a.m., January 1, 2000.
(k) "Environmental Laws" shall have the meaning set forth in
Section 3.19(a).
(l) "Excluded Assets" shall mean the following assets and
properties:
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<PAGE>
(i) The consideration delivered to Sellers pursuant to
this Agreement for the Assets sold, transferred, assigned, conveyed and
delivered pursuant hereto;
(ii) Sellers' right to enforce Purchaser's
representations, warranties and covenants hereunder and the obligations of
Purchaser to pay, perform or discharge the liabilities of Sellers assumed by
Purchaser pursuant to this Agreement and all other rights, including rights of
indemnification, of Sellers under this Agreement or any instrument executed
pursuant hereto;
(iii) Sellers' charter documents and all amendments
thereto, Bylaws, corporate seal, minute books, stock books and other corporate
records having exclusively to do with the corporate organization and
capitalization of Sellers;
(iv) any assets acquired or business conducted by Sellers
after the Closing Date;
(v) Sellers' books of account, but Sellers agree that
Purchaser shall have the right at Purchaser's request to inspect such books and
make copies thereof, subject to Seller's reasonable scheduling requirements.
(m) "Financial Statements" shall have the meaning set forth in
Section 3.5.
(n) "Material Adverse Effect" shall mean an event or series of
events the occurrence or non-occurrence of which results in damages, losses,
liabilities, or obligations, either singularly or in the aggregate within one
year, of $20,000 with respect to either the Sellers' financial condition or
results of operations or with respect to the Assets.
(o) "ordinary course of business" means the usual and customary
way in which Sellers has conducted its business in the past.
(p) "Proprietary Rights" shall have the meaning set forth in
Section 3.10(a).
(q) "Purchase Price" shall have the meaning set forth in Section
2.2(a).
(r) Intentionally omitted.
(s) "System" shall have the meaning set forth in Section 3.20.
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<PAGE>
ARTICLE II
Purchase and Sale
Section 2.1. Purchase and Sale of Assets. Subject to and upon the terms
and conditions contained herein, at the Closing, Sellers shall sell, transfer,
assign, convey and deliver to Purchaser, free and clear of all security
interests, liens, claims and encumbrances (other than the Assumed Liabilities)
and Purchaser shall purchase, accept and acquire from Sellers, the Assets.
Section 2.2. Purchase Price.
(a) Total Purchase Price. The total purchase price for the
Assets (the "Purchase Price") shall be One Hundred Eighty-Two Thousand One
Hundred Forty-Seven and 09/100 Dollars ($182,147.09) ("Cash Consideration"),
shares of Common Stock of Purchaser's parent company, Pentastar Communications,
Inc., having a value of One Hundred Thousand Dollars ($100,000.00) (based upon
the trading price for the five day period ending on the Closing Date) ("Stock
Consideration"), and the assumption of Assumed Liabilities.
(b) Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets as set forth in a schedule to be prepared by
Purchaser, after consultation with Sellers, as soon as practicable following
Closing, such allocation to be made as provided in Section 1060 of the Internal
Revenue Code of 1986 (the "Code"). Purchaser and Sellers shall each file Form
8594 (Asset Acquisition Statement Under Section 1060) on a timely basis
reporting the allocation of the Purchase Price consistent with the allocation in
such schedule. Purchaser and Sellers shall file on a timely basis any amendments
required to such Form 8594 as a result of a subsequent increase or decrease of
the Purchase Price. Purchaser and Sellers shall not take any position on their
respective income tax returns that is inconsistent with the allocation of the
Purchase Price set forth in such schedule. Purchaser and Sellers shall each
indemnify, defend and hold harmless the other party from and against any and all
claims, losses, liabilities, damages, costs and expenses that may be incurred as
a result of the failure to file Form 8594, the failure to file such Form 8594 on
a timely basis or the failure to file its income tax return on a basis as
required by this Section 7.4. This Section shall survive termination of this
Agreement.
(c) Division of Purchase Price. The Purchase Price shall be
divided between Sellers based upon the allocation set forth in Section 2.2(b).
