-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I4Wnfk7MEz6eYSv31cDJ9oMIlGDQaNRMXOexOym1lov4stSQLsKFv4a5RM9yHIeE 96Kq24n4buRWT7FAR//YDQ== /in/edgar/work/20000728/0000889812-00-003303/0000889812-00-003303.txt : 20000921 0000889812-00-003303.hdr.sgml : 20000921 ACCESSION NUMBER: 0000889812-00-003303 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIRE ONE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000746210 STANDARD INDUSTRIAL CLASSIFICATION: [5065 ] IRS NUMBER: 770312442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-42518 FILM NUMBER: 681471 BUSINESS ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 MAIL ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 FORMER COMPANY: FORMER CONFORMED NAME: VIEW TECH INC DATE OF NAME CHANGE: 19950418 S-1 1 0001.txt REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ WIRE ONE TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5065 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
DELAWARE 77-0312442 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------ 225 LONG AVENUE HILLSIDE, NEW JERSEY 07205 (973) 282-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ RICHARD REISS CHIEF EXECUTIVE OFFICER WIRE ONE TECHNOLOGIES, INC. HILLSIDE, NEW JERSEY 07205 (973) 282-2000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copy to: MICHAEL J.W. RENNOCK, ESQ. MORRISON & FOERSTER LLP 1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10104 (212) 468-8000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE REGISTRATION FEE Common Shares, $0.0001 par value per share........... 5,014,772(2) $8.40625 $42,155,427.13 $11,129.03
(1) Estimated solely for the purpose of computing the registration fee, based on the average of the high and low sales prices of the common stock as reported by the Nasdaq National Market on July 26, 2000 in accordance with Rule 457 under the Securities Act of 1933. (2) We are registering (a) 2,450,000 shares of our common stock, par value $.0001 per share, issuable upon conversion of 2,450 shares of our Series A Preferred Stock, par value $.0001 per share, issued in connection with a private placement to various stockholders completed on June 14, 2000; (b) 857,500 shares of our common stock issuable upon exercise of warrants to purchase that number of shares of common stock issued to the same stockholders in connection with the June 14, 2000 private placement; (c) 397,499 shares of our common stock issued upon exercise of warrants in March 2000 to purchase that number of shares of common stock originally issued to certain of our subordinated debtholders; (d) 1,211,773 shares of common stock issued and issuable upon the exercise of options and warrants to certain consultants, organizations and their assigns for services rendered; and (e) 98,000 shares of our common stock, par value $.0001 per share, issued to certain consultants for services rendered. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1993, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED JULY 28, 2000. PROSPECTUS 5,014,772 SHARES [WIRE ONE TECHNOLOGIES LOGO] COMMON STOCK This prospectus relates to 5,014,772 shares of our common stock which may be sold from time to time by the selling securityholders, including their transferees, pledgees or donees or their successors. We will not receive any proceeds from these sales. The shares are being registered to permit the selling securityholders to sell the shares from time to time in the public market. The securityholders may sell the common stock through ordinary brokerage transactions, directly to market makers of our shares or through any other means described in the section "Plan of Distribution" beginning on page 51. We cannot assure you that the selling securityholders will sell all or any portion of the common stock offered under this prospectus. Our common stock is quoted on the Nasdaq National Market under the symbol "WONE." On July 26, 2000, the last reported sale price for the common stock on the Nasdaq National Market was $8.625 per share. Our corporate offices are located at 225 Long Avenue, Hillside, New Jersey 07205. Our telephone number at that location is (973) 282-2000. Investment in the securities involves risks. See "Risk Factors" beginning on page 5 of this prospectus. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 2000. TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................................................................................... 2 Risk Factors............................................................................................... 5 Use of Proceeds............................................................................................ 11 Dividend Policy............................................................................................ 11 Selected Consolidated Financial Information................................................................ 12 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 14 Unaudited Pro Forma Financial Information.................................................................. 21 Business................................................................................................... 29 Description of Capital Stock............................................................................... 36 Management................................................................................................. 40 Certain Relationships and Related Party Transactions....................................................... 44 Principal Stockholders..................................................................................... 45 Selling Stockholders....................................................................................... 46 Shares Eligible For Future Sale............................................................................ 50 Plan of Distribution....................................................................................... 51 Experts.................................................................................................... 52 Legal Matters.............................................................................................. 53 Where You Can Find More Information........................................................................ 53 Index to Financial Statements.............................................................................. F-1
------------------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. i SUMMARY This summary highlights selected information from this prospectus and may not contain all of the information that is important to you. You should carefully read this entire document, including "Risk Factors" and the financial statements before making an investment decision. As used in this prospectus, the terms "Wire One," "we," "us," and "our," refer to Wire One Technologies, Inc. and its subsidiaries. See "Where you can find more information" on page 53 for more details. COMPANY Wire One is one of the nation's largest video applications service providers ("Video-ASPs") with a current installed base of over 2,000 customers and 9,000 endpoints. Wire One was formed by the merger of All Communications Corporation ("ACC") into View Tech, Inc. ("VTI") in May 2000, with the former management team of ACC leading our new company. ACC was a value-added integrator of video, voice, and network communications solutions, offering clients a single source for all their communications needs. VTI operated as a single source provider for video, voice, and data communications equipment and services and bundled telecommunications solutions. As Wire One, ACC contributes strong industry knowledge and an excellent operating record, while VTI adds an extensive help desk, bridging services, a large sales organization and complementary geographic coverage. We currently compete in the video communications equipment market, but increasingly focus our resources on the video services market. With the introduction of our Internet Protocol ("IP") based video conferencing subscriber network in the fourth quarter of 2000, we believe that Wire One will be the first video communications company to offer customers a complete solution covering the entire video communications value chain. This value chain consists of consulting, design, installation, integration, training and support services, videoconferencing, audio conferencing, and A/V equipment and software sales, application development and transport. By the end of 2002, we estimate that transport related services will account for more than 50% of our revenue. Wire One is incorporated in Delaware and our principal executive office is located at 225 Long Avenue, Hillside, New Jersey, 07205. Our telephone number at that location is (973) 282-2000. We maintain a site on the World Wide Web located at www.wireone.com; however, the information found on our website is not a part of this prospectus. PRIVATE PLACEMENT On June 14, 2000, we issued 2,450 shares of our series A convertible preferred stock and warrants to purchase 857,500 shares of our common stock in a private placement to institutional and strategic investors. The net proceeds of the offering were approximately $15.8 million. Pursuant to a registration rights agreement executed in connection with this private placement, we agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the shares of our common stock issuable pursuant to the terms of the series A convertible preferred stock and the related warrants, which shares are being registered for resale hereunder. 2 SUMMARY CONDENSED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) The following summary of historical financial information of VTI and ACC has been derived from their audited and unaudited historical financial statements, and you should read it in conjunction with those financial statements which are included in this prospectus. The audited historical consolidated financial information for each of VTI and ACC are as of December 31, 1998 and 1999 and for the three years ended December 31, 1997, 1998 and 1999. The summary historical financial information as of March 31, 2000 and for the three month periods ended March 31, 1999 and 2000 for VTI and ACC is derived from the unaudited financial statements of VTI and ACC as of and for those periods. In the opinion of management, those unaudited consolidated financial statements reflect all adjustments necessary for the fair presentation of this unaudited interim financial information. The results of operations and cash flows for the interim periods do not necessarily indicate the results to be expected for the entire fiscal year or future periods. VTI
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------ ----------------- 1997 1998 1999 1999 2000 ------- ------- -------- ------ ------- STATEMENT OF OPERATIONS INFORMATION: Revenues.................................................... $31,014 $37,242 $ 35,480 $8,919 $ 9,214 Loss from continuing operations............................. (1,914) (4,326) (7,928) (71) (1,296) Net income (loss)........................................... 139 (2,814) (11,990) (255) (1,296) Diluted income (loss) from continuing operations per share..................................................... (.30) (.63) (1.01) (.01) (.16) Basic and diluted income (loss) per share................... .02 (.41) (1.53) (.03) (.16) Diluted weighted average common shares outstanding.......... 6,372 6,888 7,843 7,764 8,229
DECEMBER 31, MARCH 31, ------------------- --------- 1998 1999 2000 ------- -------- --------- BALANCE SHEET INFORMATION: Working capital (deficiency)................................................... $ 8,931 $ (6,172) $(3,758) Total assets................................................................... 22,623 16,497 12,896 Long-term debt (including current portion)..................................... 4,528 4,546 1,250 Total stockholders' equity (deficiency)........................................ 7,071 (3,574) (1,352)
ACC
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------- ---------------- 1997 1998 1999 1999 2000 ------ ------- ------- ------ ------ STATEMENT OF OPERATIONS INFORMATION: Revenues....................................................... $6,925 $13,217 $23,997 $3,912 $5,984 Net income (loss).............................................. (892) (777) 1,065 (106) 76 Diluted income (loss) per share................................ (.21) (.16) .17 (.02) .01 Diluted weighted average common shares outstanding............. 4,201 4,910 6,169 4,910 8,998
DECEMBER 31, MARCH 31, ------------------ --------- 1998 1999 2000 ------- ------- --------- BALANCE SHEET INFORMATION: Working capital................................................................. $ 5,702 $ 4,526 $12,965 Total assets.................................................................... 8,923 10,867 17,428 Long-term debt (including current portion)...................................... 2,444 2,186 38 Total stockholders' equity...................................................... 3,968 5,194 13,740
3 WIRE ONE TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE INFORMATION) The following financial information of Wire One is derived from the unaudited pro forma combined financial statements appearing elsewhere in this prospectus, which give effect to our recently completed merger, accounted for using the purchase method of accounting for business combinations and the 2 for 1 reverse split of our common stock effected on May 18, 2000. You should read it in conjunction with those unaudited pro forma combined statements and the separate audited and unaudited consolidated financial statements of VTI and ACC included in this prospectus. See "Unaudited Pro Forma Financial Information" on page 21, and "Where You Can Find More Information" on page 53. For purposes of the unaudited pro forma financial statements, VTI's consolidated financial statements for the year ended December 31, 1999 and as of and for the three months ended March 31, 2000 have been combined with the consolidated financial statements of ACC for the same periods. The unaudited pro forma combined financial information is for informational purposes only and does not purport to indicate the operating results or financial position that would have occurred had the merger between VTI and ACC been consummated at the beginning of the period presented or at the balance sheet date, nor does this information necessarily indicate the future operating results or financial position of Wire One.
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1999 MARCH 31, 2000 ------------------ ------------------ PRO FORMA COMBINED STATEMENT OF OPERATIONS INFORMATION: Revenues............................................................. $ 59,046 $ 14,150 Loss applicable to common stock...................................... (19,530) (2,246) Basic and diluted loss applicable to common stock.................... (1.62) (.17) Basic and diluted weighted average common shares outstanding......... 12,022,759 12,862,066
MARCH 31, 2000 -------------- PRO FORMA COMBINED BALANCE SHEET INFORMATION: Working capital................................................................................. $ 23,656 Total assets.................................................................................... 78,321 Long-term debt (including current portion)...................................................... 1,289 Mandatorily redeemable convertible preferred stock.............................................. 10,650 Total stockholders'equity....................................................................... 48,084
4 FORWARD-LOOKING STATEMENTS In addition to the other information contained in this prospectus, investors should carefully consider the risk factors disclosed in this prospectus, including those beginning on page 5, in evaluating an investment in the common stock issuable upon conversion of and issuance of common stock dividends on the series A preferred shares and exercise of the related warrants. This prospectus and the documents incorporated herein by reference include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "may", "will", "expects", "plans", "anticipates", "estimates", "potential", or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein and in such incorporated documents are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below and for the reasons described elsewhere in this prospectus. All forward-looking statements and reasons why results may differ included in this prospectus are made as of the date hereof, and Wire One assumes no obligation to update any such forward-looking statement or reason why actual results might differ. RISK FACTORS You should carefully consider the risks and uncertainties described below and the other information contained in this prospectus before deciding whether to invest in our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose part or all of your investment. THE CONVERSION OF THE SERIES A PREFERRED SHARES AND THE EXERCISE OF THE RELATED WARRANTS COULD RESULT IN SUBSTANTIAL NUMBERS OF ADDITIONAL SHARES BEING ISSUED IF OUR MARKET PRICE DECLINES. The series A preferred shares convert into common stock at a fixed rate of $7.00 per share. However, beginning on June 14, 2001, holders can choose an alternative conversion price which equals the higher of (i) 70% of the fixed conversion price then in effect or (ii) the market price on any conversion date, which is equal to the average of the closing sale prices of the common stock during the 20 consecutive trading days immediately preceding any conversion date. As a result, the lower the price of our common stock at the time of conversion, the greater the number of shares the holder will receive. To the extent that either the series A preferred shares are converted or the related warrants are exercised, a significant number of shares of common stock may be sold into the market, which could decrease the price of our common stock and encourage short sales by selling securityholders or others. Short sales could place further downward pressure on the price of our common stock. In that case, we could be required to issue an increasingly greater number of shares of our common stock upon future conversions of the series A preferred shares, sales of which could further depress the price of our common stock. 5 WE MAY ISSUE ADDITIONAL SHARES AND DILUTE YOUR OWNERSHIP PERCENTAGE. Some events over which you have no control could result in the issuance of additional shares of our common stock, which would dilute your ownership percentage in Wire One. We may issue additional shares of common stock or preferred stock: o to raise additional capital or finance acquisitions, o upon the exercise or conversion of outstanding options, warrants and shares of convertible preferred stock, and/or o in lieu of cash payment of dividends. As of July 21, 2000, other than the warrants issued to the holders of series A preferred shares, there were outstanding warrants to acquire an aggregate of 804,582 shares of common stock, and there were outstanding options to acquire an aggregate of 5,636,471 shares of common stock. If converted or exercised, these securities will dilute your percentage ownership of common stock. These securities, unlike the common stock, provide for anti-dilution protection upon the occurrence of stock splits, redemptions, mergers, reclassifications, reorganizations and other similar corporate transactions, and, in some cases, major corporate announcements. If one or more of these events occurs, the number of shares of common stock that may be acquired upon conversion or exercise would increase. In addition, as disclosed in the preceding risk factor, the number of shares that may be issued upon conversion of or payment of dividends in lieu of cash on the series A preferred shares could increase substantially if the market price of our common stock decreases during the period the series A preferred shares are outstanding. SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FALL. If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and upon conversion of and issuance of common stock dividends on the series A preferred shares and exercise of the related warrants, the market price of our common stock could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. As of July 21, 2000, we had outstanding 16,781,716 shares of common stock and options to acquire an aggregate of 5,636,741 shares of common stock, of which 3,441,851 options were vested and exercisable. Of the shares outstanding, as of July 21, 2000, 12,508,236 were freely tradeable in the public market and 4,273,550 were tradeable in the public market subject to the restrictions, if any, applicable under Rule 144 and Rule 145 of the Securities Act of 1933, as amended. All shares acquired upon exercise of options will be freely tradeable in the public market. In general, under Rule 144 as currently in effect, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (a) one percent of the number of shares of common stock then outstanding (which for Wire One was 167,817 shares as of July 21, 2000) or (b) the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice, and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Sales by stockholders of a substantial amount of our common stock could adversely affect the market price of our common stock. OUR FUTURE SUCCESS IS DEPENDENT ON THE CONTINUED EMPLOYMENT OF RICHARD REISS. Wire One's success will be highly dependent on the experience and continued employment of Richard Reiss, our chairman of the board, chief executive officer and president, the loss of whose services would have a material adverse effect on our business. We have entered into an employment agreement with Mr. Reiss, which agreement expires on December 31, 2002 and may be terminated by Mr. Reiss upon 90 days' prior written notice without penalty, subject to a one-year non-compete clause. 6 THE LOSS OF OUR PROFESSIONALS WOULD MAKE IT DIFFICULT TO COMPLETE EXISTING PROJECTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESSES AND RESULTS OF OPERATIONS. Our business is labor intensive, and our success depends on identifying, hiring, training and retaining professionals. If a significant number of our current employees or any of our senior managers or key project managers leave, we may be unable to complete or retain existing projects. OUR SUCCESS IS HIGHLY DEPENDENT ON THE EVOLUTION OF OUR OVERALL MARKET. The market for videoconferencing services is evolving rapidly. Although certain industry analysts project significant growth for this market, their projections may not be realized. Our future growth, if any, will depend on the continued trend of businesses to migrate to IP (H.323) based standards. There can be no assurance that the market for our services will grow, that our services will be adopted, or that businesses will use IP (H.323) based videoconferencing equipment or our new IP subscriber network. If we are unable to react quickly to changes in the market, if the market fails to develop, or develops more slowly than expected, or if our services do not achieve market acceptance, then we are unlikely to become or remain profitable. WE DEPEND UPON OUR NETWORK AND FACILITIES INFRASTRUCTURE. Our success depends upon our ability to implement, expand and adapt our national network infrastructure and support services to accommodate an increasing amount of video traffic and evolving customer requirements at an acceptable cost. This has required and will continue to require that we enter into agreements with providers of infrastructure capacity, equipment, facilities and support services on an ongoing basis. We cannot assure you that any of these agreements can be obtained on satisfactory terms and conditions. We also anticipate that future expansions and adaptations of our network infrastructure facilities may be necessary in order to respond to growth in the number of customers served. WE DEPEND UPON SUPPLIERS AND HAVE LIMITED SOURCES OF SUPPLY FOR CERTAIN PRODUCTS AND SERVICES. We rely on other companies to supply some key products and services that we resell and some components of our network infrastructure. Some of the products and services that we resell, and certain components that we require for our network, are only available from limited sources. We could be adversely affected suppliers were to become unavailable on commercially reasonable terms. We cannot assure you that, on an ongoing basis, we will be able to obtain third-party products and services cost-effectively and on the scale and within the time frames we require, or at all. Failure to obtain or to continue to make use of such third-party products and services would have a material adverse effect on our business, financial condition and results of operations. OUR NETWORK COULD FAIL, WHICH COULD NEGATIVELY IMPACT OUR REVENUES. Our success depends upon our ability to deliver reliable, high-speed access to our partners' data centers and upon the ability and willingness of our telecommunications providers to deliver reliable, high-speed telecommunications service through their networks. Our network and facilities, and other networks and facilities providing services to us, are vulnerable to damage, unauthorized access, or cessation of operations from human error and tampering, breaches of security, fires, earthquakes, severe storms, power losses, telecommunications failures, software defects, intentional acts of vandalism including computer viruses, and similar events, particularly if the events occur within a high traffic location of the network or at one of our data centers. However, the occurrence of a natural disaster or other unanticipated problems at the network operations center, key sites at which we locate routers, switches and other computer equipment which make up the backbone of our network infrastructure, or at one or more of our partners' data centers, could substantially impact our business. We cannot assure you that we will not experience failures or shutdowns relating to individual facilities or even catastrophic failure of the entire network. Any damage to or failure of our systems or service providers could result in reductions in, or terminations of, services supplied to our customers, which could have a material adverse effect on our business. 7 OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF OUR CONTROL. Our stock price could fluctuate due to the following factors, among others: o announcements of operating results and business conditions by our customers; o announcements by our competitors relating to new customers or technological innovations or new services; o economic developments in the telecommunications or multimedia industries as a whole; o political and economic developments in countries in which we have operations; and o general market conditions. PRIOR TO THE MERGER, ACC HAD A LIMITED HISTORY OF PROFITABLE OPERATIONS AND VTI HAD BEEN EXPERIENCING LOSSES, AND THERE IS NO GUARANTEE THAT WIRE ONE WILL ACHIEVE REVENUE GROWTH OR PROFITABILITY OR GENERATE POSITIVE CASH FLOW ON A QUARTERLY OR ANNUAL BASIS IN THE FUTURE, OR AT ALL. ACC reported moderate losses in the second half of 1997 and 1998. However, ACC began reporting profits in 1999. While VTI reported moderate profits in 1997, it reported a loss from continuing operations of $4,325,690 for the year ended December 31, 1998 and a loss from continuing operations of $7,927,715 for the year ended December 31, 1999. We cannot assure you that Wire One will achieve revenue growth or profitability or generate positive cash flow on a quarterly or annual basis in the future, or at all. A DECREASE IN THE NUMBER AND/OR SIZE OF OUR PROJECTS MAY CAUSE OUR RESULTS TO FALL SHORT OF INVESTORS' EXPECTATIONS AND ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK. If the number or average size of our projects decreases in any quarter, then our revenues and operating results may also decrease. If our operating results fall short of investors' expectations, the trading price of our common stock could decrease materially, even if the quarterly results do not represent any longer-term problems. WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HARM OUR BUSINESS AND COMPETITIVE POSITION IN THE INDUSTRY. Our business strategy includes making strategic acquisitions of other videoconferencing companies. Our continued growth will depend on our ability to identify and acquire companies that complement or enhance our business on acceptable terms. We may not be able to identify or complete future acquisitions or realize the anticipated results of future acquisitions. Some of the risks that we may encounter in implementing our acquisition growth strategy include: o expenses and difficulties in identifying potential targets and the costs associated with incomplete acquisitions; o higher prices for acquired companies because of greater competition for attractive acquisition targets; o expenses, delays and difficulties of integrating the acquired company into our existing organization; o greater impact of the goodwill of acquired companies on our results of operations when pooling of interests accounting for acquisitions is eliminated; o ability of management to improve our operational and financial systems, procedures and controls and expand, train, retain and manage our employee base; o competition for qualified professionals; o dilution of the interest of existing stockholders if we sell stock to the public to raise cash for acquisitions; o diversion of management's attention; o expenses of amortizing the acquired companies' intangible assets; 8 o impact on our financial condition due to the timing of the acquisition; and o expense of any undisclosed or potential legal liabilities of the acquired company. If realized, any of these risks could have a material adverse effect on our business, results of operations, financial condition and cash flows. WE COMPETE IN A HIGHLY COMPETITIVE MARKET AND MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL RESOURCES AND ESTABLISHED RELATIONSHIPS WITH MAJOR CORPORATE CUSTOMERS. The video communications industry is highly competitive. We compete with manufacturers of video communications equipment, which include PictureTel, VTEL Corporation 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 into the video communications market include AT&T, MCI, some of the Regional Bell Operating Companies ("RBOC's"), and SONY Corporation. Many of these organizations have substantially greater financial and other resources than Wire One, furnish many of the same products and services provided by Wire One, and have established relationships with major corporate customers that have policies of purchasing directly from them. We believe that as the demand for video communications systems continues to increase, additional competitors, many of which may have greater resources than Wire One, may continue to enter the video communications market. WE WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH THE CONDUCT OF BUSINESS IN FOREIGN MARKETS INCLUDING INCREASED CREDIT RISKS, TRADE RESTRICTIONS, EXPORT DUTIES AND TARIFFS AND FLUCTUATIONS IN EXCHANGE RATES OF FOREIGN CURRENCY, ANY OF WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING MARGINS AND RESULTS OF OPERATIONS. In 1999, approximately 7% of ACC's revenues was derived from sales in foreign markets and we expect that a portion of our revenues will continue to be derived from sales in foreign markets in the future. Accordingly, we will be subject to all of the risks associated with foreign trade, which could have a material adverse effect on our operating margins and results of operations. These risks include: o shipping delays o increased credit risks o trade restrictions o export duties and tariffs o fluctuations in the exchange rates of foreign currency o international, political, regulatory and economic developments We intend to expand our sales and marketing activities in foreign markets by, among other ways, seeking to establish relationships with foreign governmental agencies which typically operate telecommunications networks. To the extent that we are able to successfully expand sales of our products in foreign markets, we will become increasingly subject to foreign political and economic factors beyond our control, including governmentally imposed moratoriums on new business development as a result of budgetary constraints or otherwise, which could have a materially adverse effect on the our business. We also anticipate that the expansion of foreign operations will require us to devote significant resources to system installation, training and service. THE CONVERSION TO THE EURO, WHICH WILL REQUIRE US TO MODIFY OUR INFORMATION SYSTEMS AND MAY CHANGE THE CONDUCT OF BUSINESS IN THE PRINCIPAL EUROPEAN MARKETS FOR OUR PRODUCTS AND SERVICES, MAY ADVERSELY AFFECT OUR BUSINESS IN EUROPE. Because we do business in Europe, we face risks as a result of the conversion by some of the European Union member states of their currencies to the euro. In 1999, approximately 3% of ACC's revenues were derived from sales in Europe. The conversion process commenced on January 1, 1999. The conversion rates 9 between the member states' currencies and the euro are fixed by the Council of the European Union. We are unsure whether the conversion to the euro will harm our business, but potential risks include the costs of modifying our information systems and changes in the conduct of business and in the principal European markets for our products and services. WIRE ONE'S ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS OF WIRE ONE AND MAY DEPRESS ITS STOCK PRICE. Wire One's certificate of incorporation and bylaws contain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of Wire One. These provisions provide for a classified board of directors and allow Wire One to issue preferred stock with rights senior to those of its common stock and impose various procedural and other requirements that could make it more difficult for Wire One stockholders to effect corporate actions. 10 USE OF PROCEEDS The selling securityholders will receive all of the proceeds from the sale of the securities sold pursuant to this prospectus, although we may receive up to approximately $14.3 million upon exercise of the outstanding warrants and options. DIVIDEND POLICY Our board of directors has never declared or paid any cash dividends on our common stock and does not expect to do so for the foreseeeable future. We currently intend to retain any earnings to finance the growth and development of our business. Our board of directors will make any future determination of the payment of dividends based upon conditions then existing, including our earnings, financial condition and capital requirements, as well as such economic and other conditions as our board of directors may deem relevant. In addition, the payment of dividends may be limited by financing arrangements which we may enter into in the future. 11 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected consolidated financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements included elsewhere in this prospectus. The statement of operations information for each of the three years in the three-year period ended December 31, 1999 and the balance sheet information as of December 31, 1998 and 1999 is derived from the consolidated financial statements of ACC, and are included elsewhere in this prospectus. The financial information as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 is unaudited; however, in the opinion of management those unaudited consolidated financial statements reflect all adjustments necessary for the fair presentation of the unaudited interim financial information. The results of operations and cash flows for the interim periods do not necessarily indicate the results to be expected for the entire fiscal year or future periods. ACC
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------ ---------------- 1995 1996 1997 1998 1999 1999 2000 ------ ------ ------ ------- ------- ------ ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS INFORMATION: Net revenues.................................... $2,641 $3,885 $6,925 $13,217 $23,997 $3,912 $5,984 Cost of revenues................................ 1,782 2,501 4,897 9,447 16,528 2,773 3,846 ------ ------ ------ ------- ------- ------ ------ Gross margin.................................... 859 1,384 2,028 3,770 7,469 1,139 2,137 ------ ------ ------ ------- ------- ------ ------ Operating expenses: Selling....................................... 482 665 1,812 3,214 4,544 885 1,419 General and administrative.................... 328 600 936 1,310 1,765 307 584 ------ ------ ------ ------- ------- ------ ------ Total operating expenses........................ 810 1,264 2,748 4,524 6,309 1,192 2,002 ------ ------ ------ ------- ------- ------ ------ Income (loss) from operations................... 49 119 (720) (754) 1,160 (54) 135 ------ ------ ------ ------- ------- ------ ------ Other (income) expenses Amortization of deferred financing costs...... 25 -- 315 19 43 8 12 Interest income............................... -- -- (118) (56) (23) (9) (30) Interest expense.............................. 7 29 27 57 181 53 23 ------ ------ ------ ------- ------- ------ ------ Total other (income) expenses, net.............. 32 29 224 20 201 52 6 ------ ------ ------ ------- ------- ------ ------ Income (loss) before income taxes............... 17 90 (944) (774) 959 (106) 129 Income tax (provision) benefit.................. (8) (38) 52 (3) 105 -- 53 ------ ------ ------ ------- ------- ------ ------ Net income (loss)............................... $ 9 $ 52 $ (892) $ (777) $ 1,064 $ (106) $ 76 ====== ====== ====== ======= ======= ====== ====== Net income (loss) per share: Basic......................................... $ .01 $ .03 $ (.21) $ (.16) $ .22 $ (.02) $ .01 ====== ====== ====== ======= ======= ====== ====== Diluted....................................... $ .01 $ .03 $ (.21) $ (.16) $ .17 $ (.02) $ .01 ====== ====== ====== ======= ======= ====== ====== Weighted average shares outstanding Basic......................................... 1,884 1,978 4,201 4,910 4,910 4,910 5,302 ====== ====== ====== ======= ======= ====== ====== Diluted....................................... 1,884 1,978 4,201 4,910 6,169 4,910 8,998 ====== ====== ====== ======= ======= ====== ======
DECEMBER 31, MARCH 31, ---------------------------------------------- ----------- 1995 1996 1997 1998 1999 2000 ---- ------ ------ ------- ------- ----------- (IN THOUSANDS) BALANCE SHEET INFORMATION: Cash and cash equivalents.............................. $154 $ 646 $2,175 $ 326 $ 60 7,167 Working capital........................................ 53 748 4,085 5,702 4,526 12,965 Total assets........................................... 755 2,458 6,008 8,923 10,867 17,428 Total liabilities...................................... 673 1,913 1,273 4,954 5,673 3,688 Stockholders' equity................................... 81 545 4,734 3,968 5,194 13,740
12 VTI
SIX MONTHS THREE MONTHS YEAR ENDED ENDED YEAR ENDED ENDED JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, ---------------------- ------------ --------------------------------------- --------------- 1995 1996 1996 1996 1997 1998 1999 1999 2000 ---------- ---------- ------------ ----------- ------- ------- -------- ------ ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS INFORMATION: Revenues: Product......................... $ 5,806 $ 11,385 $ 8,926 $16,230 $24,851 $27,902 $ 24,024 $6,104 $ 5,923 Services........................ 1,158 1,961 1,681 3,057 6,163 9,340 11,456 2,816 3,291 -------- -------- -------- ------- ------- ------- -------- ------ ------- Total........................... 6,964 13,346 10,607 19,287 31,014 37,242 35,480 8,919 9,214 -------- -------- -------- ------- ------- ------- -------- ------ ------- Costs and expenses: Cost of equipment sold.......... 3,954 8,095 6,960 12,485 17,689 19,991 19,438 4,313 4,164 Cost of services provided....... 374 948 941 1,586 2,915 4,463 5,854 1,344 1,737 Sales and marketing expenses.... 686 2,724 2,301 4,384 6,346 7,831 9,956 2,132 2,251 General and administrative expenses...................... 1,198 2,627 1,250 2,248 5,635 5,728 7,090 1,164 1,617 Restructuring and other costs... -- -- -- -- -- 3,304 -- -- -- Merger costs.................... -- -- 2,564 2,564 -- -- -- -- -- -------- -------- -------- ------- ------- ------- -------- ------ ------- Total costs and expenses.......... 6,212 14,394 14,016 23,267 32,585 41,318 42,338 8,953 9,769 -------- -------- -------- ------- ------- ------- -------- ------ ------- Income (loss) from continuing operations...................... 752 (1,048) (3,409) (3,980) (1,571) (4,076) (6,858) (34) (555) Interest expense.................. -- -- -- -- (338) (246) (687) (37) (741) -------- -------- -------- ------- ------- ------- -------- ------ ------- Income (loss) before income taxes........................... 752 (1,048) (3,409) (3,980) (1,909) (4,322) (7,545) (71) (1,296) Benefit (provision) for income taxes.................... (294) 352 26 217 (4) (4) (383) -- -- -------- -------- -------- ------- ------- ------- -------- ------ ------- Income (loss) from continuing operations...................... 458 (696) (3,383) (3,763) (1,913) (4,326) (7,928) (71) (1,296) Income (loss) from discontinued operations...................... (2,335) 1,120 366 776 2,052 1,512 (825) (184) -- Loss on disposal of discontinued operations...................... -- -- -- -- -- -- (3,237) -- -- -------- -------- -------- ------- ------- ------- -------- ------ ------- Net income (loss)................. (1,877) $ 424 $ (3,017) $(2,987) $ 139 $(2,814) $(11,990) $ (255) $(1,296) ======== ======== ======== ======= ======= ======= ======== ====== ======= Income (loss) from continuing operations per share (basic and diluted)........................ $ .12 $ (.14) $ (.63) $ (.72) $ (.30) $ (.63) $ (1.01) $(0.01) $ (0.16) ======== ======== ======== ======= ======= ======= ======== ====== ======= Income (loss) per share (basic and diluted)........................ $ (.50) $ .08 $ (.56) $ (.57) $ .02 $ (.41) $ (1.53) $(0.03) $ (0.16) ======== ======== ======== ======= ======= ======= ======== ====== ======= Shares used in computing earnings (loss) per share: Basic........................... 3,765 5,041 5,401 5,262 6,372 6,888 7,843 7,764 8,229 ======== ======== ======== ======= ======= ======= ======== ====== ======= Diluted......................... 3,765 5,041 5,041 5,262 6,372 6,888 7,843 7,764 8,229 ======== ======== ======== ======= ======= ======= ======== ====== =======
JUNE 30, DECEMBER 31, MARCH 31, -------------------- --------------------------------------------- ----------- 1995 1996 1996 1997 1998 1999 2000 -------- -------- ------------ ------- ------- ------- ----------- (IN THOUSANDS) BALANCE SHEET INFORMATION: Cash.................................. $4,988 $1,463 $ 363 $ 1,028 $ 302 $ 69 $ 69 Working capital (deficiency).......... 2,602 2,371 1,644 9,393 8,931 (6,172) (3,758) Total assets.......................... 5,883 8,220 12,328 21,585 22,623 15,596 12,896 Long-term debt........................ 5 250 244 4,867 4,397 36 24 Stockholders' Equity.................. 3,403 4,222 4,419 8,277 7,071 (3,573) (1,352)
13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. RESULTS OF OPERATIONS--ACC Three Months Ended March 31, 2000 ("2000 period") Compared to Three Months Ended March 31, 1999 ("1999 period"). ACC reported net revenues of $5,984,000 for the 2000 period, an increase of $2,072,000, or 53% over revenues reported for the 1999 period of $3,912,000. Voice communications--Sales of voice communications products and services increased in the 2000 period by $398,000, or 21%, to $2,290,000, as compared to $1,892,000 for the 1999 period. Revenues in both the 2000 and 1999 periods were derived primarily from the sale of Lucent and Panasonic telecommunications systems and software packages. During the 2000 period, sales to one customer, Weichert Realtors accounted for approximately $304,000, or 5% of total sales compared to $581,000, or 15% of total sales for the 1999 period. Sales under the ACC's preferred Vendor Agreement with Cendant Corporation increased in the 2000 period by $115,000, or 25%, to $566,000, as compared to $451,000 for the 1999 period. Sales to Cendant, as a percentage of net revenues, accounted for 9% for the 2000 period and 12% for the 1999 period. Videoconferencing--Sales of videoconferencing equipment increased in the 2000 period by $1,674,000, or 83%, to $3,694,000, as compared to $2,020,000 for the 1999 period. During the 2000 period, sales to ACC's pending merger partner, View Tech, amounted to $1,047,000, or 17% of net revenues. Gross margins increased by 7% in the 2000 period to 36% of net revenues, as compared to 29% of net revenues in the 1999 period. During the 2000 period ACC received $156,000 of commission income related to the sale of service contracts and growth rebates totaling $205,000 from Lucent Technologies. These items contributed 6% to ACC's gross margin. In addition, ACC continues to benefit from favorable vendor pricing as unit growth continues and from the sale of higher margin peripheral items and services. Selling expenses increased by $534,000 to $1,419,000 or 24% of net revenues in the 2000 period, as compared to $885,000 or 23% of net revenues in the 1999 period. Sales salaries and commissions represented 62% of selling expenses in the 2000 period and increased by $349,000, or 65%, to $884,000, compared to $535,000, or 60% of selling expenses in the 1999 period. The increase in sales compensation is due to higher commissions related to increases in revenue and the addition of twelve new employees. General and administrative expenses increased by $277,000 to $584,000, or 10% of net revenues in the 2000 period, as compared to $307,000, or 8% of net revenues in the 1999 period. The dollar increase in the 2000 period was primarily attributable to higher compensation costs and bad debt expense. Compensation costs increased by $59,000, or 32%, to $243,000 in the 2000 period as compared to $184,000 in the 1999 period. The increase in compensation costs is due to increases in officers' compensation and the addition of one new employee. Bad debt expense increased by $134,000, to $139,000 in the 2000 period as compared to $5,000 in the 1999 period. The increase in bad debt expense is due to the overall increase in ACC's customer base and increased revenue growth. In the 2000 period, this category included $12,000 of amortization of deferred financing costs related to ACC's working capital credit facility. ACC also reported interest income of $30,000 and $9,000 in the 2000 period and 1999 period, respectively, and interest expense of $23,000 and $53,000 in the 2000 period and 1999 period, respectively. The increase in interest income is the result of ACC's investment of proceeds from ACC's redemption of its outstanding Class A warrants. The decrease in interest expense is a result of ACC's repayment of debt in the 2000 period. Effective tax rates were 41% and 0% for the 2000 and 1999 periods, respectively. During the 1999 period, ACC maintained a valuation allowance on deferred tax benefits relating to net operating loss deductions and other temporary tax differences. These tax benefits were recognized in subsequent 1999 periods after management determined that they were realizable. During the 2000 period, income taxes were computed at the expected combined statutory rate. ACC reported net income for the 2000 period of $75,745 or $.01 per share on a basic and diluted basis, respectively, as compared to a net loss of $105,612 or $.02 per share on a basic and diluted basis for the 1999 period. 14 Year Ended December 31, 1999 ("fiscal 1999") Compared to Year Ended December 31, 1998 ("fiscal 1998") Net revenues increased in fiscal 1999 by $10,780,000, or 82%, to $23,997,000, a record level for a twelve-month period, as compared to fiscal 1998 revenues of $13,217,000. Sales were higher as discussed below with both the voice communications and videoconferencing customers due to increased demand for products as described below. Voice communications--Sales of voice communications products and services increased in fiscal 1999 by $4,454,000, or 62%, to $11,600,000 as compared to fiscal 1998 revenues of $7,146,000. The increase was due in part to significant increases in sales to Universal Health Services, Inc. and sales under ACC's Preferred Vendor Agreement with Cendant. Sales to Universal Health Services, Inc. increased by 135% to $3,336,000 in fiscal 1999 compared to $1,422,000 in fiscal 1998. Sales under ACC's Preferred Vendor Agreement with Cendant increased by 115% to $3,513,000 in fiscal 1999 compared to $1,631,000 in fiscal 1998. Videoconferencing--Sales of videoconferencing systems increased in fiscal 1999 by $6,326,000, or 104%, to $12,397,000 as compared to $6,071,000 in fiscal 1998. During 1999, ACC experienced significant growth in sales to the federal government and to customers that resell directly to federal government agencies. Sales to these customers increased in fiscal 1999 by $2,414,000, or 406%, to $3,008,000 as compared to $594,000 in fiscal 1998. In 1999, ACC also continued to increase its customer base through the addition of new sales personnel and increased performance from existing sales personnel. This resulted in both increased sales to existing customers as well as sales to new customers. During 1999, ACC opened new offices in California and Illinois. Gross margin dollars increased by $3,701,000, or 98%, to $7,470,000 or 31% of net revenues in fiscal 1999, as compared to $3,769,000, or 29% of net revenues in fiscal 1998. The percentage increase in gross margin is a result of increased unit orders allowing ACC to obtain more favorable pricing from its equipment vendors and from the sale of higher margin services such as maintenance contracts. Cost of revenues consists primarily of net product, direct labor, insurance, warranty, and allocated depreciation costs. Selling expenses increased by $1,330,000, or 41%, to $4,544,000, or 19% of net revenues in fiscal 1999, as compared to $3,214,000 or 24% of net revenues in fiscal 1998. Sales salaries and commissions represent 64% of selling expenses in 1999 and increased by $960,000, or 49%, to $2,914,000 in fiscal 1999, compared to $1,954,000 in fiscal 1998. The increase in sales salaries is due to higher commissions related to record revenue growth and to the addition of four new sales personnel. Other items included in selling expense are telecommunications, travel and entertainment, postage and delivery, outside commissions, depreciation of demo equipment, and rent. General and administrative expenses increased by $455,000, or 35%, to $1,765,000, or 7%, of net revenues in fiscal 1999, as compared to $1,310,000, or 10%, of net revenues in fiscal 1998. The dollar increase in 1999 was attributable to higher compensation costs, professional fees and bad debt write-offs. Compensation costs increased by $348,000, or 64%, to $891,000 in fiscal 1999 as compared to $543,000 in fiscal 1998. The increase in compensation costs is due to increases in officers compensation and costs associated with the issuance of stock options for services to non employees. Professional fees increased by $84,000, or 41%, to $288,000 in fiscal 1999 as compared to $204,000 in fiscal 1998. The increase in professional fees is due to costs related to defending the lawsuit with Maxbase and with ACC's previous landlord. Bad debt write-offs increased by $63,000, or 37%, to $232,000 in fiscal 1999 as compared to $169,000 in fiscal 1998. The increase in bad debt write-offs is due to the overall increase in ACC's customer base and increased revenue growth. General and administrative expenses declined as a percentage of revenue as sales growth outpaced cost increases. Fiscal 1999 includes a full year of amortization of deferred financing costs, $43,000, related to ACC's working capital credit facility compared to 7 months in 1998 or $20,000. ACC also reported interest income of $23,000 and $56,000 in 1999 and 1998, respectively. Interest expense, which amounted to $181,000 and $57,000 in 1999 and 1998, respectively, increased as ACC increased the use of its credit facility to fund working capital requirements. ACC's income tax benefit of $105,000 for fiscal 1999 reflects reductions in the valuation allowance established against deferred tax assets (principally net operating losses) offset by increases in current federal and state tax provisions arising from improved operating results. In fiscal 1998, ACC had not recognized any income tax benefits, due to uncertainties about its ability to generate a sufficient level of taxable income in the future. In fiscal 1999 based on an assessment of all available evidence, including 1999 operating results, management believes that it is more likely than not that deferred tax assets as of December 31, 1999 will be realized. In the event that the merger with VTI is consummated, management expects its Federal income tax 15 provision in future periods to exceed the statutory rate, due to the effects of nondeductible amortization charges. ACC reported net income in fiscal 1999 of $1,065,000, or $.22 and $.17 per share on a basic and diluted basis, respectively, as compared to a net loss of $777,000 or $.16 per share on a basic and diluted basis in fiscal 1998. Year Ended December 31, 1998 ("fiscal 1998") Compared to Year Ended December 31, 1997 ("fiscal 1997") Net revenues increased in fiscal 1998 by $6,292,000, or 91%, to $13,217,000, a record level for a twelve-month period, as compared to fiscal 1997 revenues of $6,925,000. Sales were higher in both the voice communications and videoconferencing categories. Voice communications--Sales of voice communications products and services increased in fiscal 1998 by $3,497,000, or 97%, to $7,146,000 as compared to fiscal 1997 revenues of $3,649,000. The increase was due in part to increased marketing efforts, including the hiring of additional sales personnel in 1998 and 1997, as well as increased revenue generated by the sale of Lucent products to a significant new customer, Universal Health Services, Inc. Revenues in fiscal 1998 were derived primarily from the sale of Lucent and Panasonic telecommunications systems and software packages. Revenues in fiscal 1997 were derived primarily from the sale of Panasonic systems. Sales under ACC's Preferred Vendor Agreement with Cendant accounted for 12% of net revenues for fiscal 1998 and 15% of net revenues for fiscal 1997. In 1998, ACC established significant customer relationships with Universal Health Services, Inc. for Lucent and Sony products. Universal Health Services accounted for 11% of net revenues for fiscal 1998. ACC anticipates continued growth in the voice communications division for the year ending December 31, 1999 due in part to projected revenue increases in the structured cable division and from ACC's relationships with Cendant and Universal Health Services. Videoconferencing--Sales of videoconferencing systems increased in fiscal 1998 by $2,795,000, or 85%, to $6,071,000 as compared to $3,276,000 for fiscal 1997. ACC increased its videoconferencing customer base in fiscal 1998 through the introduction of lower cost videoconferencing systems manufactured by Polycom. The reduction in the average selling price of videoconferencing systems has been more than offset by the increase in units sold. ACC anticipates the continued expansion of its customer base throughout 1999, as lower cost systems become more affordable to a larger group of customers. Increased sales of these lower cost systems, however, have started to lower ACC's gross margins. ACC anticipates selling peripheral items at higher margins to help maintain ACC's historical gross margin levels. Gross margin dollars increased by $1,741,000, or 86%, to $3,769,000 or 29% of net revenues in fiscal 1998, as compared to $2,028,000, or 29% of net revenues in fiscal 1997. Margins as a percentage of total revenue are expected to fluctuate, depending on such factors as sales volume, the mix of product revenues, and changes in fixed costs during a given period. Cost of revenues consists primarily of net product, direct labor, insurance, warranty, and depreciation costs. The increase in gross margin dollars is the result of increased revenue. Selling expenses, which include sales salaries, commissions, sales overhead, and marketing costs, increased by $1,402,000, or 77%, to $3,214,000, or 24% of net revenues in fiscal 1998, as compared to $1,812,000 or 26% of net revenues in fiscal 1997. The dollar increase was due in part to higher salary expense resulting from additions to sales personnel in 1998, the costs of maintaining a new sales office in New York City, establishing a structured cable division, as well as higher commission-based videoconferencing sales. ACC added 13 salespeople during 1998. ACC expects selling costs, reflected in dollars, to increase in 1999 due to projected revenue growth and investments in product marketing. General and administrative expenses increased by $374,000, or 40%, to $1,310,000, or 10%, of net revenues in fiscal 1998, as compared to $936,000, or 14%, of net revenues in fiscal 1997. The dollar increase is attributable primarily to higher salary expense and related costs associated with the increase in administrative staff necessary to manage expanded operations, higher occupancy costs and other administrative overhead. For the foreseeable future, ACC expects general and administrative costs to decrease, as a percentage of revenues, as revenue growth continues. In 1998, other (income) expenses includes $20,000 of amortization of deferred financing costs related to the working capital credit facility as compared with a non-recurring charge of $315,000 associated with bridge financing in 1997 (See Notes to the Consolidated Financial Statements). ACC also reported interest income of $56,000 and $118,000 in 1998 and 1997, respectively. The reduction in interest income is a result of ACC's use of cash raised in 1997 to fund operations. ACC also reported interest expense of $57,000 and $28,000 in 1998 and 1997, respectively. The increase in interest expense is a result of ACC using its working 16 capital credit facility to fund growth. ACC expects interest expense, in 1999, to increase over 1998 levels due to expected increases in bank borrowings. The income tax provision in 1998 consists principally of amounts due to various state taxing authorities. The 1997 provision includes refundable taxes of $47,000 from the carryback of the current year's federal net operating loss. ACC has established a valuation allowance to offset additional tax benefits from the carryforward of unused federal operating losses of $829,000 and other deferred tax assets, due to the uncertainty of their realization. Management evaluates the recoverability of deferred tax assets and the valuation allowance on a quarterly basis. At such time it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be appropriately reduced. ACC reported a net loss in fiscal 1998 of $777,000, or $.16 per share as compared to $892,000 or $.21 per share in fiscal 1997. Increased costs associated with expanded operations have more than offset continued increases in net revenues. RESULTS OF OPERATIONS--VTI Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Total revenues for the three months ended March 31, 2000 increased by $0.3 million, or 3%, to $9.2 million from $8.9 million in the comparable period in 1999. Product revenues decreased by $0.2 million, or 3%, to $5.9 million in the three months ended March 31, 2000 from $6.1 million in the comparable period in 1999. The slight decrease in product revenues was attributable to an overall slowdown in videoconferencing equipment purchases by customers/prospects in VTI target markets. Service revenues for the three months ended March 31, 2000 increased by $0.5 million, or 17%, to $3.3 million from $2.8 million in the comparable period in 1999. The increase in service revenues was due primarily to the growth in the installed customer base and bridging services. Cost of equipment sold for the three months ended March 31, 2000 decreased by $0.1 million, or 3%, to 4.2 million from $4.3 million in the comparable period in 1999. Cost of equipment sold as a percentage of product revenue decreased to 70.3% in the three months ended March 31, 2000 from 70.7% in the comparable period in 1999. During the first quarter of 2000, VTI negotiated discounts on open accounts payable balances with several vendors totaling $0.1 million. Cost of services provided for the three months ended March 31, 2000 increased by $0.4 million, or 29%, to $1.7 million from $1.3 million in the comparable period in 1999. Cost of services provided as a percentage of service revenue increased to 52.8% in the three months ended March 31, 2000 from 47.7% in the comparable period in 1999. Service margins decreased as a result of adding personnel and related operating expenses in advance of increased installation and bridging services. Sales and marketing expenses for the three months ended March 31, 2000 increased by $0.1 million, or 6%, to $2.2 million from $2.1 million in the comparable period in 1999. Sales and marketing expenses as a percentage of revenue increased to 24.4% in the three months ended March 31, 2000 from 23.9% in the comparable period in 1999. The increase in sales and marketing expenses was due to increases in operating expenses related to new sales offices such as rent, telecommunications, postage/delivery and office supplies and the costs of buying out the leases of two offices not considered necessary in the future plans of VTI. General and administrative expenses for the three months ended March 31, 2000 increased by $0.4 million, or 39%, to $1.6 million from $1.2 million in the comparable period in 1999. General and administrative expenses as a percentage of revenue increased to 17.5% in the three months ended March 31, 2000 from 13.1% in the comparable period in 1999. The increase in general and administrative expenses was primarily due to higher audit and legal fees related to the 1999 fiscal year financial statements and the regulatory filings required to execute the pending merger with All Communications Corporation ($0.3 million). Interest expense for the three months ended March 31, 2000 increased by $0.7 million, or 1,903% to $741,040 from $37,004 in the comparable period in 1999. Interest expense as a percentage of revenue increased to 8.0% in the three months ended March 31, 2000 from 0.4% in the comparable period in 1999. The increase in interest expense was a result of amortizing three months of debt issuance costs and fees relating to the forbearance agreement and subordinated debt ($615,702) and increased usage and interest rate on the Company's line of credit ($88,334). Loss from discontinued operations decreased by $0.2 million from a loss of $0.2 million for the three months ended March 31, 1999 to no income or loss for the three months ended March 31, 2000 as the discontinued operations were sold effective January 1, 2000. Net loss increased $1.0 million to a loss of $1.3 million for the three months ended March 31, 2000 from a loss of $0.3 million in the comparable period in 1999. Net loss as a percentage of revenues increased 17 to (14.0)% for the three months ended March 31, 2000 compared to (2.9)% for the three months ended March 31, 1999. Net loss per share increased to a loss of $(0.16) for the three months ended March 31, 2000 from a loss of $(0.03) in the comparable period in 1999. The weighted average number of shares outstanding increased to 8,229,173 for the three months ended March 31, 2000 from 7,764,371 in the comparable period in 1999, primarily due to the issuance of common stock related to the exercise of warrants and options during the three months ended March 31, 2000. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Total revenues for the year ended December 31, 1999 decreased by $1.8 million or 5% to $35.5 million from $37.3 million in the comparable period for 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 late September and extended to late November 1999 which disrupted VTI's product supply and ability to fulfill customer orders. Service revenues for the year 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. Cost of equipment sold for the year ended December 31, 1999 decreased by $0.6 million, or 3%, to $19.4 million from $20.0 million for the year ended December 31, 1998. Cost of equipment sold as a percentage of product revenue increased to 80.9% for the year ended December 31, 1999 from 71.6% for the year ended December 31, 1998. During the fourth quarter of 1999, VTI 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 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. 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 the year ended December 31,1999 increased by $1.4 million, or 31%, to $5.9 million from $4.5 million for the year ended December 31, 1998. Cost of services provided as a percentage of service revenue increased to 51.1% for the year ended December 31, 1999 from 47.8% for the year ended December 31, 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. Sales and marketing expenses for the year ended December 31, 1999 increased by $2.1 million or 27% to $9.9 million from $7.8 million in the comparable period for 1998. Sales and marketing expenses as a percentage of revenues increased to 28.0% in the year ended December 31, 1999 from 21.0% in the comparable period for 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 the year ended December 31, 1999 increased by $1.4 million or 24% to $7.1 million from $5.7 million in the comparable period for 1998. General and administrative expenses as a percentage of total revenues increased to 20.0% in the year ended December 31, 1999 from 15.4% in the comparable period for 1998. The increase in general and administrative expenses was primarily due to incurring an extraordinary amount of legal and consulting fees related to managing VTI through its liquidity crisis and negotiations with its bankers, trade creditors, and subordinated lenders ($.8 million) and a $0.4 million accrual for employee retention bonuses. VTI 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 the year ended December 31, 1999 increased by $0.4 million, or 179%, to $0.7 million from $0.3 million for the year ended December 31, 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 the write off of the unamortize balance of VTI's 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. This decrease in operating results 18 was primarily due to significant commission rate cuts (30-40%) of the RBOCs 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 the year ended December 31, 1999 from a loss of $2.8 million for the comparable period for 1998. Net loss as a percentage of revenues decreased 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 Total revenues for the twelve months ended December 31, 1998 increased by $6.228 million, or 20%, to $37.242 million from $31.014 million in 1997. The increase in revenues was primarily related to VTI's nationwide expansion of its videoconferencing business by opening new sales offices and hiring sales personnel. 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 $1.485 million, or 23%, to $7.831 million from $6.346 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 $0.093 million, or 2%, to $5.728 million from $5.635 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. VTI recorded a restructuring charge of $4.201 million during 1998 ($3.304 million related to video operations and $.897 million related to discontinued operations) which resulted in an increase in loss from operations of $2.505 million from a loss of $1.571 million in 1997 to a loss of $4.076 million in 1998. In addition, VTI expected to realize $1.5 million of annual cost savings as a result of these employee terminations in the future. The significant components of the restructuring charge were an impairment write-down of goodwill of $1.465 million, employee termination costs of $1.793 million and facility exit costs of $0.157 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 year-to-year decline in operating results were the declining results of the outside network sales business (commission rate cuts by RBOC's) and the increase in general management costs of the discontinued operations. Net income decreased by $2.953 million to a loss of $2.814 million in 1998 from net income of $138,627 for 1997. 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 At March 31, 2000, ACC had working capital of $12,965,000 compared to $4,526,000 at December 31, 1999, an increase of approximately 186%. In addition, ACC had cash and cash equivalents of $7,167,000 compared to $60,000 at December 31, 1999. This improved working capital position resulted from the 19 proceeds from the redemption of its outstanding Class A warrants and the exercise of common stock options that totaled $8,395,000. At March 31, 2000, ACC had a $5,000,000 credit facility with an asset-based lender with no balance outstanding. The interest rate on borrowings was the lender's base rate plus 1% per annum. At March 31, 2000, VTI had a working capital deficit of $3,758,327 compared to $6,172,005 at December 31, 1999, a decrease of approximately 39%. This improved working capital position resulted from the proceeds from the exercise of warrants and common stock options that totaled $3,517,646. At March 31, 2000, VTI was operating under a six-month forbearance agreement signed on November 23, 1999 with its asset-based lender which capped outstanding borrowings at $4,750,000. Interest on the sum owed on the facility was set at the prime rate plus 2 1/2%. In addition to its bank debt, VTI received interim loans totaling $2,000,000 as of November 17, 1999, of which $1,500,000 came from individual investors and $500,000 in credit from one of VTI's suppliers. The merger between VTI and ACC was closed on May 18, 2000, with the surviving company being renamed Wire One. Concurrent with the merger, all outstanding amounts owed to VTI's former lenders were repaid and its credit facility was terminated. All significant VTI vendors were either repaid concurrent with or shortly after the close of the merger or mutually satisfactory payment arrangements were agreed to. Wire One has made all required payments to date. On June 5, 2000, Wire One renewed its credit facility with New York-based Summit Gibraltar Corporation, a division of Summit Bancorp. The two-year credit agreement raises our line of credit from $5 million to $15 million. Borrowings will bear interest at the lender's base rate plus 1/2% per annum. We have not borrowed funds under this line of credit to date. On June 14, 2000, we completed the private placement of 2,450 shares of our series A convertible preferred stock and warrants with a select group of institutional and strategic investors led by Peconic Fund, Ltd., an affiliate of Ramius Capital Group, and Polycom, Inc. We raised gross proceeds of $17.15 million in the private placement. However, we will recognize a deemed dividend of approximately $8.2 million in the second quarter of 2000. Other costs will be amortized over a three year period and will reduce the net income available to common stock. We expect to use these proceeds to fund internal growth, make acquisitions and expand into emerging video applications technologies, including further development and installation of a global IP based video communications subscriber service utilizing DSL access that we expect to introduce. INFLATION Management does not believe inflation had a material adverse effect on the financial statements for the periods presented. EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative and Hedging Activities," which must be adopted for fiscal quarters of years beginning after June 15, 2000. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in either ACC's or VTI's balance sheet and measurement of those instruments at fair value. To date, Wire One has not entered into any derivative or hedging activities, and as such, does not expect that the adoption of SFAS No. 133 will have a material effect, if any, on its financial position, results of operations, or cash flows. In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal quarters beginning after June 15, 2000. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly addresses how companies report revenues in their financial statements. Wire One is in the process of evaluating the accounting requirements of SAB 101 and does not expect that this standard will have a material effect, if any, on its financial position, results of operations, or cash flows. 20 UNAUDITED PRO FORMA FINANCIAL INFORMATION The merger of ACC and VTI was consummated on May 18, 2000. Under the terms of the merger, each outstanding share of ACC common stock was converted into 1.65 shares of VTI common stock. All VTI share and per share information in the unaudited pro forma combined financial statements and accompanying notes reflects the 2 for 1 reverse split effected on May 18, 2000. VTI was the surviving legal entity in the merger. However, for accounting purposes, ACC was deemed to be the acquiror and, accordingly, the merger will be accounted for as a "reverse acquisition" of VTI under the purchase method of accounting. Under this method of accounting, the combined company's historical results for periods prior to the merger will be the same as ACC's historical results. On the date of the merger, the assets and liabilities of VTI were recorded at their estimated fair values, and VTI's operations were included in ACC historical financial statements on a going forward basis. On June 14, 2000, Wire One issued 2,450 shares of its series A convertible preferred stock in a private placement to institutional and strategic investors. The net proceeds of the private placement were approximately $15.8 million. Wire One expects to use the proceeds for working capital, to fund acquisitions, and to expand into emerging video applications technologies. The series A preferred shares are convertible into shares of common stock at a fixed conversion price of $7.00 per share, subject to adjustments. Preferred stockholders may, at their option, redeem their shares on the earlier of June 14, 2003 or the occurrence of a triggering event (as defined). The redemption price is 110% of the stated value of $7,000 per share. None of the triggering events has occurred to date. The series A preferred shares will automatically convert into common stock on the conclusion of a 20 day consecutive trading day period where the closing price of Wire One common stock equals or exceeds $12.50. Investors in this private placement also received warrants to purchase 857,500 shares of Wire One common stock at an exercise price of $10.50 per share, subject to adjustment. The placement agent received warrants to purchase 193,748 shares of Wire One common stock at an exercise price of $7.00 per share, and warrants to purchase 67,876 shares of Wire One common stock at an exercise price of $10.50 per share as partial consideration for financial advisory services. The following unaudited pro forma combined financial statements include the historical financial statements of VTI and ACC as of and for the three months ended March 31, 2000 and for the year ended December 31, 1999. The unaudited pro forma combined financial statements give effect to the merger and the private placement as if they had occurred on March 31, 2000 for purposes of the unaudited pro forma combined balance sheet, and on January 1, 1999 for purposes of the unaudited pro forma combined statement of operations. The pro forma adjustments are based on preliminary estimates and certain assumptions that VTI and ACC believe are reasonable under the circumstances. With respect to the merger, the preliminary allocation of the purchase price to assets and liabilities of VTI reflects the assumption that assets and liabilities are carried at historical amounts which approximate fair market value. The actual allocation of the purchase price may differ from that reflected in the unaudited pro forma financial statements after a more extensive review of the fair market values of the assets and liabilities has been completed as of the acquisition date. When such a review is completed, a portion of the purchase price may be ascribed to intangible assets (other than goodwill) that have shorter amortization lives than the life ascribed to goodwill in preparing the accompanying pro forma financial statements. Thus, the resulting incremental amortization charges, if any, from that portion of the purchase price ascribed to other intangible assets could be materially different from the amortization expense presented in the pro forma financial statements. Severance, office closings and other exit costs related to or arising from the merger were not material. Estimated costs of $6,500,000 incurred in connection with the private placement, including the fair value of the warrants, have been recorded as a preferred stock discount and will be amortized as a dividend charge over the three-year period from the date of issuance to the current redemption date. We will also record a deemed dividend of approximately $8,109,500 to account for the beneficial conversion feature of the series A preferred shares. Actual results may differ from the estimates reflected in the pro forma adjustments. The following unaudited pro forma combined financial statements are based on assumptions and include adjustments as explained in the accompanying notes. These unaudited pro forma combined financial statements are not necessarily indicative of the actual financial results that would have occurred if the transactions described above had been effective on and as of the dates indicated and may not be indicative of operations in future periods or as of future dates. The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes and the historical financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of VTI and ACC which are included elsewhere in this prospectus. 21 WIRE ONE TECHNOLOGIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 2000