Section 2.3. Excluded Liabilities. Except for the Assumed Liabilities,
Purchaser shall not assume or agree to pay, perform or discharge any liabilities
or obligations of Sellers, whether accrued, absolute, contingent or otherwise,
including without limitation liabilities based on or arising out of or in
connection with (a) any defects in products manufactured, rented or sold by
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<PAGE>
Sellers prior to the Effective Date, (b) any implied or express warranties
relating to such products, (c) any pension or other benefit liability relating
to Sellers' employees, (d) any federal, state, local or foreign income, sales,
real or personal property or other taxes, assessments, fees, levies, imposts,
duties, deductions or other charges of any nature whatsoever (including without
limitation interest and penalties) imposed by any law, rule or regulation that
are attributable or relating to the assets of the business of Sellers for any
periods ending on or before the Effective Date, or that may be applicable
because of Sellers' sale of their business or any of the Assets to Purchaser,
(e) any claims by any of Sellers' directors, officers, employees or stockholders
relating to this Agreement or its performance or consummation, or any claims by
any of them relating to or arising out of (i) their employment (including
without limitation any modification or termination thereof) by Sellers, (ii) any
employment contract with either Seller or (iii) any pension or other benefit
liabilities of Sellers, (f) any claims or conditions arising under or relating
to Environmental Laws or similar legal requirements attributable or relating to
the Assets (including, without limitation, the operation thereof) or the
business of Sellers prior to the Effective Date, (g) any unlicensed or other
unauthorized use by Sellers of any patented or unpatented invention, trade
secret, copyright, trademark or other intellectual property right, (h) any
dividend or other distribution declared or otherwise payable by Sellers, (i) any
note, account payable or other obligation of Sellers to any affiliate, or (j)
any fees payable to Concord Partners Ltd.
Section 2.4. Intentionally omitted.
Section 2.5. Intentionally omitted.
ARTICLE III
Representations and Warranties of Sellers and Parent
Sellers and Parent, jointly and severally, hereby represent and warrant
that the following are true and correct as of the date hereof and will be true
and correct as of the Closing Date.
Section 3.1. Organization and Good Standing; Qualification. Each Seller
is a corporation duly incorporated, validly existing and in good standing under
the laws of its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Each Seller is duly qualified and licensed to
do business and is in good standing in each state where the conduct of its
business requires it to be so qualified, except to the extent that the failure
to so qualify would not have a Material Adverse Effect. Sellers do not own,
directly or indirectly, any of the capital stock of any other corporation or any
equity, profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
-5-
<PAGE>
Section 3.2. Authorization and Validity. The execution, delivery and
performance by Sellers and Parent of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Sellers and Parent. This
Agreement and each other agreement contemplated hereby have been duly executed
and delivered by Sellers and Parent and constitute legal, valid and binding
obligations of Sellers and Parent, enforceable against Sellers and Parent in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
Section 3.3. No Violation. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of Sellers or Parent or any agreement, indenture or other instrument
under which Sellers or Parent is bound or to which any of the Assets are
subject, or result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of the Assets or (ii) violate or conflict with
any judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over
Sellers, Parent or the Assets.
Section 3.4. Consents. Except as set forth in the Disclosure Schedule, as
of the Closing Date no consent, authorization, approval, permit or license of,
or filing with, any governmental or public body or authority, any lender or
lessor or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of Sellers or Parent.
Section 3.5. Financial Statements. Each Seller has furnished or will
furnish to Purchaser the financial statements listed on Schedule 3.5 hereto
(collectively, the "Financial Statements") and the Pro Forma Balance Sheet. The
Financial Statements and the Pro Forma Balance Sheet are materially true,
correct and complete in all respects, have been prepared from the books and
records of the appropriate Seller maintained in the ordinary course of business
in accordance with sound accounting practice, fairly present the financial
condition and results of operations of such Seller as of the dates and for the
periods indicated and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis with prior periods, subject,
in the case of the Financial Statements dated December 31, 1999, to normal
recurring year end adjustments, the effect of which will not, individually or in
the aggregate, be materially adverse. The Financial Statements can be reconciled
with the financial statements and financial records maintained, and the
accounting methods applied, by the Company for federal income tax purposes.
Neither Sellers nor Parent makes any representation or warrants regarding the
future profitability of the business represented by the Assets.
Section 3.6. Liabilities and Obligations. Sellers have no liabilities
other than:
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<PAGE>
(i) those set forth or reserved against in the Financial
Statements,
(ii) those incurred since December 31, 1999 in the
ordinary course of business; and
(iii) those set forth in the Disclosure Schedule.
Except as set forth in the Financial Statements and the Disclosure Schedule, no
Seller is liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity, and Sellers know of no basis for the
assertion of any other claims or liabilities of any nature or in any amount.
Section 3.7. Absence of Certain Changes. Except as set forth in the
Disclosure Schedule and as set forth in the Financial Statements, since November
30, 1999, Sellers have not
(a) suffered any Material Adverse Effect;
(b) contracted for the purchase of any capital assets having a
cost in excess of $10,000 or paid any capital expenditures in excess of $10,000;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities other than in the ordinary course of business;
(d) incurred or discharged any liabilities or obligations except
in the ordinary course of business;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims other than in the ordinary course of business;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets other
than in the ordinary course of business;
(g) acquired or disposed of any assets except in the ordinary
course of business;
(h) entered into any other commitment or transaction or
experienced any other event that is material to this Agreement or to any of the
other agreements and documents
-7-
<PAGE>
executed or to be executed pursuant to this Agreement or to the transactions
contemplated hereby or thereby, or that could have a Material Adverse Effect; or
(i) incurred or discharged any liabilities or obligation on
behalf of Parent, including, but not limited to, any expense allocated by Parent
to either Seller and any interest expense associated with any credit facility of
Parent or Sellers.
Section 3.8. Title; Leased Assets.
(a) Real Property. Sellers do not own any real property.
(b) Personal Property. Sellers have good, valid and marketable
title to all tangible and intangible personal property owned by Sellers, the
location and general description of which is listed on the Disclosure Schedule,
and which as of the Closing Date will be free and clear of all security
interests, liens, claims and encumbrances other than the Assumed Liabilities.
(c) Leases. Set forth in the Disclosure Schedule is a list of
copies of all leases of real and personal property to which Sellers are a party,
either as lessor or lessee. All leased personal property is listed on the
Disclosure Schedule, as a leased asset. All such leases are valid and
enforceable in accordance with their respective terms except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(d) Right to Use Assets. All tangible assets used in the conduct
of Sellers' business are reflected in the Financial Statements in a manner that
is in conformity with generally accepted accounting principles applied on a
consistent basis with prior periods. Sellers own, lease or otherwise possess a
transferable right to use all material assets used in the conduct of their
business, and except for the Excluded Assets, will transfer all of such rights
to Purchaser at Closing.
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<PAGE>
Section 3.9. Commitments. Except as set forth in the Disclosure Schedule,
Sellers have not entered into, nor are the Assets or the business of Sellers
bound by, whether or not in writing, any contract or arrangement that involves
either an unperformed commitment in excess of $10,000 or that terminates more
than 30 days after the date hereof; or any other agreement or commitment not
made in the ordinary course of business or that is material to the business or
financial condition of the Company. All of the agreements listed in the
Disclosure Schedule are hereinafter collectively referred to as the
"Commitments." Except as set forth in the Disclosure Schedule, there are no
existing defaults, events of default or events, occurrences, acts or omissions
that, with the giving of notice or lapse of time or both, would constitute
defaults by Sellers, and no penalties have been incurred nor are amendments
pending, with respect to the Commitments. Except as set forth in the Disclosure
Schedule, the Commitments are in full force and effect and are valid and
enforceable obligations of the parties thereto in accordance with their
respective terms, and no defenses, off-sets or counterclaims have been asserted
or, may be made by any party thereto, nor have Sellers waived any rights
thereunder. Except as set forth in the Disclosure Schedule, Sellers have not
received notice of any default with respect to any Commitment.
Section 3.10. Patents, Trade-marks, Service Marks and Copyrights.
(a) Ownership. Sellers own all patents, trade-marks, service
marks and copyrights, if any, necessary to conduct its business, or possesses
adequate licenses or other rights, if any, therefor, without conflict with the
rights of others. Set forth in the Disclosure Schedule is a true and correct
description of the following ("Proprietary Rights"):
(i) all trade-marks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents, copyrights and applications currently owned, in whole
or in part, by Sellers with respect to the Assets and Sellers' business, and all
licenses, royalties, assignments and other similar agreements relating to the
foregoing to which either Seller is a party (including expiration date if
applicable); and
(ii) all agreements relating to technology, know-how or
processes that Sellers are licensed or authorized to use by others, or which
either of them licenses or authorizes others to use.
(b) Conflicting Rights of Third Parties. Sellers have the sole
and exclusive right (except with respect to certain licensed Proprietary Rights)
to use the Proprietary Rights without infringing or violating the rights of any
third parties. No consent of third parties will be required for the transfer
thereof to Purchaser or the use thereof by Purchaser upon consummation of the
transactions contemplated hereby and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity or
effectiveness of any license or agreement
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constituting a part of any Proprietary Right, and Sellers know of no valid basis
for any such claim. Each of the Proprietary Rights is valid and subsisting, has
not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
(c) Claims of Other Persons. Sellers have no knowledge of any
claim that, or inquiry as to whether, any product, activity or operation of
Sellers infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are threatened that challenge
the rights of Sellers with respect thereto. Sellers have not given and are not
bound by any agreement of indemnification for any Proprietary Right as to any
property manufactured, used or sold by Sellers.