HISTORICAL ----------------------------- PRO FORMA ALL PRO FORMA COMBINED VIEWTECH COMMUNICATIONS ADJUSTMENTS COMPANY ------------ -------------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents.................. $ 69,768 $ 7,166,978 $15,800,000(1d) $23,036,746 Accounts receivable, net of allowance...... 6,803,744 4,779,682 -- 11,583,426 Inventories................................ 2,773,101 4,279,518 500,000(1a) 7,552,619 Deferred income taxes...................... -- 230,083 (200,000)(1a) 30,083 Prepaid expenses and other current assets.................................. 819,833 188,488 -- 1,008,321 ------------ ------------ ----------- ----------- Total current assets.................... 10,466,446 16,644,749 16,100,000 43,211,195 Property and equipment, net.................. 2,061,157 631,887 -- 2,693,044 Goodwill and other intangibles, net.......... -- -- 31,896,829(1a),(1b) 31,896,829 Other assets................................. 368,444 151,105 -- 519,549 ------------ ------------ ----------- ----------- Total assets............................ $ 12,896,047 $ 17,427,741 $47,996,829 $78,320,617 ============ ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans payable--current portion............. $ 1,226,559 $ 30,565 $ -- $ 1,257,124 Subordinated debt.......................... 1,639,532 -- -- 1,639,532 Accounts payable........................... 6,684,490 2,179,535 -- 8,864,025 Accrued expenses........................... 852,108 769,919 1,650,000(1b) 3,272,027 Deferred revenue........................... 2,904,024 459,170 -- 3,363,194 Other current liabilities.................. 918,060 240,993 -- 1,159,053 ------------ ------------ ----------- ----------- Total current liabilities............... 14,224,773 3,680,182 1,650,000 19,554,955 Long-term debt............................... 23,647 8,017 -- 31,664 ------------ ------------ ----------- ----------- Total liabilities....................... 14,248,420 3,688,199 1,650,000 19,586,619 ------------ ------------ ----------- ----------- Series A mandatorily redeemable convertible preferred stock............................ -- -- 10,650,000(1d) 10,650,000 ------------ ------------ ----------- ----------- STOCKHOLDERS' EQUITY Common stock............................... 941 13,796,290 (13,795,593)(1c) 1,638 Additional paid-in capital................. 20,125,063 392,188 22,864,045(1a),(1c) 56,640,796 5,150,000(1d) 8,109,500(1e) Accumulated deficit........................ (21,478,377) (448,936) 21,478,377(1c) (8,558,436) (8,109,500)(1e) ------------ ------------ ----------- ----------- Total stockholders' equity.............. (1,352,373) 13,739,542 34,286,829 48,083,998 ------------ ------------ ----------- ----------- Total liabilities, series A preferred stock, and stockholders' equity....... $ 12,896,047 $ 17,427,741 $47,996,829 $78,320,617 ============ ============ =========== ===========
The accompanying notes are an integral part of these unaudited pro forma financial statements. 22 WIRE ONE TECHNOLOGIES, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
HISTORICAL PRO FORMA -------------------------------- PRO FORMA COMBINED VIEW TECH ALL COMMUNICATIONS ADJUSTMENTS COMPANY ----------- ------------------ ------------ ------------ Revenues...................................... $35,479,607 $ 23,997,212 $ (431,000)(2g) $ 59,045,819 Cost of revenues.............................. 25,292,064 16,527,505 (931,000)(2a)(2g) 41,888,569 ----------- ------------ ------------ ------------ Gross margin.................................. 10,187,543 7,469,707 (500,000) 17,157,250 ----------- ------------ ------------ ------------ Selling....................................... 9,955,816 4,543,873 -- 14,499,689 General and administrative.................... 7,089,561 1,765,411 -- 8,854,972 Amortization of goodwill...................... -- -- 2,275,000(2b) 2,275,000 ----------- ------------ ------------ ------------ 17,045,377 6,309,284 2,275,000 25,629,661 ----------- ------------ ------------ ------------ Income (loss) from operations................. (6,857,834) 1,160,423 (2,775,000) (8,472,411) ----------- ------------ ------------ ------------ Other expense: Net interest expense.......................... (687,083) (157,938) -- (845,021) Other......................................... -- (43,137) -- (43,137) ----------- ------------ ------------ ------------ (687,083) (201,075) -- (888,158) ----------- ------------ ------------ ------------ Income (loss) from continuing operations before income taxes......................... (7,544,917) 959,348 (2,775,000) (9,360,569) Income tax (provision) benefit................ (382,798) 105,239 87,261(2c) (190,298) ----------- ------------ ------------ ------------ Income (loss) from continuing operations.................................. (7,927,715) 1,064,587 (2,687,739) (9,550,867) ----------- ------------ ------------ ------------ Beneficial conversion feature of preferred stock....................................... -- -- (8,109,500)(2e) (8,109,500) Dividends on Series A mandatorily redeemable convertible preferred stock....................................... -- -- (1,870,000)(2f) (1,870,000) ----------- ------------ ------------ ------------ -- -- (9,979,500) (9,979,500) ----------- ------------ ------------ ------------ Income (loss) applicable to common stock....................................... $(7,927,715) $ 1,064,587 $(12,667,239) $(19,530,367) =========== ============ ============ ============ Per share: Income (loss) applicable to common stock--basic................................ $ (2.02) $ .22 $ (1.62) =========== ============ ============ Weighted average shares--basic................ 3,921,259 4,910,000 3,191,500(2d) 12,022,759 =========== ============ ============ ============ Income (loss) applicable to common stock--diluted........................... $ (2.02) $ .17 $ (1.62) =========== ============ ============ Weighted average shares--diluted............ 3,921,259 6,169,074 1,932,426(2d) 12,022,759 =========== ============ ============ ============
The accompanying notes are an integral part of these unaudited pro forma financial statements. 23 WIRE ONE TECHNOLOGIES, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
HISTORICAL PRO FORMA --------------------------------- PRO FORMA COMBINED VIEW TECH ALL COMMUNICATIONS ADJUSTMENTS COMPANY ------------ ------------------ --------------- ------------- Revenues................................. $ 9,213,788 $5,983,507 $ (1,047,000)(2g) $ 14,150,295 Cost of revenues......................... 5,901,545 3,846,211 (1,047,000)(2g) 8,700,756 ------------ ---------- --------------- ------------- Gross margin............................. 3,312,243 2,137,296 -- 5,449,539 ------------ ---------- --------------- ------------- Selling.................................. 2,250,925 1,398,693 -- 3,649,618 General and administrative............... 1,616,504 603,681 -- 2,220,185 Amortization of goodwill................. 568,750(2b) 568,750 ------------ ---------- --------------- ------------- 3,867,429 2,002,374 568,750 6,438,553 ------------ ---------- --------------- ------------- Income (loss) from operations............ (555,186) 134,922 (568,750) (989,014) Other (income) expense: Net interest............................. 741,040 (6,465) -- 734,575 Other.................................... -- 12,242 -- 12,242 ------------ ---------- --------------- ------------- 741,040 5,777 -- 746,817 ------------ ---------- --------------- ------------- Income (loss) before income taxes........ (1,296,226) 129,145 (568,750) (1,735,831) Income tax (provision) benefit........... -- (53,400) 53,400(2c) -- ------------ ---------- --------------- ------------- Income (loss) from continuing operations............................. (1,296,226) 75,745 (515,350) (1,735,831) ------------ ---------- --------------- ------------- Dividends on Series A mandatorily redeemable convertible preferred stock........................ -- -- (510,000)(2f) (510,000) ------------ ---------- --------------- ------------- Income (loss) applicable to common stock.................................. $ (1,296,226) $ 75,745 $ (1,025,350) $ (2,245,831) ============ ========== =============== ============= Per share: Loss applicable to common stock-- basic.................................. $ (0.32) $ 0.01 $ (0.17) ============ ========== ============= Weighted average shares--basic........... 4,114,587 5,301,503 3,445,976(2d) 12,862,066 ============ ========== =============== ============= Loss applicable to common stock-- diluted................................ $ (0.32) $ 0.01 $ (0.17) ============ ========== ============= Weighted average shares--diluted......... 4,114,587 8,997,654 (250,175)(2d) 12,862,066 ============ ========== =============== =============
The accompanying notes are an integral part of these unaudited pro forma financial statements. 24 BASIS OF PRO FORMA PRESENTATION I. MERGER The unaudited pro forma combined financial statements of VTI have been prepared based on preliminary estimates of the purchase consideration and the allocation of the purchase price to the fair value of VTI assets and liabilities as of March 31, 2000. The actual consideration and allocation may differ from that reflected in the pro forma combined financial statements after further asset valuations and other procedures have been completed. Following is a schedule of the estimated purchase price, the estimated purchase price allocation and the estimated amortization of goodwill and other intangible assets as of March 31, 2000: ESTIMATED PURCHASE PRICE: Value of securities issued..................................................... $29,194,456 Direct merger costs............................................................ 1,650,000 ----------- Total.......................................................................... $30,844,456 ===========
The value of securities issued was determined as follows: Value of VTI shares............................................................ $26,924,689 Value of VTI options and warrants.............................................. 2,269,767 ----------- Value of securities issued..................................................... $29,194,456 ===========
The value of the shares was computed using a five-day average share price with a midpoint of December 28, 1999, the date of the merger announcement. The number of shares used in the computation is based on VTI shares outstanding as of March 31, 2000. Direct merger costs consist of brokerage, legal, accounting and other professional fees estimated to be incurred as follows: ACC............................................................................. $1,000,000 VTI............................................................................. 650,000 ---------- Total estimated direct merger costs............................................. $1,650,000 ==========
ESTIMATED PURCHASE PRICE ALLOCATION: VTI assets acquired........................................................... $ 12,896,047 VTI liabilities assumed....................................................... (14,248,240) Inventory step-up to fair market value........................................ 500,000 Deferred tax liability........................................................ (200,000) Goodwill and other intangible assets.......................................... 31,896,829 ------------ Total......................................................................... $ 30,844,456 ============
The VTI assets acquired and liabilities assumed are derived from the historical balance sheet of VTI as of March 31, 2000. The deferred tax liability was determined by applying the statutory income tax rate of 40% to the inventory step-up. Estimated annual amortization expense (based on an amortization period of fifteen years):............................................................... $2,275,000 ==========
II. PRIVATE PLACEMENT As required by SEC rules, the Series A convertible preferred stock issued in the private placement is presented separately from the "stockholders' equity" section of the Pro Forma Combined Balance Sheet because redemption is at the option of the preferred stockholders. 25 The preferred stock beneficial conversion feature was calculated as the difference between the per share conversion price and the price of Wire One common stock on the commitment date, as follows:
Wire One stock price on commitment date................................................... $ 10.31 Preferred stock conversion price.......................................................... 7.00 ------------ Difference................................................................................ 3.31 Number of common shares into which preferred shares may be converted...................... 2,450,000 ------------ Beneficial conversion feature............................................................. $ 8,109,500 ============
The beneficial conversion feature will be recognized as a deemed preferred stock dividend with an offsetting credit to additional paid-in capital. The warrants issued in the private placement will be recorded as a discount to the preferred stock with an offsetting credit to additional paid-in capital. The fair value of the warrants of $5,150,000 was determined using the Black-Scholes pricing model assuming a volatility factor of 46.50% and a risk free rate of return of 6.75%. 26 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS a. Records the allocation of a portion of the purchase price to the inventory step-up to fair market value, goodwill and other intangible assets, and the related deferred tax liability. b. Records the estimated direct costs of the merger. c. Records the recapitalization of ACC shares based on VTI's capital structure, the issuance of securities in connection with the merger, and the elimination of VTI's stockholders' deficit, as follows:
ADDITIONAL PAID-IN ACCUMULATED COMMON STOCK CAPITAL DEFICIT ------------ ------------ ----------- Recapitalization of outstanding ACC shares based on VTI's capital structure............ $(13,799,248) $ 13,799,248 $ -- Value of shares issuable in reverse merger.... 4,597 26,920,092 -- Value of options and warrants exchanged....... -- 2,269,767 -- Elimination of VTI stockholders' deficit...... (942) (20,125,062) 21,478,377 ------------ ------------ ----------- Pro forma adjustment.......................... $(13,795,593) $ 22,864,045 $21,478,377 ============ ============ ===========
d. Records the private placement transactions as follows:
Gross proceeds................................................................. $ 17,150,000 Less: Offering costs........................................................... 1,350,000 ------------- Net cash proceeds.............................................................. 15,800,000 Less: Value of warrants issued................................................. 5,150,000 ------------- Series A mandatorily redeemable convertible preferred stock--net of discount... $ 10,650,000 =============
e. Records the deemed preferred stock dividend relating to the beneficial conversion feature of the series A preferred shares issued in the private placement of $8,109,500. 2. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS a. Records the write-off of the inventory step-up to cost of revenues. b. Records the amortization of goodwill and other intangible assets. The goodwill and other intangible assets are amortized on a straight-line basis over 15 years. c. Records the adjustment to income taxes, as follows:
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------------ Reversal of deferred tax liability to income tax expense.. $ 200,000 $ -- Reversal of ACC's net income tax provision (benefit) as a result of the pro forma combination and the effects of VTI's 1999 operating loss............................... (112,739) 53,400 ---------- ---------- Pro forma income tax adjustment........................... $ 87,261 $ 53,400 ========== ==========
On an historical basis, VTI has established a valuation allowance to offset the tax benefits of net operating loss carryforwards and other deferred tax assets. At such time as management of the combined company determines that it is more likely than not that the deferred tax assets are realizable, the valuation allowances will be reduced. VTI's realized deferred tax benefits will be credited to the goodwill asset established in the purchase price allocation. 27 d. Following is the calculation of the combined weighted average shares outstanding for the year ended December 31, 1999. The calculation gives effect to the contemplated two for one reverse split of VTI shares prior to the merger. Common stock equivalents of VTI and ACC, consisting of stock options and warrants, are not reflected in the pro forma diluted calculation because their inclusion would be anti-dilutive:
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------------ Weighted average shares outstanding--VTI (basic and diluted)............................................... 3,921,259 4,114,587 ------------ ------------ Weighted average shares outstanding--ACC (diluted) ...... 6,169,074 8,997,654 Less: Adjustment of ACC diluted shares to reverse incremental shares..................................... (1,259,074) (3,696,151) ------------ ------------ ACC shares basic and diluted, as adjusted................ 4,910,000 5,301,503 ------------ ------------ Weighted average shares outstanding--combined............ 8,831,259 9,416,090 Incremental shares from conversion of ACC shares to VTI shares at a 1.65 to 1 ratio............................ 3,191,500 3,445,976 ------------ ------------ Pro forma combined weighted average shares outstanding--basic and diluted......................... 12,022,759 12,862,066 ============ ============
e. Records the deemed preferred stock dividend relating to the beneficial conversion feature of the series A preferred shares as of January 1, 1999. f. Records the amortization of the discount on the mandatorily redeemable convertible preferred stock based on the effective interest method, as follows:
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------------ $1,870,000 $510,000 ========== ========
The discount includes the estimated private placement offering costs of $1,350,000, the estimated fair value of the warrants of $5,150,000, and the 10% premium of $1,715,000 that would become payable upon redemption of all of the preferred shares. g. Records the elimination of sales and purchases between ACC and VTI, respectively. 28 BUSINESS OVERVIEW Wire One is one of the nation's largest Video-ASPs with a current installed base of over 2,000 customers and 9,000 endpoints. We currently compete in the video communications equipment market, but we are increasingly focusing our resources on the video services market. Wire One was formed by the merger of ACC into VTI in May 2000, with the former management team of ACC leading our new company. ACC was a value-added integrator of video, voice, and network communications solutions, offering clients a single source for all their communications needs. VTI operated as a single source provider for video, voice, and data communications equipment and services and bundled telecommunications solutions. In Wire One, ACC contributes strong industry knowledge and an excellent operating record, while VTI adds an extensive help desk, bridging services, a large sales organization and complementary geographic coverage. We currently compete in the video communications equipment market, but increasingly focus our resources on the video services market. With the introduction of our IP based video conferencing subscriber network in the fourth quarter of 2000, we believe that Wire One will be the first video communications company to offer customers a complete solution covering the entire video communications value chain. This value chain consists of consulting, design, installation, integration, training and support services, videoconferencing, audio conferencing, and A/V equipment and software sales, application development and transport. By the end of 2002, we estimate that transport related services will account for more than 50% of our revenue. Wire One is incorporated in Delaware and our principal executive office is located at 225 Long Avenue, Hillside, New Jersey, 07205. Our telephone number at that location is (973) 282-2000. We maintain a site on the World Wide Web located at www.wireone.com; however, the information found on our website is not a part of this prospectus. INDUSTRY OVERVIEW VIDEOCONFERENCING. General Videoconferencing communications entails the transmission of video and audio signals and computerized data between two or more locations through a digital telecommunications network. Videoconferencing communications systems were first introduced in the late 1970's in the form of specialized dedicated conference rooms outfitted with expensive electronic equipment and requiring trained operators. Signals were transmitted over dedicated transmission lines established between fixed locations. Market acceptance of early systems was limited because of the low quality of the video output, as well as the high hardware and transmission costs and limited availability of transmission facilities. Technological developments in the 1980's resulted in a dramatic increase in the quality of video communications, as well as a substantial reduction in cost. The proliferation of switched digital networks, which transmit digital, as opposed to analog signals, eliminated the requirement of dedicated transmission lines. Advances in data compression and decompression technology, and the introduction of devices for separating and distributing digital signals over several channels simultaneously and recombining them after transmission, resulted in products with substantially improved video and audio quality and further reduced hardware costs. Competition among telecommunications carriers during the past decade, together with the expanded use of fiber optic technology and the development of integrated switched digital networks ("ISDN") have further contributed to reduced transmission costs. In the 1990's industry standards for videoconferencing hardware, software and transmission were put into place to ensure compatibility among systems made by different manufacturers. These industry standards increased the quality and features available in videoconferencing systems while significantly decreasing the costs to the customer. 29 High Quality IP Network Videoconferencing In a study conducted by Perey Research, the global market for videoconferencing network services is expected to reach $3.3 billion in 2000, with a projected 50% annual growth over the next five years. Over 90% of the applications currently utilizing these services are ISDN (H.320) standards based, but will, we believe, be migrating to IP (H.323) based standards. IP-based networks use a communications protocol that allows computers to transfer information in packets. The H.323 specification defines packet standards for terminal, equipment and services for multimedia communications over IP networks. One of the primary factors driving users to migrate to H.323 standards is the poor quality of service ("QoS") experienced with ISDN based videoconferencing equipment and network services. Until two years ago, installation of videoconferencing equipment cost in excess of $50,000 and the equipment was difficult to use, often requiring a dedicated technician. In the last two years, videoconferencing equipment has become dramatically less expensive and more robust. Polycom, Inc. initiated these changes with the introduction of its ViewStation product line, and many other manufacturers followed with their own products. These consumer friendly, less expensive products have increased interest in videoconferencing as a viable alternative for business communications. However, a lack of reliable ISDN based videoconferencing has impeded rapid growth in this industry. In an effort to address these reliability concerns, manufacturers of videoconferencing equipment have designed systems to operate on H.323 standards. This ability to perform videoconferencing over IP is expected to result in significant growth of the use of videoconferencing in the business community. There are several advantages to videoconferencing over IP, the major advantage being guaranteed QoS. Whereas ISDN based videoconferencing offers no QoS guarantee, in testing IP-based videoconferencing has met a QoS of 99.4% and above. Additionally, Wire One expects the network costs of videoconferencing over IP to be approximately 50% less than ISDN based conferencing. Because the videoconferencing equipment is on an IP network, one person can monitor hundreds of endpoints from one location, thus substantially reducing the maintenance and support costs associated with a large videoconferencing program. VOICE COMMUNICATIONS. Advances in telecommunications technologies have facilitated the development of increasingly sophisticated telephone systems and applications. Telecommunications systems have evolved from simple analog telephones to sophisticated digital systems and applications. Users increasingly rely upon a variety of applications, including conference calling, speakerphones, voice processing and automated attendant, to improve communications within their organizations and with customers and vendors. Digital technology has facilitated the integration of computing and telecommunications technologies, which has made possible a number of new applications that further enhance productivity. As the telecommunications needs of businesses have become more advanced, the integration of the different parts of a system has become increasingly complex. The system integration, service and support capabilities of telecommunications suppliers have become significant competitive factors. In order to meet the needs of end users, suppliers such as Wire One have been increasingly required to develop close relationships with their customers. PRODUCTS AND SERVICES We provide turnkey integrated videoconferencing, voice and data solutions to our customers. We are a reseller of videoconferencing products manufactured by Polycom, Inc. ("Polycom"), SONY Electronics Inc. ("SONY"), PictureTel Corporation, VCON, Accord Telecommunications ("Accord") and VTEL Corporation ("VTEL") and voice communications products manufactured by Lucent Technologies, Inc. ("Lucent"), the Business Telephone System Division of Panasonic Communications and Systems Company ("Panasonic") and Active Voice Corporation ("Active Voice"). Our business involves the sale, installation and maintenance of the full line of videoconferencing, data solutions and voice products manufactured by these companies. 30 VIDEOCONFERENCING SERVICES High Quality IP Network We expect to launch our IP-based videoconferencing subscriber service, utilizing digital subscriber line (DSL) access and a high-QoS backbone network in the fourth quarter of 2000. This dedicated network will provide customers with a high-quality platform for H.323 videoconferencing and related applications. The new service will offer subscribers a 99.4% QoS guarantee, remote management of all endpoints utilizing SNMP (software network management protocol), gateway services to ISDN-based videoconferencing equipment, video streaming, and store-and-forward applications, all from our centralized network operations center in New Jersey. The demand for broadband service has accelerated the build-out of high-speed networks. Although most companies today have wide area networks ("WANs") that could theoretically support IP videoconferencing, they are reluctant to use them for this application because of the tremendous amount of dedicated bandwidth required. We believe that our subscriber network will be a natural alternative. To provide the network service, we have partnered with Covad Communications for subscriber DSL network access and with Exodus Communications for its intelligent broadband backbone. In addition, internet service providers (ISPs) should find high-quality videoconferencing to be an attractive offering to their customer bases. Leading IP videoconferencing and video networking equipment suppliers Polycom, VCON, and RADVision have already announced that their products will be compatible with the service. We maintain a close working relationship with Cisco Systems' IP/TV division, as the IP/TV system will function on our network. Upon the completion of our network operations center, scheduled for the end of the third quarter of this year, we will begin to pilot the service to select customers. We expect customers to incur incremental usage fees of $20-$25 per hour of videoconferencing time at 384 kbps of bandwidth, realizing a savings of up to 50% over typical ISDN videoconferencing costs. Other Videoconferencing Services We offer our customers the convenience of single-vendor sourcing for most aspects of their communications needs and develop customized systems designed to provide efficient responses to customer communications technology requirements. We provide our customers with a full complement of video communications and telecommunications services to ensure customer satisfaction. Prior to the sale of systems and services, we provide consulting that includes an assessment of customer needs and existing communications equipment, as well as cost-justification and return-on-investment analyses for system upgrades. Once we have made recommendations with respect to the most effective method to achieve our customer's objectives and the customer has ordered a system, we deliver, install and test the communications equipment. When the system is functional, we provide training to all levels of our 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 the planning and administration of meetings. By means of thorough training, we help to ensure that our customers understand the functionality of the systems and are able to apply the technology effectively. Our One Care(TM) service product program maintenance contracts and comprehensive customer support with respect to the communications equipment we sell. We offer a toll-free technical support hotline 24 hours a day, 365 days a year. Customers may also receive onsite and remote support and maintenance. Our service personnel maintain regular contact with customers. We also offer 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 we perform for our customers. 31 We also sell multi-point video and audio bridging services through a program called the Multiview Network Services(TM). We employ state-of-the-art conferencing servers in Camarillo, CA, providing seamless connectivity for all switched digital networks across the globe at an affordable rate. Because Multipoint conferencing equipment costs between $65,000 and $200,000 per unit, our customers typically elect to use the Multiview network when bridging is required. VIDEOCONFERENCING AND DATA PRODUCTS We provide PictureTel, Polycom, SONY, VCON, Accord and VTEL videoconferencing systems on a national and international basis. Our customers include business, education, health care and government agencies. Wire One: (i) provides its customers with systems produced by PictureTel, Polycom, SONY and VTEL, worldwide manufacturers of room-based videoconferencing equipment, roll-about systems, vertical applications and desktop computer systems, and ancillary equipment manufactured by others, (ii) selects and integrates those systems and components into complete systems designed to suit each customer's particular communications requirements, (iii) develops custom software and hardware components when necessary and (iv) provides training and other continuing services designed to insure that its customers fully and efficiently utilize their systems. Data. Wire One sells products from companies such as Adtran, Lucent Madge Networks and RADVision. These products provide business customers remote access into local area networks, and permit them to acquire bandwidth on demand and digitally transmit data. VOICE COMMUNICATIONS PRODUCTS. Voice Communications. We are a reseller of Lucent and Panasonic digital key and hybrid telephone systems, PBX telephone systems, voice processing systems and CTI solutions. Lucent and Panasonic manufacture digital key and hybrid telephone systems which contain multi-featured fully electronic digital telephones, common control units, central processing units, and associated common equipment to provide service in the approximately 2,000 line and under marketplace. We distribute Lucent manufactured PBX systems under the name Definity which has a capacity expandable up to 25,000 ports. We also distribute a Panasonic-manufactured PBX system under the name DBS 576 with a maximum capacity of 576 ports. A key telephone system provides each telephone with direct access to multiple outside trunk lines and internal communications through intercom lines. A PBX (private branch exchange) system, through a central switching system, permits the connection of internal and external lines. A hybrid switching system provides, in a single system, both key telephone and PBX features. Key telephone equipment may be used with PBX equipment. We sell fully integrated voice processing systems manufactured by Lucent, Panasonic and Active Voice. The systems range from 2 to 64 voice ports and up to 330 hours of message storage. The systems have automated attendant features which allow incoming calls to be answered electronically and distributed to specific extensions without the use of a switchboard operator. The systems can be interactive with display telephone sets. System users have the ability to access stored messages from any touch-tone telephone. The systems have the capability to automatically notify a user outside the system of urgent messages. The systems have additional features which can be customized to the needs of the end user. We are involved in the sale, installation and servicing of Panasonic products throughout the United States both through our own employees and through subcontractors. We sell Lucent products through our direct sales force. The installation and servicing of the Lucent products are provided by Wire One employees and through subcontracting arrangements with Lucent directly and with other Lucent dealers. RESELLER AGREEMENTS. In November 1998, we entered into a two-year nonexclusive distribution agreement, with renewal options, with Polycom, Inc. This agreement has enabled Wire One to market and sell a full range of Polycom manufactured video conferencing, audio conferencing and data conferencing products. In November 1997, we signed a one-year nonexclusive distribution agreement with Lucent to sell, install and maintain Lucent Partner, Legend and Definity telephone systems, voice mail and CTI software as an 32 authorized Lucent dealer. We also have authority to resell, install and maintain Lucent peripheral products. This agreement has been renewed through March 2001. We have an agreement with Panasonic authorizing us to serve as Panasonic's nonexclusive reseller in the United States. The agreement is automatically renewable for successive one-year terms unless terminated by either party upon at least 30 days' prior notice, or immediately by Panasonic upon written notice us if we are in default in the performance of our obligations under the agreement, or upon our bankruptcy or insolvency of us. SALES AND MARKETING We market and sell our video, data, and voice products and services to commercial, federal and state government, medical, and educational markets through a direct sales force and resellers. These efforts are supported by an internal and external sales force, sales engineers, a marketing department, a call center, and a professional services and engineering group. Our marketing department concentrates on activities that will generate leads for our sales force and create brand awareness for Wire One. This is done through direct marketing campaigns, select advertising, a call center, public relations, participation in trade shows, and the coordination of seminars throughout the country. We host these seminars to demonstrate videoconferencing systems to prospective customers, and to educate them on technological advancements in video, voice and data communications. We also provide our sales force with ongoing training to ensure that they have the necessary expertise to effectively market and promote our company and the solutions we support. The manufacturers we represent provide us with sales, advertising and promotional materials, which we, in turn, give to existing and prospective customers in conjunction with sales promotion programs that our manufacturers sponsor. We maintain up-to-date systems for demonstration purposes in all of our offices. Our technical and training personnel attend installation and service training sessions offered by the manufacturers from time to time to enhance their knowledge and expertise in the installation and maintenance of the systems. When preparing a solution for a prospective or existing client, our account executive will work in conjunction with one of our sales engineers. These engineers typically have a very strong IP and data networking background; expertise which is critical for success in the burgeoning video over IP marketplace. Together, they consult with the client in order to assess its needs and to determine the most effective method to meet its requirements. We then design a communications solution (video, data or voice) that will ensure customer satisfaction and optimal utilization of the systems. Upon delivery of the system, one of our field technicians installs and tests the equipment to make sure all systems are fully functional. After installation, we provide training both onsite and remotely to all levels of management within the customer's organization. Training includes instruction in systems operation and, with respect to videoconferencing systems, the successful planning and administration of meetings. After installation, we provide support to our customers through our One Care(R) Service program. One Care offers a 24x7 help desk, nationwide onsite service, 24-hour parts replacement, network troubleshooting, and 24-hour video test facilities. EMPLOYEES As of June 30, 2000, Wire One had 198 full-time employees. Seventy two of our employees are engaged in marketing and sales, 104 in installation service, technical services and customer support and 22 in finance and administration. None of our employees are represented by a labor union. We believe that our employee relations are good. 33 COMPETITION The voice and videoconferencing communications industries have been characterized by pricing pressures and business consolidations. We compete with other resellers, as well as manufacturers of voice communications and videoconferencing systems, many of which are larger, have greater recognition in the industry, a longer operating history and greater financial resources than us. Our competitors in the voice communications sector include Lucent, Northern Telecom, Toshiba America, Inc., Siemens Corporation and NEC Corporation. We also compete with other dealers of voice communication products. Our competitors in the videoconferencing communications sector include PictureTel Corporation, Tandberg Inc., VTEL Corporation, MCI Worldcom and other dealers. Existing competitors may continue to broaden their product lines and expand their retail operations, and potential competitors may enter into or increase their focus on the voice and/or videoconferencing communications market, resulting in greater competition for us. In particular, management believes that as the demand for videoconferencing communications systems continues to increase, additional competitors, many of which also will have greater resources than Wire One, will enter the videoconferencing market. We believe that our technical expertise and commitment to customer service and support allow us to compete favorably. We conduct comprehensive sales and product training for all our sales, marketing and technical personnel. We believe that such training results in our employees having a high level of product and industry knowledge which makes us more attractive to end users. We also strive to provide prompt and efficient installation, customer training and after sales service which we believe results in repeat business as well as new referrals. We believe our comprehensive knowledge of the operations of the industries we have targeted, the quality of the equipment we sell, the quality and depth of our services, our nationwide presence and ability to provide our customers with all of the equipment and services necessary to ensure the successful implementation and utilization of our video communications system enable us to compete successfully in the industry. PROPERTIES Our headquarters are located at 225 Long Avenue, Hillside, New Jersey, 07205. These premises consist of 7,180 square feet of office space, and 7,400 square feet of secured warehouse facilities. The term of this lease is for a period of five years expiring on May 31, 2002. The base rental for the premises during the term of the lease is $87,040 per annum. In addition, we are also obligated to pay our share of the Landlord's operating expenses (i.e., those costs or expenses incurred by the Landlord in connection with the ownership, operation, management, maintenance, repair and replacement of the premises, including, among other things, the cost of common area electricity, operational services and real estate taxes). We have an option to renew the lease for an additional term of five years, provided we are not in default under the terms of the lease at the time of renewal. The Hillside premises serve as our headquarters and are utilized for executive, administrative and sales functions, the demonstration of our voice and videoconferencing systems and the warehousing of our inventory. At the present time, there is additional adjoining space in both the office and warehouse areas should we seek to expand this facility. In addition, we currently have offices in Birmingham, Alabama; Camarillo, Irvine, Los Angeles, Sacramento, Santa Clara and San Francisco, California; Trumbull, Connecticut; Engelwood, Colorado; Washington, D.C.; Jacksonville, Florida; Chicago, Illinois; Indianapolis, Indiana; Baton Rouge, Louisiana; Canton, Massachusetts; Minneapolis, Minnesota; New York, New York; Durham, North Carolina; Philadelphia, Pennsylvania; Knoxville and Nashville, Tennessee; Dallas and Houston, Texas; Salt Lake City, Utah; Manassas, Virginia; and Bellevue, Washington. We believe that the facilities we presently lease will be adequate for the foreseeable future and that additional suitable space, if required, can be located and leased on reasonable terms. LEGAL PROCEEDINGS On July 16, 1998, MaxBase, Inc. filed a Complaint against ACC and one of its subsidiaries in the Superior Court of New Jersey, Law Division, in Bergen County. The Complaint alleges that ACC breached its agreement with MaxBase Inc., for Maxshare 2 units by failing to meet the required minimum purchase 34 obligations thereunder. The complaint further alleges misrepresentation and unfair trade practices. The Complaint also seeks to enjoin ACC from enforcing any rights ACC has under the agreement. Maxbase claims damages of $508,200 in lost profits for units not purchased and $945,300 in lost profits for units sold to ACC below market price, as well as unspecified punitive and treble damages. In March 1999, the plaintiff added claims for defamation and tortious interference. A trial is expected to occur in October 2000. We believe the claims by MaxBase are without merit and intend to fully defend the suit and assert its rights under the agreement. ACC filed a counterclaim for breach of contract, breach of warranty and rescission based upon misrepresentation. We do not anticipate that this proceeding will have a material adverse effect on our the financial condition or results of operations. 35 DESCRIPTION OF CAPITAL STOCK GENERAL Our current authorized capital stock consists of 100,000,000 shares of common stock, par value $.0001 per share, and 5,000,000 shares of preferred stock, par value $.0001 per share. The following summary of the terms and provisions of our capital stock are not complete, and you should read our amended and restated certificate of incorporation and amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus forms a part. COMMON STOCK At the close of business on July 21, 2000 there were 16,781,786 shares of our common stock outstanding. Each stockholder is entitled to one vote for each share owned on all matters voted upon by stockholders, including the election of directors. Subject to the rights of any then outstanding shares of preferred stock, stockholders are entitled to dividends that the board of directors may declare. The decision to declare dividends is made by the board of directors in its sole discretion, but the board of directors may only declare dividends if there are funds legally available to pay for the dividends. Stockholders are entitled to share ratably in our net assets upon liquidation after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. Stockholders have no preemptive rights to purchase shares of our stock. Shares of common stock are not subject to any redemption provisions and are not convertible into any other securities of Wire One. All outstanding shares of common stock are, and the shares of common stock will, when issued by us in this offering, be fully paid and non-assessable. PREFERRED STOCK Pursuant to our certificate of incorporation, the board of directors has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock. The board of directors may issue this stock in one or more series and may fix the rights, preferences, privileges and restrictions of this stock. Some of the rights and preferences that the board of directors may designate include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. The board of directors may determine the number of shares constituting any series or the designation of such series. Any or all of the rights and preferences selected by the board of directors may be greater than the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that stockholders will receive dividend payments and payments upon liquidation. The issuance of preferred stock could also have the effect of delaying, deferring or preventing a change in control of Wire One. We currently have designated one series of preferred stock, a summary of the terms of which are set forth below. While we have no present intention to issue shares of any additional series of preferred stock, any such issuance could dilute the equity of the outstanding shares of common stock and could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. In addition, such preferred stock may have other rights, including economic rights senior to the common stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the common stock. Series A Preferred Stock 2,500 shares of our preferred stock have been designated as series A preferred stock. As of June 30, 2000, we had outstanding 2,450 shares of series A preferred stock. Each share of series A preferred stock has a stated value of $7,000, which is convertible into our common stock at a fixed conversion price equal to $7.00 per share. Beginning on June 14, 2001, each holder of series A preferred stock has the option to substitute an "alternative conversion price" for the $7.00 fixed conversion price. The alternative conversion price is the higher of (i) 70% of the fixed conversion price then in effect or (ii) the market price on any conversion date, which is equal to the average of the closing sale prices of the common stock during the 20 consecutive trading days immediately preceding any conversion date. 36 The number of shares of common stock issuable upon conversion is subject to adjustment for stock splits, recapitalizations or other dilutive transactions, as well as issuances of common stock at a price below the conversion price in effect, or the issuance of warrants, options, rights, or convertible securities which have an exercise price or conversion price less than the conversion price then in effect. The 2,450 shares of series A preferred stock outstanding will convert automatically into common stock at the applicable conversion price then in effect on the earlier (i) the consummation of a sale of our common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, the public offering price of which is not less than $12.00 per share (adjusted for any stock splits, stock dividends, combinations or recapitalizations) and in which we receive aggregate gross proceeds of not less than $40,000,000 or (ii) the conclusion of a 20 consecutive trading day period where the closing sale price of our common stock equals or exceeds $12.50. Pursuant to its terms, the series A preferred stock and the warrants issued in connection therewith are convertible or exercisable by any holder only to the extent that the number of shares of common stock issuable thereunder, together with the number of shares of common stock owned by such holder and its affiliates (but not including shares of common stock underlying unconverted or unexercised options, warrants or convertible securities), would not exceed 4.99% of the then outstanding common stock as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934. In addition, we can not effect any mandatory conversion until the registration statement covering the resale of the common stock issuable upon conversion of the series A preferred stock and exercise of the related warrants has been declared effective. In order to comply with the rules of the Nasdaq National Market, we must obtain stockholder approval prior to issuing shares of common stock upon conversion of our series A preferred stock in excess of 19.99% of our common stock outstanding as of June 14, 2000, the date of issuance of the series A preferred stock. If the holders of the series A preferred stock submit a conversion request and we are not able to issue the required amount of shares of common stock due to an inability to comply with such rules of the Nasdaq National Market or upon certain other events, a Triggering Event (as defined below) would occur. We may be required, upon the occurrence of a Triggering Event or Major Transaction (as defined below), to redeem each share of series A preferred stock at 110% of the stated value, or $7,700 per share. A "Major Transaction" includes certain mergers, consolidations, tender offers or the sale of substantially all our assets. A "Triggering Event" includes: o failure of the registration statement covering the resale of the common stock issuable upon conversion of the series A preferred stock and exercise of the related warrants to be declared effective prior to December 11, 2000; o the unavailability or lapse in the effectiveness of such registration statement for ten (10) consecutive trading days or an aggregate of thirty (30) trading days per year provided that such lapse is not due to factors solely within the control of a holder of the series A convertible preferred stock; o the suspension or halting from trading, suspension from listing or delisting of our common stock by the Nasdaq National Market, the New York Stock Exchange or the American Stock Exchange for five (5) consecutive trading days (excluding disruptions from business announcements that result in any halt(s) in trading of not more than three (3) days on each occasion) and other than as a result of the suspension of trading in securities on such market in general; o our failure to comply with conversions of the series A preferred stock within ten (10) trading days after a conversion notice is submitted; o our inability to issue common stock upon conversion of the series A preferred stock due to limitations imposed by the requirements of the Nasdaq National Market; o specified breaches of representations, warranties, covenants (that are not cured in fewer than ten (10) days) or terms of the documents delivered in connection with the purchase and sale of the series A preferred stock which would have a material adverse effect on us; or o any of the shares of series A preferred stock have not been converted into common stock on June 14, 2003. If we are unable to effect a redemption of all the shares of series A preferred stock submitted for redemption, we will redeem a pro rata amount from each holder. 37 Upon any sale of all or substantially all our assets, or a recapitalization, reorganization, reclassification, consolidation or merger with or into another company in which we are not the surviving entity, we will obtain from the acquiring person or entity a written agreement whereby the other corporation will assume all of our obligations under the series A preferred stock. The holders of the series A preferred stock are not entitled to receive dividends. The holders of the series A preferred stock have preemptive rights to subscribe for any additional shares of any class of our capital stock or for any issue of bonds, notes or other securities convertible into any class of our capital stock. The holders of the series A preferred stock have no voting rights except as provided by law, and except to the extent such holders own common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up, the holders of the series A preferred stock are entitled to receive in cash out of our assets, whether from capital or from earnings available for distribution to our stockholders, before any amount shall be paid to any class junior in rank to the series A preferred stock, an amount per share of series A preferred stock equal to $7,000 plus any accrued and unpaid dividends. WARRANTS Series A Financing Warrants In connection with the sale of the series A preferred stock, we issued to the purchasers warrants to purchase 857,500 shares of common stock. Each warrant has an exercise price of $10.50 per share and expires on June 14, 2005 (subject to extension). The warrant is subject to anti-dilution provisions in the event we sell common stock or securities convertible or exercisable into common stock at a price less than $10.50, subject to adjustment. Additionally, upon not less than 30 days advance notice, we may redeem the warrants at a price of $0.10 per warrant but only if the closing sale price for our common stock issuable upon exercise of the warrant equals or exceeds 200% of the exercise price then in effect for a period of 20 consecutive trading days ending at least three days prior to the date of the notice of redemption. The warrant holder may designate a "cashless exercise option." This option entitles the warrant holders to elect to receive fewer shares of common stock without paying the cash exercise price. The number of shares to be determined by a formula based on the total number of shares to which the warrant holder is entitled, the current market value of the common stock and the applicable exercise price of the warrant. H.C. Wainwright & Co., Inc. warrants Under the terms of our agreement with H.C. Wainwright & Co., Inc. we issued warrants to purchase 261,624 shares of our common stock. 193,748 of which have an exercise price of $7.00 per share and 67,876 of which have an exercise price of $10.50 per share. All of these warrants expire on June 14, 2005. These warrants contain customary anti-dilution protection. Other Warrants In April 2000, VTI issued 199,249 warrants to purchase shares of our common stock certain warrantholders as consideration for their agreement to exercise warrants held by them in March 2000. Each of these warrants has an exercise price of $12.00 per share and expire on April 24, 2005 (subject to extension). These warrants contain customary anti-dilution protection. In December 1996, in connection with a private placement with Telecom Holding, LLC VTI issued warrants to purchase 243,750 shares of our common stock at an exercise price of $13.00 per share. These warrants expire on December 31, 2001. These warrants contain customary anti-dilution protection. In November 1997, in connection with our $15 million credit agreement, VTI issued warrants to purchase 40,000 shares of our common stock. Each of these warrants has an exercise price of $3.26 per share and expire on November 21, 2004. These warrants contain customary anti-dilution protection. 38 STOCK OPTION PLANS We currently maintain the plans established by ACC and VTI prior to consummation of the merger. ACC Plan The ACC Plan provides for the granting of options to officers, directors, employees and advisors of Wire One. Options are not exercisable for a period of one year from the date of grant. Thereafter, options may be exercised as determined by the Board of Directors at the date of grant, with maximum terms of ten and five years, respectively, for incentive stock options ("ISOs") issued to employees who are less than 10% stockholders and employees who are 10% stockholders. In addition, under the plan, no individual will be given the opportunity to exercise ISO's valued in excess of $100,000, in any calendar year, unless and to the extent the options have first become exercisable in the preceding year. The maximum number of shares with respect to which options may be granted to an individual during any twelve-month period is 100,000. The ACC Plan will terminate in 2006. Substantially all 1,500,000 shares available under the ACC Plan are subject to outstanding options. ACC has also issued approximately 1,609,000 non-qualified options. VTI Plans VTI had an Employee Stock Purchase Plan (the "Purchase Plan") under which up to 500,000 shares of VTI common stock could be purchased by eligible employees. Substantially all full-time employees were eligible to participate in the Purchase Plan. No additional shares may be purchased under this Plan. Wire One currently maintains five VTI stock option plans which 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 became immediately exercisable upon the merger. An aggregate of 1,922,000 shares of common stock were available under the five VTI stock option plans of which approximately 275,000 shares are still available for issuance. REGISTRATION RIGHTS The holders of the series A preferred stock and related warrants are entitled to have the shares of common stock underlying such securities registered by us under the terms of an agreement between us and the holders of the series A preferred stock and related warrants. Under the terms of such agreement, we are required to file a registration statement covering the shares of common stock underlying such series A preferred stock and related warrants by July 29, 2000. If this registration statement has not been declared effective by October 12, 2000, then for each month (prorated for partial months) thereafter during which the registration statement is not declared effective we will issue to each purchaser of our series A preferred stock warrants to 2% of the purchase price paid by such investor for our series A preferred stock in June 2000, with an exercise price equal to the current market value of our common stock at the time of issuance. We are also required to maintain the effectiveness of the registration statement covering such shares of common stock until the earlier of: o the date as of which the holders of the series A preferred shares and warrants may sell all of the shares of common stock covered by such registration statement under Rule 144(k) of the Securities Act, and o the date on which the holders of the series A preferred shares and warrants have sold all of the shares of common stock issued or issuable upon conversion of the series A preferred shares and exercise of the related warrants. We will bear all registration expenses, other than underwriting discounts and commissions, with respect to the registration statement relating to the series A preferred shares and the related warrants. In addition, we have granted "piggyback" registration rights to certain warrantholders and consultants holding an aggregate of 1,707,272 shares of our common stock. We also granted "piggyback" registration rights in connection with our recent acquisition of 2 Confer, LLC pursuant to which we granted 33,438 shares of one common stock. TRANSFER AGENT AND REGISTRAR American Stock Transfer and Trust Company of Brooklyn, New York is the transfer agent and registrar of our common stock. 39 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information with respect to our directors and executive officers.