Section 3.11. Trade Secrets and Customer and Mailing Lists. Sellers have
the right to use, free and clear of any claims or rights of others except claims
or rights specifically set forth in the Disclosure Schedule, all trade secrets,
customer, subscriber and mailing lists and proprietary information required for
the marketing of all merchandise and services formerly or presently sold or
marketed by Sellers. Sellers are not using or in any way making use of any
confidential information or trade secrets of any third party without their
consent, including without limitation any past or present employee of either
Seller.
Section 3.12. Taxes.
(a) Filing of Tax Returns. Sellers have duly and timely filed,
including with extensions, if applicable, with the appropriate governmental
agencies all income, excise, corporate, franchise, property, sales, use,
payroll, withholding and other tax returns (including information returns) and
reports required to be filed by the United States or any state or any political
subdivision thereof or any foreign jurisdiction. All such tax returns or reports
as of the time of their filing were complete and accurate and properly reflected
the taxes of Sellers for the periods covered thereby.
(b) Payment of Taxes. Sellers have paid or accrued all taxes,
penalties and interest that have become due with respect to any returns that it
has filed and any assessments of which it is aware, subject to any extensions
that may have been granted. Sellers are not delinquent in the payment of any
tax, assessment or governmental charge.
(c) No Pending Deficiencies, Delinquencies, Assessments or
Audits. No tax deficiency or delinquency has been asserted against either
Seller. There is no unpaid assessment, proposal for additional taxes, deficiency
or delinquency in the payment of any of the taxes of either Seller that could be
asserted by any taxing authority. There is no taxing authority audit of either
Seller pending or threatened, and the results of any completed audits are
properly reflected in the Financial Statements. Sellers have not violated in any
material respect any federal, state, local or foreign tax law.
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Section 3.13. Compliance with Laws. Sellers have complied with all laws,
regulations and licensing requirements and has filed with the proper authorities
all necessary statements and reports. There are no existing material violations
by Sellers of any federal, state or local law or regulation that could affect
the property or business of Sellers. Sellers possess all material licenses,
franchises, permits and governmental authorizations to conduct its business as
now conducted.
Section 3.14. Finder's Fee. Except as set forth in the Disclosure
Schedule, Sellers have not incurred any obligation for any finder's, broker's or
agent's fee in connection with the transactions contemplated hereby.
Section 3.15. Litigation. Except as disclosed in the Disclosure Schedule,
there are no legal actions or administrative proceedings or investigations
instituted, or to the best knowledge of Sellers threatened, against or
affecting, or that could affect, Sellers, any of the Assets, or the business of
Sellers. Sellers are not (i) subject to any continuing court or administrative
order, writ, injunction or decree applicable specifically to Sellers or to their
business, assets, operations or employees or (ii) in default with respect to any
such order, writ, injunction or decree. Sellers do not know of any basis for any
such action, proceeding or investigation.
Section 3.16. Accuracy of Information Furnished. All information furnished
to Purchaser by Sellers hereby or in connection with the transactions
contemplated hereby is true, correct and complete in all material respects. Such
information states all facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements are made, materially true, correct and complete. Except as disclosed
on the Disclosure Schedule, Sellers are not aware of any fact or circumstance
that could have a Material Adverse Effect on the business of Sellers or the
Assets being acquired by Purchaser.
Section 3.17. Books of Account. The books of account of Sellers have been
kept accurately in all material respects in the ordinary course of business, the
transactions entered therein represent bona fide transactions and the revenues,
expenses, assets and liabilities of Sellers have been properly recorded in all
material respects in such books.
Section 3.18. Name. There are no actions, suits or proceedings pending or
threatened against or affecting Sellers that could result in any impairment of
the right to use the names "USTeleCenters" or "Vermont Network Services." The
use of the names "USTeleCenters" and "Vermont Network Services" does not
infringe the rights of any third party nor is it confusingly similar with the
corporate name of any third party. After the Closing Date, no person or business
entity other than Purchaser will be authorized, directly or indirectly, by
Sellers or Parent to use the names "USTeleCenters" or "Vermont Network Services"
or any name confusingly similar to either.
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Section 3.19. Environmental Matters.
(a) Environmental Laws. Neither Sellers nor any of the Assets
are currently in material violation of, or subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or to any
remedial obligations under, any laws or regulations pertaining to health or the
environment (hereinafter sometimes collectively called "Environmental Laws").
This representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Assets.
(b) Use of Assets. The Assets have never been used in a manner
that would be in violation of the Environmental Laws.
Section 3.20. Year 2000; Computer Systems. Each item of hardware,
software, information technology, embedded, electromechanical or processor based
system and/or any combination thereof, used, developed, manufactured,
distributed, licensed, transferred or delivered by Sellers on or before the
Closing Date (each a "System"), shall be able to correctly function, operate,
process data or perform date related calculations, including, but not limited
to, (i) calculate, compare and sequence, from, into and between the years 1999
and 2000, (ii) accurately process, provide and/or receive date data, including
leap year calculations, into and between the years 1999, 2000 and beyond, (iii)
shall otherwise function according to the specifications thereof both before,
during and following January 1, 2000, and (iv) that neither performance nor
functionality thereof shall be affected by dates prior to, during and after
January 1, 2000. The Disclosure Schedule contains a list of all Systems of
Sellers, together with a description of the Year 2000 compliance status of such
System; provided, in all of the foregoing, that all non-Seller systems and
products (e.g., hardware, software and firmware) material to the conduct of
Sellers' Systems and used in or in combination with Sellers' Systems exchange
data with Sellers' Systems in the same manner on dates in both the Twentieth and
Twenty-First centuries.
Section 3.21. Parent Merger. Parent has entered into an Agreement and Plan
of Merger dated as of December 27, 1999, pursuant to which Parent will merge
with All Communications Corporation in a stock for stock transaction.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser represents and warrants that the following are true and correct
as of the date hereof and will be true and correct through the Closing Date as
if made on that date:
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Section 4.1. Organization and Good Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with all requisite power and authority to carry on
the business in which it is engaged, to own the properties it owns, to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. Purchaser is duly qualified and licensed to do business and is in good
standing in each state where the conduct of its business requires it to be so
qualified, except to the extent that the failure to so qualify would not have a
Material Adverse Effect. Purchaser conducts business under the name "OC Mergerco
4" and has made all assumed name and similar filings that it is required to make
except to the extent that the failure to so file would not have a Material
Adverse Effect.
Section 4.2. Authorization and Validity. The execution, delivery and
performance by Purchaser of this Agreement, and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement and
each other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by Purchaser and constitute or will constitute
legal, valid and binding obligations of Purchaser, enforceable against Purchaser
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
Section 4.3. No Violation. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the charter documents of Purchaser
or any agreement, indenture or other instrument under which Purchaser is bound
or (ii) violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or body
having jurisdiction over Purchaser or the properties or assets of Purchaser.
Section 4.4. Finder's Fee. Purchaser has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
ARTICLE V
Preclosing Matters
Section 5.1. Conduct Prior to Closing. Prior to the Closing, each Seller
shall conduct its business only in the ordinary course, consistent with past
practice and Sellers shall not take any actions that would cause the
representations and warranties set forth in Article III hereof to be incorrect.
Without limitation of the foregoing, prior to the Closing each Seller
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agrees that it shall not, (a) declare, pay or make any dividends or
distributions on its capital stock; (b) enter into any agreement (oral or
written) with its directors, officers or salaried employees; (c) increase the
compensation of its directors, officers or employees; (d) make capital
expenditures (or enter into commitments to make capital expenditures); (e) issue
any capital stock or grant options to purchase its capital stock; or (f) incur
indebtedness or other liabilities other than in the ordinary course of business
and consistent with past practices. Purchaser expressly acknowledges that the
provisions of this Section apply to Sellers and the Assets only and do not apply
to Parent. Purchaser further expressly acknowledges that from the date of the
Effective Date to the Closing Date, Purchaser and Sellers are cooperating fully
in the operation of the business of Sellers and, therefore, any action taken or
not taken at the direction of or with the consent of Purchaser will not
constitute a breach of this Section 5.1.
Section 5.2. Conditions to Purchaser's Obligation to Close. The following
shall be conditions to Purchaser's obligation to close the transactions set
forth herein:
(a) all of the representations and warranties of Sellers and
Parent shall be true and correct as of the Closing Date;
(b) intentionally omitted;
(c) No investigation, action, suit or proceeding shall be
pending or, to Sellers' knowledge, threatened before any court or governmental
body which seeks to restrain, prohibit or otherwise challenge or interfere with
the consummation of the transactions contemplated herein;
(d) Franklin Reece shall have entered into a non-competition
agreement and a consulting agreement, both on terms satisfactory to Purchaser;
and
(e) an opinion of Sellers' counsel that no shareholder approval
is required to effect the transaction set forth in this Agreement.