NAME AGE POSITION - ------------------------------ --- --------------------------------------------------------------------------- Richard Reiss(1) 43 Chairman, President and Chief Executive Officer. Christopher A. Zigmont 38 Chief Financial Officer, Vice President Finance Scott Tansey 36 Vice President, Finance and Treasurer Leo Flotron 40 Vice President, Sales and Marketing of Videoconferencing Products Joseph Scotti 38 Vice President, Sales and Marketing of Voice Products Robert B. Kroner(1)(3) 70 Vice President and Director Andrea Grasso 40 Secretary and Director Louis Capolino(1) 57 Director Eric Friedman(2)(4) 51 Director Dean Hiltzik(1)(3)(4) 46 Director Peter N. Maluso(1)(2)(3)(4) 45 Director
- ------------------ (1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. (4) Member of the Employee Stock Option Committee. RICHARD REISS is Wire One's Chairman of the Board of Directors, President and Chief Executive Officer and served as ACC's Chairman of the Board of Directors, President and Chief Executive Officer since ACC's formation in 1991 until May 2000. CHRISTOPHER ZIGMONT is Wire One's Chief Financial Officer and Vice President, Finance. From June 1999 until May 2000, Mr. Zigmont served as VTI's Chief Financial Officer. From March, 1990 to May, 1999, Mr. Zigmont held various positions at BankBoston Corporation, most recently as Director, Finance. Prior to joining BankBoston Corporation, Mr. Zigmont was a Senior Audit Manager with the accounting and auditing firm of Peat Marwick. He received a B.S. degree in Business Administration with a double major in Accounting/Finance from Boston University, Boston, Massachusetts. SCOTT TANSEY is Wire One's Vice President, Finance and Treasurer. From 1996 until May 2000, Mr. Tansey held numerous positions at ACC, most recently in the position of Chief Financial Officer. From 1992 until he joined ACC, Mr. Tansey served as Director, Finance and Administration, of Data Transmission Services, Inc., a closely-held long distance wireless data communications provider. Mr. Tansey received a B.S. degree in Accounting from Rider College, Lawrenceville, New Jersey, and an M.B.A. degree in Finance from Fairleigh Dickinson University, Madison, New Jersey. He is a certified public accountant. LEO FLOTRON is Wire One's Vice President, Sales and Videoconferencing Products. From October 1995 until May 2000, Mr. Flotron served as ACC's Vice President, Sales and Marketing of Videoconferencing Products, in charge of sales and marketing for videoconferencing and network products. From 1988 to 1995, Mr. Flotron held numerous positions with Sony Electronics, Inc., and has served as ACC's liaison with Sony throughout the United States. Mr. Flotron holds a B.S. degree in Business from the University of Massachusetts in Amherst, and an M.S. degree in Finance from Louisiana State University. JOSEPH SCOTTI is Wire One's Vice President, Sales and Videoconferencing Products. From August 1995 until May 2000, Mr. Scotti served as ACC's Vice President, Sales and Marketing of Voice Products dealing with all aspects of voice communications. From 1990 to 1995, Mr. Scotti held numerous sales and sales management positions with Northern Telecom. Mr. Scotti received a B.S. degree in Marketing from St. Peters College. ROBERT B. KRONER is Wire One's Secretary and serves on our Board of Directors. From 1991 until May 2000, Mr. Kroner served on ACC's Board of Directors and served as Vice President and General Counsel of ACC from 1997 until May 2000. Prior to 1997, Mr. Kroner was self-employed as an attorney. Mr. Kroner 40 received his LLB degree from Harvard Law School and holds an L.L.M. degree from New York University Graduate School of Law. ANDREA GRASSO is Wire One's Secretary and serves on our Board of Directors. From 1995 until May 2000, Ms. Grasso was ACC's Secretary and served on ACC's Board of Directors from 1996 until May 2000. In addition, Ms. Grasso was ACC's office administrator from 1991 until May 2000. LOUIS CAPOLINO serves on our Board of Directors. From November 1999 until May 2000, Mr. Capolino was a member of ACC's Board of Directors. Since January 1995, Mr. Capolino has served as President of Comcap Corporation, a communications consulting company. Mr. Capolino received a B.S. degree in marketing from Montclair State University. ERIC FRIEDMAN serves on our Board of Directors. From December 1996 until May 2000, Mr. Friedman was a member of ACC's Board of Directors. He has served as Vice-President and Treasurer of Chem International, Inc., a publicly held company, since June 1996. From June 1978 through May 1996, Mr. Friedman was a partner at Shachat and Simpson, a certified public accounting firm. Mr. Friedman received a B.S. degree from the University of Bridgeport and is a certified public accountant. DEAN HILTZIK serves on our Board of Directors. From September 1999 until May 2000, Mr. Hiltzik was a member of ACC's Board of Directors. Mr. Hiltzik, a certified public accountant, is a partner and manager of the securities practice at Schneider Ehrlich & Associates LLP ("Schneider Ehrlich"), which he joined in 1979. Schneider Ehrlich provides tax and consulting services to ACC. Mr. Hiltzik received his B.A. from Columbia University in 1974 and his M.B.A. in Accounting from Hofstra University in 1979. PETER N. MALUSO serves on our Board of Directors. From December 1996 until May 2000, Mr. Maluso was a member of ACC's Board of Directors. Since 1995, Mr. Maluso has been employed as a Principal at International Business Machines, Inc. ("IBM"), responsible for IBM's Global Services Legacy Transformation Consulting practice in the northeastern United States. Prior thereto, from 1988 to 1995, Mr. Maluso was a Senior Manager for KPMG Peat Marwick's strategic services practice in New Jersey. Mr. Maluso received his B.A. degree in Economics from Muhlenberg College and holds an M.B.A. degree in Finance from Lehigh University. He is a certified public accountant. BOARD OF DIRECTORS Mr. Friedman and Ms. Grasso serve as Class I directors until the first annual meeting of Wire One stockholders in September 2000. Messrs. Kroner and Maluso serve as Class II directors and their terms will expire upon the anniversary of the first annual meeting of the Wire One stockholders. Messrs. Reiss, Hiltzik and Capolino serve as Class III directors and their term will expire upon the second anniversary of the first meeting of Wire One stockholders. Upon election at an annual meeting of stockholders, directors will serve a three year term. EXECUTIVE COMMITTEE We currently maintain an Executive Committee consisting of Richard Reiss, Peter Maluso, Louis Capolino, Robert Kroner and Dean Hiltzik. Each non-employee member of our executive committee receives options to purchase 500 shares of common stock for each meeting attended. The Executive Committee, to the extent permitted by law, will have and may exercise when the Board of Directors is not in session all powers of the board in the management of the business and affairs of Wire One, except such committee shall not have the power or authority to approve or recommend to the stockholders any action which must be submitted to stockholders for approval under the Delaware General Corporation Law. AUDIT COMMITTEE We currently maintain an Audit Committee consisting of Eric Friedman, Peter Maluso and Louis Capolino. Each non-employee member of our Audit Committee receives, and will continue to receive as a member of the Wire One audit committee, options to purchase 500 shares on common stock for each meeting attended. The Audit Committee will consult and meet with Wire One's auditors and its Chief Financial Officer and accounting 41 personnel, review potential conflict of interest situations, where appropriate, and report and make recommendations to the full Board of Directors regarding such matters. COMPENSATION COMMITTEE We currently maintain a Compensation Committee consisting of Robert Kroner, Dean Hiltzik and Peter Maluso. Each non-employee member of our Compensation Committee receives, and will continue to receive as a member of the Wire One Compensation Committee, options to purchase 500 shares on common stock for each meeting attended. The Compensation Committee will be responsible for supervising Wire One's executive compensation policies, reviewing officers' salaries, approving significant changes in employee benefits and recommending to the Board of Directors such other forms of remuneration as it deems appropriate. STOCK OPTION COMMITTEE We currently maintain an Employee Stock Option Committee consisting of Dean Hiltzik, Eric Friedman and Peter Maluso. Each non-employee member of our Employee Stock Option Committee receives, and will continue to receive as a member of the Wire One Employee Stock Option Committee, options to purchase 500 shares on common stock for each meeting attended. The Stock Option Committee will be responsible for administering Wire One's employee incentive plans and recommending to the Board of Directors such other forms of remuneration as it deems appropriate. DIRECTOR COMPENSATION Directors who are not executive officers or employees of Wire One will receive a director's fee of options to purchase 1,000 shares of Wire One's common stock for each board meeting attended, whether in person or by telephone and options to purchase 4,000 shares of Wire One's common stock for attendance in person at the annual meeting of stockholders. EMPLOYMENT AGREEMENTS We entered into employment agreements with each of Messr. Reiss, Flotron and Scotti, effective January 1, 1997, pursuant to which Mr. Reiss serves as President and Chief Executive Officer, Mr. Flotron serves as Vice President, Sales and Marketing of Videoconferencing Products and Mr. Scotti serves as Vice President, Sales and Marketing of Voice Products. The following is a summary of the material terms and conditions of such agreements and is subject to the detailed provisions of the respective agreements attached as exhibits to the registration statement of which this prospectus is a part. Employment Agreement with Richard Reiss Mr. Reiss has an employment agreement, effective January 1, 1997, as amended in March 1997, which provides for a six-year term and an annual salary of $133,000 in the first year, increasing to $170,000 and $205,000 in the second and third years, respectively. In years four, five and six of the term, Mr. Reiss' base salary will be $205,000, but can be increased at the discretion of the board of director's Compensation Committee. The agreement also provides for medical benefits, the use of an automobile, and grants of 1,237,500 non-qualified stock options, as well as 42,857 incentive stock options and 122,143 non-qualified stock options issuable under the ACC Plan, which plan has been assumed by Wire One and is still in effect. Employment Agreements with Messrs. Flotron and Scotti Messrs. Flotron and Scotti have employment agreements effective January 1, 1997. Each of these agreements provide for a three-year term and annual salaries of $104,000 in the first year increasing by $10,000 each year thereafter. These agreements further provide for an incentive bonus equal to 1/2 of 1% of net sales payable twice yearly to each of Mr. Flotron and Mr. Scotti. Each employee is also entitled to a monthly automobile allowance. Effective January 11, 1999, both of these employment agreements were amended. In consideration for extending the term of the agreements for an additional year, through December 31, 2000, we granted additional options outside of ACC's Plan to purchase up to 495,000 shares each of ACC Common Stock, which options vest over a twenty-three month period. These agreements may be terminated by the employee without cause upon written notice to Wire One. 42 EXECUTIVE COMPENSATION The table below summarizes information concerning the compensation paid by ACC during 1999 to ACC's Chief Executive Officer and ACC's four other most highly paid executive officers (collectively, the "Named Executive Officers"), each of whom are currently Named Executive Officers of Wire One:
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------------- --------------------- SECURITIES NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS - ----------------------------------------------------------------------- --------- -------- ------------------- Richard Reiss, President,.............................................. 205,000 75,000 -- Chief Executive Officer and Chairman of the Board Leo Flotron, Vice President............................................ 124,000 119,794 495,000 Joseph Scotti, Vice President.......................................... 124,000 119,794 495,000 Scott Tansey, Chief Financial Officer, Vice-President--Finance and Treasurer........................................................ 100,000 25,000 165,000
OPTION GRANTS IN 1999 The following table sets forth information regarding stock options granted pursuant to the ACC stock option plan during 1999 to each of the Named Executive Officers.
PERCENT OF GRANTED POTENTIAL REALIZED VALUE SECURITIES AT ASSUMED ANNUAL RATES NUMBER OF TOTAL INDIVIDUAL OF STOCK PRICE APPRECIATION UNDERLYING OPTIONS GRANTED GRANTS EXERCISE FOR OPTION TERM OPTIONS TO EMPLOYEES IN OR BASE PRICE ---------------------------- NAME GRANTED FISCAL 1999 (PER SHARE) EXPIRATION DATE 5% 10% - ------------------- --------- --------------- --------------- ---------------- ------------ ------------ Richard Reiss...... -- --% $ -- -- $ -- $ -- Leo Flotron........ 495,000 23.5 .937 January 11, 2004 358,763 452,714 Joseph Scotti...... 495,000 23.5 .937 January 11, 2004 358,763 452,714 Scott Tansey....... 165,000 7.8 .937 January 11, 2004 119,588 150,905
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning the value of unexercised in-the-money options held by the Named Executive Officers as of December 31, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ACQUIRED ON VALUE ---------------------------- ---------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------------------- ----------- -------- ----------- ------------- ----------- ------------- Richard Reiss...................... -- -- 1,428,900 105,600 4,367,654 554,480 Leo Flotron........................ -- -- 397,650 287,100 2,111,888 1,519,825 Joseph Scotti...................... -- -- 397,650 287,100 2,111,888 1,519,825 Scott Tansey....................... -- -- 231,000 132,000 1,191,775 670,150
43 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The landlord for our Hillside, New Jersey office is Vitamin Realty Associates, L.L.C. of which Eric Friedman, one of our directors, is a member. These premises consist of 8,491 square feet of office space, and 13,730 square feet of secured warehouse facilities. The lease term is for five years and expires on May 31, 2002. The base rental for the premises during the term of the lease is $122,846 per year. In addition, Wire One must pay its share of the landlord's operating expenses (i.e., those costs or expenses incurred by the landlord in connection with the ownership, operation, management, maintenance, repair and replacement of the premises, including, among other things, the cost of common area electricity, operational services and real estate taxes). For the years ended December 31, 1999 and 1998, rent expense associated with this lease was $135,000 and $119,000, respectively. We believe that the lease reflects a fair rental value for the property and is on terms no less favorable than we could obtain in an arm's length transaction with an independent third party. We receive financial and tax services from an accounting firm in which Dean Hiltzik, one of the Company's directors, is a partner. Since Mr. Hiltzik became a director on September 15, 1999, we have incurred fees of approximately $50,000 on services received from this firm. 44 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of common stock as of July 21, 2000 by each of the following: o each person (or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) known by us to own beneficially 5% or more of the common Stock; o Wire One's directors and Named Executive Officers; and o all directors and executive officers of Wire One as a group. As used in this table, "beneficial ownership" means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. A person is considered the beneficial owner of securities that can be acquired within 60 days from the date of this prospectus through the exercise of any option, warrant or right. Shares of common stock subject to options, warrants or rights which are currently exercisable or exercisable within 60 days are considered outstanding for computing the ownership percentage of the person holding such options, warrants or rights, but are not considered outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 16,781,716 shares of Wire One common stock outstanding as of July 21, 2000.
PERCENTAGE OF COMMON SHARES COMMON SHARES BENEFICIALLY NAME AND ADDRESS OF BENEFICIAL OWNERS (1) BENEFICIALLY OWNED OWNED (2) - -------------------------------------------------------------------------------- ------------------ ------------- Named Executive Officers and Directors: - -------------------------------------------------------------------------------- Richard Reiss................................................................... 4,704,150(3) 25.8% Leo Flotron..................................................................... 799,057(4) 4.6 Joseph Scotti................................................................... 799,057(4) 4.6 Robert B. Kroner................................................................ 258,225(5) 1.5 Scott Tansey.................................................................... 231,000(6) 1.4 Peter N. Maluso................................................................. 115,000(7) * Dean Hiltzik.................................................................... 99,885(8) * Eric Friedman................................................................... 73,425(9) * Louis Capolino.................................................................. 71,197(10) * Andrea Grasso................................................................... 41,258 * Christopher A. Zigmont.......................................................... 15,265(11) * All directors and executive officers as a group (11 people)..................... 7,207,369 36.9
- ------------------ * Less than 1% (1) Unless otherwise noted, the address of each of the persons listed is c/o Wire One Technologies, Inc., 225 Long Avenue, Hillside, NJ 07205. (2) Unless otherwise indicated by footnote, the named persons have sole voting and investment power with respect to the shares of Common Stock beneficially owned. (3) Includes 1,428,900 shares subject to presently exercisable stock options and 82,500 shares held by a trust for the benefit of Mr. Reiss' children, of which he is the trustee. (4) Includes 469,057 shares subject to presently exercisable stock options. (5) Includes 10,725 shares subject to presently exercisable stock options. (6) Includes 227,700 shares subject to presently exercisable stock options. (7) Includes 33,000 shares subject to presently exercisable stock options. (8) Includes 91,575 shares subject to presently exercisable stock options. (9) Includes 19,500 shares subject to presently exercisable stock options. (10) Includes 9,075 shares subject to presently exercisable stock options. (11) Includes 15,265 shares subject to presently exercisable stock options. 45 SELLING STOCKHOLDERS The following table sets forth the names of the selling stockholders, the number of shares of common stock owned beneficially by each of them as of July 21, 2000, calculated in the manner described below, the number of shares which may be offered pursuant to this prospectus and the number of shares and percentage of class to be owned by each selling stockholder after this offering. The selling stockholders may sell all, some or none of their shares in this offering. See "Plan of Distribution." We will not receive any proceeds from the sale of the common stock by the selling stockholders. Except as otherwise set forth in the footnotes to the table, none of the selling stockholders has held any position or office or has had any other material relationship with us or any of our affiliates within the past three years other than as a result of his or her ownership of shares of equity securities. This information is based upon information provided by the selling stockholders. Because the selling stockholders may offer all, some or none of their common stock, no definitive estimate as to the number of shares that will be held by the selling stockholders after this offering can be provided. The number of shares set forth in the second column of the table represents an estimate, as of July 21, 2000, of the number of shares of common stock to be offered by the selling stockholders. The information set forth in the table assumes conversion of the series A preferred stock and exercise of the related warrants as of June 14, 2000, and assumes a conversion price of $7. The actual number of shares of common stock issuable upon conversion of the series A preferred stock and exercise of the warrants is indeterminate, is subject to adjustment and could be materially less or more than such estimated number depending on factors which cannot be predicted by us at this time, including, among other factors, the future market price of the common stock. Pursuant to its terms, the series A preferred stock and the related warrants issued are convertible or exercisable by the series A holder only to the extent that the number of shares of common stock thereby issuable, together with the number of shares of common stock owned by the series A holder and its affiliates (but not including shares of common stock underlying unconverted or unexercised options, warrants or convertible securities) would not exceed 4.99% of the then outstanding common stock as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934. Accordingly, the number of shares of common stock set forth in the table as beneficially owned by the series A holder before and after the offering may exceed the number of shares of common stock that it could own beneficially at any given time as a result of their ownership of the series A preferred stock and the warrant issued in connection therewith. Except as set forth in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable. A person is considered the beneficial owner of securities that can be acquired within 60 days from the date of this prospectus through the exercise of any option, warrant or right. Shares of common stock subject to options, warrants or rights which are currently exercisable or exercisable within 60 days are considered outstanding for computing the ownership percentage of the person holding such options, warrants or rights, but are not considered outstanding for computing the ownership percentage of any other person. The "Common Shares Beneficially Owned after Offering" column assumes the sale of all shares offered. The "Percentage of Common Shares Beneficially Owned after Offering" column is based on 16,781,716 shares of common stock outstanding as of July 21, 2000.
COMMON PERCENTAGE OF COMMON SHARES COMMON SHARES COMMON BENEFICIALLY SHARES BENEFICIALLY SHARES OFFERED SHARES OWNED BENEFICIALLY OWNED PRIOR BY THIS AFTER OWNED AFTER NAME OF SELLING STOCKHOLDER TO OFFERING PROSPECTUS OFFERING OFFERING - ------------------------------------------------------ ----------- -------------- ------------ ------------- Adrien Mauerman Testamentary Trust 8/6/82(1).......... 256,500 256,500 -- * Matthew Balk(2)....................................... 210,091 210,091 -- * Steve Barrett(3)...................................... 146,811 146,811 -- * Baystar Capital, L.P.(4).............................. 337,500 337,500 -- * Baystar International, Ltd.(5)........................ 144,450 144,450 -- * Spence Beal(6)........................................ 6,750 6,750 -- * Ivan Berkowitz(7)..................................... 67,500 67,500 -- *
46
COMMON PERCENTAGE OF COMMON SHARES COMMON SHARES COMMON BENEFICIALLY SHARES BENEFICIALLY SHARES OFFERED SHARES OWNED BENEFICIALLY OWNED PRIOR BY THIS AFTER OWNED AFTER NAME OF SELLING STOCKHOLDER TO OFFERING PROSPECTUS OFFERING OFFERING - ------------------------------------------------------ --------- ---------- -------- --- Carnes Investment L.P.(8)............................. 81,000 81,000 -- * Castle Creek Technology Partners LLC(9)............... 378,000 378,000 -- * David Wilstein and Susan Wilstein, trustees of Century Trust(10)........................................... 13,500 13,500 -- * Cranshire Capital, L.P.(11)........................... 193,050 193,050 -- * Eric Elliot(12)....................................... 13,500 13,500 -- * GlobalEuroNet Group, Inc.(13)......................... 54,000 54,000 -- * Chris Healy(14)....................................... 27,000 27,000 -- * Richard and Ricki Hoffman JTWROS(15).................. 13,500 13,500 -- * Michael Kooper(16).................................... 13,500 13,500 -- * Norman Spivock Trust 1993(17)......................... 27,000 27,000 -- * Peconic Fund Ltd.(18)................................. 1,680,250 1,680,250 -- * Polycom, Inc.(19)..................................... 193,050 193,050 -- * Robert B. Prag(20).................................... 40,500 40,500 -- * R&G Partners(21)...................................... 40,500 40,500 -- * Reinhard Stadler Revocable Trust(22).................. 6,750 6,750 -- * Gene Salkind(23)...................................... 210,000 210,000 -- * Leopold Salkind(24)................................... 210,000 210,000 -- * Eric Singer(25)....................................... 145,061 145,061 -- * The dotCOM Fund LLC(26)............................... 97,200 97,200 -- * Scott Weisman(27)..................................... 189,842 189,842 -- * William J. Nightengale(28)............................ 3,999 3,999 -- * Stephen J. Hopkins(29)................................ 44,828 44,828 -- * Michael R. D'Appolonia(30)............................ 27,574 27,574 -- * Kevin I. Dowd(31)..................................... 23,635 23,635 -- * S. Douglas Hopkins(32)................................ 56,764 56,764 -- * Howard S. Hoffman(33)................................. 22,060 22,060 -- * Dennis J. Duckett(34)................................. 34,140 34,140 -- * David Millet(35)...................................... 164,079 37,500 126,579 * Paul C. O'Brien(36)................................... 668,791 37,500 631,291 3.7 Franklin A. Reece, III(37)............................ 369,915 18,750 351,165 2.1 Ali Inanilan(38)...................................... 143,500 37,500 106,000 * Colin Cunningham(39).................................. 37,500 37,500 -- * Sam Schwartz(40)...................................... 150,000 150,000 -- * Jack Gilbert(41)...................................... 37,500 37,500 -- * Traver Clinton Smith, Jr.(42)......................... 117,022 18,750 98,272 * Dean Hiltzik(43)...................................... 99,885 82,500 17,385 * Rick Eisenberg(44).................................... 216,150 216,150 -- * James Caplan(45)...................................... 315,150 315,150 -- * Eisenberg Communications(46).......................... 84,150 84,150 -- * Buttonwood Advisory Group(47)......................... 123,750 123,750 -- * Jason Adelman(48)..................................... 224,811 224,811 -- * H.C. Wainwright & Co., Inc.(49)....................... 133,311 133,311 -- *
- ------------------ * Less than 1% (1) Includes 190,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 66,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (Footnotes continued on next page) 47 (Footnotes continued from previous page) (2) Includes 25,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 8,750 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes 11,375 shares of common stock and warrants to purchase 121,936 shares of common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Balk is a managing director and 35,468 shares subject to presently exercisable warrants owned by Mr. Balk. (3) Includes 10,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes 11,375 shares of common stock and warrants to purchase 121,936 shares of common stock owned by H.C. Wainwright & Co., Inc. of which Mr. Barrett is chief executive officer. (4) Includes 250,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 87,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (5) Includes 107,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 37,450 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (6) Includes 5,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 1,750 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (7) Includes 50,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 17,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (8) Includes 60,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 21,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (9) Includes 280,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 98,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (10) Includes 10,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (11) Includes 143,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 50,050 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (12) Includes 10,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (13) Includes 40,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 14,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (14) Includes 20,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 7,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (15) Includes 10,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (16) Includes 10,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (17) Includes 20,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 7,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (18) Includes 715,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 250,250 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (19) Includes 143,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 50,050 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (20) Includes 30,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 10,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (21) Includes 30,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 10,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (Footnotes continued on next page) 48 (Footnotes continued from previous page) (22) Includes 5,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 1,750 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (23) Includes 100,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 35,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes warrants to purchase 50,000 shares of common stock. (24) Includes 100,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 35,000 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes warrants to purchase 50,000 shares of common stock. (25) Includes 5,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 1,750 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes 11,375 shares of common stock and warrants to purchase 121,936 shares of common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Singer is a managing director and 5,000 shares subject to presently exercisable warrants owned by Mr. Singer. (26) Includes 72,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 25,200 shares of common stock issuable upon exercise of the warrants issued in connection therewith. (27) Includes 100,000 shares of common stock issuable upon conversion of the series A preferred stock and up to 3,500 shares of common stock issuable upon exercise of the warrants issued in connection therewith. Also includes 11,375 shares of common stock and warrants to purchase 121,936 shares of common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Weisman is a managing director and 35,469 shares subject to presently exercisable warrants owned by Mr. Weisman. (28) Includes 2,194 shares issuable upon exercise of options. (29) Includes 18,136 shares issuable upon exercise of options and warrants to purchase 3,924 shares of common stock. (30) Includes 14,106 shares issuable upon exercise of options and warrants to purchase 621 shares of common stock. (31) Includes 12,091 shares issuable upon exercise of options and warrants to purchase 533 shares of common stock. (32) Includes 25,909 shares issuable upon exercise of options and warrants to purchase 3,622 shares of common stock. (33) Includes 11,284 shares issuable upon exercise of options and warrants to purchase 498 shares of common stock. (34) Includes 13,780 shares issuable upon exercise of options and warrants to purchase 3,302 shares of common stock. (35) Former director of VTI until May 18, 2000. Includes 8,000 shares upon exercise of options and warrants to purchase 12,500 shares of common stock. (36) Former chairman of VTI's board of directors until May 18, 2000. Includes 341,500 shares of common stock and warrants to purchase 162,500 shares of common stock currently owned by Telecom Holding, LLC of which Mr. O'Brien is a managing member, warrants to purchase 53,125 shares of common stock owned by Mr. O'Brien individually and 8,000 shares issuable upon the exercise of options. (37) Former president of VTI until October 8, 1999 and former director of VTI through May 18, 2000. Includes 103,301 shares issuable upon exercise of options and warrants to purchase 6,250 shares of common stock. (38) Former chief financial officer of VTI until June 1999. (39) Includes warrants to purchase 12,500 shares of common stock. (40) Includes warrants to purchase 50,000 shares of common stock. (41) Includes warrants to purchase 12,500 shares of common stock. (Footnotes continued on next page) 49 (Footnotes continued from previous page) (42) Includes warrants to purchase 6,250 shares of common stock. (43) Director of Wire One since May 18, 2000. Wire One also receives financial and tax advice from an accounting firm in which Mr. Hiltzik is a partner. Includes 91,575 shares subject to presently exercisable stock options. (44) Includes 84,150 shares subject to presently exercisable options held by Eisenberg Communications, of which Mr. Eisenberg is a principal. Eisenberg Communications is Wire One's public relations firm. (45) Includes 84,150 shares subject to presently exercisable options held by Eisenberg Communications, of which Mr. Caplan is a principal. Eisenberg Communications is Wire One's public relations firm. (46) Includes 84,150 shares subject to presently exercisable stock options. Eisenberg Communications is Wire One's public relations firm. (47) Includes 123,750 shares subject to presently exercisable stock options. (48) Includes 75,500 shares subject to presently exercisable warrants. Also includes 11,375 shares of common stock and warrants to purchase 121,936 shares of common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Adelman is a vice president. (49) Includes warrants to purchase 121,936 shares of common stock. 50 SHARES ELIGIBLE FOR FUTURE SALE Under Rule 144 as currently in effect, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (a) one percent of the number of shares of common stock then outstanding (which for Wire One was 167,818 shares as of July 21, 2000) or (b) the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice, and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Sales by stockholders of a substantial amount of our common stock could adversely affect the market price of our common stock. As of July 21, 2000, we had outstanding 16,781,786 shares of common stock and options to acquire an aggregate of 5,636,741 shares of common stock, of which 3,441,451 options were vested and exercisable. As of July 21, 2000, of the shares that are currently outstanding, 12,508,236 are freely tradeable in the public market and 4,273,550 are tradeable in the public market subject to the restrictions, if any, applicable under Rule 144 and Rule 145 of the Securities Act of 1933, as amended. All shares acquired upon exercise of options will be freely tradeable in the public market. LOCK-UP AGREEMENTS As a condition to the merger, substantially all VTI's former directors and executive officers entered into lock-up agreements under which they agreed not to transfer or dispose of, directly or indirectly, any shares of common stock, subject to limited exceptions, or any securities convertible into or exercisable or exchangeable for shares of common stock, for the period beginning on May 18, 2000 and ending November 18, 2000. Transfers or dispositions can be made prior to the end of that 180-day period with our prior written consent or in other limited circumstances. Subject to the provisions of Rules 144, 144(k) and 701, a significant portion of the restricted shares will be available for sale in the public market, subject in the case of shares held by affiliates to compliance with certain volume restrictions, shortly after the end of this lock-up period. 51 PLAN OF DISTRIBUTION The selling stockholders, or pledgees, donees, transferees, or other successors in interest, may sell the common stock from time to time on the Nasdaq National Market, in the over-the-counter market, in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at prices otherwise negotiated. The common stock may be sold by the selling stockholders by one or more of the following methods, without limitation: (a) block trades in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; (c) an exchange distribution in accordance with the rules of such exchange; (d) ordinary brokerage transactions and transactions in which the broker solicits purchases; (e) privately negotiated transactions; (f) short sales; (g) through the writing of options on the shares; (h) one or more underwritten offerings on a firm commitment or best efforts basis; and (i) any combination of such methods of sale. The selling stockholders may also transfer shares by gift. We do not know of any arrangements by the selling stockholders for the sale of any of the common stock. In effecting sales, brokers and dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. Broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share. To the extent such broker-dealer is unable to do so acting as agent for a selling stockholder, it may purchase as principal any unsold shares at the stipulated price. Broker-dealers who acquire shares as principals may thereafter resell such shares from time to time in transactions in the American Stock Exchange at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above. The selling stockholders may also sell the shares in accordance with Rule 144 under the Securities Act of 1933, rather than pursuant to this prospectus, regardless of whether such shares are covered by this prospectus. From time to time, one or more of the selling stockholders may pledge, hypothecate or grant a security interest in some or all of the shares owned by them. The pledgees, secured parties or persons to whom such securities have been hypothecated will, upon foreclosure in the event of default, be deemed to be selling stockholders. The number of a selling stockholder's shares offered under this prospectus will decrease as and when it takes such actions. The plan of distribution for such selling stockholder's shares will otherwise remain unchanged. In addition, a selling stockholder may, from time to time, sell short our common stock, and, in such instances, this prospectus may be delivered in connection with such short sales and the shares offered under this prospectus may be used to cover short sales. To the extent required under the Securities Act of 1933, the aggregate amount of selling stockholders' shares of common stock being offered and the terms of the offering, the names of any such agents, brokers, dealers or underwriters and any applicable commission with respect to a particular offer will be set forth in an accompanying prospectus supplement. Any underwriters, dealers, brokers or agents participating in the distribution of the common stock may receive compensation in the form of underwriting discounts, concessions, commissions or fees from a selling stockholder and/or purchasers of selling stockholders' shares of common stock, for whom they may act (which compensation as to a particular broker-dealer might be in excess of customary commissions). 52 The selling stockholders and any broker-dealers that participate in the distribution of the common stock may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, and any commissions received by them and any profit on the resale of the common stock sold by them may be deemed be underwriting discounts and commissions. A selling stockholder may enter into hedging transactions with broker-dealers and the broker-dealers may engage in short sales of the common stock in the course of hedging the positions they assume with such selling stockholder, including, without limitation, in connection with distributions of the common stock by such broker-dealers. A selling stockholder may enter into option or other transactions with broker-dealers that involve the delivery of the shares offered hereby to the broker-dealers, who may then resell or otherwise transfer such shares. A selling stockholder may also loan or pledge the shares offered hereby to a broker-dealer and the broker-dealer may sell the shares offered hereby so loaned or upon a default may sell or otherwise transfer the pledged shares offered hereby. The selling stockholders and other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the shares of the selling stockholders or any other such person. The foregoing may affect the marketability of the shares. We have agreed to indemnify in certain circumstances the selling stockholders and the broker-dealers and agents who may be deemed to be underwriters, if any, of the securities covered by the registration statement, against certain liabilities, including liabilities under the Securities Act of 1933. The selling stockholders have agreed to indemnify us in certain circumstances against certain liabilities, including liabilities under the Securities Act of 1933. The shares of common stock offered hereby were originally issued to the selling stockholders pursuant to an exemption from the registration requirements of the Securities Act of 1933. We agreed to register the common stock under the Securities Act of 1933. We have agreed to pay all reasonable legal expenses of the series A holder incident to the filing of this registration statement, other than underwriting discounts and commissions, and incurred in purchase of the series A preferred stock and related warrants. We cannot assure you that the selling stockholders will sell all or any portion of the common stock offered hereby. We will pay all expenses in connection with this offering and will not receive any proceeds from sales of any common stock by the selling stockholders. EXPERTS The audited consolidated financial statements of VTI as of December 31, 1999 and for the year then ended included in this prospectus and registration statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the period set forth in their report appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. The financial statements of VTI included in this prospectus and registration statement for the years ended December 31, 1997 and 1998 have been so included in reliance on the reports of Arthur Andersen LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. The audited consolidated financial statements of ACC as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 included in this prospectus and registration statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. 53 LEGAL MATTERS Legal matters with respect to the validity of the securities offered hereby will be passed upon by Morrison & Foerster LLP, New York, New York. WHERE YOU CAN FIND MORE INFORMATION Wire One is, and ACC and VTI were, subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, Wire One files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by Wire One (or previously filed by ACC or VTI) may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's following Regional Offices' New York Regional Office, 7 World Trade Center, New York, New York, 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also may be obtained at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Wire One's common stock is listed on The Nasdaq Stock Market's National Market System and such reports, proxy statements and other information concerning Wire One may be inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. You can obtain documents incorporated by reference in this prospectus without charge by requesting them in writing or by telephone from us at the following address and telephone numbers: Wire One Technologies Inc. 225 Long Avenue Hillside, New Jersey 07205 Attention: Kate Shuster Telephone: (973) 282-2000 You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. The selling securityholders will not make an offer of the shares of our common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents. 54 INDEX TO FINANCIAL STATEMENTS
PAGE ---- VIEW TECH, INC.: Reports of Independent Certified Public Accountants........................................................ F-2 Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 (unaudited)................ F-4 Consolidated Statements of Operations for the three years ended December 31, 1999 and the three months ended March 31, 2000 and 1999 (unaudited)................................................................ F-5 Consolidated Statements of Stockholders' Equity (Deficiency) for the three years ended December 31, 1999 and the three months ended March 31, 2000 (unaudited).................................. F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 and the three months ended March 31, 2000 and 1999 (unaudited)................................................................ F-7 Notes to Consolidated Financial Statements................................................................. F-8 ALL COMMUNICATIONS CORPORATION: Report of Independent Certified Public Accountants......................................................... F-22 Consolidated Balance Sheets at December 31, 1998 and 1999 and March 31, 2000 (unaudited)................... F-24 Consolidated Statements of Operations for the three years ended December 31, 1999 and the three months ended March 31, 2000 and 1999 (unaudited)................................................................ F-25 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999 and the three months ended March 31, 2000 (unaudited).................................................................. F-26 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 and the three months ended March 31, 2000 and 1999 (unaudited)................................................................ F-27 Notes to Consolidated Financial Statements................................................................. F-29
F-1 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 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To 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 F-3 VIEW TECH, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, ---------------------------- ------------ 1998 1999 2000 ------------ ------------ ------------ (UNAUDITED) ASSETS Current Assets: Cash............................................................ $ 302,279 $ 69,493 $ 69,768 Accounts receivable, net of reserves of $219,659, $355,000 and $285,000, respectively....................................... 10,594,863 9,201,821 6,803,744 Inventory....................................................... 4,223,390 2,824,578 2,773,101 Other current assets............................................ 509,797 1,510,947 819,833 Net assets of discontinued operations........................... 4,455,351 256,412 -- ------------ ------------ ------------ Total Current Assets......................................... 20,085,680 13,863,251 10,466,446 Property and Equipment, net..................................... 1,948,662 2,223,505 2,061,157 Other Assets.................................................... 588,227 410,338 368,444 ------------ ------------ ------------ $ 22,622,569 $ 16,497,094 $ 12,896,047 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................................ $ 6,644,930 $ 7,836,416 $ 6,684,490 Current portion of long-term debt............................... 130,794 4,510,322 1,226,559 Subordinated debt............................................... -- 2,000,000 1,639,532 Accrued payroll and related costs............................... 956,982 1,275,531 852,108 Deferred revenue................................................ 1,940,579 3,160,183 2,904,024 Accrued restructuring costs..................................... 1,026,496 80,449 -- Other current liabilities....................................... 454,974 1,172,356 918,060 ------------ ------------ ------------ Total Current Liabilities....................................... 11,154,755 20,035,257 14,224,773 ------------ ------------ ------------ Long-Term Debt.................................................... 4,397,299 35,630 23,647 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES Stockholders' Equity (Deficiency): Preferred stock, par value $.0001, authorized 5,000,000 shares, none issued or outstanding................................... -- -- -- Common stock, par value $0.0001, authorized 20,000,000 shares, issued and outstanding, 7,722,277, 7,921,135 and 9,414,227 shares at December 31, 1998, December 31, 1999 and March 31, 2000, respectively........................................... 772 792 941 Additional paid-in capital...................................... 15,261,591 16,607,566 20,125,063 Accumulated deficit............................................. (8,191,848) (20,182,151) (21,478,377) ------------ ------------ ------------ Total Stockholder's Equity (Deficiency)......................... 7,070,515 (3,573,793) (1,352,373) ------------ ------------ ------------ Total Liabilities and Stockholders' Equity (Deficiency)...... $ 22,622,569 $ 16,497,094 $ 12,896,047 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------ ------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ------------ ---------- ----------- (UNAUDITED) Revenue: Product............................. $24,851,000 $27,902,078 $ 24,024,119 $6,103,558 $ 5,922,742 Services............................ 6,163,000 9,340,000 11,455,488 2,815,652 3,291,046 ----------- ----------- ------------ ---------- ----------- 31,014,000 37,242,078 35,479,607 8,919,210 9,213,788 ----------- ----------- ------------ ---------- ----------- Costs and Expenses: Cost of equipment sold.............. 17,689,000 19,991,620 19,438,124 4,312,986 4,164,296 Cost of services provided........... 2,915,000 4,463,000 5,853,940 1,343,898 1,737,249 Sales and marketing expenses........ 6,346,000 7,830,654 9,955,816 2,132,000 2,250,925 General and administrative expenses......................... 5,635,000 5,728,263 7,089,561 1,164,000 1,616,504 Restructuring costs................. -- 3,303,998 -- -- -- ----------- ----------- ------------ ---------- ----------- 32,585,000 41,317,535 42,337,441 8,952,884 9,768,974 ----------- ----------- ------------ ---------- ----------- Loss from operations.................. (1,571,000) (4,075,457) (6,857,834) (33,674) (555,186) Interest expense...................... (338,000) (246,000) (687,083) (37,004) (741,040) ----------- ----------- ------------ ---------- ----------- Loss before income taxes.............. (1,909,000) (4,321,457) (7,544,917) (70,678) (1,296,226) Provision for income taxes............ (4,512) (4,233) (382,798) -- -- ----------- ----------- ------------ ---------- ----------- Loss from continuing operations....... (1,913,512) (4,325,690) (7,927,715) (70,678) (1,296,226) Discontinued Operations: Income (loss) from discontinued operations.......................... 2,052,139 1,511,293 (825,000) (183,858) -- Loss on disposal of discontinued operations.......................... -- -- (3,237,588) -- -- ----------- ----------- ------------ ---------- ----------- Net Income (Loss)..................... $ 138,627 $(2,814,397) $(11,990,303) $ (254,536) $(1,296,226) =========== =========== ============ ========== =========== Loss from Continuing Operations per Share: Basic and Diluted................... $ (.30) $ (.63) $ (1.01) $ (0.01) $ (0.16) =========== =========== ============ ========== =========== Income (Loss) from Discontinued Operations per Share: Basic and Diluted................... $ .32 $ .22 $ (0.52) $ (0.02) $ -- =========== =========== ============ ========== =========== Net Income (Loss) per Share Basic and Diluted................... $ .02 $ (.41) $ (1.53) $ (0.03) $ (0.16) =========== =========== ============ ========== =========== Shares Used In Computing Income (Loss) per Share: Basic and Diluted................... 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173 =========== =========== ============ ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' ------------------ PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY) --------- ------ ----------- ------------ ------------- 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 and purchase plans..................................... 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) Shares issued under stock option and purchase plans (unaudited)......................... 501,009 50 984,385 -- 984,435 Shares issued in connection with exercise of warrants (unaudited)..... 992,083 99 2,533,112 -- 2,533,211 Net loss (unaudited)......................... -- -- -- (1,296,226) (1,296,226) --------- ---- ----------- ------------ ----------- Balance, March 31, 2000 (unaudited)............ 9,414,227 $941 $20,125,063 $(21,478,377) $(1,352,373) ========= ==== =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------ --------------------------- 1997 1998 1999 1999 2000 ----------- ------------ ------------- ------------ ------------ (UNAUDITED) Cash Flows from Operating Activities: Net income (loss)........................... $ 138,627 $ (2,814,397) $ (11,990,303) $ (254,536) $ (1,296,226) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization............. 472,245 559,213 626,483 148,473 703,051 Non-cash restructuring expenses........... -- 1,491,392 -- -- -- Reserve on accounts receivable............ 51,480 179,000 164,307 -- (70,000) Reserve on inventory...................... -- 163,020 1,602,000 -- 30,717 Discontinued operations................... (2,052,139) (1,511,293) 4,062,588 183,858 -- Changes in assets and liabilities net of effects of acquisitions: Accounts receivable, net.................. (3,218,242) (1,705,815) 1,228,735 (1,253,819) 2,468,077 Inventory................................. (333,373) (2,282,287) (203,188) (663,866) 20,760 Other assets.............................. (77,695) (205,747) 258,144 (301,513) (93,900) Accounts payable.......................... 302,449 975,586 1,691,486 13,126 (1,151,924) Accrued merger costs...................... (1,160,495) -- -- -- -- Accrued restructuring charges............. -- 1,026,496 (946,047) (439,934) (80,449) Accrued payroll and related costs......... 1,015,346 (58,364) 318,549 (268,486) (423,423) Deferred revenue.......................... 1,087,161 853,418 1,219,604 795,474 (256,159) Other current liabilities................. (530,367) 134,886 717,382 (52,375) (254,296) ----------- ------------ ------------- ------------ ------------ Net cash used in operating activities..... (4,305,003) (3,194,892) (1,250,260) (2,093,598) (403,772) ----------- ------------ ------------- ------------ ------------ Net cash provided by (used in) discontinued operations................. (2,578,090) 2,417,469 136,351 57,721 182,147 ----------- ------------ ------------- ------------ ------------ Cash Flows from Investing Activities: Purchase of property and equipment.......... (856,063) (868,430) (901,326) (475,152) -- ----------- ------------ ------------- ------------ ------------ Cash Flows from Financing Activities: Net borrowings (payment) under lines of credit.................................... 63,200 (218,896) 148,208 2,415,016 (3,283,763) Issuance of subordinated debt............... -- -- 1,500,000 -- -- Issuance of debt............................ 4,622,061 -- -- -- -- Repayments of capital lease and other debt obligations............................... -- (469,476) (130,349) (20,534) (11,983) Issuance of common stock, net............... 3,719,480 1,608,080 264,590 140,588 3,517,646 ----------- ------------ ------------- ------------ ------------ Net cash provided by financing activities:............................. 8,404,741 919,708 1,782,449 2,535,070 221,900 ----------- ------------ ------------- ------------ ------------ Net Increase (Decrease) in cash............... 665,585 (726,145) (232,786) 24,041 275 Cash, beginning of period..................... 362,839 1,028,424 302,279 302,279 69,493 ----------- ------------ ------------- ------------ ------------ Cash, end of period........................... $ 1,028,424 $ 302,279 $ 69,493 $ 326,320 $ 69,768 =========== ============ ============= ============ ============ Supplemental Disclosures: Operating activities reflect: Interest Paid............................. $ 352,808 $ 478,102 $ 467,296 $ 92,549 $ 125,582 =========== ============ ============= ============ ============ Income Taxes paid......................... $ 7,640 $ 105,471 $ 53,286 $ 21,700 $ -- =========== ============ ============= ============ ============ 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 $ -- $ -- =========== ============ ============= ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-7 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) 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") Inc. 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. Substantially all of the Company's revenues and all identifiable assets are generated in the United States. The Company entered into a merger agreement in December, 1999 with All Communications, Inc. ("ACC"), 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 ACC 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 ACC and Company stock as of January 11, 2000, assuming that all outstanding options and warrants of the two companies are exercised, the shareholders of ACC, will own approximately 74.5% of the outstanding common stock following consummation of the merger. (See Note 19). 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 have been eliminated. Interim financial information The interim consolidated financial information of the Company for the three months ended March 31, 1999 and 2000 is unaudited. The unaudited interim consolidated financial information has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2000 and for the three months ended March 31, 1999 and 2000. 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 F-8 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 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 its 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 for the year ended December 31, 1999 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. F-9 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 (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 and for the three months ended March 31, 2000 and 1999, respectively. 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. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly addresses how companies report revenues in their financial statements. The Company is in the process of evaluating the accounting requirements of SAB 101 and does not expect that this standard will 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 a stockholders' deficiency of $3,573,793. The Company has incurred a net loss of $1,296,226 for the three months ended March 31, 2000, and at March 31, 2000 has a working capital deficit of $3,758,327 and stockholders' deficiency of $1,352,373. 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 ACC (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. F-10 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) 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 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 OCM (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 OCM. The Company sold the net assets of UST and NSI ($3,156,412) as of December 31, 1999 to OCM 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. 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. This sale and assumption of liabilities resulted in a loss on disposal of approximately $3.2 million. OCM 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). F-11 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 6--DISCONTINUED OPERATIONS--(CONTINUED) 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:
DECEMBER 31, -------------------------- 1998 1999 ----------- ----------- Accounts receivable............................................. $ 3,497,000 $ 1,807,000 Other current assets............................................ 571,000 566,400 Property and equipment.......................................... 1,600,000 280,012 Goodwill........................................................ 2,300,000 -- Other assets.................................................... 100,351 84,000 Current liabilities............................................. (3,380,000) (2,316,000) Long-term liabilities........................................... (233,000) (165,000) ----------- ----------- Total......................................................... $ 4,455,351 $ 256,412 =========== ===========
Results of operations of UST and NSI are as follows:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ----------------------------------------- ----------- 1997 1998 1999 1999 ----------- ----------- ----------- ----------- (UNAUDITED) Sales............................................... $18,930,306 $20,739,988 $12,453,000 $ 3,056,675 Cost and expenses................................... 16,849,164 18,947,102 13,071,000 3,184,988 ----------- ----------- ----------- ----------- Operating income (loss)............................. 2,081,142 1,792,886 (618,000) (128,313) Interest expense.................................... 29,003 281,593 207,000 55,545 ----------- ----------- ----------- ----------- 2,052,139 1,511,293 (825,000) (183,858) Disposal loss and accrual of future cash obligations....................................... -- -- 3,237,588 -- ----------- ----------- ----------- ----------- Net income (loss)................................... $ 2,052,139 $ 1,511,293 $(4,062,588) $ (183,858) =========== =========== =========== ===========
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 ==========
F-12 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 7--RESTRUCTURING AND OTHER COSTS--(CONTINUED) 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 $0 is included in the accompanying balance sheet at March 31, 2000. The following table summarizes the activity against the restructuring charge: Restructuring Charge.................................................. $4,201,013 Cash paid............................................................. (2,709,621) Non-cash expenses..................................................... (1,491,392) ---------- Balance, March 31, 2000 (unaudited)................................... $ -- ==========
NOTE 8--INVENTORY Inventories are summarized as follows:
DECEMBER 31, MARCH 31, -------------------------- ----------- 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) Demonstration equipment................ $ 1,664,031 $ 2,562,723 $ 2,615,684 Finished goods......................... 2,261,965 1,301,902 1,225,881 Spare parts............................ 460,414 724,973 727,273 ----------- ----------- ----------- 4,386,410 4,589,598 4,568,838 Reserve................................ (163,020) (1,765,020) (1,795,737) ----------- ----------- ----------- $ 4,223,390 $ 2,824,578 $ 2,773,101 =========== =========== ===========
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. F-13 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 9--PROPERTY AND EQUIPMENT, NET Property and equipment are summarized as follows:
DECEMBER 31, MARCH 31, -------------------------- ----------- 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) Computer equipment and software........ $ 1,216,462 $ 1,569,619 $ 1,569,619 Equipment.............................. 1,138,756 1,508,353 1,508,353 Furniture and fixtures................. 469,001 570,777 570,777 Leasehold improvements................. 332,456 409,252 409,252 ----------- ----------- ----------- 3,156,675 4,058,001 4,058,001 Less accumulated depreciation.......... (1,208,013) (1,834,496) (1,996,844) ----------- ----------- ----------- $ 1,948,662 $ 2,223,505 $ 2,061,157 =========== =========== ===========
Property and equipment under capital lease obligations, net of accumulated amortization, at March 31, 2000, December 31, 1999 and 1998 were $284,784, $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 (Note 11), 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 $2.0 million in loans. In return, the Company pledged all of its assets, in a junior position to the lenders, to the subordinated lenders. Further, the Company issued 925,000 shares in 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. 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 specified collateral base adjustments. Subject to the default provisions, which include the failure to pay specified 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 $1,105,786. 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 F-14 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 11--LONG-TERM DEBT--(CONTINUED) change was effective as of the date of the forbearance agreement. Under the forbearance agreement, the lenders will 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 $360,468 were included in other current assets at March 31, 2000. Long-term debt consists of the following:
DECEMBER 31, MARCH 31, ------------------------ ----------- 1998 1999 2000 ---------- ---------- ----------- (UNAUDITED) Line of credit............................ $4,215,319 $4,363,527 $ 1,105,786 Capital lease obligations................. 312,774 182,425 144,420 ---------- ---------- ----------- 4,528,093 4,545,952 1,250,206 Less current maturities................... 130,794 4,510,322 1,226,559 ---------- ---------- ----------- $4,397,299 $ 35,630 $ 23,647 ========== ========== ===========
CAPITAL LEASE OBLIGATIONS The Company leases certain equipment and furniture under capital lease arrangements. The following is a schedule of future minimum lease payments 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 March 31, 2000, December 31, 1999 and 1998 was $121,273, $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. F-15 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) 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 three months ended March 31, 2000 (unaudited) and 1999 (unaudited) and the years ended December 31, 1999, 1998, and 1997, were approximately $328,000 and $269,000, $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. 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. In March 2000, the Company received net proceeds of approximately $2,533,211 from the exercise of 992,083 warrants. 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 F-16 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED) 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 ACC 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 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. F-17 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED) 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:
NUMBER OF WTD. AVG. EXERCISE SHARES PRICE PER SHARE PRICE --------- ----------------------- -------- 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 ========= ======================= ======
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. F-18 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED) The range of exercise prices for options outstanding and options exercisable at December 31, 1999 are as follows:
OPTIONS OUTSTANDING ----------------------------------------------- WEIGHTED OPTIONS EXERCISABLE AVERAGE ----------------------------- REMAINING AVERAGE OPTIONS CONTRACTUAL AVERAGE EXERCISE OPTIONS EXERCISE RANGE OF EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE - ----------------------------------------- ----------- ------------ ---------------- ----------- -------------- $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 ========= =======
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.