ARTICLE VI
Closing Deliveries
Section 6.1. Deliveries of Sellers. At the Closing, Sellers shall deliver
or cause to be delivered to Purchaser the following, all of which are in a form
satisfactory to counsel to Purchaser:
(a) a Bill of Sale conveying all personal property to Purchaser;
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(b) assignments for all Proprietary Rights in form appropriate
for filing in the U.S. Patents and Trademarks Office;
(c) an Assignment and Assumption Agreement with respect to the
Assigned Commitments and the Assumed Liabilities;
(d) intentionally omitted;
(e) evidence (including Form UCC-3 releases) of release of all
liens and other encumbrances on the Assets;
(f) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Purchaser or its counsel shall reasonably request,
to vest in Purchaser good and marketable title to the Assets that are personal
property and good and indefeasible title to the Assets that are real property;
(g) a non-competition agreement and a consulting agreement with
Franklin Reece; and
(h) an officer's certificate that, for the period from December
31, 1999 through the Closing Date, the net cash flow from Sellers to the Parent
has been negative and that payroll on February 17, 2000 was $182,147.09.
Section 6.2. Deliveries of Purchaser. At the Closing, Purchaser shall
deliver to Sellers:
(a) Cash Consideration in immediately available funds;
(b) Stock Consideration, subject to a Lock-Up Agreement in the
form attached hereto;
(c) a statement that Parent and the Sellers have complied with
the requirements of Section 5.1; and
(d) an executed Assignment and Assumption Agreement in the form
attached hereto with respect to the Assumed Liabilities and the Assigned
Commitments.
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ARTICLE VII
Post Closing Matters
Section 7.1. Further Instruments of Transfer. Following the Closing, at
the request of either party such other party shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to (i) vest in Purchaser good and marketable title to Assets that
are personal property and good and indefeasible title to Assets that are real
property and (ii) transfer to Purchaser all licenses and permits necessary for
the operation of the Assets.
Section 7.2. Employee Benefit Plan Claims Incurred. After the Closing
Date, each Seller shall remain liable under its medical and dental plans and
commitments for any claims incurred by its employees or their spouses and
dependents prior to the Closing Date. A claim shall be deemed to have been
incurred upon the date of the initial occurrence of an injury or the initial
diagnosis of an illness. An incurred claim shall include any claim or series of
claims related to a claim incurred prior to the Closing Date. Sellers shall
retain all liability for continuation coverage under Section 162(k) of the Code.
Section 7.3. Sales Taxes Applicable to Sales Prior to or On the Closing
Date. Sellers shall timely file all sales tax returns with respect to sales
occurring in connection with Sellers' business prior to or on the Closing Date.
Section 7.4. Sales and Transfer Taxes. Sellers shall timely pay all sales
taxes applicable to the sales reported on the tax returns referred to in Section
7.3. Sellers and Parent shall be liable for and shall indemnify Purchaser
against all sales, transfer, use, excise, registration or other taxes assessed
or payable in connection with the transfer of the Assets from Sellers to
Purchaser. Sellers and Purchaser shall sign, and otherwise shall cooperate in
the preparation and filing with the appropriate governmental agencies of, any
affidavits or other transfer documents that are required in connection with the
transfer of vehicles or trailers that constitute part of the Assets.
Section 7.5. Non-Solicitation. For a period of two years following the
Closing Date, neither Sellers nor Parent shall, directly or indirectly, whether
through its employees, affiliates, successors and assigns or otherwise, hire or
solicit to hire any former, current or future employee of Purchaser, including,
without limitation any persons who were employees of Sellers as of the Closing
Date and any person who was an employee of Sellers at any time during the two
year period prior to the Closing Date.
Section 7.7. Change of Name. USTeleCenters, Inc. and Vermont Network
Services Corporation each shall take all steps as shall be necessary to change
its corporate name from
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USTeleCenters, Inc. and Vermont Network Services Corporation, as applicable, to
a name that is significantly dissimilar to such name.
ARTICLE VIII
Remedies
Section 8.1. Indemnification by Sellers and Parent. Subject to the terms
and conditions of this Article, Sellers and Parent, jointly and severally, agree
to indemnify, defend and hold Purchaser and its directors, officers, agents,
attorneys and affiliates harmless from and against all losses, claims,
obligations, demands, assessments, penalties, liabilities (other than Assumed
Liabilities), costs, damages, attorneys' fees and expenses (collectively,
"Damages"), asserted against or incurred by such indemnitees by reason of or
resulting from:
(a) a breach of any of the representations or warranties contained in
Sections 3.1, 3.2, 3.3, 3.7 (b-i), 3.12 or 3.21; or
(b) any liability related to Sellers that has not been expressly
assumed by Purchaser.
Section 8.2. Indemnification by Purchaser. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold Sellers and Parent and their respective directors, officers, agents,
attorneys and affiliates harmless from and against all Damages asserted against
or incurred by any of such indemnitees by reason of or resulting from a breach
by Purchaser of any representation or warranty contained in Section 4.
Section 8.3. Conditions of Indemnification. The respective obligations and
liabilities of Sellers and Purchaser (the "indemnifying party") to the other
(the "party to be indemnified") under Sections 8.1 and 8.2 with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume the
defense of such action or (ii) the named parties to any such action
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(including any impleaded parties) include both the indemnifying party and the
party to be indemnified and the party to be indemnified has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the indemnifying party (in
which case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the party to be indemnified, which
firm shall be designated in writing by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such claims at any
time prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
Section 8.4. Waiver. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement, any exhibit or any document, instrument or certificate
contemplated hereby shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty, covenant
or condition. No act, delay, omission or course of dealing on the part of any
party in exercising any right, power or remedy under this Agreement or at law or
in equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
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Section 8.5. Remedies Not Exclusive. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
Section 8.6. Costs, Expenses and Legal Fees. Subject to the provisions
of Sections 8.1 and 8.2, whether or not the transactions contemplated hereby
are consummated, each party hereto shall bear its own costs and expenses
(including attorneys' fees), except that each party hereto agrees to pay the
costs and expenses (including reasonable attorneys' fees and expenses) incurred
by the other parties in successfully (i) enforcing any of the terms of this
Agreement or (ii) proving that another party breached any of the terms of this
Agreement.
ARTICLE IX
Miscellaneous
Section 9.1. Amendment. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
Section 9.2. Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto; provided, however,
that Purchaser may assign the right to take title to all or a portion of the
Assets and the obligation to assume all or a portion of the Assumed Liabilities
and Assigned Commitments hereunder to a subsidiary of Purchaser without the
consent of Sellers or Parent.
Section 9.3. Parties In Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
Section 9.4. Entire Agreement. This Agreement, the Disclosure Schedule
and the agreements contemplated hereby constitute the entire agreement of the
parties regarding the subject matter hereof, and supersede all prior agreements
and understandings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof.
Section 9.5. Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
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provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 9.6. Survival of Representations, Warranties and Covenants.
The representations, warranties and the covenants contained herein, including
the indemnification obligations contained in Article VIII hereof, shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of Sellers or Purchaser pursuant to this
Agreement shall be deemed to have been representations and warranties by Sellers
or Purchaser, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period of two years,
except for representations and warranties with respect to any tax or tax-related
matters, which shall survive the Closing until the running of any applicable
statutes of limitation.
Section 9.7. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF DELAWARE.
Section 9.8. Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 9.9. Gender and Number. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
Section 9.10. Reference to Agreement. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
Section 9.11. Confidentiality; Publicity and Disclosures. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (i) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (ii) by Purchaser in connection with
obtaining financing for the transactions contemplated by this Agreement and
conducting an examination of the operations and assets of Sellers. In the event
that the transactions contemplated hereby are not consummated for any reason
whatsoever, the
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parties hereto agree not to disclose any confidential information they may have
concerning the affairs of the other parties, except for information that is
required by law to be disclosed. Confidential information includes, but is not
limited to: financial records, surveys, reports, plans, proposals, financial
information, information relating to personnel, contracts, stock ownership,
liabilities and litigation; provided that should the transactions contemplated
hereby not be consummated, nothing contained in this Section shall be construed
to prohibit the parties hereto from operating businesses in competition with
each other. Confidential information does not include information that: (x) at
the time of disclosure or thereafter is generally available to and known by the
public (other than through a breach by a party of its obligations hereunder);
(y) was available to a party on a non-confidential basis from a third party,
provided that such third party is not and was not bound by a confidentiality
agreement; and (z) has been independently acquired or developed by a party
without violating any obligations hereunder or that was known to such party
prior to entering into this Agreement.
Section 9.12. Notice. All notices, claims, or demands required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand, delivered by telefax or mailed to the other party, properly addressed,
certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:
(i) If to Sellers or Parent:
View Tech, Inc.
3760 Calle Tecate, Suite A
Camarillo, CA 93102-5041
Attn: President
with a copy to:
Burns & Levinson LLP
125 Summer Street
Boston, Massachusetts 02110
ATTN: Robert C. Rives, Esq.
(ii) If to Purchaser:
Pentastar Communications, Inc.