YEARS ENDED DECEMBER 31, ---------------------------------------- 1997 1998 1999 -------- ------------ ------------ Net income (loss) As reported........................................................ $138,627 $ (2,814,397) $(11,990,303) Pro forma.......................................................... (8,531) (3,164,942) (12,584,803) Earnings (loss) per share (basic and diluted) As reported........................................................ $ 0.02 $ (0.41) $ (1.53) Pro forma.......................................................... (0.00) (0.46) (1.60)
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 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. F-19 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 14--EARNINGS (LOSS) PER SHARE--(CONTINUED) The reconciliation of basic and diluted shares outstanding is as follows:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ----------------------------------- ---------------------- 1997 1998 1999 1999 2000 --------- --------- --------- --------- --------- (UNAUDITED) Weighted average shares outstanding.............. 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173 Dilutive effect of options and warrants.......... -- -- -- -- -- --------- --------- --------- --------- --------- Weighted average shares outstanding.............. 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173 ========= ========= ========= ========= =========
Options and warrants to purchase 1,756,811, 1,762,879, 3,593,128, 2,334,316, and 2,222,056 shares of common stock were outstanding during the three months ended March 31, 2000 and 1999 and 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 three months ended March 31, 2000 and 1999 and the years ended December 31, 1999, 1998, and 1997 were approximately $15,000, $18,000, $85,000, $102,000, and $105,000, respectively. NOTE 16--PROVISION FOR INCOME TAXES The income tax provisions for the three months ended March 31, 2000 and 1999 and the years ended December 31, 1999, 1998 and 1997 are as follows:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ---------------------------- -------------------- 1997 1998 1999 1999 2000 ------ ------ -------- -------- -------- (UNAUDITED) Current Federal................................................. $ -- $ -- $ -- $ -- $ -- State................................................... 4,512 4,233 6,322 -- -- ------ ------ -------- -------- -------- 4,512 4,233 6,322 -- -- ------ ------ -------- -------- -------- Deferred: Federal................................................. -- -- 293,766 -- -- State................................................... -- -- 82,710 -- -- ------ ------ -------- -------- -------- -- -- 376,476 -- -- ------ ------ -------- -------- -------- Total..................................................... $4,512 $4,233 $382,798 $ -- $ -- ====== ====== ======== ======== ========
F-20 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 16--PROVISION FOR INCOME TAXES--(CONTINUED) 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:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ----------------------------------------- -------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Computed "expected" tax benefit........ $ 649,060 $ 1,469,295 $ 2,640,720 $ 24,737 $ 453,679 State tax benefit, net of federal benefit.............................. 117,174 265,251 452,995 4,241 77,774 Valuation allowance.................... (820,777) (1,602,381) (3,314,463) (31,049) (571,518) Other, net............................. 50,031 (136,398) (162,050) 2,071 40,065 ----------- ----------- ----------- ----------- ----------- $ (4,512) $ (4,233) $ (382,798) $ -- $ -- =========== =========== =========== =========== ===========
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:
DECEMBER 31, MARCH 31, -------------------------- ----------- 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) Deferred tax asset: Reserves and allowances........................ $ 259,965 $ 977,858 $ 1,101,629 Compensation and benefits...................... -- 299,062 299,062 Net operating loss carry forward............... 677,551 2,622,310 3,075,989 Goodwill....................................... 587,959 564,232 558,300 Deferred tax valuation allowance............... (1,148,999) (4,463,462) (5,034,980) ----------- ----------- ----------- $ 376,476 $ -- $ -- =========== =========== ===========
Goodwill represents the benefit attributed to the difference between the Company's book and tax basis of the goodwill impairment charge discussed in Note 7. At March 31, 2000, the Company has an unaudited net operating loss (NOL) carry-forwards of approximately $8,404,542 and $5,993,265 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. F-21 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 18--VALUATION ACCOUNTS AND RESERVES
ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS BEGINNING OF REVENUES AND ACCOUNTS BALANCE AT END PERIOD EXPENSES CHARGED OFF OF PERIOD ------------ ------------ ----------- -------------- 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.................................... $ -- $ -- $ -- $ -- December 31, 1998.................................... -- 163,020 -- 163,020 December 31, 1999.................................... 163,020 1,602,000 -- 1,765,020
NOTE 19--SUBSEQUENT EVENT Ratification of merger On May 18, 2000, the stockholders of the Company and ACC approved a definitive agreement to merge the two companies. On that date, the merged entity was formed by the reverse merger of ACC into the Company. The new company became Wire One Technologies, Inc. ("Wire One"), and ACC's board of directors and senior management succeeded to the board and senior management of Wire One. ACC stockholders received 1.65 shares of Wire One common stock for each ACC share. F-22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and the Stockholders of All Communications Corporation We have audited the accompanying consolidated balance sheets of All Communications Corporation and Subsidiaries as of December 31, 1999, and 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 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 financial position of All Communications Corporation and Subsidiaries at December 31, 1999, and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. BDO Seidman, LLP Woodbridge, New Jersey February 29, 2000, except for Note 15 which is as of March 24, 2000 F-23 ALL COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, ------------------------- ----------- 1998 1999 2000 ---------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.......................................... $ 325,915 $ 60,019 $ 7,166,978 Accounts receivable, net........................................... 4,317,853 6,128,221 4,779,682 Inventory.......................................................... 3,540,281 3,602,238 4,279,518 Deferred income taxes.............................................. -- 230,083 230,083 Other current assets............................................... 45,577 161,947 188,488 ---------- ----------- ----------- Total current assets............................................... 8,229,626 10,182,508 16,644,749 Furniture, equipment and leasehold improvements--net................. 611,518 621,443 631,887 Deferred financing costs............................................. 43,271 17,633 5,391 Other assets......................................................... 38,214 45,720 145,714 ---------- ----------- ----------- Total assets....................................................... $8,922,629 $10,867,304 $17,427,741 ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligations....................... $ 17,365 $ 30,905 $ 30,565 Bank loan payable.................................................. -- 2,138,602 -- Accounts payable................................................... 1,412,616 2,022,687 2,179,535 Accrued expenses................................................... 844,082 891,033 769,919 Income taxes payable............................................... 2,860 124,372 -- Deferred revenue................................................... 156,133 403,524 459,170 Customer deposits.................................................. 94,721 44,919 240,993 ---------- ----------- ----------- Total current liabilities.......................................... 2,527,777 5,656,402 3,680,182 ---------- ----------- ----------- Noncurrent liabilities: Bank loan payable.................................................. 2,403,216 -- -- Capital lease obligations, less current portion.................... 23,221 17,444 8,017 ---------- ----------- ----------- Total noncurrent liabilities....................................... 2,426,437 17,444 8,017 ---------- ----------- ----------- Total liabilities.................................................. 4,954,214 5,673,486 3,688,199 ---------- ----------- ----------- Commitments and Contingencies Stockholders' Equity: Preferred stock, no par value; 1,000,000 shares authorized, none issued or outstanding.............................................. -- -- -- Common Stock, no par value; 100,000,000 authorized; 4,910,000, 4,910,000 and 7,072,640 shares issued and outstanding, respectively....................................................... 5,229,740 5,229,740 13,796,290 Additional paid-in capital........................................... 327,943 488,759 392,188 Accumulated deficit.................................................. (1,589,268) (524,681) (448,936) ---------- ----------- ----------- Total stockholders' equity......................................... 3,968,415 5,193,818 13,739,543 ---------- ----------- ----------- Total liabilities and stockholders' equity......................... $8,922,629 $10,867,304 $17,427,741 ========== =========== ===========
See accompanying notes to consolidated financial statements. F-24 ALL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------- ------------------------ 1997 1998 1999 1999 2000 ---------- ----------- ----------- ---------- ---------- (UNAUDITED) Net revenues............................. $6,925,169 $13,217,083 $23,997,212 $3,911,669 $5,983,507 Cost of revenues......................... 4,897,176 9,447,592 16,527,505 2,733,109 3,846,211 ---------- ----------- ----------- ---------- ---------- Gross margin............................. 2,027,993 3,769,491 7,469,707 1,138,560 2,137,296 Operating expenses: Selling................................ 1,811,924 3,213,965 4,543,873 884,667 1,418,693 General and administrative............. 935,967 1,309,577 1,765,411 307,271 583,681 ---------- ----------- ----------- ---------- ---------- Total operating expenses................. 2,747,891 4,523,542 6,309,284 1,191,938 2,002,374 ---------- ----------- ----------- ---------- ---------- Income (loss) from operations............ (719,898) (754,051) 1,160,423 (53,378) 134,922 ---------- ----------- ----------- ---------- ---------- Other (income) expenses: Amortization of deferred financing costs..................... 315,406 19,669 43,137 7,867 12,242 Interest income........................ (118,354) (56,446) (23,189) (9,105) (29,948) Interest expense....................... 27,779 57,167 181,127 53,472 23,483 ---------- ----------- ----------- ---------- ---------- Total other expenses, net................ 224,831 20,390 201,075 52,234 5,777 ---------- ----------- ----------- ---------- ---------- Income (loss) before income taxes........ (944,729) (774,441) 959,348 (105,612) 129,145 Income tax (provision) benefit........... 52,404 (2,900) 105,239 -- 53,400 ---------- ----------- ----------- ---------- ---------- Net income (loss)........................ $ (892,325) $ (777,341) $ 1,064,587 $ (105,612) $ 75,745 ========== =========== =========== ========== ========== Net income (loss) per share: Basic.................................. $ (.21) $ (.16) $ .22 $ (.02) $ .01 ========== =========== =========== ========== ========== Diluted................................ $ (.21) $ (.16) $ .17 $ (.02) $ .01 ========== =========== =========== ========== ========== Weighted average number of common shares and equivalents outstanding Basic.................................. 4,200,888 4,910,000 4,910,000 4,910,000 5,301,503 ========== =========== =========== ========== ========== Diluted................................ 4,200,888 4,910,000 6,169,074 4,910,000 8,997,654 ========== =========== =========== ========== ==========
See accompanying notes to consolidated financial statements. F-25 ALL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
RETAINED COMMON STOCK ADDITIONAL EARNINGS ------------------------ PAID-IN (ACCUMULATED) SHARES AMOUNT CAPITAL (DEFICIT) TOTAL --------- ----------- ---------- ------------- ----------- Balance at December 31, 1996.............. 3,000,000 $ 90,000 $375,000 $ 80,398 $ 545,398 Issuance of common stock through Initial Public Offering................. 1,610,000 4,539,740 -- -- 4,539,740 Conversion of subordinated notes.......... 300,000 600,000 -- -- 600,000 Repayment of convertible note............. -- -- (75,000) -- (75,000) Issuance of underwriter option............ -- -- 70 -- 70 Issuance of stock options for services................................ -- -- 16,541 -- 16,541 Net loss for the year..................... -- -- -- (892,325) (892,325) --------- ----------- -------- ------------- ----------- Balance at December 31, 1997.............. 4,910,000 5,229,740 316,611 (811,927) 4,734,424 Issuance of stock options for services.... -- -- 11,332 -- 11,332 Net loss for the year..................... -- -- -- (777,341) (777,341) --------- ----------- -------- ------------- ----------- Balance at December 31, 1998.............. 4,910,000 5,229,740 327,943 (1,589,268) 3,968,415 Issuance of stock options for services.... -- -- 160,816 -- 160,816 Net income for the year................... -- -- -- 1,064,587 1,064,587 --------- ----------- -------- ------------- ----------- Balance at December 31, 1999.............. 4,910,000 5,229,740 488,759 (524,681) 5,193,818 Amortization of deferred compensation (unaudited)............................. -- -- 21,667 -- 21,667 Exercise of Class A warrants (net of related costs of $171,238) (unaudited)............................. 1,910,640 8,120,220 (171,238) -- 7,948,982 Exercise of stock options (unaudited)............................. 224,000 328,730 -- -- 328,730 Exercise of Underwriters' Options (unaudited)............................. 28,000 117,600 -- -- 117,600 Tax benefit from exercise of stock options (unaudited)............................. -- -- 53,000 -- 53,000 Net income for the period (unaudited)............................. -- -- -- 75,745 75,745 --------- ----------- -------- ------------- ----------- Balance at March 31, 2000 (unaudited)............................. 7,072,640 $13,796,290 $392,188 $ (448,936) $13,739,542 ========= =========== ======== ============= ===========
See accompanying notes to consolidated financial statements. F-26 ALL COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------ ---------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ------------ ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)....................... $ (892,325) $ (777,341) $ 1,064,587 $ (105,612) $ 75,745 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization....... 398,158 224,474 330,902 77,982 95,413 Reserve on accounts receivable...... 54,250 70,000 Deferred income taxes............... (5,679) -- (230,083) Loss on disposal of equipment....... 6,575 3,209 8,078 -- Noncash compensation................ 16,541 11,332 160,816 24,081 21,667 Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable.............. (1,359,939) (2,276,503) (1,810,368) 314,955 1,278,539 Inventory........................ (600,530) (2,442,398) (61,957) (41,491) (677,280) Advances to Maxbase, Inc......... (127,080) 127,080 -- -- -- Other current assets............. (84,623) 50,641 (116,370) 12,315 (26,541) Other assets..................... 30,051 (6,855) (7,506) -- (99,994) Accounts payable................. 404,465 502,831 610,071 470,714 156,848 Accrued expenses................. 215,633 520,190 46,951 (45,060) (121,114) Income taxes payable............. 2,453 407 121,512 (2,860) (124,372) Deferred revenue................. -- 156,133 247,391 16,424 55,646 Customer deposits................ 22,109 57,669 (49,802) (78,357) 196,074 ----------- ----------- ------------ ------------ ------------ Net cash provided by (used in) operating activities................ (1,974,191) (3,849,131) 314,222 627,341 900,631 ----------- ----------- ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of furniture, equipment and leasehold improvements................ (398,834) (330,031) (275,799) (29,750) (93,614) Proceeds from sale of furniture, equipment and leasehold improvements.......................... -- -- 5,000 -- -- ----------- ----------- ------------ ------------ ------------ Net cash used in investing activities.......................... (398,834) (330,031) (270,799) (29,750) (93,614) ----------- ----------- ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock.. 5,635,070 -- -- -- -- Proceeds from exercise of warrants and options............................... 8,395,312 Tax benefit of exercise of stock options............................... -- 53,000 Stock offering costs.................... (1,062,760) -- -- -- -- Deferred financing costs................ -- (62,939) (17,500) -- -- Repayment of convertible subordinated notes................................. (150,000) -- -- -- -- Proceeds from bank loans................ 125,000 2,403,216 18,080,175 5,000 3,350,000 Payments on bank loans.................. (644,673) -- (18,344,789) -- (5,488,602) Payments on capital lease obligations... -- (10,426) (27,205) (8,858) (9,768) ----------- ----------- ------------ ------------ ------------ Net cash (used in) provided by financing activities................ 3,902,637 2,329,851 (309,319) (3,858) 6,299,942 ----------- ----------- ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. 1,529,612 (1,849,311) (265,896) 593,733 7,106,959 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 645,614 2,175,226 325,915 325,915 60,019 ----------- ----------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................. $ 2,175,226 $ 325,915 $ 60,019 $ 919,648 $ 7,166,978 =========== =========== ============ ============ ============ (Table continued on next page)
F-27
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------ ---------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ------------ ------------ ------------ (UNAUDITED) Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest.............................. $ 27,779 $ 45,404 $ 167,273 $ 53,472 $ 23,483 =========== =========== ============ ============ ============ Income taxes.......................... $ 1,910 $ (52,183) $ -- $ 3,332 $ 147,946 =========== =========== ============ ============ ============ Supplemental disclosures of non-cash financing activities: Non cash financing and investing activities: Equipment with costs totaling $37,747, $58,844, and $37,747 was acquired under capital lease arrangements during the years ended December 31, 1999 and 1998, and the three months ended March 31, 1999, respectively........................
Convertible subordinated notes and the related deferred financing costs of $600,000 and $75,000 were converted to stockholders' equity in 1997. See accompanying notes to consolidated financial statements. F-28 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 1--DESCRIPTION OF BUSINESS All Communications Corporation (the "Company") is engaged in the business of selling, installing and servicing voice, dataconferencing and videoconferencing communications systems to commercial and institutional customers located principally within the United States. The Company is headquartered in Hillside, New Jersey. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of All Communications Corporation and its wholly owned subsidiaries, AllComm Products Corporation ("APC") and VTC Resources, Inc. ("VTC"). All material intercompany balances and transactions have been eliminated in consolidation. During 1999 and 1998, the Company did not segregate or manage its operations by business segments. Interim financial information The interim consolidated financial information of the Company for the three months ended March 31, 1999 and 2000 is unaudited. The unaudited interim consolidated financial information has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2000 and for the three months ended March 31, 1999 and 2000. Inventory Inventory, consisting of finished goods, is valued at the lower of cost (determined on a first in, first out basis), or market. Use of estimates Preparation of the consolidated 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 statement and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. It is reasonably possible that changes may occur in the near term that would affect management's estimates with respect to the allowance for doubtful accounts receivable, inventory reserve, and warranty reserves. Revenue recognition Product revenues are recognized at the time a product is shipped or, if services such as installation and training are required to be performed, at the time such services are provided, with reserves established for the estimated future costs of parts-and-service warranties. Customer prepayments are deferred until product systems are shipped and the Company has no significant further obligations to the customer. Revenues from services not covered by product warranties are recognized at the time the services are rendered. F-29 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Earnings per share Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period (4,910,000 shares in both 1999 and 1998). Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding, plus the weighted average number of net shares that would be issued upon exercise of stock options and warrants using the treasury stock method. Incremental shares included in the diluted computation were 1,259,074 for 1999 and 3,696,151 for the three months ended March 31, 2000. Diluted loss per share for 1998 is the same as basic loss per share, since the effects of the calculation were anti-dilutive. Cash and cash equivalents The Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, and uncollateralized trade accounts receivable. The Company places its cash and cash equivalents primarily in commercial checking accounts and money market funds. Commercial bank balances may from time to time exceed federal insurance limits; money market funds are uninsured. The Company performs ongoing credit evaluations of its customers. Revenues generated from the Cendant agreement accounted for 15%, 12%, and 15% of net revenues for the years ended December 31, 1999, 1998, and 1997, respectively and 9% and 12% of net revenues for the three months ended March 31, 2000 and 1999, respectively. At March 31, 2000, December 31, 1999 and 1998, receivables from Cendant represented approximately 10%, 15%, and 6% of net accounts receivable, respectively. In 1998, the Company established customer relationships with Universal Health Services, Inc. for Lucent and Sony products. Universal Health Services accounted for 14% and 11% of net revenues for the years ended December 31, 1999 and 1998, respectively. At March 31, 2000, December 31, 1999 and 1998, receivables from this customer represented approximately 9%, 10% and 6% of net accounts receivable, respectively. During the years ended December 31, 1999 and 1998 the Company's allowance for doubtful accounts was increased by $254,300 and $169,250, respectively (for bad debt provisions) and was decreased by $87,000 and $112,000, respectively, for written off balances. Most of the products sold by the Company are purchased under non-exclusive dealer agreements with various manufacturers, including Panasonic Communications & Systems Company ("Panasonic") and Lucent Technologies, Inc. ("Lucent") for digital business telephone systems and related products, and with Polycom, Inc. ("Polycom") for dataconferencing and videoconferencing equipment. The agreements typically specify, among other things, sales territories, payment terms, purchase quotas and reseller prices. All of the agreements provide for early termination on short notice with or without cause. The termination of any of the Company's dealer agreements, or their renewal on less favorable terms than currently in effect, could have a material adverse impact on the Company's business. F-30 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Depreciation and amortization Furniture, equipment and leasehold improvements are stated at cost. Furniture and equipment are depreciated over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the shorter of either the asset's useful life or the related lease term. Depreciation is computed on the straight-line method for financial reporting purposes and on the modified accelerated cost recovery system for income tax purposes. Income taxes The Company uses the liability method to determine its income tax expense or benefit. Deferred tax assets and liabilities are computed based on temporary differences between the financial reporting and tax basis of assets and liabilities (principally certain accrued expenses, compensation expenses and allowance for doubtful accounts), and are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse. Long-lived assets In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of", the Company evaluates impairment losses on long-lived assets used in operations, primarily fixed assets, when events and circumstances indicate that the carrying value of the assets might not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets would be compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed these undiscounted cash flows, the related assets will be written down to fair value. There were no impairment losses recorded in any of the periods presented. Stock options Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company must either recognize in its financial statements costs related to its employee stock-based compensation plans, such as stock option and stock purchase plans, using the fair value method, or make pro forma disclosures of such costs in a footnote to the financial statements. The Company has elected to continue to use the intrinsic value-based method of APB Opinion No. 25, as allowed under SFAS No. 123, to account for its employee stock-based compensation plans, and to include the required pro forma disclosures based on fair value accounting. The fair value of warrants issued in return for services rendered by non-employees are charged to operations over the terms of the underlying service agreements. Comprehensive Income In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income". This standard establishes requirements for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. The objective of this statement is to report a measure of all changes in equity of a company that result from transactions and other economic events in the period other than transactions with owners. The Company adopted SFAS No. 130 during the first quarter of fiscal 1998, and has no comprehensive income components to report in 1999 and 1998. F-31 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Recently issued accounting pronouncements In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which must be adopted for fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the Company's balance sheet and measurement of those instruments at fair value. To date, the Company has not entered into any derivative or hedging activities, and, as such does not expect that the adoption of SFAS No. 133, as amended, will have a material effect on the Company's financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly addresses how companies report revenues in their financial statements. The Company is in the process of evaluating the accounting requirements of SAB 101 and does not expect that this standard will have a material effect, if any, on its financial statements. NOTE 3--ADVANCES TO MAXBASE, INC In September 1997, the Company entered into an exclusive distribution agreement with Maxbase, Inc., the manufacturer of "MaxShare 2", a patented bandwidth-on-demand line sharing device. Advances to Maxbase represent advances against purchase orders for MaxShare 2 units. Purchases of MaxShare 2 product amounted to $520,350 and $50,400 for the years ended December 31, 1998 and 1997, respectively. The Company has identified performance problems with the MaxShare 2 product in certain applications, and believes that MaxBase, Inc. (MaxBase), the supplier of MaxShare 2, has a contractual obligation to correct any technical defects in the product. Pending resolution of this matter, the Company has ceased ordering product under its purchase commitment, and has also limited shipments to distribution partners. On July 16, 1998, MaxBase filed a Complaint against the Company and APC for breach of contract, among other claims. (See Note 10) NOTE 4--FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Furniture, equipment and leasehold improvements consist of the following:
DECEMBER 31, MARCH 31, ---------------------------- ----------- 1998 1999 2000 --------- ---------- ----------- (UNAUDITED) Leasehold improvements................... $ 85,028 $ 80,753 $ 106,274 Office furniture......................... 119,683 120,402 135,044 Computer equipment and software.......... 186,244 273,651 313,690 Demonstration equipment.................. 301,487 447,292 460,704 Loaner/Warranty equipment................ 39,656 65,493 65,493 Vehicles................................. 199,834 237,581 237,581 --------- ---------- ----------- 931,932 1,225,172 1,318,786 Less: Accumulated depreciation........... (320,414) (603,729) (686,899) --------- ---------- ----------- $ 611,518 $ 621,443 $ 631,887 ========= ========== ===========
Depreciation expense was $82,752, $204,805, $287,765, $70,115 and $83,170 for the years ended December 31, 1997, 1998 and 1999, and the three months ended March 31, 1999 and 2000, respectively, which includes depreciation expense of $19,318 for 1999 and $7,846 for 1998 on fixed assets subject to capital leases. F-32 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 5--ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, MARCH 31, ------------------------- ----------- 1998 1999 2000 -------- -------- ----------- (UNAUDITED) Sales tax payable.......................... $ 92,098 $145,739 $ 73,219 Accrued warranty costs..................... 75,000 75,000 75,000 Accrued installation costs................. 300,764 31,500 20,000 Accrued compensation....................... 205,986 467,578 476,462 Other...................................... 170,194 171,216 125,238 -------- -------- ----------- $844,042 $891,033 $ 769,919 ======== ======== ===========
NOTE 6--BANK LOAN PAYABLE AND LONG-TERM DEBT Bank loan payable In 1997, the Company had a $600,000 working capital line of credit. In May 1997, the Company terminated the credit facility and repaid all outstanding loans upon completion of its initial public offering. In May 1998, the Company closed on a $5,000,000 working capital credit facility with an asset-based lender. Loan availability is based on 75% of eligible accounts receivable, as defined, and 50% of eligible finished goods inventory, with a cap of $1,200,000 on inventory financing. Outstanding borrowings bear interest at the lender's base rate plus 1% per annum (9.5% at December 31, 1999 and 8.75% at December 31, 1998), payable monthly, and are collateralized by a lien on accounts receivable, inventories, and intangible assets. The credit facility has an initial term of two years, with annual renewals thereafter subject to the lender's review. The credit facility contains certain financial and operational covenants. At December 31, 1999, the Company was in compliance with all such covenants. At December 31, 1999, the loan has been classified as a current liability due to the maturity of the two-year credit agreement in May 2000. The Company entered into a new credit agreement in June 2000 (See Note 15). NOTE 7--STOCK OPTIONS Non-qualified options In March 1997, the Company issued to its president 750,000 five-year non-qualified options with an exercise price of $5.00 per share in conjunction with the amendment of his employment agreement. The Company issued a total of 495,438, 179,000 and 232,500 additional options during 1999, 1998 and 1997 respectively, to various employees, directors, and advisors, with exercise prices ranging from $.50 to $7.94 per share and vesting periods ranging from immediately to over the course of 24 months. At December 31, 1999, the total outstanding non-qualified options was approximately 1,609,000. Stock Option Plan In December 1996, the Board of Directors adopted the Company's Stock Option Plan (the "Plan") and reserved up to 500,000 shares of Common Stock for issuance thereunder. In June 1998, the Company's shareholders approved an amendment to the Plan increasing the amount of shares available under the plan to 1,500,000. The Plan provides for the granting of options to officers, directors, employees and advisors of the Company. The exercise price of incentive stock options ("ISOs") issued to employees who are less than 10% stockholders shall not be less than the fair market value of the underlying shares on the date of grant or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% F-33 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 7--STOCK OPTIONS--(CONTINUED) stockholder. The exercise price of restricted stock options shall not be less than the par value of the shares to which the option relates. Options are not exercisable for a period of one year from the date of grant. Thereafter, options may be exercised as determined by the Board of Directors at the date of grant, with maximum terms of ten and five years, respectively, for ISO's issued to employees who are less than 10% stockholders and employees who are 10% stockholders. In addition, under the Plan, no individual will be given the opportunity to exercise ISO's valued in excess of $100,000, in any calendar year, unless and to the extent the options have first become exercisable in the preceding year. The maximum number of shares with respect to which options may be granted to an individual during any twelve-month period is 100,000. The Plan will terminate in 2006. Options granted under the Plan in 1999 and 1998 were $844,562 and $217,500, respectively. A summary of Plan and other options outstanding as of December 31, 1999, and changes during fiscal 1997, 1998 and 1999 are presented below:
WEIGHTED AVERAGE FIXED EXERCISE OPTIONS PRICE ---------- -------- Options outstanding, January 1, 1997................................... -- $ -- Granted................................................................ 1,250,000 4.25 ---------- Options outstanding, December 31, 1997................................. 1,250,000 4.25 Granted................................................................ 396,500 1.30 ---------- Options outstanding, December 31, 1998................................. 1,646,500 3.54 Granted................................................................ 1,340,000 1.59 Cancelled.............................................................. (82,500) 1.93 ---------- Options outstanding, December 31, 1999................................. 2,904,000 2.69 ========== Shares of common stock available for future grant under the plan................................................. 202,938 ==========
Additional information as of December 31, 1999 with respect to all outstanding options is as follows:
OPTIONS OUTSTANDING -------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------ AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE - -------------- ----------- --------------- -------- ----------- -------- $ .50 -- .94 1,040,000 3.96 $ .91 582,500 $ .89 1.063 -- 1.50 446,500 3.76 1.27 239,167 1.37 2.50 -- 3.85 495,500 4.10 3.49 400,500 3.48 4.00 -- 5.00 914,000 2.67 4.92 824,000 4.95 6.38 -- 7.94 8,000 4.96 7.16 8,000 7.16 --------- --------- .50 -- 7.94 2,904,000 3.55 2.69 2,054,167 $ 3.10 ========= =========
The Company has elected to use the intrinsic value-based method of APB Opinion No. 25 to account for all of its employee stock-based compensation plans. Accordingly, no compensation cost has been recognized in the accompanying financial statements for stock options issued to employees because the exercise price of each option equals or exceeds the fair value of the underlying common stock as of the grant date for each stock option. The weighted-average grant date fair value of options granted during 1999, 1998 and 1997 under the Black-Scholes option pricing model was $.56, $.37 and $2.51 per option, respectively. F-34 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 7--STOCK OPTIONS--(CONTINUED) The fair value of each option granted in 1999, 1998 and 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
1997 1998 1999 ----------- ----------- ----------- Risk free interest rates..................... 6.14% 5.56% 4.71% Expected option lives........................ 4.76 years 3.46 years 2.82 years Expected volatility.......................... 46.5% 46.5% 46.5% Expected dividend yields..................... None None None
The Company has adopted the pro forma disclosure provisions of SFAS No. 123. Had compensation cost for all of the Company's stock-based compensation grants been determined in a manner consistent with the fair value approach described in SFAS No. 123, the Company's net loss and net loss per share as reported would have been increased to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 1997 1998 1999 ----------------- ----------------- ----------------- Net income (loss): As reported.......................... $ (892,325) $(777,341) $ 1,064,587 Adjusted pro forma................... (3,819,968) (884,675) 895,574 Net income (loss) per share: Basic, as reported................... (.21) (.16) .22 Adjusted pro forma................... (.89) (.18) .18 Diluted, as reported................. (.21) (.16) .17 Adjusted pro forma................... (.89) (.18) .15
Compensation expense recognized in the Company's Statement of Operations for options and warrants reserved to non-employees totaled $160,816 in 1999 and $11,332 in 1998. During the quarter ended March 31, 2000, the Company received $446,000 from the exercise of stock options. NOTE 8--STOCKHOLDERS' EQUITY Initial Public Offering In May 1997, the Company completed a public offering of 805,000 Units for $7.00 per Unit. Each Unit consisted of two shares of Common Stock and two Redeemable Class A Warrants. The Warrants are exercisable for four years commencing one year from the effective date of the offering, at a price of $4.25 per share. The Company may redeem the Warrants at a price of $.10 per warrant, commencing eighteen months from the effective date of the offering and continuing for a four-year period, provided the price of the Company's Common Stock is $10.63 for at least 20 consecutive trading days prior to issuing a notice of redemption. At December 31, 1999, the Company had 2,050,000 outstanding redeemable Class A Warrants. The Company received proceeds from the offering of approximately $4,540,000, net of related costs of registration. On February 10, 2000, the Company announced its intention to redeem all outstanding Class A warrants. From February through April 2000, the Company raised net proceeds of approximately $8,047,000 from the exercise of 1,933,647 Class A warrants. All unexercised Class A warrants were redeemed in April 2000, except for 112,000 Class A warrants underlying the Underwriter's Option. The Company also issued to the underwriter of the public offering, for nominal consideration, an option to purchase up to 70,000 Units. The Option is exercisable for a four-year period commencing one year from the effective date of the offering, at a per Unit exercise price of $8.40 per Unit. The Units are similar to those offered to the public. In March 2000, the Company received $117,600 from the exercise of 14,000 Units. F-35 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 8--STOCKHOLDERS' EQUITY--(CONTINUED) Preferred Stock On December 6, 1996, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to authorize the issuance of up to 1,000,000 shares of Preferred Stock. The rights and privileges of the Preferred Stock have not yet been designated. NOTE 9--INCOME TAXES The income tax provision (benefit) consists of the following:
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ---------------------------------- ---------------------- 1997 1998 1999 1999 2000 -------- --------- --------- --------- --------- (UNAUDITED) Current: Federal.................................. $(46,905) $ -- $ 117,344 $ -- $ 43,900 State.................................... 180 2,900 7,500 -- 9,500 -------- --------- --------- --------- --------- Total current.............................. (46,725) 2,900 124,844 -- 53,400 -------- --------- --------- --------- --------- Deferred: Federal.................................. (97,724) (252,791) 205,482 (35,908) -- State.................................... (49,152) (73,582) 32,005 (6,337) -- Valuation allowance...................... 141,197 326,373 (467,570) 42,245 -- -------- --------- --------- --------- --------- Total deferred............................. (5,679) -- (230,083) -- -- -------- --------- --------- --------- --------- Provision for income taxes (benefit)....... $(52,404) $ 2,900 $(105,239) $ -- $ 53,400 ======== ========= ========= ========= =========
The current portion of the 1997 federal income tax benefit reflects refundable taxes from the carryback of net operating losses. The Company's effective tax rate differs from the statutory federal tax rate as shown in the following table:
YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ----------------------------------- --------------------- 1997 1998 1999 1999 2000 --------- --------- --------- -------- --------- (UNAUDITED) U.S. federal income taxes at the statutory rate................. $(321,208) $(263,310) $ 326,314 $(35,908) $ 43,900 State taxes, net of federal effects........................ (32,298) (41,557) 4,950 (6,337) 9,500 Non-deductible charges........... 102,000 -- 24,939 -- -- Changes in valuation allowance... 141,197 326,373 (467,570) 42,245 -- Other............................ 57,905 (18,606) 6,128 -- -- --------- --------- --------- -------- --------- $ (52,404) $ 2,900 $(105,239) $ -- $ 53,400 ========= ========= ========= ======== =========
F-36 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 9--INCOME TAXES--(CONTINUED) The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of 1999 and 1998 are presented below:
DECEMBER 31, MARCH 31, ---------------------- ----------- 1998 1999 2000 --------- --------- ----------- (UNAUDITED) Deferred tax assets: Reserves and allowances................................................... $ 126,640 $ 144,000 $ 172,000 Tax benefit of net operating loss carryforwards........................... 349,211 41,840 643,261 Stock option compensation................................................. -- 75,476 58,135 Other..................................................................... 12,073 -- -- --------- --------- --------- Total deferred tax assets................................................. 487,924 261,316 873,396 Deferred tax liabilities: Depreciation.............................................................. 20,354 15,665 24,818 Other..................................................................... -- 15,568 -- --------- --------- --------- Total deferred tax liabilities.............................................. 20,354 31,233 24,818 --------- --------- --------- Subtotal.................................................................... 467,570 230,083 848,578 Valuation allowance......................................................... (467,570) -- (618,495) --------- --------- --------- Net deferred tax assets..................................................... $ -- $ 230,083 $ 230,083 ========= ========= =========
In 1999, the Company generated a sufficient level of taxable income to recognize the benefit of federal tax loss carryforwards and other deferred tax assets and, accordingly, the valuation allowance established at December 31, 1998 was reduced. Further, based on its review of 1999 operating results and other evidence, management believes that it is more likely than not that deferred tax assets recorded as of December 31, 1999 will be realized. The Company has established a valuation allowance of $618,495 for additional deferred tax benefits arising in the quarter ended March 31, 2000 based on a review of the financial situation of its pending merger partner, View Tech, Inc. ("View Tech"), including View Tech's recurring operating losses. If these tax benefits are subsequently realized, approximately $643,000 will be credited to additional paid-in capital because these tax assets relate to the exercise of non-employee stock options and disqualifying dispositions related to employee stock options. The Company used $53,000 of tax benefits provided by option exercises during the quarter ended March 31, 2000. The Company and its subsidiaries file federal returns on a consolidated basis and separate state tax returns. At December 31, 1999 the Company had state net operating loss carryforwards of $465,000 available to offset future taxable income, if any through 2018. NOTE 10--COMMITMENTS AND CONTINGENCIES Employment Agreements The Company's board of directors has approved employment agreements for three of its officers, effective January 1, 1997. The agreement with the Company's president, as amended in March 1997, has a six-year term and provides for an annual salary of $133,000 in the first year, increasing to $170,000 and $205,000 in the second and third years, respectively. In years four, five, and six the president's base salary will be $205,000, but can be increased at the discretion of the board of director's compensation committee. Under the agreement, the Company will secure and pay the premiums on a $1,000,000 life insurance policy payable to the president's designated beneficiary or his estate. The agreement further provides for medical benefits, the use of an automobile, and grants of 750,000 non-qualified stock options, as well as 25,974 incentive stock options and 74,026 non-qualified stock options issuable under the Company's Stock Option Plan. The other two agreements each have a three-year term and provide for annual salaries of $104,000 in the first year increasing by $10,000 each year thereafter. The agreements further provide for an incentive bonus equal to 1/2 of 1% of net sales payable twice yearly to both officers. Each employee is also entitled to a F-37 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED) monthly automobile allowance. Effective January 11, 1999, both of these employment agreements were amended. In consideration for extending the term of the agreements for an additional year, through December 31, 2000, the Company granted additional options to purchase up to 300,000 shares each of Common Stock. The options vest over a twenty-three month period. Each agreement may be terminated by the employee without cause upon written notice to the Company. Operating Leases In April 1998, the Company entered into a five-year non-cancelable lease for the use of office space in New York City. The lease provides for annual base rent of $47,500 plus a proportionate share of operating expenses. Also in 1998, the company signed a one-year lease for a Virginia sales office. Base rent under this lease is $800 per month and continues monthly after expiration of the initial term. In October 1999, the Company entered into a twenty-six month non-cancelable lease for the use of office space in California. The lease provides for base rent of $47,000 for the first thirteen months and $48,000 for months fourteen through the expiration date plus a proportionate share of operating expenses. Also in October 1999, the Company entered into a six month non-cancelable lease for the use of office space in Illinois. The lease provides for monthly base rent of $1,700. During 1999, the Company closed its New York City office and assigned their rights under a sublease to their landlord. The loss on abandoning this facility was not material to the Company's 1999 Statement of Operations. Future minimum rental commitments under all non-cancelable leases are as follows:
YEAR ENDING DECEMBER 31, - ------------------------------------------------------------------------ 2000.................................................................. $ 271,280 2001.................................................................. 260,039 2002.................................................................. 125,030 2003.................................................................. 4,238 ---------- $ 660,587 ==========
Total rent expense was $148,768, $284,630 and $311,909, $75,915 and $89,797 for the years ended December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999 and 2000, respectively. Capital Lease Obligations The Company leases certain vehicles under non-cancelable lease agreements. These leases are accounted for as capital leases. The equipment under the capital leases as of December 31, 1999 had a cost of $96,591, accumulated depreciation of $27,164, with a net book value of $69,427. Future minimum lease payments under capital lease obligations at December 31, 1998 are as follows: 2000..................................................................... $ 35,925 2001..................................................................... 18,580 --------- Total minimum payments................................................... 54,505 Less amount representing interest........................................ (6,156) --------- Total principal.......................................................... 48,349 Less portion due within one year......................................... (30,905) --------- Long-term portion........................................................ $ 17,444 =========
F-38 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED) Legal Matters In September 1997, the Company entered into an exclusive distribution agreement with Maxbase, Inc., the manufacturer of "MaxShare 2," a patented bandwidth-on-demand line sharing device. During 1998 the Company purchased $520,350 of Maxshare 2 units. The Company has identified performance problems with the MaxShare 2 product in certain applications, and believes that MaxBase, Inc, has a contractual obligation to correct any technical defects in the product. Pending resolution of the matter, the Company has ceased ordering product under its purchase commitment, and has also limited shipments to distribution partners. On July 16, 1998, MaxBase, a vendor, filed a Complaint against the Company and APC alleging that the Company breached its agreement with MaxBase Inc., for Maxshare 2 units by failing to meet the required minimum purchase obligations thereunder. The Complaint further alleges misrepresentation and unfair trade practices. The Complaint also seeks to enjoin the Company from enforcing any rights the Company has under the agreement. Maxbase claims damages of $508,200 in lost profits for units not purchased and $945,300 in lost profits for units sold to the Company below market price, as well as unspecified punitive and treble damages. In 1999, the plaintiff added claims for defamation and tortious interference. A trial is expected to occur in 2000. The Company believes the claims by MaxBase are without merit and intends to fully defend the suit and assert its rights under the agreement. The Company has filed a counterclaim for breach of contract, breach of warranty and rescission based on misrepresentation. The Company does not anticipate that the ultimate resolution will have a material adverse effect on its financial condition, results of operation or cash flows. On May 20, 1999 the Company settled a legal matter with its former landlord. Under the terms of the settlement, the Company paid a total of $120,000 through December 31, 1999 to fully settle this matter. NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments reported in the Company's balance sheet consist of cash, accounts receivable, accounts payable and bank loan payable, the carrying values of which approximate fair value at December 31, 1999 and 1998. The fair value of the financial instruments disclosed therein are not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. NOTE 12--PENSION PLAN On March 1, 1998 the Company adopted a 401(k) Retirement Plan (the "401(k) Plan") under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements. The 401(k) Plan is non-contributory on the part of the Company. NOTE 13--MERGER WITH VIEW TECH, INC. On December 27, 1999, the Company entered into an agreement to merge with View Tech, Inc, ("View Tech") a publicly held California-based videoconferencing solutions provider, in a transaction that will be accounted for as a "reverse acquisition" using the purchase method. The reverse acquisition method will result in the Company being recognized as the acquirer of View Tech for accounting and financial reporting purposes. Under the agreement, each All Communications share will be exchanged for a specified number of shares of View Tech. The merger is subject to certain conditions, including approval by shareholders and the receipt of opinions that the merger will be tax-free to All Communications shareholders. The transaction was approved on May 18, 2000 (see Note 15). F-39 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 13--MERGER WITH VIEW TECH, INC.--(CONTINUED) The following summarized, unaudited pro forma information for the year ended December 31, 1999 and the three months ended March 31, 2000 assumes that the merger of the Company and View Tech occurred on January 1, 1999:
YEAR ENDED DECEMBER THREE MONTHS ENDED 31, MARCH 31, 1999 2000 ----------- ------------------ Net revenues......................... $59,045,819 $ 14,150,295 Operating loss....................... (8,472,411) (989,014) Net loss............................. (9,550,867) (1,735,831) Loss per share: Basic.............................. (.79) (.13) Diluted............................ (.79) (.13)
The pro forma operating results reflect estimated pro forma adjustments for the amortization of intangibles ($2,275,000 for the year ended December 31, 1999 and $569,000 for the quarter ended March 31, 2000) arising from the merger and other adjustments. Pro forma results of operations information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated at the beginning of 1999, or of future results of the combined entity. The Company recognized net revenues of $431,000 and $1,047,000 from transactions with View Tech during the year ended December 31, 1999 and the three months ended March 31, 2000, respectively. NOTE 14--RELATED PARTY The landlord for the Company's Hillside, New Jersey office is Vitamin Realty Associates, L.L.C. of which Eric Friedman, one of the Company's directors, is a member. The lease term is for five years and expires on May 31, 2002. The base rental for the premises during the term of the lease is approximately $123,000 per year. In addition, the Company must pay its share of the landlord's operating expenses (i.e., those costs or expenses incurred by the landlord in connection with the ownership, operation, management, maintenance, repair and replacement of the premises, including, among other things, the cost of common area electricity, operational services and real estate taxes). For the years ended December 31, 1999 and 1998, rent expense associated with this lease was $135,000 and $119,000, respectively. The Company receives financial and tax services from an accounting firm in which one of the Company's directors, is a partner. Since this Board member has become a director on September 15, 1999, the Company has incurred fees of $13,325 on services received from this firm. NOTE 15--SUBSEQUENT EVENTS (UNAUDITED) Ratification of merger On May 18, 2000, the stockholders of the Company and View Tech approved a definitive agreement to merge the two companies. On that date, the merged entity was formed by the reverse merger of the Company into View Tech. The new company became Wire One Technologies, Inc. ("Wire One"), and the Company's board of directors and senior management succeeded to the board and senior management of Wire One. All Communications stockholders received 1.65 shares of Wire One common stock for each All Communications share. Credit facility In June 2000, Wire One entered into a new working capital credit facility with its asset-based lender. Under terms of the two-year agreement, loan availablity was increased to $15,000,000, based on up to 75% of eligible accounts receivable and 50% of inventory, subject to an inventory cap of $5,000,000. Borrowings F-40 ALL COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED) NOTE 15--SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED) will initially carry interest at the lender's base rate plus 1/2% per annum. The credit facility contains certain financial and operational covenants. Private placement In June 2000, Wire One raised gross proceeds of $17.15 million in a private placement of 2,450 shares of Series A mandatorily redeemable convertible preferred stock. The preferred shares are convertible into up to 2,450,000 shares of common stock at a price of $7.00 per share, subject to adjustment. Beginning on June 14, 2001, the preferred stockholders may choose an alternative conversion price which equals the higher of (i) 70% of the fixed conversion price then in effect or (ii) the market price on any conversion date, which is equal to the average of the closing sale prices of Wire One common stock during the 20 consecutive trading days immediately preceding any conversion date. Preferred stockholders may, at their sole option, redeem their shares on the earlier of three years from the issuance date, or the occurrence of a triggering event, as defined. The redemption price is 110% of the stated value of $7,000 per share. None of the triggering events has occurred to date. The preferred shares will convert automatically if Wire One's shares trade at $12.50 or above for twenty consecutive trading days and the underlying shares have been registered. At the issuance date, Wire One will record a deemed dividend charge and an offsetting increase in additional paid-in capital of approximately $8.1 million to reflect the beneficial conversion feature of the preferred stock. Investors in the private placement also received five-year warrants to purchase a total of 857,500 shares of common stock for $10.50 per share. The warrants are subject to certain anti-dilution privileges. The Company has valued the warrants at $3,740,000 using the Black-Scholes pricing model. The Company also issued to its placement agent warrants to purchase 193,748 shares of common stock for $7.00 per share, and warrants to purchase 67,876 shares of common stock for $10.50 per share. The warrants expire on June 14, 2005. The Company has valued the warrants at $1,410,000 using the Black-Scholes pricing model. Costs of the offering, including the fair value of the warrants, totaled approximately $6.5 million. This amount, plus the 10% redemption premium of up to $1,715,000, will be recorded as a preferred stock discount and amortized as a dividend charge over the three-year period from the date of issuance to the current redemption date. Acquisition In July 2000, Wire One acquired the net assets of 2Confer, LLC, a Chicago-based provider of videoconferencing, audio and data solutions. The total consideration was $800,000 in a combination of cash and Wire One common stock. Assets consisted primarily of accounts receivable, fixed assets, and goodwill and other intangibles. The acquisition of 2Confer, LLC is not considered to be a significant acquisition and, accordingly, pro forma results of operations disclosures are not required. Option grants Wire One has granted approximately 814,000 employee stock options since May 18, 2000, the effective date of the merger. F-41 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses of the distribution, all of which will be borne by the Registrant, are as follows: SEC registration fee................................................................... $ 11,130 Transfer agent fees.................................................................... 5,000 Accounting fees and expenses........................................................... 15,000 Legal fees and expenses................................................................ 60,000 Printing and engraving................................................................. 50,000 Miscellaneous.......................................................................... 15,000 -------- Total................................................................................ $156,130 --------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which permits a corporation in its certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (1) for any breach of the director's fiduciary duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions), or (4) for any transaction from which the director derived an improper personal benefit. Our Certificate of Incorporation contains provisions permitted by Section 102(b)(7) of the DGCL. Reference is made to Section 145 of the DGCL which provides that a corporation may indemnify any persons, including directors and officers, who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such director, officer, employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal actions or proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify directors and/or officers in an action or suit by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the director or officer is adjudged to be liable to the corporation. Where a director or officer is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such director or officer actually and reasonably incurred. Our amended and restated Certificate of Incorporation filed as Exhibit 3.1 to this Registration Statement provides indemnification of our directors and officers to the fullest extent permitted by the DGCL. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Unless otherwise indicated, all of the transactions described below were exempt from registration because the issuances and sales of these securities were made in reliance on Section 4(2) of the Securities Act regarding transactions by the issuer not involving a public offering, in that the transactions were made, without general solicitation or advertising, to sophisticated investors with access to all relevant information necessary to evaluate this investment and who represented to us that the securities were being acquired for investment. Since July 28, 1997 the Registrant has sold and issued the following unregistered securities: On November 13, 1997, the Registrant, through its wholly owned subsidiary, acquired Vermont Telecommunications Network Services, Inc. for an aggregate purchase price of $2,900,000, of which II-1 (i) $250,000 was paid by the issuance of a promissory note bearing interest at a rate of 8% per annum; (ii) $250,000 was paid by the issuance of a contingent note bearing interest at a rate of 8% per annum and (iii) $400,000 was paid by the issuance of 62,112 shares of common stock. On November 21, 1997, the Registrant entered into a $15 million credit agreement with Imperial Bank and BankBoston (now Fleet Bank) under which the Registrant issued warrants to purchase 80,000 shares of its common stock at an exercise price of $4.50 per share, which exercise price was subsequently reduced to $1.63 per share in connection with a forbearance agreement entered into in November 1999 between the Registrant and lender. On November 10, 1998, the Registrant issued and sold an aggregate of 826,668 shares of its common stock to accredited investors in exchange for an aggregate purchase price of $1,200,000. On November 10, 1999 pursuant to a contract with Nightengale & Associates and S. Douglas Hopkins, the Registrant agreed to issue 195,000 stock options to S. Douglas Hopkins or his assignees. The Registrant relied on the exemption provided by Rule 701 under the Securities Act. On November 17, 1999, the Registrant received $2,000,000 in interim loans. In connection with these loans, the Registrant issued seven-month promissory notes with interest at the prime rate plus 2.5%. In addition, the Registrant issued warrants to purchase 925,000 shares of its common stock to these lenders at an exercise price of $1.625 per share. On April 24, 2000, the Registrant issued warrants to purchase 199,249 shares of its common stock at an exercise price of $6.00 per share as consideration to the warrantholders who exercised their warrants in March 2000. On June 14, 2000, the Registrant issued 2,450 shares of its series A convertible preferred stock and warrant to purchase 857,500 shares of its common stock in a private placement to institutional and strategic investors for an aggregate purchase price of $17,150,000. The Registrant relied on the exemption provided by Rule 506 under the Securities Act. On June 14, 2000, the Registrant issued 20,000 shares of its common stock, warrants to purchase 193,928 shares of its common stock at an exercise price of $7.00 per share and warrants to purchase 67,875 shares of its common stock at an exercise price of $10.50 per share to H.C. Wainwright & Co., Inc. and its assigns as partial consideration for financial advisory services. In July 2000, the Registrant issued 78,000 shares of is common stock to S. Douglas Hopkins and his assignees as consideration for services rendered under its November 1999 contract with Nightingale & Associates and S. Douglas Hopkins. The Registrant relied on the exemption provided by Rule 701 under the Securities Act. In July 2000, the Registrant purchased all of the assets of 2Confer, LLC for a purchase price of $800,000 of which $300,000 was paid by the issuance of 33,438 shares of its common stock. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits The Exhibits are as set forth in the Exhibit Index. (b) Financial Statement Schedules None. ITEM 17. UNDERTAKINGS (1) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933 (the "Act"), each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 (2) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (3) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions hereof, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (4) The undersigned Registrant hereby undertakes: To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the maximum aggregate offering price may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act, if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (5) The undersigned Registrant hereby undertakes: that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be demed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (6) The undersigned Registrant hereby undertakes: to remove from registration, by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HILLSIDE, STATE OF NEW JERSEY, ON THIS 28TH DAY OF JULY, 2000. WIRE ONE TECHNOLOGIES, INC. By: _______/s/ RICHARD REISS _________ Richard Reiss President and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby constitutes and appoints Richard Reiss and Christopher A. Zigmont, and each of them, as his true and lawful attorneys-in-fact and agents, jointly and severally, with full power of substitution and resubstitution, for and in his stead, in any and all capacities, to sign on his behalf this Registration Statement on Form S-1 in connection with the offering of common stock by the registrant and to execute any amendments thereto (including post-effective amendments), including a registration statement filed pursuant to Rule 462(b), or certificates that may be required in connection with this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission and granting unto said attorneys-in-fact and agents, and each of them, jointly and severally, the full power and authority to do and perform each and every act and thing necessary or advisable to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, jointly or severally, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JULY 28, 2000:
SIGNATURE TITLE - ------------------------------------------------------ ------------------------------------------------------ /s/ RICHARD REISS Chairman, President and Chief Executive Officer - ----------------------------------------------------- (Principal Executive Officer) Richard Reiss /s/ CHRISTOPHER A. ZIGMONT Chief Financial Officer - ----------------------------------------------------- (Principal Financial and Accounting Officer) Christopher A. Zigmont /s/ ROBERT B. KRONER Vice President and Director - ----------------------------------------------------- Robert B. Kroner /s/ ANDREA GRASSO Secretary and Director - ----------------------------------------------------- Andrea Grasso /s/ LOUIS CAPOLINO Director - ----------------------------------------------------- Louis Capolino /s/ ERIC FRIEDMAN Director - ----------------------------------------------------- Eric Friedman /s/ DEAN HILTZIK Director - ----------------------------------------------------- Dean Hiltzik /s/ PETER N. MALUSO Director - ----------------------------------------------------- Peter N. Maluso
SCHEDULE II EXHIBIT INDEX
EXHIBIT NO. EXHIBIT - ------ -------------------------------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation.(1) 3.2 Certificate of Amendment of View Tech, Inc. changing its name to Wire One Technologies, Inc. 3.3 Certificate of Designations, Preferences and Rights of series A preferred stock of Wire One Technologies, Inc.(2) 3.4 Amended and Restated Bylaws.(1) 4.1 Specimen Common Stock Certificate. 4.2 Warrant Agreement dated as of June 28, 1995 between View Tech, Inc. and U.S. Stock Transfer Corporation.(3) 4.3 Form of Warrant between View Tech, Inc. and Telecom Holding, LLC.(4) 4.4 Form of Warrant of Wire One Technologies, Inc. dated June 14, 2000.(2) 4.5 Registration Rights Agreement dated as of June 14, 2000 among Wire One Technologies, Inc. and the Investors set forth therein.(2) 4.6 Form of View Tech, Inc. Warrant dated April 24, 2000. 4.7 Amendment No. 1, Exhibit A, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by Imperial Bank.(10) 4.8 Amendment No. 1, Exhibit B, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A.(10) 5.1 Opinion of Morrison & Foerster LLP as to the legality of Common Stock of Wire One Technologies, Inc., together with consent. 10.1 Dealer Agreement between View Tech, Inc. and PictureTel Corporation dated as of March 30, 1995.(5) 10.6 1995 Stock Option Plan of View Tech, Inc., as amended.(6) 10.7 Amendment to the Dealer Agreement between View Tech, Inc. and PictureTel Corporation, dated as of August 1, 1995.(3) 10.8 1997 Stock Incentive Plan of View Tech, Inc.(7) 10.9 Sublease Agreement dated as of October 11, 1996, by and between Atlantic Steel Industries, Inc. and View Tech, Inc. (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).(4) 10.10 Agreement dated December 9, 1996 between All Communications Corporation and HFS Incorporated.(11) 10.11 Dealer Agreement dated May 20, 1992, between All Communications Corporation and Panasonic Communications & Systems Company.(11) 10.12 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Richard Reiss.(11) 10.13 Amendment to the Employment Agreement between All Communications Corporation and Richard Reiss, effective March 21, 1997.(11) 10.14 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Joseph Scotti.(11) 10.15 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Joseph Scotti, effective January 11, 1999.(11)
EXHIBIT NO. EXHIBIT - ------ -------------------------------------------------------------------------------------------------------- 10.16 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Leo Flotron.(11) 10.17 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Leo Flotron, effective January 11, 1999.(12) 10.18 Sublease Agreement for premises located at 1130 Connecticut Avenue, NW, Washington D.C., dated July 1, 1996, between All Communications Corporation and Charles L. Fishman, P.C.(11) 10.19 All Communications Corporation's Stock Option Plan.(11) 10.20 Amendment No. 1 to All Communications Corporation's Stock Option Plan.(12) 10.21 Lease Agreement for premises located at 225 Long Avenue, Hillside, New Jersey, dated March 20, 1997, between All Communications Corporation and Vitamin Realty Associates, L.L.C.(11) 10.22 Agreement, dated September 10, 1997, between the All Communications Corporation and Maxbase, Inc.(14) 10.23 Reseller Agreement dated November 21, 1997, between Polycom, Inc. and All Communications Corporation.(14) 10.24 Dealer Agreement, dated November 26, 1997, between Lucent Technologies, Inc. and All Communications Corporation.(14) 10.25 First Amendment of Lease dated as of December, 1997 by and between Vitamin Realty Associates, L.L.C. and All Communications Corporation.(1) 10.26 Second Amendment of Lease dated as of December 20, 1999 by and between Vitamin Realty Associates, L.L.C. and All Communications Corporation.(1) 10.27 Asset Purchase Agreement, dated as of December 31, 1999 among OC Mergerco 4, Inc., USTeleCenters, Inc., Vermont Network Services Corporation and View Tech, Inc.(1) 10.28 Agreement and Plan of Merger, dated as of December 27, 1999, by and between View Tech, Inc. and All Communications Corporation.(1) 10.29 Amendment No.1 to Agreement and Plan of Merger, dated as of February 29, 2000 by and among View Tech, Inc. and All Communications Corporation.(1) 10.30 Preferred Stock and Warrant Purchase Agreement dated as of June 14, 2000 among Wire One Technolgies, Inc. and the Buyers set forth therein.(2) 10.31 Amended and Restated Loan and Security Agreement, dated as of June 1, 2000, among Wire One Technologies, Inc., AllComm Products Corp. and Summit Commercial/Gibraltar Corp. 10.32 View Tech, Inc. Special Non-Officer Stock Option Plan.(8) 10.33 View Tech, Inc. 1997 Non-Employee Directors Stock Option Plan.(9) 10.34 View Tech, Inc. Employee Stock Purchase Plan.(9) 10.35 Asset Purchase Agreement, dated as of July 21, 2000 by and between Wire One Technologies, Inc., 2CONFER L.L.C. and the other sellers set forth therein. 21.1 Subsidiaries of Wire One Technologies, Inc. 23.1 Consent of BDO Seidman, LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of BDO Seidman, LLP. 23.4 Consent of Morrison & Foerster LLP (included in their opinion filed as Exhibit 5). 24.1 Power of Attorney. 27.1 Financial Data Schedule for View Tech, Inc. 27.2 Financial Data Schedule for All Communications Corporation
- ------------------ (1) Filed as an appendix to View Tech Inc.'s Registration Statement on Form S-4 (File No. 333-95145) and incorporated herein by reference. (2) Filed as an exhibit to the Company's Current Report on Form 8-K dated June 14, 2000, and incorporated herein by reference. (3) Filed as an exhibit to View Tech, Inc.'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 View Tech, Inc.'s Registration Statement on Form SB-2 (Registration No. 333-19597), and incorporated herein by reference. (5) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form SB-2 (Registration No. 333-91232), and incorporated herein by reference. (6) Filed as an exhibit to View Tech, Inc.'s Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995, and incorporated herein by reference. (7) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-4 (Registration No. 333-13459), and incorporated herein by reference. (8) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-8 filed on November 4, 1997, and incorporated herein by reference. (9) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-8 filed on June 30, 1997, and incorporated herein by reference. (10) Filed as an exhibit to View Tech, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998, and incorporated herein by reference. (11) Filed as an exhibit to All Communications Corporation's Registration Statement on Form SB-2 (Registration No. 333-21069), and incorporated herein by reference. (12) Filed as an exhibit to All Communications Corporation's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and incorporated herein by reference. (13) Filed as an exhibit to All Communications Corporation's Report on Form 8-K dated September 18, 1997, and incorporated herein by reference. (14) Filed as an exhibit to All Communications Corporation's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997, and incorporated herein by reference. EX-4.1 2 0002.txt FORM OF SPECIMEN STOCK CERTIFICATE NUMBER SHARES WO COMMON STOCK COMMON STOCK WIRE ONE TECHNOLOGIES, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 976521 10 4 THIS CERFITIES THAT [SPECIMEN] is the Owner of FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE, OF WIRE ONE TECHNOLOGIES, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized Officers. Dated: [WIRE ONE TECHNOLOGIES, INC. CORPORATE SEAL] /s/ Andrea Grasso /s/ Richard Reiss SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, NY) TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- _______________________ Custodian _______________________ (Cust) (Minor) under Uniform Gifts to Minors Act _______________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ______________________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO PLEASE PRINT OR TYPEWRITE IDENTIFYING NUMBER AND NAME OF ASSIGNEE AS IT SHOULD APPEAR ON CERTIFICATE AND SHOW ADDRESS - -------------------------------------- - -------------------------------------- __________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________________________________________ Attorney, to transfer the said shares on the books of the within-named Corporation, with full power of substitution in the premises. DATED _________________________ X ------------------------------------------------------- X ------------------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement or any change whatsoever. Signatures of registered owners on this certificate or on powers of attorney, and signatures of attorneys on this certificate or on powers of substitution, must be guaranteed. Signature Guaranteed: ---------------------------- SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL STOCK EXCHANGE. EX-4.6 3 0003.txt COMMON STOCK PURCHASE WARRANT THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT IN THE LIMITED CIRCUMSTANCES SET FORTH HEREIN OR WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY COMMON STOCK PURCHASE WARRANT for the purchase of COMMON STOCK of VIEW TECH, INC. (a Delaware corporation) Original Issue Date: April 24, 2000 VIEW TECH, INC., a Delaware corporation (the "Company"), for good and valuable consideration received, hereby certifies that ___________, a(n) ____________ with a place of business at __________________________________ or registered assigns permitted hereunder (the "Holder"), is entitled to purchase from the Company, at any time or from time to time during the Warrant Exercise Period (as hereinafter defined), that number of shares of the Company's Common Stock, $.0001 par value per share ("Common Stock"), as shall be equal to the Warrant Number (as hereinafter defined), at that price per share of Common Stock as shall be equal to the Purchase Price (as hereinafter defined). 1. Definitions. For the purposes of this Warrant: "Fair Market Value" means the average of the closing sale prices (if listed on a stock exchange or quoted on the Nasdaq National Market System or any successor thereto), or the average of the mean between the closing bid and asked prices (if quoted on NASDAQ or otherwise publicly traded), of the Common Stock on each of the three trading days prior to the date of exercise. If the Common Stock is not listed or admitted for trading on any national securities exchange or quoted on NASDAQ, then the Fair Market Value of one share of Common Stock shall be equal to the fair market value of the entire capital equity of the Company taken as a whole, divided by the number of shares of Common Stock (on a fully diluted basis) then issued (or deemed issued) and outstanding, without premium for control and without discount for minority interest or restriction on transfer, as determined by the Company's Board of Directors in good faith and set forth in writing to Holder within ten (10) days after the occurrence of the event which requires the valuation "Holder" means Holder as defined above and any transferee or assignee of Holder. "Purchase Price" means $6.00, subject to automatic adjustment from time to time in accordance with Section 3. "Termination Date" is defined in Section 7. "Warrant" means the Warrant originally issued to Holder on the original issue date or any new warrant issued to Holder pursuant to Section 2(d)(ii) hereof or replacement warrant issued to Holder pursuant to Section 9 hereof. "Warrant Exercise Period" means the period commencing with the original issue date of this Warrant and ending on the Termination Date. "Warrant Number" means, initially, ________ shares of Common Stock, subject to automatic adjustment from time to time in accordance with Section 3. 2. Exercise. (a) This Warrant may be exercised by the Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit A, duly executed by such Holder, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full by bank or certified check in lawful money of the United States, of the aggregate Purchase Price payable in respect of the total number of shares of Common Stock purchased upon such exercise. (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this warrant shall have been surrendered to the Company as provided in Subsection 2(a) above. At such time, the person or persons in whose name or names any certificates for or other instruments evidencing shares of Common Stock shall be issuable upon such exercise as provided in Subsection 2(d) below shall be deemed to have become the holder or holders of record of the Common Stock represented by such certificates or other instruments. (c) (i) The Holder may, at his, her or its sole option, and in lieu of paying the Purchase Price pursuant to Subsection 2(a) hereof, exchange this Warrant in whole or in part for a number of shares of Common Stock as determined below. Such shares of Common Stock shall be issued by the Company to the Holder without payment by the Holder of any other exercise price or any cash or other consideration. The number of shares of Common Stock to be so issued to the Holder shall be equal to the quotient obtained by dividing (A) the Surrendered Value (as defined below) on the date of surrender of this Warrant pursuant to Subsection 2(a), by (B) the Fair Market Value on the exchange date of one share of Common Stock. 2 (ii) For the purposes of this Subsection 2(c), the "Surrendered Value" of a portion of this Warrant on a given date shall be deemed to be the excess of (A) the aggregate Fair Market Value on such date of the total number of shares of Common Stock otherwise issuable upon exercise of such portion of the Warrant, over (B) the aggregate Purchase Price of such total number of shares of Common Stock. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Holder, or, subject to the terms and conditions hereof, as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled upon such exercise, plus, in lieu of any fractional shares to which such Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the Warrant Number minus the number of such shares of Common Stock purchased by the Holder upon such exercise. 3. Adjustments; Fractional Securities. (a) If, at any time and from time to time after the original issue date of this Warrant, the outstanding Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be immediately and automatically proportionately and equitably reduced. If, at any time after the original issue date of this Warrant, the outstanding Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination, be immediately and automatically proportionately and equitably increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the maximum number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) If, at any time and from time to time after the original issue date of this Warrant, there shall occur any capital reorganization or reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided in 3 Subsection 3(a) above), or any consolidation or merger of the Company with or into another person or entity, or a sale, license or transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution, then, as part of any such reorganization, reclassification, consolidation, merger, sale, license or other transfer, or liquidating distribution, lawful provision shall be made so that the Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof (to the extent, if any, still exercisable) the kind and amount of shares of stock or other securities or property which such Holder would have been entitled to receive if, immediately prior to any such event, such Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Holder of this Warrant such that the provisions set forth in Section 3 (including provisions with respect to adjustments of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) If the Company shall, at any time and from time to time after the original issue date of this Warrant, issue or sell any shares of its Common Stock without consideration or for a consideration per share which is less than (x) the Fair Market Value in effect immediately prior to such issue or sale, if shares of Common Stock are then listed on a national securities exchange or the NASDAQ National Market System, or (y) the Purchase Price in effect immediately prior to such issue or sale if shares of Common Stock are not then so listed (a "Dilutive Issuance"), then, and in each such case, the Purchase Price shall be lowered to a price determined by dividing (i) the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale, multiplied by the Purchase Price in effect immediately prior to such issue or sale, plus (B) the consideration, if any, received by the Company upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale. For purposes of this Section 3(c): (i) the issuance or sale of any warrants, options, or other subscription or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options, or any rights with respect to such convertible or exchangeable securities) shall be deemed a Dilutive Issuance at the time of such issuance or sale if the Net Consideration Per Share (defined below) to be received by the Company for such Common Stock (as hereinafter determined) shall be less than the Purchase Price at the time of such issuance or sale and, except as hereinafter provided, an adjustment in the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made upon each such issuance or sale in the manner provided in this Section 3(c). Any obligation, agreement or undertaking to issue or sell warrants, options, or other subscription or purchase rights at any time in the future shall be deemed to be an issuance or sale at the time such obligation, agreement, or undertaking is made or arises. 4 No adjustment of the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made under this Section 3(c) upon the issuance or sale of any shares of Common Stock that are issued or sold pursuant to the exercise of any warrants, options, or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance or sale of any such warrants, options, or other rights or upon the issuance or sale of any convertible securities (or upon the issuance or sale of any warrants, options, or any rights therefor) as above provided. For purposes of this Section 3(c)(i), the "Net Consideration Per Share" to be received by the Company shall be determined as follows: (A) the "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Company for the issuance or sale of such warrants, options, subscriptions, or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Company upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be outstanding if all such warrants, options, subscriptions, or other purchase rights or convertible or exchangeable securities were exercised, exchanged, or converted; (B) the "Net Consideration Per Share" to be received by the Company shall be determined in each instance as of the date of issuance or sale of warrants, options, subscriptions, or other purchase rights, or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments that may be applicable with respect to such warrants, options, subscriptions, or other purchase rights or convertible securities; (ii) If a part or all of the consideration received by the Company in connection with the issuance or sale of shares of the Common Stock or the issuance or sale of any of the securities described in this Section 3(c) consists of property other than cash, such consideration shall be deemed to have the same value as shall be determined in good faith by the Board of Directors of the Company; and (iii) All shares of Common Stock issuable upon the exercise and/or conversion of all outstanding warrants (including this Warrant), options and convertible securities shall be deemed to be outstanding. (d) In any case in which this Section 3 shall require that any adjustment in the number of shares of Common Stock or other securities or property for which this Warrant may be exercised be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the Holder with respect to the exercise of this Warrant after that record date the Common Stock and other property, if any, issuable upon exercise over and above the Common Stock and other property, if any, issuable upon exercise of this Warrant as in effect prior to such adjustment; provided, however, that, upon request, the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional shares or property upon the occurrence of the event requiring such adjustment. 5 (e) When any adjustment is required to be made in the Purchase Price or the Warrant Number, the Company shall promptly mail to the Holder a certificate setting forth the Purchase Price and the Warrant Number after such adjustment, and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in Subsections 3(a), (b) or (c) above. (f) The Company shall not be required, upon the exercise of this Warrant, to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value of the Common Stock at the time of exercise. 4. Limitation on Sale, etc. The Holder, and each subsequent holder of this Warrant, if any, acknowledges that this Warrant and the underlying shares of Common Stock have not been registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Common Stock issued upon its exercise in the absence of (a) an effective registration statement under the Act as to this Warrant or such underlying shares of Common Stock and registration or qualification of this Warrant or such underlying shares of Common Stock under any applicable Blue Sky or state securities laws then in effect, or (b) an opinion of counsel, reasonably satisfactory to the Company, that such registration and qualification are not required. Without limiting the generality of the foregoing, unless the offering and sale of the Common Stock to be issued upon the particular exercise of the Warrant shall have been effectively registered under the Act, the Company shall be under no obligation to issue the shares covered by such exercise unless and until the registered Holder shall have executed an investment representation letter in form and substance reasonably satisfactory to the Company, including a warranty at the time of such exercise that it is acquiring such shares for its own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such shares, in which event the registered Holder shall be bound by the provisions of a legend to such effect on the certificate(s) representing the Common Stock. In addition, without limiting the generality of the foregoing, the Company may delay issuance of the Common Stock hereunder until completion of any action or obtaining of any consent which the Company deems necessary under applicable law (including, without limitation, state securities or Blue Sky laws), provided, that the Company shall use all reasonable efforts in good faith to diligently pursue completion of such action or the receipt of such consent. 5. Notices of Record Date, etc. In case: 6 (a) the Company shall take a record of the holders of Common Stock for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive an right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the stock of the Company, any consolidation or merger of the Company with or into another person or entity, or any sale, license or other transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary bankruptcy, dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such event is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the happening of such event. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in the notice, provided that the failure to so mail such notice shall not affect the legality or validity of any such action. 6. Representations, Warranties and Covenants of Company. (a) Organization and Good Standing. The Company is duly organized and existing as a corporation in good standing in the State of Delaware and is duly qualified as a foreign corporation and authorized to do business in all other jurisdictions in which the nature of its business or property makes such qualification necessary. The Company has the corporate power to own its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Authorization, The execution, delivery and performance by the Company of this Warrant, and the issuance and sale by the Company of Common Stock hereunder (a) are within the Company's corporate power and authority, (b) have been duly authorized by all necessary corporate proceedings, and (c) do not conflict with or result in any breach of any provision of, or the creation of any lien upon any of the property of the Company or require any consent or approval pursuant to its Certificate of Incorporation, as amended, or by-laws, as amended, or any law, regulation, order, judgment, writ, injunction, license, permit, agreement or instrument applicable to the Company. (c) Enforceability. The execution, delivery and performance by the Company of this Warrant, and the issuance and sale by the Company of Common Stock hereunder, will result in legally binding obligations of the Company, enforceable against the 7 Company in accordance with the respective terms and provisions hereof, except to the extent that (a) such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, and (b) the availability of the remedy of specific performance or in injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefor may be brought. (d) Governmental Approvals. The execution, delivery and performance by the Company of this Warrant, and the issuance and sale of Common Stock hereunder, do not require the approval or consent of, or any filing with, any governmental authority or agency. (e) Capitalization. The authorized capital stock of the Company consists of 25,000,000 shares, consisting of 20,000,000 shares of Common Stock, and 5,000,000 shares of preferred stock, $0.0001 par value per share. As of the original issue date of this Warrant, there are 7,897,885 shares of Common Stock outstanding, and no shares of preferred stock outstanding; and there are 1,752,771 shares of Common Stock issuable upon exercise of options, warrants and other rights to purchase or subscribe for Common Stock, and no shares of Common Stock issuable upon the conversion of or in exchange for securities which by their terms are convertible into or exchangeable for shares of Common Stock. (f) Validity of Shares. All shares of Common Stock or other securities which may be issued upon the due exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (g) Reservation of Shares. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of shares of Common Stock, other securities and other property as from time to time shall be issuable upon the exercise of this Warrant. (h) No Impairment. The Company will not, by amendment of its Certificate or Incorporation or by-laws or through reorganization, consolidation, merger, dissolution, issuance of capital stock or sale of treasury stock (other than upon exercise of this Warrant), or sale of assets or by any other act or deed, avoid or seek to avoid the material performance or observance of any of the covenants, stipulations or conditions in the Warrant to be observed or performed by the Company. The Company will at all times in good faith assist, insofar as it is able, in the carrying out of all of the provisions of this Warrant in a reasonable manner and in the taking of all other action which may be necessary in order to protect the rights hereunder of the Holder of this Warrant. (i) Office. The Company will maintain an office where presentations and demand to or upon the Company in respect of this Warrant may be made. The Company will give 8 notice in writing to the Holder, at the address of the Holder appearing on the books of the Company, of each change in the location of such office. (j) No Senior Lender Registration Rights. None of the Senior Lenders, as defined in that certain Loan and Security Agreement of even date herewith among the Company, Holder and the other parties thereto (the "Loan Agreement") has any contractual or other right to cause the Company to register any shares of Common Stock beneficially owned by it, or shares of Common Stock issuable upon the exercise, conversion or exchange of any securities (including without limitation debt securities and other evidences of indebtedness) beneficially owned by it, or any other securities beneficially owned by it, whether for original issuance to such Senior Lender or resale by it, under the Act or any state securities law, or to demand that the Company register any such shares or securities under such Act or law, or to cause the Company to, or demand that the Company, include any such shares or securities in any registration by the Company for its own account or for the account of others. (k) Rule 144 Reporting. With a view to making available to Holder the benefits of certain rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") which may permit the sale of Common Stock to the public without registration, the Company agrees at all times to (i) make and keep public information available, as those terms are understood and defined in Rule 144, as amended, under the Act; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder; and (iii) so long as Holder owns this Warrant or any shares of Common Stock or other securities issuable upon the exercise hereof, to furnish to Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 and of the Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as Holder may reasonably request in complying with any rule or regulation of the SEC allowing Holder to sell any such securities without registration. (l) Listing of Shares. The Company shall cause the shares of Common Stock issuable upon exercise of this Warrant to be included for listing or quotation or admitted for trading on the national securities exchange or the NASDAQ National Market System on which shares of the Company's Common Stock are then listed, quoted or admitted for trading no later than the date upon which the shares of Common Stock issuable upon exercise of this Warrant may lawfully be sold by Holder to the public either pursuant to a registration of such shares under the Act or Rule 144. (m) Notice of Expiration. The Company shall provide written notice to Holder of the expiration of this Warrant no less than thirty (30) days, and no more than sixty (60) days, prior to the Termination Date. 9 7. Termination. This Warrant shall terminate and no longer be exercisable from and after 5:00 p.m., Boston time, on the date that is five (5) years after the Original Issue Date first set forth above (the "Termination Date"). 8. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of the Holders of this Warrant. The Holder may change its, his or her address as shown on the warrant register as the absolute owner hereof for all purposes. (b) Until any tranfer of this Warrant is made in the warrant register, the Company may treat the Holder of this Warrant as the absolute owner hereof for all purposes. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety, if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender or cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. Mailing of Notices, etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address to this Company in writing. All notices and other communications from the Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal executive offices or at such other address as the Company shall so notify the Holder. 11. No Rights as Stockholder. Until the exercise of this Warrant, the Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 12. Company Right to Repurchase. Notwithstanding anything to the contrary contained in this Agreement, subject to the terms and conditions set forth below, the Company shall have the right to repurchase all (but not less than all) of this Warrant (to the extent not previously exercised) for the Repurchase Price (defined below) at any time on or after the date on which all of the Repurchase Conditions (defined below) have been met. As used in this Section 12: (a) "Repurchase Conditions" means (i) the Company, on or before 5:00 PM, Eastern time on June 30, 2000, shall have paid in full all amounts (including, without limitation, principal, accrued interest and other charges) owing, and otherwise fully performed all of its obligations, under the Loan Agreement and all instruments and other evidences of indebtedness issued thereunder, (ii) the average closing or last sale price of a share of the Company's Common Stock on the national securities exchange or NASDAQ National Market System on which shares of the 10 Company's Common Stock are then listed, quoted or admitted for trading over the twenty (20) trading days immediately prior to the date of the Company's Repurchase Notice (defined below) shall equal at least two hundred percent (200%) of the Purchase Price then in effect, (iii) the Company shall, no later than the date of the Repurchase Notice, have filed with the SEC and caused to become effective the Registration Statement (as defined in and in accordance with Section 13 below) and any and all state securities law registrations or qualifications pursuant to Section 13(b)(v) below, and shall have complied with the provisions of Section 13(b)(viii) below, and (iv) on and as of each of the date of the Repurchase Notice and the date of the Repurchase Closing, the Registration Statement and all state securities law registrations and qualifications shall be effective, the Registrable Shares (defined below) shall be listed or admitted for trading or quotation in accordance with Section 13(b)(viii) below, and there shall not, to the best knowledge of the Company, be any actual or threatened occurrence of an event described in Section 13(b)(ii)(B), (C) or (D) below, nor any actual, threatened or anticipated occurrence of an event that could result in a Blackout Period (defined below); (b) "Repurchase Price" means (i) ten cents ($0.10) multiplied by (ii) the number of shares of Common Stock as to which this Warrant remains unexercised on and as of the date of the Repurchase Closing (defined below). Provided that the Repurchase Conditions have been met, the Company may exercise its right to repurchase this Warrant by delivering written notice thereof to Holder (the "Repurchase Notice"), which notice shall specify the Repurchase Price and a date, not less than thirty (30) days nor more than sixty (60) days after Holder's receipt of such notice, on which such repurchase shall be consummated (the "Repurchase Closing"); provided, that Holder may exercise this Warrant as to all or any portion of the Warrant Number at any time prior to the Repurchase Closing and the shares of Common Stock issued or issuable pursuant to such exercise shall not be subject to repurchase by the Company. At the Repurchase Closing, Holder shall surrender this Warrant, duly endorsed for transfer on the books of the Company, against receipt of the Repurchase Price in cash, by certified or bank check, or wire transfer of immediately available funds to the account designated by Holder. Notwithstanding anything to the contrary contained herein, the Company's right to repurchase this Warrant, and the Holder's obligation to consummate the Company's repurchase hereof, (x) shall be subject to the Company having exercised such right as to all warrants issued in connection with the Loan Agreement simultaneously, (y) shall apply only to the portion of this Warrant that is unexercised on and as of the date of the Repurchase Closing and not to any shares of Common Stock issued and outstanding to Holder or as to which Holder has exercised this Warrant prior to such date, and (z) shall terminate and be of no further force or effect upon the Company's execution of a letter of intent, memorandum of understanding or similar instrument with respect to, or earlier announcement of, a merger or consolidation of the Company with or into another person or entity or a sale, license or other transfer of all or substantially all of its assets or any transaction in which the holders of the Company's issued and outstanding voting equity securities immediately prior to such transaction hold less than a majority of the issued and outstanding voting equity securities immediately after such transaction. 13. Registration. 11 (a) Shelf Registration. In the event the Company determines to exercise its repurchase right as set forth in Section 12 above, the Company shall, no later than the date of the Repurchase Notice, have filed a registration statement (the "Registration Statement") on the appropriate form with the SEC covering the resale by Holder to the public of the shares of Common Stock issuable hereunder as to which Holder has not prior to such date exercised this Warrant (the "Registrable Shares") and shall have caused such Registration Statement to become effective on or before such date. The Registration Statement shall register the Registrable Shares for resale by Holder to the public on a delayed or continuous basis pursuant to Rule 415 under the Act. From and after the effective date of the Registration Statement, the Company shall use its best efforts to keep the Registration Statement continuously effective under the Act in order to permit the prospectus included therein to be lawfully delivered by Holder until the later of (x) the Termination Date, or (y) one (1) year after the date of the Repurchase Closing specified in the Repurchase Notice (the "Effectiveness Period"); provided, that, except as provided below with respect to any Blackout Period (defined below), the Company shall be deemed not to have used its best efforts to keep the Registration Statement effective during the requisite period if it voluntarily takes any action or omits to take any action, the taking or omission of which would result in Holder not being able to offer and sell the Registrable Shares under the Registration Statement during that period, unless such action or omission is required by applicable law; provided, further, that the Company shall not be required to amend or supplement the Registration Statement, any related prospectus or any document incorporated therein by reference in the event that, and for a period (a "Blackout Period") not to exceed, until the end of the Effectiveness Period, an aggregate of sixty (60) days if (i) an event occurs and is continuing as a result of which the Registration Statement, any related prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made not misleading, and (ii)(A) the Company determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a pending material business transaction which has not yet been publicly disclosed. (b) Registration Procedure. (i) The Company shall cause the Registration Statement and the related prospectus and any amendments or supplements thereto, as of the effective date of the Registration Statement, (subject to Section 13(a)above), at all times during the Effectiveness Period (i) to comply in all material respects with the applicable requirements of the Act and the rules and regulations of the SEC and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 12 (ii) The Company shall give prompt written notice to Holder: (A) on the date(s) when the Registration Statement or any post-effective amendments thereto have become effective; (B) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceedings for that purpose; (C) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (D) of the happening of any event that requires the Company to make changes in the Registration Statement or prospectus in order to make the statements therein not misleading; (E) of the commencement and termination of any Blackout Period, provided, that the Company agrees that "prompt written notice" of either such event shall be deemed to have been given only if the Company provides written notice to Holder of any actual, threatened or anticipated event or occurrence that to the best knowledge of the Company could result in the commencement or termination of a Blackout Period as soon as possible, consistent with the duties of the Company under applicable federal and state securities laws, after the Company first becomes aware of such actual, threatened or anticipated event or occurrence,; and (F) thirty (30) days prior to the end of the Effectiveness Period. (iii) The Company shall use its best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible time. (iv) Upon the occurrence of any event contemplated by clauses (ii)(D) or (E) of this Section 13(b) the Company shall promptly prepare a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to Holders of the Registrable Shares, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and will contain the current information required by the Act. (v) The Company shall register or qualify the Registrable Shares under the securities or blue sky laws of such states of the United States as Holder reasonably requests and do any and all other acts or things necessary or advisable to enable such 13 exercise in such jurisdictions; provided, that the Company shall not be required to (A) qualify to do business in any jurisdiction where it is not then so qualified or (B) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (vi) The Company shall bear all expenses incurred by it in connection with the performance of its obligations under this Section 13, other than underwriting discounts and commissions, if any and fees of Holder's professional advisors, if any). (vii) The Company shall deliver to the Holder, without charge, a reasonable number of copies of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and all exhibits (including those, if any, incorporated by reference). (viii) The Company shall, no later than the date of the Repurchase Notice, cause all Registrable Shares covered by the Registration Statement to be listed or admitted for trading or quotation on each securities exchange and/or inter-dealer quotation system on which similar securities issued by the Company are then listed or admitted for trading or quotation, and at all times thereafter shall cause such listing or admission for trading or quotation to be maintained. (c) Indemnification (i) The Company will indemnify Holder and each of its or his heirs, executors, administrators, representatives, officers, directors and partners, and each person controlling such Holder against all claims, losses, expenses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in the Registration Statement and any post-effective amendment thereto and any prospectus or other document incident thereto and any registration or qualification materials filed under any applicable state securities or blue sky law, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, or any violation or alleged violation by the Company of the Act, the Exchange Act, and the rules and regulations thereunder, or any state securities or blue sky law applicable to the Company or any rule or regulation promulgated any such state law and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse Holder and each such other person within a reasonable amount of time after incurred for all reasonable legal and other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 13(c)(i) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed); and provided further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any 14 untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by Holder r specifically for use therein. (ii) Holder will indemnify the Company, each of its directors and officers, and each person who controls the Company within the meaning of the Act, against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in the Registration Statement and any post-effective amendment thereto and any prospectus or other document incident thereto and any registration or qualification materials filed under any applicable state securities or blue sky law, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, partners, and persons for all reasonable legal or other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by Holder specifically for use therein; provided, however, that the indemnity agreement contained in this Section 13(c)(ii) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of Holder, (which consent shall not be unreasonably withheld or delayed); and provided further, that the total amount for which Holder shall be liable under this Section 13(c)(ii) shall not in any event exceed the aggregate proceeds received by Holder from the sale of Registrable Shares pursuant to such Registration Statement. (iii) Each party entitled to indemnification under this Section 13(c) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in prejudice to the Indemnifying Party; and provided further, that an Indemnified Party (together with all other Indemnified Parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with 15 the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 14. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. The validity, construction and performance of this Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and performed entirely within such State, without reference to any choice of law principles of such State. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] 16 IN WITNESS WHEREOF, VIEW TECH, INC. has caused this COMMON STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal to be impressed hereon by its duly authorized officers on and as of the date first above written. VIEW TECH, INC. By: -------------------------- Its Attest: ------------------------------- Acknowledged and agreed to by Holder: - ---------------------------------------------- Holder name: please print - ---------------------------------------------- Holder signature 17 EXHIBIT A PURCHASE FORM To: The undersigned, pursuant to the provisions set forth in the attached COMMON STOCK PURCHASE WARRANT, hereby irrevocably elects either (a) to purchase ______ shares of Common Stock covered by such Warrant and herewith makes payment of $__________, representing the full purchase price for such shares at the Purchase Price per share provided for in such Warrant, or (b) to surrender _______________ number of shares of such Warrant in exchange for the number of shares of Common Stock determined pursuant to Subsection 2(c) thereof. Dated: By: --------------------------------- 18 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________ the right to purchase common stock represented by this Warrant to the extent of ______________ shares, and does hereby irrevocably constitute and appoint _________________, attorney-in-fact to transfer the same on the books of the Company with power of substitution in the premises. Dated: By:____________________________ 19 EX-5 4 0004.txt OPINION OF MORRISON & FOERSTER LLP Exhibit 5 [MORRISON & FOERSTER LLP LETTERHEAD] July 28, 2000 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-1 filed by Wire One Technologies, Inc., Delaware corporation (the "Company"), with the Securities and Exchange Commission on July 28, 2000 (Registration No. 333-______) (the "Registration Statement"), relating to the registration under the Securities Act of 1933, as amended, of (a) 2,450,000 shares of the Company's common stock, par value $.0001 per share ("Common Stock"), issuable upon conversion of 2,450 shares of the Company's series A preferred stock, par value $.0001 per share (the "Series A Preferred Stock"), issued in connection with a private placement to various stockholders completed on June 14, 2000 (the "Series A Conversion Shares") pursuant to a Series A Preferred Stock and Warrant Purchase Agreement; (b) 857,500 shares of Common Stock issuable upon exercise of warrants (the "Series A Warrants") to purchase that number of shares of Common Stock issued to the same stockholders in connection with the June 14, 2000 private placement (the "Series A Warrant Shares"); (c) 397,499 shares of Common Stock issued upon the exercise of warrants by certain holders in March 2000 (the "Lender Warrants") to purchase that number of shares originally issued to certain subordinated debtholders of the Company (the "Warrant Shares"); (d) 1,211,773 shares of Common Stock issued and issuable upon the exercise of warrants and options to certain of the Company's consultants (the "Consultant Warrants", together with the Series A Warrants and the Lender Warrants, the "Warrants") for services rendered (the "Consultant Warrant Shares") and (e) 98,000 shares of the Company's Common Stock issued to certain consultants for services rendered (the "Consultant Shares"; together with the Series A Conversion Shares, Series A Warrant Shares and the Consultant Warrant Shares, the "Shares") . This opinion is being delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended. All capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to Wire One Technologies, Inc. July 28, 2000 them in the Registration Statement. The Warrants and the Series A Preferred Stock and Warrant Purchase Agreement are collectively referred to hereinafter as the "Transaction Documents." As counsel to the Company, we have examined the proceedings taken by the Company in connection with the issuance and sale by the Company of the Shares. In such examination, we have assumed the genuineness of all signatures and the authenticity of all items submitted to us as originals and the conformity with originals of all items submitted to us as copies. In making our examination of documents executed by entities other than the Company, we have assumed that each other entity has the power and authority (or, in the case of individuals, the capacity) to execute and deliver, and to perform and observe the provisions of such documents, and the due authorization by each such entity of all requisite action and the due execution and delivery of such documents by each such entity. In addition, we have assumed that the current Board of Directors has been validly elected and that the shares of Series A Preferred Stock and the Warrants have been duly paid for. We have also assumed that the Company has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. In connection with this opinion, we have examined originals or copies of the Transaction Documents and of the certificate of incorporation and the bylaws, each as amended to date, of the Company. In addition, we have examined such records, documents, certificates of public officials and the Company, made such inquiries of officials of the Company and considered such questions of law as we have deemed necessary for the purpose of rendering the opinions set forth herein. In addition, we have relied upon a certificate of officer of the Company with respect to certain factual matters. We have made no independent as to whether this certificate is accurate or complete, but we have no knowledge of any such incompleteness. 2 Wire One Technologies, Inc. July 28, 2000 Based upon and subject to the foregoing, we are of the opinion that: (a) The Series A Conversion Shares have been duly authorized for issuance by all necessary corporate action on the part of the Company and, when issued in accordance with the terms of the Company's certificate of incorporation, will be validly issued, fully paid and non-assessable; and (b) The Series A Warrant Shares, issuable upon exercise of the Series A Warrants, when issued upon payment of the applicable exercise prices and in accordance with the applicable warrant agreements, will be validly issued, fully paid and non-assessable; (c) The Warrant Shares have been validly issued and are fully paid and non-assessable; (d) The Consultant Warrant Shares, issued or issuable upon exercise of the Consultant Warrants, when issued upon payment of the applicable exercise prices and in accordance with the applicable warrant agreements, will be validly issued, fully paid and non-assessable; and (e) The Consultant Shares have been validly issued and are fully paid and non-assessable. We express no opinion as to matters governed by laws of any jurisdiction other than the substantive laws of the State of New York and the Delaware General Corporation Law in effect on the date hereof. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us in the Registration Statement, the prospectus constituting a part thereof and any amendments thereto. Very truly yours, /s/ Morrison & Foerster LLP --------------------------- Morrison & Foerster LLP 3 EX-10.31 5 0005.txt AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of June 1, 2000 by and among wire one technologies, inc., ALLCOMM PRODUCTS CORP. and SUMMIT COMMERCIAL/GIBRALTAR CORP. TABLE OF CONTENTS