1522 Blake Street
Denver, CO 80202
Attn: Chief Executive Officer
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and
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, CO 80202
Attn: B. Scott Pullara, Esq.
Hand delivered and telefaxed (if confirmed) notices shall be deemed
delivered on the date the same are delivered by hand or telefaxed, and mailed
notices shall be deemed delivered three days following the date mailed, in
accordance with the foregoing provisions of this Section 9.12. A party may
change the address for notices to be sent to it by written notice delivered
pursuant to the terms of this Section 9.12.
Section 9.13. Service of Process. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
Section 9.12 and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
Section 9.14. Intentionally omitted.
Section 9.15. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 9.16. Termination. This Agreement shall terminate if the
Closing shall not have occurred by 5:00 p.m., February 18, 2000 unless the
parties mutually agree in writing to extend.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
PURCHASER
OC Mergerco 4, Inc.
By:_______________________________
Its:
SELLERS
USTeleCenters, Inc.
By:______________________________
Its:
Vermont Network Services Corporation
By:______________________________
Its:
PARENT
View Tech, Inc.
By:______________________________
Its:
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SCHEDULE 3.5
1) Financial statements - USTelecenters
a) 1998 balance sheet; annual income statement
b) 1999 balance sheet; quarterly and year-to-date income statements
c) 1999 monthly revenue production per representative
d) 1999 payroll records; compensation plans
e) 11/30/99 balance sheet
f) Accounts receivable (detailed list of A/R's) with aging as of 11/30/99
g) Accounts receivable (detailed list of A/R's) with aging as of the
Closing
h) Inventory (based on physical inventory) (standard representation
language)
i) Pre-paid expenses
j) Fixed assets - owned vs. leased by location/facility
k) Accounts payable (detailed list of assumed A/P's) with aging as of
11/30/99
l) 1999 year end balance sheet; annual income statement
2) Financial statements - Vermont Network Services Corporation
a) 1998 balance sheet; annual income statement
b) 1999 balance sheet; quarterly and year-to-date income statements
c) 1999 monthly revenue production per representative
d) 1999 payroll records; compensation plans
e) 11/30/99 balance sheet
f) Accounts receivable (detailed list of A/R's) with aging as of 11/30/99
g) Accounts receivable (detailed list of A/R's) with aging as of the
Closing
h) Inventory (based on physical inventory) (standard representation
language)
i) Pre-paid expenses
j) Fixed assets - owned vs. leased by location/facility
k) Accounts payable (detailed list of assumed A/P's) with aging as of
11/30/99
l) 1999 year end balance sheet; annual income statement
-24-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 21, 1999 included (or incorporated by reference) in this
Form 10-K, into the Company's previously filed Registration Statement File No.
333-95145. It should be noted that we have performed no audit procedures
subsequent to January 21, 1999, the date of our report. Furthermore, we have not
audited any financial statements of View Tech, Inc. as of any date or for any
period subsequent to December 31, 1998.
/s/ Arthur Andersen LLP
Boston, MA
March 29, 2000
<PAGE>
ExhibiT 23.2
Consent of Independent Certified Public Accountants
View Tech, Inc.
3760 Calle Tecate, Suite A
Camarillo, California 93012
We hereby consent to the incorporation by reference in the registration
statement of View Tech, Inc. on Form S-3 (File No. 333-56229) and on Form S-8
(File Nos. 333-96321, 333-62135, 333-39501, 333-30389, and 333-20617) of our
report dated March 10, 2000 on our audit of the consolidated financial
statements of View Tech, Inc. as of December 31, 1999 and for the year then
ended, which report is included in this Annual Report on Form 10-K.
/s/ BDO Seidman, LLP
Los Angeles, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 69,493
<SECURITIES> 0
<RECEIVABLES> 9,556,821
<ALLOWANCES> 355,000
<INVENTORY> 2,824,578
<CURRENT-ASSETS> 13,863,252
<PP&E> 4,058,001
<DEPRECIATION> 1,834,496
<TOTAL-ASSETS> 16,497,094
<CURRENT-LIABILITIES> 20,035,257
<BONDS> 0
0
0
<COMMON> 792
<OTHER-SE> (3,574,585)
<TOTAL-LIABILITY-AND-EQUITY> (3,573,793)
<SALES> 35,479,607
<TOTAL-REVENUES> 35,479,607
<CGS> 25,292,064
<TOTAL-COSTS> 42,337,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687,083
<INCOME-PRETAX> 0
<INCOME-TAX> 382,798
<INCOME-CONTINUING> (7,927,715)
<DISCONTINUED> (4,062,588)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,990,303)
<EPS-BASIC> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