Page ---- ARTICLE I CERTAIN DEFINITIONS AND ACCOUNTING TERMS...............................................................1 Section 1.01. Defined Terms.............................................................................1 Section 1.02. Use of Defined Terms.....................................................................12 Section 1.03. Accounting Terms.........................................................................12 ARTICLE II AMOUNTS AND TERMS OF THE LOANS.......................................................................12 Section 2.01. Revolving Loans..........................................................................12 Section 2.02. Requests for Revolving Loans.............................................................12 Section 2.03. Repayment of Principal...................................................................13 Section 2.04. Interest Payments........................................................................13 Section 2.05. Fees.....................................................................................14 Section 2.06. Excess Loans.............................................................................14 Section 2.07. Availability Reserves....................................................................14 Section 2.08. Borrowers' Loan Account..................................................................15 Section 2.09. Statements...............................................................................15 ARTICLE IIA LETTERS OF CREDIT...................................................................................15 Section 2A.01. Commitment and Issuance of Letters of Credit.............................................15 Section 2A.02. Risks of Acts or Omissions...............................................................16 Section 2A.03. Documentation............................................................................16 Section 2A.04. Action, Inaction and Omission............................................................17 Section 2A.05. Change in Law of Regulations.............................................................17 Section 2A.06. Payments and Fees........................................................................18 Section 2A.07. Indemnification..........................................................................18 Section 2A.08. Conformity, Delay, Etc...................................................................18 ARTICLE III LOAN PROCEEDS AND PAYMENTS.......................................................................19 Section 3.01. Collection of Accounts...................................................................19 Section 3.02. Use of Loan Proceeds.....................................................................20 Section 3.03. Payments.................................................................................20 Section 3.04. Payment on Non-Business Days.............................................................21 Section 3.05. Net Payments.............................................................................21 ARTICLE IV CONDITIONS........................................................................................21 Section 4.01. Conditions Precedent to Initial Revolving Loan and Initial Letter of Credit.................................................................21 Section 4.02. Conditions Precedent to All Loans and All Letters of Credit..............................23
(i)
Page ---- ARTICLE V GRANT OF SECURITY INTERESTS........................................................................23 Section 5.01. Grant of Security Interests..............................................................23 Section 5.02 Verification of Accounts Receivable......................................................24 Section 5.03. Borrowers' Collection Authority..........................................................24 Section 5.04. Chattel Paper and Instruments............................................................25 Section 5.05. Power of Attorney........................................................................25 Section 5.06 Right to Cure............................................................................26 Section 5.07. Access to Premises.......................................................................26 Section 5.08. Test Verifications.......................................................................26 ARTICLE VI REPRESENTATIONS AND WARRANTIES....................................................................27 Section 6.01. Representations and Warranties...........................................................27 ARTICLE VII COVENANTS OF THE BORROWERS.......................................................................33 Section 7.01. Affirmative Covenants Other Than Reporting Requirements..................................33 Section 7.02. Negative Covenants.......................................................................36 Section 7.03. Reporting Requirements...................................................................40 Section 7.04. Covenants Relating to the Collateral.....................................................43 ARTICLE VIII DEFAULT AND REMEDIES...............................................................................44 Section 8.01. Events of Default........................................................................44 Section 8.02. Rights and Remedies Upon Default.........................................................46 Section 8.03. Set-off..................................................................................47 Section 8.04. Right to Cure............................................................................47 Section 8.05. Rights Cumulative........................................................................48 Section 8.06. Notice of Sale, etc......................................................................48 ARTICLE IX MISCELLANEOUS........................................................................................48 Section 9.01. No Waiver; Cumulative Remedies...........................................................48 Section 9.02. Amendments, Waivers and Consents.........................................................48 Section 9.03. Addresses for Notices, etc...............................................................49 Section 9.04. Costs, Expenses and Taxes................................................................49 Section 9.05. Termination..............................................................................50 Section 9.06. Representations and Warranties...........................................................51 Section 9.07. Binding Effect; Assignment...............................................................51 Section 9.08. Reproduction of Agreement................................................................51 Section 9.09. Consent to Jurisdiction..................................................................52 Section 9.10. Governing Law............................................................................52 Section 9.11. Severability.............................................................................52 Section 9.12. Headings.................................................................................52 Section 9.13 Indemnification..........................................................................53 Section 9.14. Waiver of Jury Trial.....................................................................53 Section 9.15. Release of Lender........................................................................53
(ii) EXHIBIT LIST Exhibit A - Subsidiaries; partnerships; joint ventures Exhibit B - Options, warrants, etc. Exhibit C - Litigation; administrative proceedings Exhibit D Intellectual property Exhibit E - Employee Benefit Plans Exhibit F - Existing Indebtedness and Liens Exhibit G - Collateral Locations (iii) AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of June 1, 2000 by and among WIRE ONE TECHNOLOGIES, INC., a Delaware corporation and successor by merger to ACC (as defined below) ("WOT"), and ALLCOMM PRODUCTS CORP., a Delaware corporation ("APC", together with WOT, collectively, the "Borrowers", and, each individually, a "Borrower"); and SUMMIT COMMERCIAL/GIBRALTAR CORP., a New York corporation (together with its successors and assigns, the "Lender"). WHEREAS, WOT was formerly known as "VIEW TECH, INC." ("VTI") and is the surviving entity pursuant to an Agreement and Plan of Merger, dated as of December 27, 1999 (the "Merger"), by and between ALL COMMUNICATIONS CORPORATION, a New Jersey corporation ("ACC"), and VTI, which Merger became effective as of May 18, 2000; and WHEREAS, the Lender, WOT, as successor by merger to ACC, and APC are parties to a Loan and Security Agreement, dated as of May 15, 1998 (the "Original Loan Agreement"), pursuant to which the Lender made available to ACC and APC a secured revolving line of credit in the original principal amount of $5,000,000 (the "Original Line of Credit"); and WHEREAS, the Lender has agreed to increase to $15,000,000 the maximum principal amount available under the Original Line of Credit, to extend the expiration date of the Original Line of Credit until May 15, 2002, and to further amend and restate the Original Loan Agreement all as more particularly set forth herein; NOW, THEREFORE, the Borrowers and the Lender, each party in consideration that the other join herein, hereby respectively act and agree as follows: ARTICLE I CERTAIN DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Defined Terms. As used in this Agreement or in any certificate, instrument, agreement, document or opinion delivered in connection with this Agreement, the following terms shall have the meanings set out respectively after each: "Accounts Receivable" - All of the accounts, accounts receivable, notes, bills, drafts, acceptances, instruments, documents, chattel paper and all other debts, obligations and liabilities in whatever form owing to either Borrower from any person for goods sold by either Borrower or for services rendered by either Borrower, or however otherwise established or created, all guarantees and security therefore, all rights, title and interest of either Borrower in the goods or services which give rise thereto, including rights to reclamation and stoppage in transit and all rights of an unpaid seller of goods or services; whether any of the foregoing be now existing or hereafter arising, now or hereafter received by or owing or belonging to the Borrowers. "Acquisition" - Any purchase or other acquisition made by the Borrowers or any Subsidiary of either Borrower of all or substantially all of the business or assets of any other corporation or other entity or any line of business of another corporation or entity, all whether through the acquisition of stock or assets or otherwise. "Affiliate" - With respect to any Person (other than an individual) includes (i) any officer or director of such Person, (ii) any other Person which, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and (iii) any other Person which owns, of record and/or beneficially, 5% or more of any class of equity securities of such Person. "Aggregate Revolving Loans" - The aggregate principal amount of all Revolving Loans and Excess Loans outstanding at any one time under this Agreement. "Agreement" (as in "this Agreement") - This Loan Agreement, as the same may be amended from time to time. "Availability Reserves" - As of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Revolving Commitment Amount, the Revolving Loans or the Letter of Credit Sublimit under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, do or may materially adversely affect any of (i) the Collateral or any other property which is security for the Obligations or its value, (ii) the assets, business or prospects of either Borrower, (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof), (iv) the timely payment of any Account Receivable by an account debtor, or (v) the timely payment of any Indebtedness of either Borrower due to any Person, including without limitation Panasonic, or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of Borrowers to Lender is incomplete, inaccurate or misleading in any material respect, or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default. "Base Rate" - That rate of interest per annum announced by the Summit Bank, from time to time, at its Principal Office, as being its base rate, it being understood that such rate is merely a reference rate, not necessarily the lowest, which serves as the basis upon which effective rates of interest are calculated for obligations making reference thereto. "Blocked Accounts" - As defined in Section 3.01. "Borrowing Base" - The sum (as shown on the Lender's records at anytime) of the following: (a) seventy-five percent (75%) of the unpaid face amount of all Eligible Accounts, plus (b) the lesser of (i) $5,000,000 or (ii) fifty percent (50%) of the cost or market value, whichever is lower, of all Eligible Inventory. -2- "Business Day" - Any day which is not a Saturday, nor a Sunday, nor a public holiday under the laws of the United States of America or the State of New Jersey applicable to a national banking association or other day on which banks in New Jersey are authorized or directed to close. "Canon" - Canon U.S.A., Inc., a New York corporation, and its successors and assigns. "Canon Debt" - The indebtedness incurred by WOT pursuant to a Dealer Agreement, dated on or about January 13, 1998 by and between WOT and Canon. "Canon Intercreditor Agreement" - An Intercreditor Agreement dated as of June 1, 2000 by and between Canon and the Lender. "Capital Expenditures" - All acquisitions of machinery, equipment, land, leaseholds, buildings, leasehold improvements and all other expenditures for purposes which are considered to be fixed assets under generally accepted accounting principles consistently applied. Whenever a fixed asset is acquired by a lease which is required to be capitalized pursuant to Statement of Financial Accounting Standards No. 13 or any successor thereto, the amount required to be capitalized pursuant thereto shall be considered to be a Capital Expenditure in the year such asset is first leased. "Cash Flow Available" - For any period, the consolidated EBITDA of the Borrowers and their Subsidiaries for such period, minus each of the following: (i) all federal and state income taxes actually paid by the Borrowers and/or any of such Subsidiaries during such period, (ii) all cash payments in respect of Capital Expenditures by the Borrowers and/or any of such Subsidiaries during such period which are not financed with long-term Indebtedness, and (iii) all cash payments of principal of long-term Indebtedness of the Borrowers and any of such Subsidiaries (or the current portion thereof) during such period. "Charter" - The Certificate of Incorporation, Articles of Organization or other organizational document of a corporation referred to, in each case as amended to date. "Collateral" - As defined in Section 5.01. "Commitment" - The agreement of the Lender to make Revolving Loans to the Borrowers and cause Summit Bank to issue Letters of Credit pursuant to this Agreement. "Default" - Any event or circumstance which, with the passage of time or giving of notice or both, could become an Event of Default. "Determination Date" - The last day of each fiscal quarter of the Borrowers, commencing with the fiscal quarter ending as of June 30, 2000. -3- "EBITDA" - The consolidated Net Income (or consolidated Net Loss) of the Borrowers and Subsidiaries for any period, plus, without duplication of any item, (i) all federal and state income taxes (but not taxes in the nature of an ad valorem property tax or a sales or excise tax) paid or accrued with respect to such period, (ii) all interest on any Indebtedness (whether senior debt or subordinated debt) paid or accrued by the Borrowers and/or any of their Subsidiaries for such period and actually deducted on the consolidated books of the Borrowers for the purposes of computation of consolidated Net Income (or consolidated Net Loss) for the period involved, and (iii) the amount of the provision for depreciation and/or amortization actually deducted on the consolidated books of the Borrowers for the purposes of computation of consolidated Net Income (or consolidated Net Loss) for the period involved. "Eligible Account" - An Account Receivable owing to either Borrower which initially and at all times until collected in full: (a) is not more than ninety (90) days from the date of invoice; (b) arose in the ordinary course of business from Borrowers' bona fide performance of services for or sale of goods to an account debtor; provided that: (i) any such services have been performed or such goods have been shipped to such account debtor in either case in accordance with the terms and provisions contained in any documents related thereto; and (ii) such sale does not arise from sales on consignment, guaranteed sale, bill and hold, sale and return, sale on approval, or other terms under which payment by such account debtor may be conditional or contingent; (c) is not evidenced by a promissory note or other instrument; (d) is subject to a perfected security interest in favor of Lender; (e) is not subject to any lien, security interest or other encumbrance in favor of any Person (other than the Lender or Panasonic); (f) is not subject to any deduction, contra, defense, counterclaim, dispute, set-off, defense, warranty claim, credit, discount, allowance, extension or adjustment by or granted to the account debtor under such account known to Borrower (except Borrowers' normal discounts allowed for prompt payment), and such account debtor has not complained as to its liability thereon nor returned any of the subject goods; (g) is owed by an account debtor: (i) as to which Borrowers have received no notice and have no knowledge of bankruptcy, and insolvency or other facts which make collection doubtful -4- (ii) which is not an employee, shareholder or Affiliate of either Borrower (iii) the chief executive office of which is located in the United States of America or, if located outside of the United States, the Lender shall have consented to such account debtor, which consent shall not be unreasonably withheld or subject to unreasonable conditions; (iv) which is not a foreign government, or any political subdivision, department, agency or instrumentality thereof; (v) with respect to which there are no proceedings or actions, known to either Borrower, which are threatened or pending that might result in any material adverse change in any such account debtor's financial condition; (vi) which is deemed creditworthy at all times by Lender, as determined by Lender in good faith. (h) does not consist of progress billings, bill and hold invoices or retainage invoices; (i) is valid, enforceable and collectible and with respect to which there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Account Receivable or reduce the amount payable or delay payment thereunder; (j) is owed by account debtor whose total indebtedness to Borrowers does not exceed an amount equal to the 33% of the aggregate Eligible Accounts due from other account debtors of the Borrowers; provided that (i) the portion of the such account debtor's Accounts Receivable not in excess of such amount, and (ii) any portion of such excess to which the Lender shall consent in writing, which consent shall not be unreasonably withheld, may still be deemed Eligible Accounts; (k) it has not been determined by the Lender in good faith to be unacceptable; and (l) is not an Account Receivable, which immediately prior to the Merger Effective Date was an account receivable of VTI or which arose from a sale by VTI prior to the Merger Effective Date (the Accounts Receivable described in this subparagraph (l) being herein called "VTI Excluded Accounts Receivable"); provided that (x) if at any time fifty percent (50%) or more of the aggregate amount of the accounts due from any account debtor are unpaid in whole or in part more than ninety (90) days from the respective dates of invoice, from and after such time none of the accounts (then existing or thereafter arising) due from such account debtor shall be deemed to be Eligible Accounts until such time as all accounts due from such account debtor are (as a result payments received -5- thereon) no more than ninety (90) days from date of invoice, and (y) any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral. "Eligible Inventory" - Finished goods of either Borrower and parts with respect thereto (but excluding packaging and shipping materials) which initially and at all times until sold: (a) are new and unused (except, with Lender's written approval, used equipment held for sale or lease); (b) are in first-class condition, merchantable and saleable through normal trade channels; (c) comply with applicable regulatory standards and requirements including such standards and requirements of the Federal Communications Commission; (d) are not unserviceable, obsolete, slow moving, returned, damaged or defective; (e) are valued at the lower of cost or market; (f) are located at the chief executive offices of the Borrowers described in Section 6.01(m) or at any Premises under the control of the Borrowers (or, if not located at such chief executive offices or Premises, are items of Eligible L/C Inventory); provided that any landlord of any Premises leased by the Borrowers shall have executed an instrument waiving its lien in the Collateral and permitting Lender access to, and the right to remain on, the Premises so as to exercise Lender's rights and remedies and otherwise deal with the Collateral in form and substance satisfactory to the Lender in its sole discretion; (g) are subject to a perfected security interest in favor of the Lender; (h) are owned by the Borrowers free and clear of any lien, security interest or encumbrance therein or in the proceeds or products thereof, except in favor of the Lender or in favor of Panasonic; provided that such liens are subject to the applicable Subordination Agreement; (i) have not been purchased or sold on consignment; and (j) have not been designated by Lender in good faith by written notice to the Borrowers as unacceptable for any reason; provided that any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. "Eligible L/C Inventory" shall mean all Inventory owned by either Borrower and purchased through a Letter of Credit which is or will be in transit to the Borrowers' chief executive offices and which (a) is fully insured and evidence thereof is provided to Lender; (b) is -6- subject to a perfected first priority security interest in favor of Lender; (c) is otherwise deemed to be "Eligible Inventory" pursuant to this Agreement; provided that all documents, notices, instruments, statements and bills of lading relating thereto, if any, which Lender may deem necessary or desirable to evidence ownership by Borrowers and/or to give effect to and protect the liens, security interests and other rights of Lender in connection therewith, are delivered to Lender. "Environmental Laws" - Any and all federal, state or local laws, ordinances or regulations pertaining to the protection of human health or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., and any applicable statutes, regulations, rules, orders in council, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, and similar items of all governmental authorities and all applicable judicial, administrative and regulatory decrees, judgments and orders, any of which relate to the protection of human health or the environment from the effects of Hazardous Substances, including, but not limited to, those pertaining to reporting, licensing, permitting, investigating and remediating emissions, discharges, releases or threatened releases of Hazardous Substances into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. "ERISA" - As defined in Section 6.01(l). "Event of Default" - Any of the events specified in Section 8.01 hereof. "Excess Loans" - As defined in Section 2.06. "Expiration Date" - May 15, 2002. "FINOVA" - FINOVA Capital Corporation, a Delaware corporation, its successors and assigns. "FINOVA Debt" - The indebtedness incurred by ACC pursuant to a Dealer Loan and Security Agreement" dated on or about November 25, 1998 by and between FINOVA and ACC. "FINOVA Intercreditor Agreement" - An Intercreditor Agreement dated as of November 30, 1998, by and between FINOVA and the Lender, as modified by a letter agreement between FINOVA and the Lender consenting to and acknowledging that (a) extensions of credit hereunder shall be deemed loans pursuant to the Creditor Loan Documents (as defined therein), (b) the Collateral other than the FINOVA Collateral (as defined therein) shall be deemed Non-FINOVA Collateral (as defined therein), and (c) WOT is the successor in interest to the Dealer (as defined therein). -7- "GAAP" - United States generally accepted accounting principles, consistently applied over the period to which they relate and consistent with past financial statements. "Hazardous Substances" - With respect to real property located within the United States or any action or omission to act within the United States or affecting, directly or indirectly, any real property located within, human health in or the environment of the United States, oil and petroleum products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any other materials classified as hazardous or toxic under any Environmental Laws. "Indebtedness" - The total of all obligations of a Person, whether current or long-term, senior or subordinated, which in accordance with generally accepted accounting principles would be included as liabilities upon such Person's balance sheet at the date as of which Indebtedness is to be determined; and shall also include such Person's liability in respect of guaranties, endorsements (other than for collection in the ordinary course of business) or other arrangements whereby responsibility is assumed for the obligations of others, whether by agreement to purchase or otherwise acquire the obligations of others, including any agreement, contingent or otherwise, to furnish funds through the purchase of goods, supplies or services for the purpose of payment of the obligations of others. "Interest Coverage Ratio" - EBITDA divided by Total Interest Expense. "Interest Period" - The period commencing on the first day of any calendar quarter and ending on the last day of such calendar quarter. "Inventory" - All inventory of whatever name, nature, kind or description, including without limitation all goods held for sale or lease or to be furnished under contracts of service, finished goods, work in process, raw materials, materials used or consumed by either Borrower, parts, supplies, wrapping, packaging, advertising, shipping materials, devices, names and marks, and all contracts, rights and documents relating to any of the foregoing, whether any of the foregoing be now existing or hereafter arising, where ever located, now owned or hereafter acquired by the Borrowers. "Landlord Waiver and Consent" - Landlord Waiver and Consent of Vitamin Realty Associates, L.L.C. for the benefit of the Lender dated as of May 12, 1998, as modified by a letter agreement between Vitamin Realty Associates, LLC and the Lender consenting to and acknowledging that WOT is the successor-in-interest to ACC. "Letters of Credit" - As defined in Section 2A.01. "Letters of Credit Sublimit" - As defined in Section 2A.01. "Loan" - Any obligation (matured or unmatured) of the Borrowers to the Lender now or hereafter arising under or in respect of this Agreement (including, without limitation, any Revolving Loan or Excess Loan). -8- "Loan Accounts" - As defined in Section 2.08. "Loan Documents" - This Agreement, the Landlord Waiver and Consent, the Validity and Support Agreement, the FINOVA Intercreditor Agreement and the Panasonic Subordination Agreement. "Margin stock" - As defined in Section 6.01(h). "Maximum Available Commitment" - At any time an amount equal to (a) the lesser of (i) the sum of the Borrowing Base as of such time or (ii) the Revolving Commitment Amount at such time, less (b) the sum of (i) the aggregate face amount of any Letters of Credit issued by the Lender or any of its Affiliates for the account of either Borrower, or (ii) any other extensions of credit by the Lender or any of its Affiliates to either Borrower. "Merger" - As defined in the Recitals. "Merger Effective Date" - May 18, 2000. "Net Income" (or "Net Loss") - The net income (or net loss, expressed as a negative number) of a Person for any period, after all taxes actually paid or accrued and all expenses and other charges determined in accordance with GAAP. "Net Worth" - Tangible Net Worth less any Subordinated Debt to the extent taken into account for purposes of determining Tangible Net Worth. "Obligations" - Any and all Revolving Loans, Excess Loans, obligations to the Lender or Summit Bank with respect to the issuance of any Letter of Credit or a drawing thereunder and all other obligations, liabilities and indebtedness of every kind, nature and description owing by either Borrower to Lender and/or its Affiliates, including principal, interest' charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to either Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. "Panasonic" - Panasonic Communications & Systems Company, Division of Matsushita Electric Corporation of America, a Delaware corporation, and its successors and assigns. "Panasonic Debt" - The indebtedness incurred by ACC pursuant to a Dealer Agreement, Business Telephone Systems Division dated on or about May 20, 1992 by and between Panasonic and ACC. -9- "Panasonic Subordination Agreement" - A Subordination Agreement dated as of May 15, 1998 between the Lender and Panasonic with respect to the subordination of the liens on the Collateral securing the Panasonic Debt, as modified by a letter agreement between FINOVA and the Lender consenting to and acknowledging that (a) extensions of credit hereunder shall be deemed included in "Debtor's indebtedness to LENDER" for purposes thereof, (b) the Collateral (as defined herein) shall be deemed "the Collateral" (as defined therein), and (c) WOT is the successor in interest to the Debtor (as defined therein). "PBGC" - As defined in Section 6.01(l). "Person" - An individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "PictureTel" - PictureTel, Corporation, a Delaware corporation, and its successors and assigns. "PictureTel Debt" - The indebtedness incurred by WOT pursuant to a New Product Credit Agreement dated November 17, 1999 by and between WOT and PictureTel. "PictureTel Subordination Agreement" - A Subordination Agreement dated as of June 1, 2000 between the Lender and PictureTel with respect to the subordination of the PictureTel Debt. "Premises" - All locations now or hereafter owned, leased or operated by the Borrowers or by any Subsidiary of the Borrowers. "Principal Office" - With respect to the Lender, the principal place of business of the Lender, now located at 546 Fifth Avenue, New York, New York 10036, or with respect to Summit Bank, the office of Summit Bank located at 210 Main Street, Hackensack, New Jersey. "Public Reports" - as defined in Section 6.01(r). "Records" - All of each Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidences, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor of either Borrower, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Borrower with respect to the foregoing maintained with or by any other Person). "Reece" - Franklin A. Reece, III, as Agent for various lenders. "Reece Debt" - The indebtedness incurred by WOT pursuant to a Loan and Security Agreement dated November 17, 1999 by and between WOT and Reece. -10- "Reece Subordination Agreement" - A Subordination Agreement dated as of June 1, 2000 by and between the Lender and Reece with respect to the Reece Debt. "Revolving Commitment Amount" - $15,000,000. "Revolving Loans" - Loans made by the Lender to the Borrowers pursuant to Section 2.01. "SEC" - The Securities and Exchange Commission. "Securities Act" - The Securities Act of 1933, as amended, and the rules and regulations promulgated pursuant thereto. "Securities Exchange Act" - The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated pursuant thereto. "Subsidiary" - As to any Person, any corporation or other entity as to which such Person and/or any of its Subsidiaries, directly or indirectly, owns, or has the right to control or direct the voting of, more than fifty (50%) percent of the outstanding capital stock or other ownership interest having general voting power (under ordinary circumstances). "Summit Bank" - Summit Bank, a New Jersey state chartered bank. "Tangible Net Worth" - An amount equal to the total assets of any Person (excluding the total intangible assets of such Person), minus the total liabilities of such Person, plus the principal amount of Subordinated Debt of the Borrowers then outstanding. Total intangible assets shall be deemed to include, but shall not be limited to, the excess of cost over book value of acquired businesses accounted for by the purchase method, formulae, trademarks, trade names, patents, patent rights and deferred expenses (including, but not limited to, unamortized debt discount and expense, organizational expense, capitalized software and experimental and development expenses). Further, Tangible Net Worth shall expressly exclude (1) any write-up in the book value of any assets resulting from a revaluation thereof after the date of this Agreement, (2) earnings or losses attributable to equity interests in Persons that are not Subsidiaries, unless actually received, (3) the effect of any changes in the method of accounting and (4) minority interests in any Subsidiaries which are not wholly-owned. "Total Interest Expense" - For any period, with respect to the Borrowers, without duplication, the sum of (i) the interest expense paid or accrued during such period, (ii) the interest component of any Capital Expenditures, and (iii) all commitment fees and similar fees payable or paid during such period in respect of Indebtedness. "Validity and Support Agreement" - The Validity and Support Agreement of even date herewith of Richard Reiss in favor of the Lender. "VTI" - As defined in the Recitals. -11- "VTI Excluded Accounts Receivable" - As defined in the definition of Eligible Accounts. "VTI Financing Documents" - The Credit Agreement between VTI and its wholly-owned subsidiary, USTeleCenters, Inc., and Imperial Bank effective November 21, 1997, providing for a $15,000,000 line of credit. Section 1.02. Use of Defined Terms. Any defined term used in the plural preceded by the definite article shall be taken to encompass all members of the relevant class. Any defined term used in the singular preceded by "any" shall be taken to indicate any number of the members of the relevant class. Section 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. ARTICLE II AMOUNTS AND TERMS OF THE LOANS Section 2.01. Revolving Loans. Subject to the terms and conditions hereinafter set forth, the Lender agrees that, upon the Borrowers' request, the Lender will make a loan under this Section 2.01 (each, a "Revolving Loan") to the Borrowers, on any Business Day prior to the first to occur of (i) the Expiration Date, or (ii) the earlier termination of the Commitment pursuant to Section 8.02 or 9.05, in an amount equal to the Revolving Loans then being requested by the Borrowers. The Commitment of the Lender to make Revolving Loans shall terminate and the Lender shall have no further obligation or liability with respect thereto upon the first to occur of said events described in clauses (i) and (ii) of the preceding sentence. In no event shall the Aggregate Revolving Loans outstanding or requested be such that, after giving effect to any such request, the Aggregate Revolving Loans would exceed the Maximum Available Commitment. The Loans shall not be evidenced by promissory notes or other evidences of indebtedness. Section 2.02. Requests for Revolving Loans. On each occasion when the Borrowers request Revolving Loans, the Borrowers will give the Lender telephonic or written notice, specifying the aggregate principal amount of the Revolving Loans so requested and the Borrower to which such Revolving Loan shall be disbursed, by no later than 11:00 a.m. on the Business Day upon which such Revolving Loans are to be made. Section 2.03. Repayment of Principal. The Borrowers jointly and severally agree to repay in full all Loans (together with all interest accrued thereon) on the first to occur of (i) the Expiration Date, or (ii) an acceleration under Section 8.02(a) following an Event of Default. Subject to Section 9.05, the Borrowers may prepay, at any time and from time to time, without premium or penalty, the whole or any portion of the Loans. -12- Prior to the Expiration Date and within the other limits and on the conditions contained in this Agreement, the principal amounts of the Revolving Loans which are prepaid or repaid are available for reborrowing hereunder. All Loans not repaid prior to the Expiration Date will be due and payable in full on the Expiration Date, together with all unpaid interest accrued thereon to the date of payment. Section 2.04. Interest Payments. (a) The Borrowers agree, jointly and severally, to pay interest on the principal amount of the Loans outstanding from time to time, from the date of the initial Loan hereunder until payment of all Loans in full at a rate per annum equal to one half of one percent (.50%) plus the Base Rate, as in effect from time to time (but in no event in excess of the maximum rate permitted by then applicable law), with a change in such rate of interest to become effective on the same day on which any change in the Base Rate is effective. Interest will be payable monthly in arrears on the first day of each month, commencing with the first such date after the making of any Loan. (b) From and after June 30, 2000, and so long as no Event of Default shall have occurred, the rate of interest payable by the Borrowers on the Loans for any Interest Period shall be subject to adjustment, as follows: (i) For the Interest Period commencing immediately after the end of any fiscal quarter with respect to which the Lender has timely received a quarterly certificate as required by Section 7.03(c) of this Agreement, provided the Borrowers have maintained quarterly EBITDA for such quarter of at least $500,000, the rate of interest payable by the Borrowers on the principal amount of Loans outstanding from time to time during such Interest Period shall be adjusted effective as of the first day of such Interest Period and shall be equal to one quarter of one percent (.25%) plus the Base Rate. (ii) For the Interest Period commencing immediately after the end of any fiscal quarter with respect to which the Lender has timely received a quarterly certificate as required by Section 7.03(c) of this Agreement, provided the Borrowers have maintained quarterly EBITDA for such quarter of more than $1,000,000, the rate of interest payable by the Borrowers on the principal amount of Loans outstanding from time to time during such Interest Period shall be adjusted effective as of the first day of such Interest Period and shall be equal to the Base Rate. (c) If no adjustment is to be made pursuant to Section 2.04(b) of this Agreement, the rate of interest payable by the Borrowers on the principal amount of Loans outstanding from time to time during such Interest Period shall be the rate of interest as provided in Section 2.04(a) of this Agreement effective as of the first day of such Interest Period. (d) Overdue principal of the Loans and, to the extent permitted by law, overdue interest on the Loans shall bear interest at a rate per annum which at all times shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the rate otherwise applicable to the Loans (but in -13- no event in excess of the maximum rate from time to time permitted by then applicable law), compounded monthly and payable on demand. Section 2.05. Fees. Borrowers agree jointly and severally to pay Lender the following: (a) an amendment fee in the amount $20,000, payable as of the date hereof; (b) an annual facility fee in the amount of $17,500, no portion of which shall be refundable, earned and payable as of May 15 of each year occurring prior to the Expiration Date; provided that the first of which has been paid on or before the date hereof; and (c) an additional annual facility fee in the amount of $15,000, no portion of which shall be refundable, earned and payable on the first day of the next month following such occurrence, if, at any time during the twelve (12) months preceding each anniversary of the date hereof (including the Expiration Date), the Aggregate Revolving Loans outstanding under this Agreement exceeded $10,000,000. The fees provided for in this Section 2.05 are in addition to any fees, balances or charges which may be applicable to other services now or hereafter provided to the Borrowers by the Lender or by any of their respective affiliates. Section 2.06. Excess Loans. Notwithstanding the provisions of Section 2.01 above, Lender may make Excess Loans (as defined below) to Borrowers. In the event (a) that, at any time, the Aggregate Revolving Loans exceed the Maximum Available Commitment, or (b) any Borrower should directly or indirectly become indebted to Lender for obligations other than those arising under this Agreement, then in such cases, such advances or such indebtedness shall be considered "Excess Loans" and shall be covered by the terms of this Agreement, including but not limited to those provisions affording the Lender a security interest in the Collateral so as to secure payment of all such Excess Loans. Notwithstanding anything stated herein to the contrary, the Lender shall be under no obligation (and has not committed) either to extend or permit Excess Loans. Section 2.07. Availability Reserves. Without limiting any other rights or remedies of the Lender hereunder or under the other Loan Document, all Revolving Loans otherwise available to Borrower pursuant to the lending formulas described above and subject to the Maximum Available Commitment and other applicable limits hereunder shall be subject to Lender's continuing right to in good faith establish and revise Availability Reserves. Section 2.08. Borrowers' Loan Account. The Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans and other Obligations and the Collateral, (b) all payments made by or on behalf of either Borrower, and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest (each such loan account being herein called a "Loan Account" and all such loan accounts being herein collectively called the "Loan Accounts"). All entries in the Loan -14- Account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. Section 2.09. Statements. The Lender shall render to the Borrowers each month a statement setting forth the balance in the Borrower's respective Loan Account(s) maintained by Lender pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by the Borrowers and conclusively binding upon the Borrowers as an account stated except to the extent that the Lender receives a written notice from the Borrowers of any specific exceptions thereto within ten (10) days after the date such statement has been mailed by the Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in the Borrower's respective Loan Account(s) on the books of the Lender shall be presumptive evidence of the amounts due and owing to Lender by Borrower. ARTICLE IIA LETTERS OF CREDIT Section 2A.01. Commitment and Issuance of Letters of Credit. (a) Subject to the terms and conditions set forth in this Agreement, upon written request of the Borrowers, accompanied by such letter of credit applications or other instruments as the Lender or Summit Bank may require from time to time, the Lender through Summit Bank shall issue and process letters of credit on behalf of the Borrowers (the "Letters of Credit") in amounts not to exceed at any time in the aggregate, the lesser of (i) the sum of One Million Dollars ($1,000,000) (the "Letter of Credit Sublimit") or (ii) the Maximum Available Commitment as of such time. (b) No Letter of Credit shall be issued after, or expire after, the Expiration Date and no Letter of Credit shall have an expiration date more than six (6) months after issuance thereof. The Borrowers may utilize each Letter of Credit to secure payments to suppliers of Inventory and for other purpose reasonably satisfactory to the Lender. (c) The Lender shall cause Letters of Credit to be issued by Summit Bank for the account of the Borrowers in favor of a named beneficiary specified by the Borrowers in their written notice requesting such issuance upon such terms and conditions as Summit Bank may require. Section 2A.02. Risks of Acts or Omissions. With respect to each Letter of Credit issued by Summit Bank pursuant to this Article IIA, the Borrowers agree to accept all risks of acts or omissions of any beneficiary or transferee of any such Letter of Credit. In furtherance of, and not in limitation of, the rights and powers of Summit Bank under the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (the "UCP") or under such Letter of Credit, but subject to all other provisions of this Article IIA, it is understood and agreed -15- with respect to each such Letter of Credit, that neither Summit Bank nor the Lender shall have any liability for and the Borrowers assume all responsibility for: (a) the genuineness of any signature on behalf of the Borrowers; (b) the form, correctness, validity, sufficiency, genuineness, falsification and legal effect of any draft, certification or other document required by any such Letter of Credit or the authority of the person signing the same; (c) the failure of any instrument to bear any reference or adequate reference to any such Letter of Credit or the failure or any person to note the amount of any instrument on the reverse side of any such Letter of Credit or to surrender any such Letter of Credit or to forward documents in the manner required by any such Letter of Credit, or otherwise to comply with the terms and conditions of any Letter of Credit or; (d) the acts of any person other than Summit Bank, the Lender and their respective agents and employees; (e) the existence, form, sufficiency or breach of or default under any agreement or instrument of any nature whatsoever; (f) any delay in giving or failure to give any notice, demand or protest; and (g) any error, omission, delay in or nondelivery of any notice or other communication, however sent. Section 2A.03. Documentation. In furtherance of, and not in limitation of, the rights and powers of Summit Bank under the UCP and each Letter of Credit, the determination as to whether the required documents are presented prior to the expiration of any Letter of Credit and whether such other documents are in proper and sufficient from for compliance with such Letter of Credit shall be made by Summit Bank in its sole and absolute discretion, which determination shall be conclusive and binding upon the Borrowers and the named beneficiary of such Letter of Credit. Section 2A.04. Action, Inaction and Omission. In furtherance of, and not in limitation of, the rights and powers of Summit Bank under the UCP and each Letter of Credit, any action, inaction or omission on the part of Summit Bank, except for gross negligence or willful misconduct of Summit Bank, under or in connection with any Letter of Credit or related instruments or documents, if in good faith and conformity with such laws, regulations or commercial or banking customs as Summit Bank may deem to be applicable, shall (i) be binding upon the Borrowers; (ii) shall not place Summit Bank or the Lender under any liability to the Borrowers; and (iii) shall not affect, impair or prevent the vesting of any of the rights or powers of the Lender or Summit Bank hereunder or the Borrowers' obligation to make reimbursements of any amount paid on any such Letter of Credit. In furtherance of the foregoing Summit Bank and Lender shall have the full right and authority to clear and resolve any questions of -16- non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to grant any extensions of the maturity of, time or payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the Letters of Credit. All of the foregoing actions may be taken in Lender's sole name and Summit Bank shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from Lender, all without any notice to or any consent from Borrowers. None of the foregoing actions described in this section may be taken by Borrowers without Lender's express written consent. Section 2A.05. Change in Law of Regulations. If any change in any law, executive order, or regulation or in any request or directive of any administrative or governmental authority (whether or not having the force of law) or in the interpretation of any of the foregoing by any court or administrative or governmental authority charged with the administration thereof shall either: (a) increase, modify or deem applicable any reserve, special deposit or similar requirement against Letters of Credit issued by Summit Bank, or (b) impose on Summit Bank any other condition regarding this Agreement and any Letter of Credit or issued pursuant hereto, and the effect of any such change shall be to increase the cost to Summit Bank of issuing or maintaining any such Letter of Credit then, Upon demand by Summit Bank or the Lender, the Borrowers shall immediately pay to Summit Bank from time to time as specified by Summit Bank or the Lender, an additional amount which shall be sufficient to compensate Summit Bank for such increased cost, together with interest on each such amount from the date demanded until payment in full is tendered, at a rate per annum equal to one percent (1%) above the Base Rate. Summit Bank's determination of the amount of such costs (and the allocation, if any, of such costs among the Borrowers and other customers which have arrangements with Summit Bank similar to those contained herein relating to Letters of Credit) shall, in the absence of manifest error, be conclusive. Upon written request from the Borrowers, the Lender shall provide an explanation of the basis of such allocation. Section 2A.06. Payments and Fees. The Lender shall be paid, upon demand, Summit Bank's standard fees and expenses for Letters of Credit and as such are then in effect, as Summit Bank, in its sole and absolute discretion, shall set from time to time. The Lender shall be paid a fee of one percent (1%) of the face amount of all documentary Letters of Credit (or renewals or extensions thereof), having expiration dates not more than ninety (90) days following issuance (or renewal or extension) thereof, and a fee of one and one-half percent (1-1/2%) of the face amount of all standby Letters of Credit (or renewals or extensions thereof), having expiration dates not more than six (6) months following issuance (or renewal or extension) thereof. Documentary or standby Letters of Credit (or renewals or extensions thereof) having terms in excess of those provided in the preceding sentence may be made available by the Lender in its discretion with the consent of Summit Bank in consideration of such fees and on such terms and conditions as Summit Bank may require for Letters of Credit issued for the account of the Borrowers for longer -17- terms. Said fees shall be payable to the Lender upon the issuance of a Letter of Credit and upon the renewal or extension of a Letter of Credit. All fees and expenses may be charged by the Lender to any Loan Account of the Borrowers maintained with the Lender. In furtherance of, and not in limitation of, the rights and powers of Summit Bank under each Letter of Credit, the Lender shall also be paid, upon demand, all payments made, or reasonable expenses incurred, in connection with the processing of or payment under any such Letters of Credit. The obligation of the Borrowers to reimburse the Lender shall be, joint and several absolute and unconditional under any and all circumstances and irrespective of any setoff. In the sole and absolute discretion of the Lender, any payment not rendered upon demand may be deemed an additional sum borrowed as a Revolving Loan hereunder. Section 2A.07. Indemnification. Borrowers unconditionally, jointly and severally, agree to indemnify and hold Lender and Summit Bank harmless from any and all loss, claim or liability (including reasonable attorneys' fees) arising from any transactions or occurrences relating to any Letter of Credit established or opened for Borrowers' account, the Collateral relating thereto and any drafts or acceptances thereunder, including any such loss or claim due to any action taken by Summit Bank in good faith. Borrowers further, jointly and severally, agree to indemnify and hold Lender and Summit Bank harmless for any good faith errors or omissions in connection with any Letter of Credit, whether caused by Lender or Summit Bank or otherwise. Borrowers' unconditional obligation to indemnify and hold Lender and Summit Bank harmless under this provision shall not be modified or diminished for any reason or in any manner whatsoever, except for Lender's or Summit Bank's bad faith or willful misconduct. Borrowers agree that any charges made to Lender or Summit Bank shall be conclusive on Borrowers and may be charged to Borrowers' Loan Account. Section 2A.08. Conformity, Delay, Etc. Neither Lender nor Summit Bank shall be responsible for: the conformity of any goods to the documents presented; the validity or genuineness of any documents; delay, default, or fraud by Borrowers or shipper and/or anyone else in connection with any Letter of Credit or any underlying transaction. ARTICLE III LOAN PROCEEDS AND PAYMENTS Section 3.01. Collection of Accounts. (a) Borrowers and all of their respective Affiliates, Subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for the Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and or proceeds of Accounts Receivable or other Collateral which come into their possession or under their control and, immediately upon receipt thereof, shall (i) deposit or cause the same to be deposited in a deposit account in the name of the Lender or the Blocked Accounts, if any, or (ii) remit the same or cause the same to be remitted, in kind, to Lender, or sent to a post office box designated by and/or in the name of the Lender; provided that at such time and only for so long as the sum of the Aggregate Revolving Loans and the aggregate face amount of Letters of Credit outstanding -18- does not exceed $2,000,000, and provided that no Event of Default shall have occurred and that the Obligations of Borrowers hereunder do not exceed the Borrowing Base, the Borrowers shall not be required to comply with the terms and provisions of this sentence. In no event shall the same be commingled with the funds of either Borrower. The Borrowers, jointly and severally, agrees to reimburse the Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The obligations of Borrowers to reimburse Lender for such amounts pursuant to this Section shall survive the termination or non-renewal of this Agreement. (b) Upon written notice by the Lender to the Borrowers, the Borrower shall establish and maintain, at their joint and several expense, such blocked accounts (in either case, "Blocked Accounts"), as Lender may specify, with such banks as are acceptable to Lender into which each Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Accounts Receivable and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of Inventory or other Collateral or otherwise shall be the property of Lender. Section 3.02. Use of Loan Proceeds. The proceeds of all Loans will be used by the Borrowers for working capital purposes. Section 3.03. Payments. (a) Except as otherwise provided in Section 3.01 and Section 8.03, all payments of interest, principal and any other sum payable hereunder shall be made to the Lender, in immediately available funds, at its Principal Office, by wire transfer to a deposit account of the Lender, designated by the Lender in writing. (b) At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Loan Documents may be charged directly to any Loan Account maintained by Lender for the Borrowers. (c) If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and shall continue and this Agreement shall continue in full force and -19- effect as if such payment or proceeds had not been received by Lender. Borrowers shall be liable to pay to Lender, and do hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. (d) This Section 3.03 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds and shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. (e) Subject to the provisions of Section 9.04, all payments received by the Lender shall be applied as follows: First, to fees, costs, charges and expenses of the Lender payable by the Borrowers under this Agreement; Second, to the payment of interest; Third, to the payment of principal of the Loans; and Fourth, subject to claims of Persons (other than the Borrowers) and so long as no Event of Default, or any event which with the passage of time or notice, or both, would constitute an Event of Default, has occurred and is continuing, to the Borrowers. (f) For purposes of calculating interest on the Loans, any Loan Account of Borrowers maintained by the Lender shall be credited with remittances and other payments, whether received directly or in kind by the Lender, three (3) Business Days following receipt by the Lender of advice of receipt of such remittances or funds in a bank account in the name of the Lender, subject in either case to final payment and collection. For purposes of calculating the amount of the Maximum Available Commitment, remittances or other payments shall be deemed to have been credited to any Loan Account of the Borrowers maintained by the Lender and the Accounts Receivable to which they relate, upon the Business Day of receipt by the Lender of advice of receipt of such remittances or funds in a bank account in the name of the Lender; provided that such advice is received before 2:00 p.m. of any Business Day; or in the case of remittances or other payments received directly or in kind by the Lender, upon the date of the Lender's deposit thereof in a bank account in the name of the Lender; provided that such advice is received before 2:00 p.m. of any Business Day; subject in either case to final payment and collection. Advices as to receipt of remittances or cash received after 2:00 p.m. of any Business Day shall be deemed received on the following Business Day. Section 3.04. Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and, subject to Section 3.03, interest payable on each such date shall include the amount thereof which shall accrue during the period of such extension of time. Section 3.05. Net Payments. All payments by the Borrowers hereunder shall be made free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, posts, fees, deductions, withholding, restrictions or conditions of any kind, notwithstanding any claim which either Borrower may now or at any time hereafter have against the Lender. -20- ARTICLE IV CONDITIONS Section 4.01. Conditions Precedent to Initial Revolving Loan and Initial Letter of Credit. Prior to the initial Revolving Loan hereunder and the issuance of the initial Letter of Credit, the Borrowers shall deliver to the Lender a duly executed copy of this Agreement, the letter agreements executed in connection with the Landlord Waiver and Consent, the FINOVA Intercreditor Agreement and the Panasonic Subordination Agreement that are referred to in the definitions thereof, and the other Loan Documents and shall deliver to the Lender the documents enumerated below in this Section 4.01, all of which, as well as all legal matters incident to the transactions contemplated hereby, shall be satisfactory in form and substance to the Lender and its counsel: (a) Certified copies of the resolutions of the Board of Directors (and, if necessary, the stockholders) of each Borrower evidencing approval of this Agreement and the other Loan Documents and the other matters contemplated hereby and thereby and certified copies of all documents evidencing other necessary corporate action or approvals, if any, with respect to this Agreement and the other Loan Documents and such other matters, including, without limitation, any required approvals of governmental authorities and other Persons. (b) A certificate, signed by the Secretary of each Borrower, setting forth the names and titles of the officers of such Borrower authorized to sign this Agreement, the other Loan Documents and any and all other agreements, certificates, notices and reports referred to herein; such certificate shall contain the true signatures of such officers and shall state that the Lender may conclusively rely on the statements made therein until the Lender shall receive a further certificate of such Secretary canceling or amending the prior certificate and submitting signatures of the officers named in such further certificate. (c) A copy of the Charter of each Borrower and all amendments thereto, certified by the Secretary of State of the jurisdiction of incorporation of such Borrower; a copy of the by-laws of each Borrower, as amended to date, as certified by its Secretary; certificates of legal existence and good standing for each Borrowers in its jurisdiction of incorporation; and certificates of the appropriate state officials and agencies in all other jurisdictions in which each Borrower owns, leases or operates any real or personal property and in each other jurisdiction in which such Borrower is required to qualify to do business, in each case attesting as to such Borrower's qualification and good standing in each such jurisdiction. (d) A favorable written opinion of counsel to the Borrowers, in form and substance satisfactory to the Lender. (e) Treasurer's certificates or other appropriate evidence as to the filing by each Borrowers of all relevant tax reports and returns and the payment of all taxes imposed by each relevant jurisdiction. -21- (f) Consolidated financial statements of ACC and Subsidiaries, and VTI and Subsidiaries, respectively, as of December 31, 1999 and for the year then ended prepared in accordance with GAAP, certified by an independent public accounting firm reasonably satisfactory to the Lender, which financial statements shall reflect a consolidated Net Loss of ACC and Subsidiaries and VTI and Subsidiaries, respectively, for the year ended December 31, 1999 of no more than $9,600,000, pro forma consolidated financial statements of the Borrowers as of December 31, 1999 and for the year then ended, after giving effect to the Merger, and consolidated financial statements of ACC and Subsidiaries, and VTI and Subsidiaries, respectively, as of March 31, 2000 and for the quarter then ended prepared in accordance with GAAP. (g) A monthly budget and projected financial statements, including balance sheets and statements of income and cash flow of the Borrowers, prepared on a consolidated basis for the year ending December 31, 2000, which shall be satisfactory in all respects as to form and substance to the Lender. (h) Certificates of the insurance required by this Agreement. (i) A certificate of the chief executive officer of each Borrower dated the date of such initial Loan, affirming compliance with the conditions of Sections 4.02(a)-(d). (j) A certificate executed by the chief financial officer of the Borrowers, dated the date of such initial Loan, demonstrating compliance with the condition of Section 4.01(f). (k) All instruments and legal, governmental, administrative and corporate proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Lender and its counsel, and the Lender shall have received copies of all documents, including, without limitation, records of corporate or other proceedings and any consents, licenses, approvals, permits and orders required to be secured by the Borrowers in connection with the transactions contemplated herein or which the Lender may have reasonably requested in connection therewith. (l) The VTI Financing Documents shall have been terminated, all indebtedness thereunder shall have been paid in full and all liens in connection therewith shall have been discharged and released. Section 4.02. Conditions Precedent to All Loans and All Letters of Credit. The obligation of the Lender to make any Loan (including the initial Revolving Loan)or to cause Summit Bank to issue any Letter of Credit (including the initial Letter of Credit) is subject to the further conditions precedent that on the date on which such Loan is made or Letter of Credit is issued (and after giving effect thereto): (a) The statements, representations and warranties of the Borrowers made in this Agreement shall continue to be correct as of the date of such Loan. -22- (b) The covenants and agreements of the Borrowers contained herein shall have been complied with on and as of the date of such Loan. (c) No Default or Event of Default shall have occurred and be continuing. (d) No material adverse change shall have occurred in the financial condition of the Borrowers from that disclosed in the financial statements then most recently furnished to the Lender. ARTICLE V GRANT OF SECURITY INTERESTS Section 5.01. Grant of Security Interests. To secure payment and performance of all Obligations, each Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property of such Borrower, whether now owned or hereafter acquired or existing by Borrower, whether now or hereafter existing, and wherever located (collectively, the "Collateral"): (a) Accounts Receivable; (b) All present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, (including, without limitation, licenses issued by any governmental agency), permits, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; (c) All present and future moneys, securities, credit balances, deposits, deposit accounts and other property of such Borrower now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of such Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts Receivable and other Collateral, including, without limitation, (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts Receivable or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; -23- (d) Inventory; (e) Records relating to the foregoing; and (f) All products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. Section 5.02. Verification of Accounts Receivable. Lender shall have the right, which right Lender agrees to exercise in a commercially reasonable manner, at any time or times, in Lender's name or in the name of a nominee of Lender, to verify in good faith the validity, amount or any other matter relating to any Account Receivable or other Collateral, by mail, telephone, facsimile transmission or otherwise. Section 5.03. Borrowers' Collection Authority. Each of the Borrowers is authorized to collect its Accounts Receivable and any other monetary obligations included in, or proceeds of the Collateral on behalf of and in trust for the Lender, at Borrower's expense, but such authority shall automatically terminate upon the occurrence of an Event of Default. Lender may in good faith, at Lender's option, modify or terminate such authority at any time whether or not a Default or an Event of Default has occurred and is continuing and thereafter, Lender may directly collect the Accounts Receivable of the Borrowers and such other monetary obligations or proceeds. Without limiting the foregoing paragraph, Lender may in good faith, at any time or times, whether or not a Default or Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts Receivable (or any and all obligors or bailees with respect to any other Collateral that such Collateral) have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all accounts debtors to make payment of Accounts directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts Receivable or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the obligations, (iii) demand, collect or enforce payment of any Accounts Receivable or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At Lender's good faith request, all invoices and statements sent to any account debtor, obligor or bailee shall state that the Accounts Receivable, any other Collateral and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrowers shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts Receivable as Lender may require. Nothing in this Subsection 5.03 shall limit the rights and remedies of the Lender pursuant to Article II with respect to the collection of Accounts Receivable or any other account of the Borrowers. -24- Section 5.04. Chattel Paper and Instruments. The Borrowers shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to Borrowers, all chattel paper and instruments which either Borrower now owns or may at any time acquire immediately upon such Borrower's receipt thereof, except as Lender may otherwise agree. Section 5.05. Power of Attorney. Each Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or Lender's name, in a commercially reasonable manner: (a) at any time an Event of Default exists or has occurred and is continuing, to (i) demand payment on Accounts Receivable or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts Receivable by legal proceedings or otherwise, (iii) exercise all of such Borrower's rights and remedies to collect any Accounts Receivable or other Collateral, (iv) sell or assign any Account Receivable upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew any Account Receivable, (vi) discharge and release any Account Receivable, (vii) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to such Borrower, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill such Borrower's obligations under this Agreement and the other Loan Documents, and (b) at any time, to the extent reasonably necessary, to protect the Lender's interests, to (i) take control in any manner of any item of payment or proceeds thereof, (ii) bar access to any postal box into which such Borrower's mail is deposited, (iii) endorse such Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse such Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, (v) in good faith sign such Borrower's name on any verification of Accounts Receivable and notices thereof to account debtors, and (vi) execute in such Borrower's name and file any UCC financing statements or amendments thereto. Each Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Section 5.06. Right to Cure. Lender may, to the extent reasonably necessary to protect the Lender's interests, at its option, (a) cure any default by either Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against such Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral, and (c) pay any amount, incur any expense or perform any act which, in Lender's good faith judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the obligations and charge either Borrower's account therefor, such -25- amounts to be repayable by the Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of either Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert a Default or Event of Default hereunder and to proceed accordingly. Section 5.07. Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrowers, which expense shall be reasonable, (a) Lender or its designee shall have complete access to all of the Premises during normal business hours and after reasonable notice to Borrower, or at any time and without notice to Borrower if a Default or Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and inspecting, verifying, auditing examining, copying and making extracts from, all of Borrowers' books and records, including, without limitation, the Records, and (b) Borrowers shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) Lender may use during normal business hours such of Borrowers' personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and for the collection of Accounts Receivable and realization of other Collateral. Section 5.08. Test Verifications. Lender or Lender's representative shall have the right to make test verifications of any and all Accounts Receivable and other Collateral in any manner and through any medium Lender considers advisable, and Borrowers shall render any necessary assistance to Lender. At such times as Lender may request and in the manner specified by Lender, Borrowers shall deliver to Lender or Lender's representative original invoices, agreements, proofs of rendition of services and delivery of goods and other documents evidencing or relating to the transactions which gave rise to Accounts Receivable or other Collateral, together with a schedule of the names and addresses of Borrower's customers, customer statements, schedules describing the Accounts Receivable or other Collateral and/or statements of account and confirmatory assignments to Lender of the Accounts Receivable or other Collateral, in form and substance satisfactory to Lender and duly executed by Borrower. Without limiting the provisions of this Agreement contained elsewhere, Borrower's granting of credits, discounts, allowances, deductions, return authorizations or the like will be promptly reported to Lender in writing. In no event shall any such schedule or confirmatory assignment (or the absence thereof or omission of any of the Accounts or other Collateral therefrom) limit or in any way be construed as a waiver, limitation or modification of the security interests or rights of Lender or the warranties, representations and covenants of Borrowers under this Agreement. -26- ARTICLE VI REPRESENTATIONS AND WARRANTIES Section 6.01. Representations and Warranties. As an inducement to the Lender to execute this Agreement and to make Loans hereunder to the Borrowers and cause Summit Bank to issue Letters of Credit, the Borrowers hereby, jointly and severally, represent and warrant to the Lender as follows: (a) Each of the Borrowers is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation. Each of the Borrowers has the corporate power and authority to enter into and perform this Agreement and the other Loan Documents, to enter into and perform all of the obligations required of such Borrower by all other instruments and other documents referred to herein to which it is a party, to fulfill its obligations set forth herein and therein and to carry out the transactions contemplated hereby and thereby. Each of the Borrowers has all requisite corporate power to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted and is duly qualified to do business and in good standing in each jurisdiction where such Borrower owns, leases or operates any real or personal property and in each other jurisdiction where the failure to be so qualified could (singly or in the aggregate with all such other failures to be qualified) have a material adverse effect on the business, prospects, condition, affairs or operations of the Borrowers. As of the date of this Agreement, except as set forth on Exhibit A hereto, WOT has no Subsidiaries (other than APC), APC has no Subsidiaries and neither Borrower is a partner, member or equity holder of any partnership, limited liability company, joint venture or other Person. (b) The issued and outstanding capital stock of each Borrower has been duly authorized and is validly issued. WOT is the holder of all of the issued and outstanding capital stock of APC. Except as set forth on Exhibit B hereto, APC has not issued any rights, options, warrants or other securities or instruments, which upon exercise, exchange or conversion entitle the holder thereof to acquire capital stock of APC, or is otherwise obligated to issue any capital stock of APC or any such right, option, warrant or other security or instrument. (c) The execution, delivery and performance of this Agreement, the other Loan Documents and the other documents required to be executed by the Borrowers pursuant hereto have been duly authorized by all necessary corporate action, will not require the consent of any third party, and will not conflict with, violate the provisions of, or cause a default or constitute an event which, with the passage of time or the giving of notice or both, could constitute a default on the part of either Borrower under any contract, agreement, law, rule, order, ordinance, franchise, instrument or other document or under any provision of the Charter or by-laws of either Borrower, or result in the imposition of any lien or encumbrance (except as set forth herein) on any property or assets of either Borrower. This Agreement and the other Loan Documents and the other documents delivered to the Lender by the Borrowers pursuant hereto are the legal, valid and binding obligations of each Borrower named as a party therein, enforceable as against each of the Borrowers in accordance with their respective terms. -27- (d) Except as disclosed on Exhibit C hereto, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrowers, threatened, anticipated or contemplated (nor, to the knowledge of the Borrowers, is there any basis therefor) against or affecting either Borrower by or before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could prevent or hinder the consummation of the transactions contemplated hereby or call into question the validity of this Agreement, the other Loan Documents or any other instrument provided for or contemplated by this Agreement or any action taken or to be taken in connection with the transactions contemplated hereby or thereby, nor are there any such actions, suits, proceedings or investigations pending or, to the knowledge of the Borrowers, threatened, anticipated or contemplated (nor, to the knowledge of the Borrowers, is there any basis therefor) which, if determined adversely to either Borrower, in any single case or in the aggregate, could result in any material adverse change in the business, prospects, condition, affairs or operations of the Borrowers. (e) Neither Borrower is in violation of any term of its Charter or by-laws, as now in effect, or in violation of any mortgage, indenture or judgment, decree or order, any other instrument, contract or agreement or any administrative determination, failure to comply with which, singly or in the aggregate with all such other failures, could have a material adverse effect upon the business, prospects, condition or operations of the Borrowers. (f) Each Borrower has filed proper and accurate federal, foreign, state and local tax returns, reports and estimates for all years and periods for which any such returns, reports or estimates were required to be filed and has paid all taxes, assessments, impositions, fees and other governmental charges required to be paid in respect of the periods covered by any such returns, reports or estimates. Neither Borrower is delinquent in the payment of any tax, assessment or governmental charge, and no deficiencies for any tax, assessment or governmental charge have been asserted or assessed against either Borrower, and Borrowers knows of no material governmental liability or basis therefor for which adequate reserves have not been established in accordance with GAAP. (g) Each Borrower is in compliance with all requirements of law, federal, state and local, and all requirements of all governmental bodies or agencies having jurisdiction over it, the conduct of its business, the use of its properties and assets and all Premises occupied by it, failure to comply with which could, singly or in the aggregate with all other such failures, have a material adverse effect upon the business, prospects, condition or operations of the Borrowers. Without limiting the foregoing, each Borrower has all the required franchises, licenses, permits, certificates and authorizations needed for the conduct of its business and the use of its properties and all Premises occupied by it, as now conducted, owned and used or as proposed to be conducted, owned and used. Neither Borrower has received any notice, not heretofore complied with, from any federal, state or local authority or any insurance or inspection body that any of its properties, facilities, equipment or business procedures or practices fails to comply with any applicable law, ordinance, regulation, building or zoning law or any other requirement of any such authority or body. No authorization, consent, approval, license, exemption of or filing or registration with any -28- court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary to the valid execution or delivery of, or for the performance by the Borrowers of any of their respective obligations under, this Agreement, the other Loan Documents or any other instrument provided for or contemplated by this Agreement. (h) Neither Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or in any other manner which would involve a violation of any of the regulations of the Board of Governors of the Federal Reserve System. Neither Borrower is an "investment company" nor the "affiliate" of an "investment company", as such terms are defined in the Investment Company Act of 1940. (i) Each Borrower has good and marketable title to all assets now carried on its books, including those reflected on its financial statements referred to in Section 6.01(j) or acquired since the date of such statements, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except as permitted under Section 7.02(b). Each Borrower enjoys peaceful and undisturbed possession under all leases under which it is operating, and all of such leases are valid and subsisting and in full force and effect. (j) The financial statements of the Borrowers as of and for the fiscal year ended December 31, 1999 heretofore delivered to the Lender, fairly present the financial condition of the Borrowers as at the dates thereof and for the periods covered thereby. Said financial statements (and all financial statements hereafter delivered pursuant to Section 7.03) are (and will be) prepared in accordance with GAAP, consistently applied throughout the relevant periods. The Borrowers have no liability, contingent or otherwise, not disclosed in the aforesaid financial statements or in any notes thereto that could materially adversely affect the financial condition of the Borrowers. The following representations are true at the date hereof and shall be true at the date of each Loan, in each case since the date of the most recently delivered financial statements, except as otherwise previously disclosed to the Lender in writing: (i) there has been no material adverse change in the business, assets or condition, financial or otherwise, of the Borrowers; (ii) neither the business, condition or operations of either Borrower nor any of their respective properties or assets have been materially adversely affected as the result of any legislative or regulatory change, any revocation or change in any franchise, license or right to do business, or any other event or occurrence, whether or not insured against; (iii) neither Borrower has experienced any material controversy or problem with its employees or with any labor organization; and (iv) neither Borrower has entered into any material transaction. (k) Each Borrower owns or has a valid right to use the patents, patent rights or licenses, formulae, copyrights, trademarks, trademark licenses, trademark applications, service marks, service mark licenses, service mark applications and trade names now being used or necessary to conduct its business, all of which, including all applications with respect thereto, are listed and described on Exhibit D hereto; and (subject as aforesaid) the conduct of the business of the Borrowers, as now operated, does not conflict with patents, patent rights or licenses, -29- copyrights, trademarks, trademark licenses, service marks, service mark licenses or trade names of others in any manner that could materially adversely affect the business, prospects, assets or condition, financial or otherwise, of the Borrowers. (1) No employee pension benefit plan maintained by either Borrower or in which employees of either Borrower participate has any accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") nor does either Borrower have any material liability to the Pension Benefit Guaranty Corporation ("PBGC") established under ERISA (or any successor thereto) in connection with any employee pension benefit plan (or other class of benefit which the PBGC has elected to insure), and there have been no "reportable events" or "prohibited transactions" with respect to any such plan, as those terms are defined in Section 4043 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended, respectively. Except as listed on Exhibit E hereto, neither Borrower maintains any profit-sharing, retirement, deferred compensation, ESOP, stock bonus, stock option or similar benefit plan for any officers or employees. (m) The chief executive office and principal place of business of Borrowers and Borrowers' Records concerning Accounts Receivable are located only at 225 Long Avenue, Hillside, New Jersey 07205 and their only other places of business, including without limitation "demo" offices, and the only other locations of Collateral, if any, are the addresses set forth in Exhibit G, subject to the right of Borrower to establish new locations in accordance with Section 7.01(p). Exhibit G correctly identifies any of such locations which are not owned by either Borrower and sets forth the owners and/or operators thereof and to the best of Borrowers' knowledge, the holders of any mortgages on such locations. (n) None of the officers or key employees of either Borrower is subject to any agreement in favor of anyone other than such Borrower which limits or restricts such Person's right to engage in the type of business activity conducted or proposed to be conducted by the Borrowers or to use therein any property or confidential information or which grants to anyone other than the Borrowers, any rights in any inventions or other ideas susceptible to legal protection developed or conceived by any such officer or key employee. (o) Neither Borrower is a party to any contract or agreement, the terms of which now have or, as far as can be reasonably foreseen, may have a material adverse effect on the financial condition, business or properties of the Borrowers. (p) Neither this Agreement, nor the financial statements referred to herein, nor any other agreement, document, certificate or statement furnished to the Lender by or on behalf of either Borrower in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact within the special knowledge of any of the executive officers of the Borrowers which has not been disclosed herein or in writing by them to the Lender and which materially adversely affects, or in the future in their opinion may, insofar as they can now foresee, materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers. -30- (q) After giving effect to the extension of financial accommodations contemplated by this Agreement, each Borrower (i) is and will be able to pay its debts as they become due, (ii) has and will have funds and capital sufficient to carry on its business as now conducted or as contemplated to be conducted, (iii) owns property having a value both at fair valuation and at present fair salable value greater than the amount required to pay its debts as they become due, and (iv) is not insolvent and will not be rendered insolvent as determined by applicable law. (r) ACC and WOT have made all filings with the SEC that they have been required to make under the Securities Act and the Securities Exchange Act (collectively the "Public Reports"). Each of the Public Reports has complied with the Securities Act and the Securities Exchange Act in all material respects. None of the Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Borrowers have delivered to the Lender a correct and complete copy of each Public Report filed since December 31, 1996 (together with all exhibits and schedules thereto and as amended to date). (s) (i) Neither Borrower nor any of their Subsidiaries has caused, allowed, or contracted with any Person for, the generation, use, transportation, treatment, storage or disposal of any Hazardous Substances in connection with the operations of its business or otherwise, which has had or, if conducted in violation of applicable Environmental Laws, could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers; (ii) The Borrowers and their Subsidiaries, the operations of their respective businesses, and any Premises of the Borrowers are in compliance with all applicable Environmental Laws (as defined below) and orders or directives of any governmental authorities having jurisdiction under such Environmental Laws including, without limitation, any Environmental Laws or orders or directives with respect to any cleanup or remediation of any release or threat of release of Hazardous Substances, the noncompliance with which has had or could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers; (iii) Neither Borrower nor any Subsidiary has received any citation, directive, letter or other communications, written or oral, or any notice of any proceedings, claims or lawsuits, from any person, entity or governmental authority arising out of the ownership or occupation of the Premises, or the conduct of their respective operations, nor is either Borrower aware of any basis thereof, which have had, or, if adversely determined, could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers; (iv) Each Borrower and each Subsidiary or the Borrowers has obtained and is maintaining in full force and effect all necessary permits, licenses and approvals required by any Environmental Laws applicable to the Premises and the business operations conducted therein (including operations conducted by tenants on the Premises) and is in compliance with all such permits, licenses and approvals), which if not obtained and maintained could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers; -31- (v) Neither Borrower nor any or their Subsidiaries has caused, or allowed a release, or a threat of release, of any Hazardous Substance unto, nor to the best of the Borrowers' knowledge have the Premises or any property at or near the Premises ever been subject to a release, or a threat of a release, of any Hazardous Substance, which has had or, if occurring in violation of applicable Environmental Laws could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers; and (vi) There are no past or pending violations of, or claims, orders or other legal proceedings under, Environmental Laws nor any condition, occurrence or matter reasonably anticipated to give rise to a claim, order or other legal proceeding under Environmental Laws, which if adversely determined could materially adversely affect the business, properties, assets or condition, financial or other, of the Borrowers. (t) The most recent list of Accounts Receivable of the Borrowers delivered to Lender is complete, contains an accurate aging thereof and identifies all of the VTI Excluded Accounts Receivable. All of the Accounts Receivable reflected thereon are valid, are subject to no counterclaims or setoffs of any nature whatsoever, and require no further act on either Borrower's part to make such Accounts Receivable owing by the applicable account debtors. None of such Accounts Receivable include any conditional sales, consignments or sales on any basis other than that of absolute sale in the ordinary and usual course of business, except as otherwise set forth on said list. No agreement has been made under which any deductions or discounts may be claimed as to any such Accounts Receivable except customary discounts in the ordinary course of business. (u) The most recent list of the Inventory of the Borrowers delivered to Lender is complete and accurate in all material respects. The Borrowers' Inventory consists of items of quality and quantity suitable for sale, lease or use in the ordinary course of their business. The value of obsolete items, items below standard quality and items in the process of repair included in such Inventory have been written down to realizable market value, or adequate reserves have been provided therefore, and the values carried on the Borrowers' balance sheet are set at the lower of cost or market, in accordance with GAAP. (v) To the best of the Borrowers' knowledge, the hardware and software utilized by Borrowers have been designed to ensure year 2000 A.D. compatibility, including date data, century recognition, leap year, calculations which accommodate same century and multicentury formulas and date values, and date data interface values that reflect the century. (w) The Merger has closed as of the Merger Effective Date in accordance with its terms, and the Lender has been provided with a complete set of all documents related to the Merger. -32- ARTICLE VII COVENANTS OF THE BORROWERS Section 7.01. Affirmative Covenants Other Than Reporting Requirements. Without limiting any other covenants and provisions hereof, the Borrowers, jointly and severally, covenant and agree that so long as the Commitment is in effect or any Loan or Letter of Credit is outstanding or any other obligation of the Borrowers to the Lender remains unpaid: (a) (Payment of Loans) The Borrowers will pay the principal of and interest on the Loans hereunder and pay all amount with respect to any open Letters of Credit or drawings thereunder, including all fees, charge, interest or other expenses with respect thereto at the times and place and in the manner provided herein, and will promptly pay when due any and all other amounts owing to the Lender, in respect of fees or otherwise. (b) (Taxes and Other Obligations) The Borrowers will pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or them, or upon its or their income or profits, or upon any properties belonging to it or them, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of either Borrowers prior to the earlier of (i) ten (10) days following the date on which penalties or interest would attach thereto, or (ii) the date upon which any lien or charge with respect thereto upon any properties of either Borrower would attach thereto; provided that the Borrowers shall not be required to pay any such tax, assessment, charge, levy or claim due to or by any state, municipality or instrumentality thereof which is being contested in good faith and by proper proceedings which serve as a matter of law to stay the enforcement of any remedy of the taxing authority or claimant and as to which the Borrowers shall have set aside on its books adequate reserves. The Borrowers will pay in a timely manner all obligations with respect to the Panasonic Debt and all material lease obligations, trade debt and purchase money obligations, other than any such lease obligations, trade debt and purchase money obligations which either Borrower is contesting in good faith, with adequate reserves having been established, under circumstances in which no material asset or interest of the Borrowers could be jeopardized. The Borrowers will fully, faithfully and punctually perform and fulfill all material covenants and agreements under the Panasonic Debt and any leases of real estate, agreements relating to purchase money debt, equipment leases and other material contracts, other than any such covenants and agreements which the relevant Borrower is contesting in good faith, with adequate reserves having been established, under circumstances in which no material asset or interest of the Borrowers could be jeopardized. (c) (Insurance) The Borrowers will maintain, with responsible and reputable insurance companies or associations reasonably satisfactory to the Lender, insurance in such amounts and covering such risks as are typically insured by similar businesses (and any such other insurance as the Lender may reasonably request from time to time), but in any event in amounts sufficient to prevent the Borrowers from becoming a co-insurer. The Borrowers shall deliver to the Lender copies of such insurance policies (and all renewals thereof) together with lender's loss payable -33- endorsements naming Lender as a secured party executed by the insurers, such policies to provide that coverage may not be modified or terminated without prior notice to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by either Borrower or any of its affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral or other property of the Borrowers and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations. (d) (Legal Existence and Qualification) Each Borrower will preserve and maintain its corporate existence, rights, franchises and privileges and remain in good standing in the jurisdiction of its incorporation. Each Borrower will qualify and remain qualified and in good standing in each jurisdiction in which it maintains a warehouse or office and in each other jurisdiction in which the failure so to qualify could have a material adverse effect on the business, prospects, condition or operations of the Borrowers; provided that the Borrowers may fail to so qualify and remain qualified and in good standing in any jurisdiction so long as such failure shall not have a material adverse effect on the business, prospects, condition or operations of the Borrowers (e) (Compliance with Laws) Each Borrower will comply with the requirements of all applicable laws (including, without limitation, Environmental Laws), rules, regulations and the orders of any court or other tribunal or governmental or administrative authority or agency applicable to it or to its business, property or assets, all to the extent that failure to comply with any such laws, rules, regulations or orders could, singly or in the aggregate with all other such failures, have a material adverse effect on the business, prospects, condition or operations of the Borrowers. Each Borrower will obtain and maintain all licenses, permits and permissions relating to its properties or business, failure to obtain or maintain which could, singly or in the aggregate with all other such failures, have a material adverse effect on the business, prospects, condition or operations of the Borrowers. (f) (Inspection) Without limiting the provisions of Section 5.07, the Borrowers will permit the Lender, and any agents or representatives thereof, at the sole cost and expense of the Borrowers, which cost and expense shall be reasonable, upon reasonable notice to visit the properties of the Borrowers, and to examine and make copies of and take abstracts from the records and books of account of the Borrowers, and to discuss the affairs, finances and accounts of the Borrowers with any of their officers and with such other persons as may be designated by such officers, all of whom are hereby authorized and directed to cooperate with the Lender in carrying out the intent of this Section 7.01(f). (g) (Books and Records) The Borrowers will keep proper and complete records and books of account in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Borrowers. All financial statements submitted to the Lender under this Agreement will be prepared in accordance with generally accepted accounting principles consistently applied, except that interim -34- statements will be subject to normal year-end audit adjustment (not to be material) and to the absence of footnotes. (h) (Maintenance of Properties) The Borrowers will maintain and preserve all of their respective properties necessary or useful in the proper conduct of their respective businesses in good working order and condition (subject to ordinary wear and tear), making all necessary repairs thereto and replacements thereof. (i) (Continuation of Business) The Borrowers will continue to conduct in the ordinary course, the business in which each of them is presently engaged. Neither Borrower will, without the prior written consent of the Lender, directly or indirectly enter into any lines of business, businesses or ventures outside of the lines of business conducted by the Borrowers immediately prior to the date hereof. (j) (Bank Accounts) The Borrowers will maintain with the Summit Bank their principal operating and deposit accounts. (k) (Net Worth) The Borrowers will maintain, on a consolidated basis determined in accordance with GAAP, a Net Worth of not less than $10,000,000 at all times during the term of this Agreement. (l) (EBITDA) The Borrowers will maintain, on a consolidated basis determined in accordance with GAAP, quarterly EBITDA of at least $100,000 for each fiscal quarter commencing with the quarter ending June 30, 2000. (m) (Interest Coverage Ratio) The Borrowers will maintain on a consolidated basis determined in accordance with GAAP for each fiscal quarter commencing with the quarter ending June 30, 2000, a minimum Interest Coverage Ratio of 2:00 to 1:00. (n) (Excess Availability) At any time as of which the aggregate face amount of Letters of Credit issued by the Lender or any of its Affiliates for the account of either Borrower plus the Aggregate Revolving Loans plus the principal amount of other extensions of credit by the Lender or any of its Affiliates to either Borrower exceeds $7,500,000, the Borrowing Base shall equal or exceed such amount plus $1,000,000. (o) (SEC Matters) The Borrowers will make all filings, applications and notices with the SEC on a timely basis in accordance with the Securities Act and the Securities Exchange Act and WOT at all times will otherwise comply with all requirements thereunder. (p) (New Locations) Except as provided in the following sentence, each Borrower shall maintain its chief executive office and place of business at the address indicated in Section 6.01(m) and shall render all billings and account statements to its customers from such address. Either Borrower may change its chief executive office and place of business and may open any new location within the continental United States provided such Borrower (i) gives Lender thirty (30) days prior written notice of the intended opening of any such new location, and (ii) executes -35- and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements and waivers of liens or other interests in the collateral by landlords and warehousemen. Section 7.02. Negative Covenants. Without limiting any other covenants and provisions hereof, the Borrowers, jointly and severally, covenant and agree that, so long as any Commitment is in effect or any Loan is outstanding or any other obligation of the Borrowers to the Lender has not been fully performed: (a) (Indebtedness) Neither Borrower will create, incur, assume or suffer to exist any Indebtedness without the written consent of the Lender, which consent shall not be unreasonably withheld, except for: (i) Indebtedness owed hereunder to the Lender or the Lender's Affiliates, including without limitation, the Indebtedness represented hereby; (ii) the Panasonic Debt, provided that each remains subject to the applicable Subordination Agreement; (iii) the FINOVA Debt, provided that the FINOVA Intercreditor Agreement shall remain in effect; (iv) Indebtedness of the Borrowers for taxes, assessments and governmental charges or levies due to States, municipalities or their instrumentalities, to the extent payment thereof shall not at the time be required under Section 7.01(b) above; (v) unsecured current liabilities of the Borrowers (other than for money borrowed or for the deferred purchase price of property) incurred upon customary terms in the ordinary course of business; (vi) purchase money Indebtedness, other than Panasonic Debt which is subject to the Panasonic Subordination Agreement, and the FINOVA Debt which is subject to the FINOVA Intercreditor Agreement, and capital lease financing owed to vendors or lessors of equipment used in the business of the Borrowers; provided that the principal amount of purchase money Indebtedness and capital lease financing permitted under this clause (vi) of Section 7.02 (a) will never exceed $250,000 in aggregate principal amount outstanding at any one time; (vii) other Indebtedness existing at the date hereof, but only to the extent set forth on Exhibit F hereto; and (vii) existing guaranties expressly permitted pursuant to Section 7.02(c) below. Nothing contained in this Section 7.02(a) will be deemed to prohibit or limit any operating leases. -36- (b) (Liens) Neither Borrower will create, incur, assume or suffer to exist any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature (collectively, "liens"), upon or with respect to any of its property or assets, now owned or hereafter acquired, except that the foregoing restrictions shall not apply to: (i) liens for taxes, assessments or governmental charges due to States, municipalities or instrumentalities thereof or levies by States, municipalities or instrumentalities thereof on property of the Borrowers if the same shall not at the time be delinquent or thereafter can be paid without interest or penalty or are being contested in good faith and by appropriate proceedings which serve as a matter of law to stay the enforcement of any remedies of the taxing authorities and as to which adequate reserves have been made; (ii) liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business for sums not yet due or which are being contested in good faith and by appropriate proceedings which serve as a matter of law to stay the enforcement thereof and as to which adequate reserves have been made; (iii) pledges or deposits under workmen's compensation laws, unemployment insurance, social security, retirement benefits or similar legislation; (iv) liens in favor of Panasonic securing the Panasonic Debt, respectively; provided that each such lien remains subject to the applicable Subordination Agreement; (v) liens (other than the liens described in clause (iv) of this Section (b) of Section 7.02) existing on the date hereof to the extent listed on Exhibit F hereto; (vi) liens securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), statutory obligations and surety bonds arising in the ordinary course of business; (vii) zoning restrictions, easements and rights or restrictions of record on the use of real property which do not materially detract from its value or impair its use; and (viii) capital leases and liens securing the purchase price of property (to the extent such capital leases and purchase money financing are permitted by clause (vi) of Section 7.02(a) above), provided that each such lien is given solely to secure the purchase price of (or lease payments in respect of) such property, does not extend to any other property and is given at the time of the acquisition of such property; (ix) liens in favor of FINOVA securing the FINOVA Debt, provided that each such lien remains subject to the FINOVA Intercreditor Agreement; -37- (x) liens in favor of Picture Tel securing the Picture Tel Debt, provided that each such lien remains subject to the Picture Tel Subordination Agreement; and (xi) liens in favor of Reece securing the Reece Debt, provided that each such lien remains subject to the Reece Subordination Agreement. (c) (Guaranties) Neither Borrower will assume, guarantee, endorse or otherwise become directly or contingently liable including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in any debtor or otherwise to assure any creditor against loss, in connection with any Indebtedness of any other Person, except (i) guaranties by endorsement for deposit or collection in the ordinary course of business and (ii) any guaranty in favor of the Lender. (d) (Mergers, Dispositions, etc.) Neither Borrower will merge, combine or consolidate with any other Person. Neither Borrower will liquidate or dissolve or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) any item or items material to its business (whether now owned or hereafter acquired) included in the assets of the Borrowers, except that the Borrowers may sell or dispose of property through (i) sales of inventory in the ordinary course of business and (ii) disposal of worn out or obsolete equipment in the ordinary course of business. (e) (No Factoring) Neither Borrower will sell, assign, factor or dispose in any way of any of its Accounts or other rights to payment, with or without recourse. (f) (Loans and Advances) Neither Borrower will make or maintain any loan or advance to any Person, including, without limitation, the directors, officers and employees of either Borrower except travel advances, advances against salary and loans made to employees in the ordinary course (all of which loans and advances described in this clause (i) shall not exceed $25,000 in the aggregate). (g) (Investments and Acquisitions) Neither Borrower will, without the Lender's prior written consent, invest in, hold or purchase any stock or securities of any Person except (i) readily marketable direct obligations of, or obligations guarantied by, the United States of America or any agency thereof, (ii) other investment grade debt securities, (iii) mutual funds, the assets of which are primarily invested in items of the kind described in the foregoing clauses (i) and (ii) of this Section 7.02(g), (iv) deposits with or certificates of deposit issued by the Summit Bank and any other obligations of Summit Bank or the Lender's parent, and (v) deposits in any other bank organized in the United States having capital in excess of $1,000,000,000. The Borrowers will give the Lender prompt written notice if either Borrower forms or acquires any Subsidiary. Without limitation of the foregoing, neither Borrower will, without the prior written consent of the Lender, make any Acquisition. (h) (No Waiver) Neither Borrower will waive any material debt or claim, except in the ordinary course of its business. -38- (i) (Principal Place of Business) The Borrowers will give prompt written notice to the Lender if either Borrower moves its chief executive offices or principal place of business or any Inventory from the applicable addresses described in Section 6.01(m) or changes its name or form of organization. (j) (Dividends; Distributions) Neither Borrower will, without the prior written consent of the Lender, declare or pay any dividends (other than dividends payable solely in capital stock of either Borrower or dividends payable by APC solely to WOT), purchase, redeem, retire or otherwise acquire for value any of its capital stock (or rights, options or warrants to purchase such shares) now or hereafter outstanding, return any capital to its stockholders or make any distribution of assets to its stockholders or any Affiliate. (k) (Partnerships) Neither Borrower will become a partner, member or equity owner of any partnership, limited liability company or joint venture if the result of such partnership, limited liability company or joint venture is that any Person which is not the Borrowers has the ability to incur any Indebtedness on behalf of the Borrowers or to commit any assets of the Borrowers or such Subsidiary without the consent of the Borrowers. (l) (Affiliate Transactions) Neither Borrower will enter into any transaction, including, without limitation, the purchase, sale or exchange of any property or the rendering of any service, with any present or former Affiliate, except in the ordinary course of business and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to such Borrower, than would be obtained in a comparable arms'-length transaction with any Person not an Affiliate. (m) (Hazardous Materials) Neither Borrower will dispose of any Hazardous Substance on any Premises of the Borrowers; nor shall either Borrower store or suffer or permit to exist on any Premises of the Borrowers any Hazardous Substance, nor transport or arrange the transport any Hazardous Substance, except under valid permits and licenses and otherwise in compliance with all applicable Environmental Laws. The Borrowers shall provide the Lender with prompt written notice of (i) any material release or threat of release of any Hazardous Substance at or from any Premises or any site or vessel owned, occupied or operated by the Borrowers and (ii) any incurrence of any expense or loss by any governmental authority in connection with the assessment, containment or removal of any Hazardous Substance for which expense or loss the Borrowers may be liable. (n) (Change of Fiscal Year, etc.) Neither Borrower will make any material change in the nature of their respective businesses as conducted at the date hereof. Neither Borrower will change its fiscal year or, in any material respect, their accounting principles or methods of applying same. If any accounting treatment or classification is for any reason changed as to the accounts of either Borrower, the Borrowers will forthwith notify the Lender of same in writing and will execute and deliver such amendments to this Agreement as the Lender may reasonably deem necessary or desirable in order to preserve unimpaired the rights of the Lender and the obligations of the Borrowers under this Agreement. -39- (o) (No Margin Stock) No proceeds of any Loan shall be used directly or indirectly to purchase or carry any margin stock. Section 7.03. Reporting Requirements. The Borrowers, jointly and severally, agree that so long as any Loan to the Borrowers shall be outstanding or any other obligation of either Borrower to the Lender shall remain unpaid or the Commitment remains in effect hereunder, the Borrowers shall furnish or cause to be furnished to the Lender: (a) As soon as available and in any event within one hundred and twenty (120) days after the end of each fiscal year of the Borrowers, a copy of the annual consolidated financial statements for such fiscal year for the Borrowers, including therein a consolidated balance sheet of the Borrowers as at the end of such fiscal year and consolidated statements of income and retained earnings and statements of cash flow for the Borrowers for such fiscal year, prepared in accordance with GAAP, consistently applied and certified by the independent certified public accountants of the Borrowers, which shall be reasonably acceptable to the Lender), such certification to be in such form as is generally recognized as "unqualified". Each of the annual financial statements submitted under this Section shall be accompanied by a statement of the independent certified public accountants stating whether in the course of their examination (which shall include a review of this Agreement) they became aware of the existence as at the end of the fiscal year covered by such financial statements of any event, transaction, occurrence or state of affairs which would contravene or violate any of the covenants or agreements contained in this Agreement and, if their examination has disclosed any such event, transaction, occurrence or state of affairs, specifying the nature and period of the existence thereof. Said accountants shall also state that they have examined the certificates of the chief financial officers of the Borrowers referred to in Section 7.03(d) and that their examination has not disclosed the existence of anything contrary to the matters set forth in such certificates. Such accountants' statement shall also include a schedule setting forth the computations necessary to determine compliance, as at the relevant fiscal year-end, with each of Sections 7.01(k), (l), (m) and (n). (b) Within thirty (30) days after the end of each month of the Borrowers, an unaudited consolidated balance sheet of the Borrowers and unaudited consolidated related statements of income and cash flow of the Borrowers, prepared in accordance with GAAP, consistently applied (subject to normal year-end audit adjustments and subject to the information to be presented in year-end schedules and footnotes) and certified as fairly presenting the financial condition of the Borrowers by the chief financial officer of the Borrowers, each such balance sheet to be as at the end of the relevant month and such statements of income and cash flow to be for such month and for the fiscal year to date, in each case together with a comparison to budget. (c) Within 30 days after the end of each fiscal quarter of the Borrowers, a certificate executed by the chief financial officer of the Borrowers stating that he has reviewed this Agreement and has no knowledge of any default by the Borrowers in the performance or observance of any of the provisions of this Agreement or, if he has such knowledge, specifying each such default and the nature thereof. Each such quarterly certificate shall be accompanied by -40- a statement of the chief financial officer of the Borrowers setting forth in detail the computations necessary to determine compliance with each of Section 7.01(k), (l), (m) and (n). (d) Promptly following the filing thereof with the SEC, a copy of each filing, submission or notice by the Borrowers or their Affiliates to or with the SEC, including without limitation quarterly reports on Form 10-Q. (e) On or before the close of business of each Monday, a schedule of collections for the immediately preceding week, together with such other information and documentation as Lender may request. (f) On or before the close of business of each Monday, a schedule of sales for the immediately preceding week, together with such other information and documentation as Lender may request. (g) On or before the fifteenth (15th) day of each month, a detailed aging report setting forth and certifying the amounts due and owing on Accounts Receivable on Borrowers' books as of the close of the preceding month, together with a reconciliation report satisfactory to Lender setting forth the aggregate amount of all sales, collections, payments and adjustments to Accounts Receivable (including, without limitation, any and all offsets, deductions and/or contras) on Borrowers' books for such preceding month, which shall also identify the VTI Excluded Accounts Receivable as of the close of such month. (h) On or before the fifteenth (15th) day of each month, detailed aging reports, in form, content and substance reasonably acceptable to Lender, setting forth amounts due and payable on accounts payable on Borrowers books as of the close the preceding month. (i) On or before the tenth (10th) and twenty-fifth (25th) days of each month, (i) a report of Inventory, in form, substance and content reasonably satisfactory to Lender, setting forth the total value of Borrower's Inventory; (ii) the location of the Inventory; and (iii) a certified statement showing Inventory on hand, Inventory represented or covered by warehouse receipts or bills of lading, Eligible Inventory on hand and Inventory in possession of bailees, including the names and addresses of such bailees, in each case as of the end of such preceding month and the fifteenth (15th) day of such current month, respectively. (j) Promptly after receipt, a copy of all audits (annual or special) submitted to the Borrowers by their independent public accountants and any letter of comments or management letter with respect to any such audit directed by such accountants to the management of the Borrowers. (k) Immediately after the occurrence of any Default or Event of Default with respect to the Borrowers, the statement of the Borrowers setting forth details of each such Default or Event of Default and the action which the Borrowers proposes to take with respect thereto. -41- (l) Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, to which either Borrower is a party; provided, however, that no such notice need be given with respect to any such action, suit or proceeding which seeks monetary damages only and in an amount of less than $50,000. (m) Promptly after the Borrowers has knowledge thereof, written notice of: (i) termination or potential termination of any consent, license, permit or franchise material to the conduct of the business of the Borrowers or the ownership of its or their property and assets; (ii) any material loss, damage or destruction to or of any property or assets of the Borrowers (regardless of whether the same is covered by insurance); (iii) any material controversy with the employees of the Borrowers or with any labor organization; and (iv) any other material development adversely affecting the Borrowers, or any of their respective business, prospects, properties, assets or conditions, financial or otherwise. (n) Such other information respecting the financial condition, operations and assets of the Borrowers as the Lender may from time to time reasonably request. Section 7.04. .Covenants Relating to the Collateral. (a) The Borrowers shall notify Lender promptly of: (i) any material delay in performance by either Borrower of any of its obligations to any account debtor or the assertion of any material claims, offsets, defenses or counterclaims by any account debtor, or any material disputes with account debtors, or any material settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor, and (iii) any event or circumstance which, to Borrowers knowledge would cause Lender to consider any then existing Accounts Receivable as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Lender's consent, except in the ordinary course of Borrowers' business in accordance with practices and policies previously disclosed to Lender. So long as no Default or Event of Default exists or has occurred and is continuing, Borrower may settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that a Default or Event of Default exists or has occurred and is continuing, Lender shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances. (b) Borrowers shall promptly report to Lender any return of Inventory by an account debtor. At any time that Inventory is returned, reclaimed or repossessed, the related Account -42- Receivable shall not be deemed an Eligible Account. In the event any account debtor returns Inventory when a Default or Event of Default exists or has occurred and is continuing, the applicable Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust for Lender, (ii) segregate all returned Inventory from all of its other property, (iii) dispose of the returned Inventory solely according to Lender's instructions, and (iv) not issue any credits, discounts or allowances with respect thereto without Lender's prior written consent. (c) With respect to each Account Receivable: (i) the amounts shown on any invoice delivered to Lender or schedule thereof delivered to Lender shall be true and complete, (ii) no payments shall be made thereon except payments immediately delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrower's business in accordance with practices and policies previously disclosed to Lender, (iv) there shall be no set-offs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable State or Federal laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (d) With respect to the Inventory: (i) Borrowers shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrower's cost thereof or and daily withdrawals therefrom and additions thereto; (ii) Borrowers shall conduct a physical count of the Inventory at least once each year, but at any time or times as Lender may request on or after an Event of Default, and promptly following such physical inventory shall supply Lender with a report in the form and with such specificity as may be reasonably satisfactory to Lender concerning, such physical count; (iii) Borrowers shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrowers' business and except to move Inventory directly from one location set forth or permitted herein to another such location; (iv) upon Lender's request, Borrowers shall, at their expense, no more than once in any twelve (12) month period, but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender or upon which Lender is expressly permitted to rely; (v) Borrowers shall produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (vi) Borrowers assume all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (vii) Borrowers shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate either Borrower to repurchase such Inventory; (viii) Borrowers shall keep the Inventory in good and marketable condition; and (ix) Borrowers shall -43- not, without prior written notice to Lender, acquire or accept any Inventory on consignment or approval. ARTICLE VIII DEFAULT AND REMEDIES Section 8.01. Events of Default. The occurrence of any of the following events shall constitute an Event of Default under this Agreement: (a) The Borrowers shall fail to make any payment of principal of any Loan or payment of any amount to the Lender or Summit Bank with respect to the issuance of a Letter of Credit or a drawing thereunder on the date when due; or (b) The Borrowers shall fail to make any payment of interest on any Loan or in respect of any fees or charges described in this Agreement on the date when due; or (c) Any representation or warranty of the Borrowers contained herein shall at any time prove to have been incorrect in any material respect when made; or any representation or warranty now or hereafter made by either Borrower in connection with this Agreement or in connection with any Loan shall at any time prove to have been incorrect in any material respect when made; or (d) The Borrowers shall default in the performance or observance of any agreement or obligation under any of Article V, Sections 7.01(b) (first sentence only), 7.01(c), 7.01(d) (as applies to corporate existence only), 7.01(e), 7.01(k), 7.01(l), 7.01(m) or 7.01(n) or any provision of Sections 7.02, 7.03 or 7.04; or (e) The Borrowers shall default in the performance of any term, covenant or agreement contained in this Agreement (other than a default described in clauses (a), (b), (d) or (f) of this Section 8.01) and such default shall continue unremedied for thirty (30) days after notice thereof shall have been given to the Borrowers; or (f) Any default shall exist and remain unwaived or uncured with respect to (i) the Panasonic Debt, (ii) the FINOVA Debt or (iii) any Indebtedness of either Borrower in a principal amount equal to or greater than $50,000, or any of the aforesaid Indebtedness shall not have been paid when due, whether by acceleration or otherwise, or shall have been declared to be due and payable prior its stated maturity, or any event or circumstance shall occur which permits, or with the lapse of time or the giving of notice or both would permit, the acceleration of the maturity of any such Indebtedness by the holder or holders thereof; or (g) (i) Either Borrower shall be dissolved or shall become bankrupt or shall cease paying its debts generally as they mature or shall make an assignment for the benefit of creditors; (ii) a trustee, receiver or liquidator shall be appointed for either Borrower or for a substantial part of the property of either Borrower; (iii) bankruptcy, reorganization, arrangement, insolvency or -44- similar proceedings shall be instituted by or against either Borrower under the laws of any jurisdiction (other than any involuntary proceedings which are instituted against either Borrower without the acquiescence of the Borrowers, and which are dismissed of record within 45 days following the institution thereof); (iv) either Borrower shall convene or hold a meeting with its creditors to compromise or make similar arrangements with respect to its Indebtedness to such creditors; or (v) either Borrower or its directors, stockholders, officers or agents shall take any action to effect or commence any of the foregoing or with respect to any of the foregoing; or (h) Any uninsured judgment or any writ, attachment, execution or similar process in an amount of $100,000 or more shall be issued or levied against either Borrower and, in any such case, such judgment, writ, attachment, execution or similar process shall not be paid, released, vacated or fully bonded within ten (10) days after its issue or levy; or (i) Either Borrower shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan (or other class of benefit which the PBGC has elected to insure) or any such plan shall be the subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of either Borrower to the PBGC which, in the reasonable opinion of the Lender, would be likely to have a material adverse effect upon the business, operations or financial condition of the Borrowers; or (j) Richard Reiss shall cease to serve as President and chief executive officer of the Borrowers; provided that, if the cessation of such service shall result from the death or disability of Mr. Reiss, same shall not be an Event of Default, unless within sixty (60) days of such cessation, the Borrowers shall not have appointed a replacement for Mr. Reiss to serve as President and chief executive officer of the Borrowers, who shall be reasonably acceptable to the Lender; or (k) The conviction of either Borrower or any of their officers under any quasi-criminal or criminal statute, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any material portion of the property of Borrower or which conviction Lender reasonably determines has a materially adverse effect upon the Borrowers' business; or (l) The filing of a federal lien for any taxes against either Borrower or any of its assets. Section 8.02. Rights and Remedies Upon Default. Upon the occurrence of any Event of Default and at any time thereafter, in addition to any other rights and remedies available to the Lender hereunder or otherwise, the Lender may exercise any one or more of the following rights and remedies (all of which shall be cumulative): (a) Declare the entire unpaid principal amount of the Loans then outstanding, all interest accrued and unpaid with respect to any and all of the foregoing, and all other amounts payable under or with respect to this Agreement to be forthwith due and payable, whereupon the same shall become forthwith due and payable, without presentment, demand, protest or notice of -45- any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that upon the occurrence of any Event of Default under Section 8.01(g), all Loans and all other amounts payable under this Agreement will automatically become due and payable without any notice or any such declaration. (b) Declare the Commitment to be terminated, whereupon the same and all obligations of the Lender to make Revolving Loans shall be terminated forthwith and without notice; provided, however, that upon the occurrence of any Event of Default under Section 8.01(g), the Commitment will automatically terminate without any notice and without any such declaration. (c) Enforce the provisions of this Agreement by legal proceedings for the specific performance of any covenant or agreement contained herein or for the enforcement of any other appropriate legal or equitable remedy, and the Lender may recover damages caused by any breach by the Borrowers of the provisions of this Agreement, including court costs, reasonable attorneys' fees and other costs and expenses incurred in the enforcement of the obligations of the Borrowers hereunder. (d) Exercise all rights and remedies under this Agreement, the other Loan Documents, and any other agreement with the Lender, and exercise all other rights and remedies which the Lender may have under applicable law. (e) Exercise all rights and remedies provided in this Agreement, the other Loan Documents, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by either Borrower, except as such notice or consent is expressly provided for hereunder or required by applicable law. (f) (i) With or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (ii) require Borrowers, at Borrowers' expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iii) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (iv) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, or (v) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms a Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrowers, which right or equity of redemption is hereby expressly waived and released by Borrowers. Section 8.03. Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, the Lender is hereby authorized at any time or from time to time, without presentment, demand, -46- protest or other notice of any kind to the Borrowers or to any other Person, all of which are hereby expressly waived, to set off and to appropriate and apply any and all deposits (other than monies held in custody or trust accounts) and any other Indebtedness at any time held or owing by the Lender or any Affiliate of the Lender to or for the credit or the account of the Borrowers against and on account of the obligations, liabilities and claims of the Borrowers to the Lender under this Agreement, irrespective of whether or not the Lender shall have made any demand for payment and although said obligations, liabilities or claims, or any of them, may then be contingent or unmatured and without regard for the availability or adequacy of any collateral. The Borrowers also grants to the Lender a security interest with respect to all its deposits and all securities or other property (other than deposits, securities or other property held in custody or trust accounts) in the possession of the Lender or any Affiliate of the Lender from time to time in order to secure the Loans and all other amounts now or hereafter due under this Agreement, and, upon the occurrence of any Event of Default, the Lender may exercise all rights and remedies of a secured party under the Uniform Commercial Code. Section 8.04. Right to Cure. In the event that the Borrowers shall fail to pay any tax, assessment, governmental charge or levy, except as the same may be otherwise permitted hereunder, or in the event that any lien, encumbrance or security interest prohibited hereby shall not be paid in full or discharged, or in the event that the Borrowers shall fail to pay or comply with any other obligation hereunder, the Lender may, but shall not be required to, pay, satisfy, perform, discharge or bond the same for the account of the Borrowers, and all moneys so paid by the Lender shall be payable by the Borrowers to the Lender on demand and shall bear interest from the date of demand until paid at the lesser of (i) a fluctuating rate per annum which shall at all times be equal to the sum of two percent (2%) per annum plus the rate otherwise applicable to the relevant Loans, or (ii) the maximum rate permitted by then applicable law. Section 8.05. Rights Cumulative. All rights, remedies and powers granted to Lender hereunder, under any of the other Loan Documents, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by either Borrower of this Agreement or any of the other Loan Documents. Lender may, at any time or times, proceed directly against either Borrower to collect the obligations without prior recourse to the Collateral. Section 8.06. Notice of Sale, etc. If notice of disposition of Collateral is required by law, five (5) days prior notice by Lender to Borrowers designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and each Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Borrower waives the posting of any bond which might otherwise be require. -47- ARTICLE IX MISCELLANEOUS Section 9.01.No Waiver; Cumulative Remedies. No failure or delay on the part of the Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or otherwise available to the Lender. Such remedies may be exercised without resort or regard to any other source of satisfaction of any liabilities of either Borrower to the Lender. Section 9.02.Amendments, Waivers and Consents. Neither this Agreement nor any provision hereof may be amended, waived, discharged or terminated orally. No amendment or waiver of any provision of this Agreement, nor any consent to any departure by the Borrowers therefrom, shall be effective unless the same shall be signed by the Borrowers and the Lender. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. In no event will any amendment, waiver or consent be deemed effective if the result of same is to decrease in any manner the compensation of the Lender or to increase in any manner the Lender's expenses, duties or responsibilities unless the Lender has, in each case, expressly assented thereto in writing. Section 9.03.Addresses for Notices, etc. Except as otherwise expressly provided in this Agreement, all notices, requests, demands and other communications provided for hereunder shall be in writing and shall be mailed or delivered to the applicable party at the address indicated below: If to the Borrowers: Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 Attention: Richard Reiss, President If to the Lender: Summit Commercial/Gibraltar Corp. 546 Fifth Avenue New York, New York 10036 Attention: President or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other parties complying as to delivery with the terms of this Section. Except -48- as otherwise provided herein, all such notices, requests, demands and other communications shall be deemed sufficiently given when delivered or two (2) Business Days after the date when mailed by registered or certified mail, return receipt requested, postage and registration or certification charges prepaid, addressed as aforesaid. Section 9.04. Costs, Expenses and Taxes. The Borrowers, jointly and severally, agree to pay on demand all costs and expenses (including, without limitation, reasonable legal fees) of the Lender in connection with the preparation, execution and delivery of this Agreement, the other Loan Documents and all other instruments and documents to be delivered hereunder and any amendments or modifications of any of the foregoing, or in connection with the examination, review or administration of any of the foregoing, as well as the costs and expenses (including, without limitation, the reasonable fees and out-of-pocket expenses of legal counsel) incurred by the Lender in connection with preserving, enforcing or exercising any rights or remedies under this Agreement, the other Loan Documents and all other instruments and documents to be delivered hereunder, all whether or not legal action is instituted; provided that the Borrowers obligation to reimburse the Lender for legal fees in connection with the preparation, execution and delivery of this Agreement and the other Loan Documents shall be limited to $10,000 plus reasonable out-of-pocket expenses of Lender's counsel. In addition, the Borrowers shall be jointly and severally obligated to pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, the other Loan Documents and all other instruments and documents to be delivered hereunder, and agrees to save and keep the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. Any fees, expenses or other charges which the Lender is entitled to receive from the Borrowers hereunder shall bear interest from the date of demand for payment until paid at the lesser of (i) a fluctuating rate per annum which shall at all times be equal to the rate applicable to the Loans, or (ii) the maximum rate permitted by then applicable law. Section 9.05. Termination. (a) This Agreement and the other Loan Documents shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date two (2) years from the date hereof (the "Renewal Date"), and from year to year thereafter, unless either the Lender or the Borrowers shall notify the other in writing at least sixty (60) days prior to the end of the then effective term of its election not to renew this Agreement and the other Loan Documents; provided that this Agreement and all other Loan Documents must be terminated simultaneously. (b) Upon the effective date of termination (whether in the manner contemplated in (a) or (d) of this Section 9.05) or non-renewal of this Agreement and the other Loan Documents, Borrowers shall pay to Lender, in full, all outstanding and unpaid Loans and other Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding letters of credit and checks or other payments provisionally credited to the obligations and/or as to which -49- Lender has not yet received final and indefeasible payment. Such cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrowers for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, New York City time. (c) No termination of this Agreement or the other Loan Documents shall relieve or discharge Borrowers of their respective duties, obligations and covenants under this Agreement or the other Loan Documents until all Loans and other Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Loan Documents and applicable law, shall remain in effect until all such obligations have been fully and finally discharged and paid. (d) The Borrowers may at any time, upon sixty (60) days written notice to the Lender, terminate in whole, but not in part, the Commitment. (e) If this Agreement is terminated by the Lender, as the result of an Event of Default described in Subsections 8.01(a), (b), (c), (g) or (j), or by the Borrowers prior to the end of the then current term or renewal term of this Agreement (whether pursuant to this Section 9.05 or otherwise), in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrowers, jointly and severally, agree to pay to Lender, upon the effective date of such termination, a commitment termination fee in the amount set forth below if such termination is effective in the period indicated: (i) If such termination shall occur on or after the date hereof and on or prior to the first anniversary of the date hereof, the Borrowers shall pay a commitment termination fee equal to one percent (1%) of the Revolving Commitment Amount; and (ii) If such termination shall occur following the first anniversary of the date hereof no commitment termination fee shall be due. Such commitment termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrowers agree that it is reasonable under the circumstances currently existing. The early termination fee provided for in this Section 9.05 shall be deemed included in the Obligations. Section 9.06. Representations and Warranties. All covenants, agreements, representations and warranties made herein or in any other document delivered by or on behalf of the Borrowers pursuant to or in connection with this Agreement are material and shall be deemed to have been relied upon by the Lender, notwithstanding any investigation heretofore or hereafter made by the Lender, shall survive the making of the Loans as herein contemplated, and shall continue in full force and effect so long as any of the Loans or other amount due under this Agreement remains outstanding and unpaid. All statements contained in any certificate or other paper delivered to the Lender at any time by or on behalf of the Borrowers pursuant hereto shall -50- constitute representations and warranties by the Borrowers hereunder. Any request for a borrowing hereunder and any acceptance of a Loan hereunder by the Borrowers will be deemed a representation by the Borrowers that the Borrowers, as at the date of such borrowing, are in compliance with Sections 4.02(a)-(d) and that, after giving effect to such borrowing, the Aggregate Revolving Loans will not exceed the Maximum Available Commitment. Section 9.07. Binding Effect; Assignment. This Agreement shall be binding upon the Borrowers and their respective successors and assigns and shall inure to the benefit of the Borrowers, the Lender, and their permitted successors and assigns. Neither Borrower may assign this Agreement or any rights hereunder without the express written consent of the Lender. The Lender may, in accordance with applicable law, sell to one or more Persons, banks or other entities participations in all or a portion of the Lender's rights and obligations under this Agreement (including all or a portion of the Commitment and the Loans). Section 9.08. Reproduction of Agreement. This Agreement and all other instruments, documents and papers which relate thereto which have been or may be hereafter furnished to the Lender may be reproduced by the Lender by any photographic, photostatic, micro-card, miniature photographic, xerographic or similar process, and the Lender may destroy the original from which any document was so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). Section 9.09. Consent to Jurisdiction. Each of the Borrowers irrevocably submits to the nonexclusive jurisdiction of any New York court or any federal court sitting within the State of New York over any suit, action or proceeding arising out of or relating to this Agreement. Each of the Borrowers irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Each of the Borrowers agrees that final judgment in any such suit, action or proceeding brought in such a court shall be enforced in any court of proper jurisdiction by a suit upon such judgment, provided that service of process in such action, suit or proceeding shall have been effected upon such Borrower in one of the manners specified in the following paragraph of this Section 9.09 or as otherwise permitted by law. Each of the Borrowers hereby consents to process being served in any suit, action or proceeding of the nature referred to in the preceding paragraph of this Section 9.09 either (i) by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to it at its address set forth in Section 9.03 or (ii) by serving a copy thereof upon it at its address set forth in Section 9.03. Each of the Borrowers irrevocably waives, to the fullest extent permitted by law, all claims of error by reason of any service as contemplated herein and agrees that such service shall (x) be deemed in every respect effective service upon such Borrower in any such suit, action or proceeding and (y) to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such Borrower. -51- Section 9.10. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to principles relating to conflicts or choice of laws . Section 9.11. Severability. In the event that any provision of this Agreement or the application thereof to any Person, property or circumstances shall be held to any extent to be invalid or unenforceable, the remainder of this Agreement and the application of such provision to Persons, properties or circumstances other than those as to which it has been held invalid or unenforceable shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 9.12. Headings. Article and Section headings in this Agreement and any table of contents are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 9.13 Indemnification. The Borrowers shall, jointly and severally, indemnify and hold Lender, and its directors, agents, employees, counsel and other Affiliates, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Loan Document, or any undertaking or proceeding related to any of the actions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the reasonable fees and expenses of counsel; provided that any such loss, claim, damage, liability, cost or expense shall not have resulted from the gross negligence or willful misconduct of the Lender or any of its directors, agents, employees, counsel or other Affiliates. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, the Borrowers shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Loans and the other Obligations and the termination or non-renewal of this Agreement. Section 9.14.Waiver of Jury Trial. BORROWERS AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH -52- ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. Section 9.15.Release of Lender. Lender shall not have any liability to either Borrower (whether in tort, contract, equity or otherwise) for losses suffered by either Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and nonappealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -53- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, as an instrument under seal, by their respective officers thereunto duly authorized as of the date first above written. WIRE ONE TECHNOLOGIES, INC. By: /s/ Richard Reiss ----------------------------------------- Name: Title: ALLCOMM PRODUCTS CORP. By: /s/ Richard Reiss ----------------------------------------- Name: Title: SUMMIT COMMERCIAL/GIBRALTAR CORP. By: /s/ Illegible ----------------------------------------- Name: Title: EX-10.35 6 0006.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement") is made as of this 21st day of July, 2000, by and between Wire One Technologies, Inc., a Delaware corporation ("Buyer"), 2CONFER L.L.C., a Delaware limited liability company ("Seller"), and the members of Seller listed on the signature pages hereto (the "Members") (Seller and the Members are sometimes each referred to as a "Seller Party", and collectively as "Seller Parties"). R E C I T A L S: Buyer desires to purchase, and Seller desires to sell, substantially all of Seller's assets, properties and rights in the business and operations of Seller, including, but not limited to, all trademarks, copyrights, web site software, the "www.2CONFER.com" web site on the World Wide Web and, subject to certain limitations set forth in this Agreement and the Schedules hereto, all of the fixed assets and intellectual property used in, or necessary for the operation of, such site as heretofore operated (collectively, the "Business"), as herein described. NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, agreements, representations, warranties, and covenants herein contained, the parties hereby agree as follows: SECTION 1 Closing 1.1. Closing Date. The closing (the "Closing") of the transactions contemplated hereby shall be held at the offices of counsel to Buyer, Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104 on July 21, 2000 or such other date as may be mutually agreed upon by the parties (the "Closing Date"). 1.2. Sale of Assets. At the Closing, Seller shall sell to Buyer, free and clear of all security interests, encumbrances, restrictions on transfer, or adverse claims, and Buyer shall buy from Seller, all of Seller's right, title and interest in the assets used in, or necessary for the operation of, the Business (the "Assets") that are not Excluded Assets (as defined herein), including, without limitation, the following: (a) all notes and other accounts receivable, including all other negotiable instruments and rights to receive payment generated in the conduct of the Business; (b) all cash, cash equivalents, bank accounts and deposits; (c) all furniture, fixtures, equipment, office supplies and other tangible property; 1 (d) all real property and all leasehold interests created by all leases of real property under which Seller is a lessee or lessor; (e) all lists of content contributors to Seller; (f) the 2CONFER web site, currently accessible via the URL "www.2CONFER.com" and all content contained therein; (g) all of the hardware relating to or used in connection with the Business, any related documentation and user materials, and Seller's rights under all related warranties; (h) all of the software (including all prior versions thereof), in object and source formats, relating to or used in connection with the Business, including: (i) all inventories of computer program code (in all media) for said software; (ii) any related documentation and user materials; and (iii) Seller's rights under all related warranties; (i) Seller's entire right, title and interest to the third party software licensed by Seller relating to or used in connection with the Business, including any related documentation and user materials, and Seller's rights under all related warranties; (j) all of the technical data and know-how, including, without limitation, research, product plans, markets, developments, inventions, discoveries, processes, formulas, algorithms, technology, designs, drawings, and business strategies, used in and material to, or necessary for the operation of, the Business; (k) all of the trademarks, service marks, and trade names (including registrations, licenses, and applications to register pertaining thereto) used to identify the Business and/or its goods or services; (l) all patents and copyrights (including registrations, licenses, and applications to register pertaining thereto), and all other intellectual property rights, trade secrets, and other proprietary information, processes, and formulas used in the Business; (m) all goodwill of the Business as a going concern; all goodwill associated with the trademarks, service marks and trade names relating to or used in connection with the Business; the names 2CONFER L.L.C., "www.2CONFER.com," the domain name "2CONFER.com"; and the URL address "www.2CONFER.com"; (n) Seller's entire right, title and interest in, to and under all contracts, agreements, licenses, permits (other than Seller's postal permit), arrangements, permissions and other commitments and arrangements, oral or written, with any person or entity (including legal authorities) with respect to the Business; (o) all rights of Seller under express or implied warranties from suppliers or contractors with respect to the Assets; (p) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind arising out of the Assets or the Business; 2 (q) all existing business and marketing records of the Business, including accounting and operating records, asset ledgers, inventory records, budgets, databases, customer lists, event calendars, employment and consulting agreements, supplier lists, information and data respecting leased or owned equipment, files, books, correspondence and mailing lists, creative, promotional and advertising materials and brochures, and other business records; (r) all media, including without limitation disks, tapes and CDs, and other tangible property necessary for the transfer of the Assets from Seller to Buyer pursuant to the terms and conditions of this Agreement; and (s) all demonstration equipment inventory. Without limitation of the foregoing, or the definition of "Assets" contained herein, Schedule 1.2 hereto sets forth a description of specific Assets which are being transferred pursuant to this Agreement. 1.3. Bill of Sale. The sale and delivery of the Assets shall be effected by a Bill of Sale, Assignment and Assumption Agreement in substantially the form of Exhibit A (the "Bill of Sale") and such endorsements, assignments, licenses, drafts, checks and other instruments of transfer and conveyance, agreements, and documents in form described herein or reasonably acceptable to Buyer, including, but not limited to, signed transfer instructions to transfer ownership of the domain name "2CONFER.com" and the URL address "www.2CONFER.com" from Seller to Buyer. 1.4. No Other Liabilities or Obligations Assumed. Except with respect to the assumed liabilities (the "Assumed Liabilities") set forth on Schedule 1.4, which Assumed Liabilities Buyer hereby assumes, Buyer shall not assume or be liable for any liabilities or obligations of Seller, whether the same are direct or indirect, fixed, contingent or otherwise, known or unknown, whether arising under an agreement or contract or otherwise. Seller shall, and hereby covenants to Buyer that it will as of the date of the Closing or when due, satisfy all of its liabilities or obligations that are not Assumed Liabilities. 1.5. Purchase Price; Payment. (a) Purchase Price. The aggregate purchase price for the Assets (the "Purchase Price") shall be Eight Hundred Thousand Dollars ($800,000), payable as follows: (i) at the Closing, Buyer shall deliver to Seller 78.75% of the Purchase Price, consisting of (A) Three Hundred Seventy-five Thousand Dollars ($375,000) in cash and (B) Twenty-eight Thousand Four Hundred Twenty-two (28,422) shares of Buyer's common stock (the "Stock") (with the number of shares to be determined by taking the average of the last reported per share sale price of the Stock on the Nasdaq National Market during the ten (10) trading days immediately preceding the Closing Date and dividing such average price into Two Hundred Fifty-five Thousand Dollars ($255,000)); and (ii) at the Closing, Buyer shall deliver to Robert Kroner, as escrow agent (the "Escrow Agent"), 21.25% of the Purchase Price (the "Escrowed Amount"), 3 consisting of One Hundred Twenty-five Thousand Dollars ($125,000) in cash and Five Thousand Sixteen (5,016) shares of Stock (with the number of shares to be determined by taking the average of the last reported per share sale price of the Stock on the Nasdaq National Market during the ten (10) trading days immediately preceding the Closing Date and dividing such average into Forty-five Thousand Dollars ($45,000)), to be held in escrow pursuant to the terms of the Escrow Agreement ("Escrow Agreement") attached hereto as Exhibit B. Five Thousand Dollars ($5,000) of the Escrowed Amount shall be released promptly to Seller after Seller provides to Buyer written evidence that the assignment to Buyer of the office lease between Mutare, as Tenant, and Teacher's Insurance and Annuity Association of America, dated October 2, 1995, as set forth on Schedule 2.10(a)(3)(b), has been effected. An additional Forty-five Thousand Dollars ($45,000) of the Escrowed Amount shall be released to Seller promptly after Seller provides to Buyer written evidence that the assignment to Buyer of the office lease between Seller, as Tenant, and 49 Stevenson Corp., dated February 23, 1999, as set forth on Schedule 2.10(a)(3)(c), has been effected. (b) Piggyback Registration Rights. (i) Buyer shall notify the Members in writing at least thirty (30) days prior to filing any registration statement under the Securities Act of 1933, as amended (the "Securities Act") for purposes of effecting a public offering of securities of Buyer (including, but not limited to, registration statements relating to secondary offerings of securities of Buyer, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganization or other transactions under Rule 145 of the Securities Act) and will afford each Member an opportunity to include in such registration statement all or any part of the Stock held by such Member. Each Member desiring to include in any such registration statement all or any part of such Member's Stock shall within twenty (20) days after receipt of the above-described notice from Buyer, so notify Buyer in writing, and in such notice shall inform Buyer of the number of shares of Stock such Member wishes to include in such registration statement. (ii) If the registration is for a firm commitment underwritten registered public offering, Buyer shall so advise the Members as a part of the written notice given pursuant to subsection 1.5(c)(i) above. In such event, the right of any Member to registration shall be conditioned upon the Member's participation in such underwriting and the inclusion of such Member's Stock in the underwriting to the extent provided herein. All Members proposing to distribute their securities through such underwriting shall (together with Buyer and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for the underwriting by Buyer. Notwithstanding any other provision of this subsection 1.5(c), if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the number of shares to be included in the registration and underwriting. The number of shares of Stock held by the Members to be included in such offering shall be reduced to zero before any reduction in any securities to be offered by Buyer on its own behalf. Buyer shall so advise the Members, and the number of shares of Stock held by the Members that may be included in the registration and 4 underwriting shall be allocated among the Members and any other selling shareholders on a pro rata basis. If any Member disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to Buyer and the managing underwriter prior to the execution of the applicable underwriting agreement by the Member. Any shares of Stock excluded or withdrawn from such underwriting shall be withdrawn from such registration. (iii) All expenses incurred in connection with a registration pursuant to this subsection 1.5(c) (excluding underwriters' and brokers' discounts and commissions relating to shares sold by the Members), including, without limitation, all federal and "blue sky" registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Buyer and of one counsel to the Members, shall be borne by the Buyer. (iv) In connection with any registration statement under this Section 1.5(c) in which the Members are participating, Buyer agrees to indemnify, to the extent permitted by law, each of the Members against all losses, claims, damages, liabilities and expenses caused by any untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to Buyer by such Member expressly for use therein or by such Member's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after Buyer has furnished such Member with a sufficient number of copies of the same. (v) In connection with any registration statement under this Section 1.5(c) in which a Member is participating, each such Member shall furnish to Buyer in writing such information and affidavits as Buyer reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify Buyer, its directors and officers and each person who controls Buyer (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such Member; provided that the obligation to indemnify shall be individual, not joint and several, for each Member and shall be limited to the net amount of proceeds received by such Member from the sale of securities pursuant to such registration statement. (vi) Any person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable 5 judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party who is not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (c) Allocation. Promptly (no later than 60 days after the Closing Date) following the Closing Date, Buyer, subject to the approval of Seller, shall prepare and finalize a schedule setting forth an allocation of the Purchase Price among the Assets (the "Allocation Schedule"). Each party agrees to report the transactions contemplated hereby for federal income tax and all other tax purposes (including, without limitation, for purposes of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code")) in a manner consistent with the Allocation Schedule, and in accordance with all applicable rules and regulations, and to take no position inconsistent with the allocation set forth therein in any administrative or judicial examination or other proceeding. Each of Buyer and Seller shall timely file the appropriate forms in accordance with the requirements of Section 1060 of the Code and this Section. The parties acknowledge that none of the Purchase Price is for the office leases, and all office leases shall be valued at zero dollars ($0) in the Allocation Schedule. 1.6. Method of Payment. Except as otherwise expressly provided herein, all payments from one party to another under this Agreement shall be made by wire transfer in United States dollars to an account designated in writing by the party to receive such payment. 1.7. Excluded Assets. Anything to the contrary notwithstanding, the Assets shall not include any of the following rights, properties or assets (the "Excluded Assets"): (a) This Agreement or any of the other Transaction Documents, or any right, title or interest of Seller or any of the Members hereunder or thereunder; (b) Any cash or Stock included in the Purchase Price; (c) Any inventory of Seller of any kind or description, wherever located, except for all demonstration equipment inventory as described in Section 1.2(s); (d) Any rights of Seller or any of the Members to tax refunds or any accrued prepaid taxes; (e) Any records relating to the internal governance of Seller; (f) Any insurance policies of Seller or any right, title or interest of Seller or any of the Members thereunder, including any prepaid insurance premiums; or 6 (g) Any Licenses of Seller, as set forth on Schedule 2.7. SECTION 2 Representations and Warranties of Seller and the Members Seller and the Members hereby, jointly and severally, represent and warrant to Buyer as follows, except as set forth on the Schedules hereto numbered to correspond to the sections below: 2.1. Organization and Standing. Seller is a limited liability company duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. Seller has all requisite limited liability company power to own and operate its properties and assets and to carry on its business as currently conducted and as proposed to be conducted. Seller is duly qualified or licensed to do business and is in good standing as a foreign limited liability company in each jurisdiction in which it conducts business, except for those jurisdictions where the failure to so qualify would not have a material adverse effect on Seller. 2.2. Power. Seller and the Members have all requisite limited liability company power and authority to execute and deliver this Agreement and each of the other documents to be executed in connection herewith (this Agreement and such other documents being referred to as the "Transaction Documents") to which they are a party and to carry out and perform their obligations under the terms of this Agreement and the other Transaction Documents to which they are a party. Delivery of the Bill of Sale and other instruments of transfer contemplated by Section 1.3 will transfer to Buyer all of Seller's right, title and interest in the Assets, free and clear of any lien, encumbrance, adverse claim, or restriction on transfer, except such liens, encumbrances, adverse claims, or restrictions on transfer as set forth on Schedule 2.2. This Agreement constitutes, and the other Transaction Documents to which Seller and the Members are a party will each constitute, the valid and binding obligations of Seller and the Members, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws and by general principles of equity. 2.3. No Conflict. Seller is not in violation of its Certificate of Formation or Limited Liability Company Agreement. Seller is not in violation in any material respect of any term or provision of any agreement to which it is a party and which is related to the Business or the Assets. The execution, delivery and performance of this Agreement and each of the other Transaction Documents to which Seller and the Members are a party have not resulted and will not result in, nor will consummation of the transactions contemplated hereby or thereby result in, any violation of, or conflict with, or constitute a default under, any of the foregoing charter documents or any agreements, or result in the creation of any lien, encumbrance, or charge upon any of the Assets, or the acceleration of maturity of any obligation of Seller or right of any third party, except for any such violation, conflict, default, lien, encumbrance, charge or acceleration that could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise) of the Business or the Assets, or Seller's and the Members' ability to consummate the transactions contemplated hereunder or under the 7 other Transaction Documents; and there exists no such violation or default that does or could reasonably be expected to materially adversely affect the Business or the Assets or the ability of Seller and the Members to consummate their obligations hereunder or under the other Transaction Documents to which they are a party. 2.4. Governmental Consents, etc. No consent, approval or authorization of or designation, declaration, or filing with any governmental, regulatory or administrative body, agency or authority, or any court or judicial authority (each, an "Authority") on the part of Seller or the Members is required in connection with the valid execution and delivery by them of this Agreement or any other Transaction Document or the consummation by them of the transactions contemplated hereby or thereby. The execution, delivery, and performance of this Agreement and each other Transaction Document by Seller and the Members, and the consummation of the transactions contemplated hereby or thereby by them, do not require consent, approval, or authorization under any material agreement to which Seller or the Members are a party or by which their properties or assets are bound or affected. 2.5. Seller's Financial Condition. (a) Except as set forth on Schedule 2.5, as of the date hereof, Seller has no direct or indirect indebtedness, liabilities, claims, losses, damages, deficiencies, obligations or responsibilities, liquidated or unliquidated, accrued, absolute, contingent, or otherwise which in any way encumber the Assets. (b) Since January 1, 2000, Seller has not: (i) suffered any change, event or condition that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect upon the Business or Seller's and the Members' ability to consummate the transactions contemplated herein; (ii) entered into any transaction, contract or commitment individually involving payments in excess of $10,000 (other than this Agreement or disclosed in Schedule 2.5) relating to the Business in any manner; or (iii) incurred or paid any liability or obligation not in the ordinary course of business, inconsistent with past custom and practice including as to quantity and frequency. 2.6. Tax Matters. Seller has, within the times and in the manner prescribed by law, filed all required tax returns, including sales and use tax returns, has paid or provided for all taxes, including sales and use tax owed by Seller, with respect to the Business, (whether or not shown on any tax return to be due and owing by it), has paid or provided for all deficiencies or other assessments of taxes, interest or penalties owed by it, and all such tax returns were correct and complete in all material respects. No taxing authority has asserted, or will successfully assert, any claim for the assessment of any additional taxes of any nature with respect to any periods covered by any such tax returns; and all taxes or other charges required to be withheld or collected by Seller, with respect to the Business, have been duly withheld or collected and, to the 8 extent required, have been paid to the proper taxing Authority or properly segregated or deposited as required by law. 2.7. Compliance and Laws. Seller has in all material respects complied with, and is now in all material respects in compliance with, all laws, rules, regulations, orders, judgments and decrees of all Authorities applicable to the Business. Seller possesses each franchise, license, permit, authorization, certification, consent, variance, permission, order or approval of or from any Authority, and has filed all filings, notices or recordings with any Authority (collectively, "Licenses") material to, or necessary for the conduct of, the Business and is now and, has at all times in the past been in material compliance with each thereof. Each such License is identified on Schedule 2.7. No proceeding or other action is pending or, to the best knowledge of Seller and the Members threatened, to revoke, amend, or limit any License, and Seller and the Members have no basis to believe that any such proceeding or action would result from the consummation of the transactions contemplated hereby or by the Transaction Documents, or that any such License would not be renewed in the ordinary course. 2.8. Litigation. There is no pending or, to the best knowledge of Seller and the Members threatened, adverse claim, dispute, governmental investigation, suit, action, arbitration, legal, administrative or other proceeding of any nature, domestic or foreign, criminal or civil, at law or in equity, by or against or otherwise affecting the Business or the Assets. 2.9. Tangible Property. Except as set forth on Schedule 2.9, Seller has good and marketable title to each item of tangible personal property that is an Asset, free and clear of all liens and other encumbrances, and, with immaterial exceptions, each such item of tangible personal property is in good operating condition and repair, useable in the ordinary course of business. Schedule 2.9 contains a complete and accurate list setting forth a description of each item of tangible property that is an Asset, and describes the nature of Seller's interest in any property listed thereon that is not owned entirely by Seller free and clear of security interests or other encumbrances. 2.10. Agreements. Schedule 2.10 sets forth a true and complete list of all agreements that involve payments to or by the Seller in excess of $5,000 individually or $15,000 in the aggregate, including, without limitation, all sales orders taken but not fulfilled by Seller as of June 30, 2000 (the "Backlog" of orders to be fulfilled by Buyer after June 30, 2000), commitments, including guarantees of any indebtedness, or instruments binding Seller as of the Closing Date with respect to the Business or the Assets, and all powers of attorney. True and complete copies of each such agreement, commitment or instrument have been delivered to Buyer. (a) (i) to the best knowledge of Seller, each such agreement is the valid and binding obligation of the other contracting party, enforceable in all material respects in accordance with its terms against the other contracting party, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws and by general principles of equity, and is in full force and effect; 9 (ii) Seller has fulfilled all material obligations required to have been performed by it prior to the date hereof with respect to each such agreement, and there is no reason to believe that the other contracting party will not be able to fulfill all of its or his obligations when due in respect thereof; (iii) to the best knowledge of Seller, no other contracting party to any such agreement is now in breach thereof, and there are not now, nor have there been in the twelve (12) month period prior to the date hereof, any material disputes between Seller and any other contracting party; and (iv) Seller is not a party to, or bound by, any agreement or commitment that (1) restricts the conduct of the Business anywhere in the world or (2) contains any unusual or burdensome provisions that could reasonably be expected to have a material adverse effect upon the condition (financial or otherwise) of the Business or the Assets. (b) Schedule 2.10(b) sets forth a true and complete list of each proposed agreement, commitment, arrangement, or other understanding under current discussion between Seller and any third party that would, or reasonably could be expected to, be required to be disclosed pursuant to any provision of this Agreement, if same had been executed prior to and remained in effect as of the date hereof. A copy of the most recent draft of each such agreement and all other documents evidencing the current state of such discussions are set forth in Schedule 2.10(b). 2.11. Advertisers and Customers. Schedule 2.11 is a true and complete list of the advertisers and customers with whom Seller has done business within six (6) months prior to the Closing Date. The relationships of Seller with the persons listed in Schedule 2.11 are good commercial working relationships, and no such person has canceled or otherwise terminated, or threatened to cancel or terminate, its relationship with Seller, or decreased or limited materially, or threatened to decrease or limit materially, its business done with Seller, and there is no reason to believe that any such person would not continue its business relationship with Buyer following the Closing on substantially the same terms as such person has heretofore done business with Seller. Schedule 2.11 lists each outstanding purchase order (or correspondence with respect to a proposed purchase order) of Seller with respect to the Business that is individually in excess of $10,000, identifying in each case the vendor, supplier, contractor or inventor and the items being purchased and stating the quantity and price thereof. At the Closing, Seller shall deliver to Buyer the records set forth in Schedule 1.2. 2.12. Brokers or Finders. Neither Seller nor any Member has incurred, or will incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Seller and the Members shall indemnify and hold Buyer harmless with respect to any claim by any broker, agent, or finder claiming to have acted on behalf of Seller or the Members, respecting the subject matter hereof. 2.13. Intellectual Property. 10 (a) Seller owns, Buyer shall receive at Closing, and the Seller's intellectual property includes, all patents, trademarks, service marks, trade names, and copyrights (including registrations, licenses, and applications pertaining thereto) and all other intellectual property rights, software (in object and source code formats), trade secrets, and other proprietary information, processes, and formulas used in, or necessary for the operation of the Business. Schedule 1.2 sets forth all registered trademarks and service marks, all reserved trade names, all registered copyrights, and all filed patent applications and issued patents used in or necessary for the operation of the Business. (b) Schedule 2.13(b) sets forth the form and placement of the proprietary legends and copyright notices displayed in or on the 2CONFER web site, or any software programs set forth in Schedule 1.2. In no instance has the eligibility of such software programs for protection under applicable copyright law been forfeited to the public domain. (c) Seller has promulgated and used best efforts to protect the trade secrets of the Business. There has been no material unauthorized disclosure of any trade secrets of the Business by any person or entity. The source code and system documentation relating to any software programs set forth in Schedule 1.2 have at all times been maintained in confidence and have been disclosed by Seller only on a confidential basis and only to employees, consultants, vendors, suppliers and customers having "a need to know" the contents thereof. (d) All personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of Seller's proprietary software programs, technical documentation, or intellectual property with respect to the Business, either (1) have been party to a "work-for-hire" arrangement or agreement with Seller, in accordance with applicable federal and state law, that by its terms accords to Seller ownership of all tangible and intangible property thereby arising, or (2) have executed appropriate instruments of assignment in favor of Seller as assignee that by their terms convey to Seller ownership of all tangible and intangible property thereby arising. (e) No intellectual property right or other claims have been asserted by any person or entity to the use of any Asset, and Seller is not aware of any valid basis for any such claim. To the knowledge of Seller, the use of any Asset by Seller does not infringe on the intellectual property rights or other rights of any person or entity. (f) As of the Closing Date, all intellectual property purchased by Buyer pursuant to this Agreement is and shall be useable in the same form as on the Closing Date, under the same circumstances as on the Closing Date, and in the ordinary course of the Business as such business actually has been operated prior to the Closing Date. (g) Except as set forth on Schedule 2.13(g), Seller has good and marketable title to each intangible Asset, including, but not limited to, each item of intellectual property used in and material to, or necessary for the operation of, the Business, free and clear of all liens and other encumbrances. Seller is the sole and rightful owner of all right, title and interest in and to each intangible Asset, and has the unrestricted right to market, license and otherwise exploit each intangible Asset. 11 2.14. Intentionally Omitted. 2.15. Third Party Components, Rights, etc. (a) Seller has validly and effectively obtained the right and license to use the third-party programs set forth in Schedule 1.2 and, with respect to such third-party programs, such other rights and licenses as provided for under the agreements set forth in Schedule 1.2, Seller has the right to assign and transfer to Buyer the foregoing rights and licenses. (b) Seller has not granted, transferred, or assigned any right, title or interest in or to any Asset to any person or entity. There are no contracts, agreements, licenses, and other commitments and arrangements in effect with respect to the marketing, distribution, licensing, or promotion of any material Asset by any independent salesperson, distributor, sublicensor, or other remarketer or sales organization, except as set forth on Schedule 2.10. 2.16. Insurance. Seller currently maintains the insurance policies set forth on Schedule 2.16, which policies are in full force and effect and are sufficient in amount (subject to reasonable deductibles) to allow Seller to replace any of its properties that might be damaged or destroyed. 2.17. Year 2000. The computer systems and software owned by Seller and currently used in the Business are able to accurately process, without loss of functionality or performance, date data, including but not limited to calculating, comparing and sequencing from, into and between the twentieth century (through year 1999), the year 2000 and the twenty-first century, including leap year calculations. 2.18. Environmental and Safety Laws. To the knowledge of Seller and the Members, (i) Seller is not in violation in any material respect of any applicable law relating to the environment or occupational health and safety, and (ii) no material expenditures are or will be required by Seller in order to comply with any such existing law. 2.19. Seller Financial Statements. Seller has delivered to Buyer Seller's unaudited balance sheets as of December 31, 1999, 1998 and 1997, and related unaudited statements of income, cash flow and members' equity for the fiscal years then ended (the "Year-End Financials") and (ii) Seller's unaudited balance sheet as of June 30, 2000, and related unaudited statements of income, cash flow and shareholders' equity for the six months then ended (the "Interim Financials"). The Year-End Financials and the Interim Financials are correct in all material respects and have been prepared in accordance with GAAP (except that the Interim Financials and Year-End Financials do not contain all footnotes and other presentation items that may be required by GAAP). The Year-End Financials and Interim Financials present fairly in all material respects the financial condition, operating results and cash flows of Seller as of the dates and during the periods indicated therein, subject, in the case of the Interim Financials, to normal year-end adjustments, which will not be material in amount or significance. 2.20. No Undisclosed Liabilities. Except as set forth on the Schedules to this Agreement, Seller has no liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), 12 which individually or in the aggregate (i) has not been reflected in or reserved against in the Seller's balance sheet as of June 30, 2000 (the "Current Balance Sheet"), or (ii) has not arisen in the ordinary course of business consistent with past practices prior to June 30, 2000, in either case which amounts exceed Ten Thousand Dollars ($10,000) in the aggregate; provided, however, all liabilities for accrued but unpaid vacation or time off for Seller's employees or other benefits or liabilities payable to such employees upon termination of employment as of June 30, 2000 were accrued and reflected on the Current Balance Sheet and, in any event, total severance benefits payable to Seller's employees and former employees upon termination of employment as of the Closing Date shall not exceed Ten Thousand Dollars ($10,000). 2.21. Loans, Notes, Cash Accounts Receivable and Accounts Payable. Seller has provided Buyer with an accurate and complete breakdown and aging of all accounts receivable, notes receivable and other receivables of Seller as of June 30, 2000 (the "Balance Sheet Date.") All receivables (a) have arisen only from bona fide transactions in the ordinary course of business consistent with past practice, (b) represent valid obligations, and (c) are current and are expected to be collectible in the aggregate face amounts thereof without any counterclaim or set-off when due, except to the extent of the normal allowance for doubtful accounts with respect to accounts receivable that are computed in a manner consistent with GAAP and as reflected in the balance sheet or with respect to receivables arising subsequent to the Balance Sheet Date, the books and records of Seller, and (d) are owned by Seller free of all Liens, except as set forth on Schedule 2.21. No discount or allowance from any account receivable of Seller as of the Closing Date has been made or agreed to (other than customary payment discounts in the ordinary course of business consistent with past practice), and no such account receivable represents billings prior to actual shipment of goods or provision of services. Accounts payable of Seller reflected on the Current Balance Sheet arose and all accounts payable of Seller arising after the Balance Sheet Date have arisen, from bona fide transactions. Seller has paid all costs and obligations customarily paid by Seller through the Closing Date in accordance with Seller's past practice. For purposes of this Agreement, "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. For purposes of this Agreement, "Person" means an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. 2.22. Interested Party Transactions. Neither the Members nor any manager of Seller (nor, to the actual knowledge of Seller and the Members, any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an interest in any entity that furnished or sold, or furnishes or sells, services, products or technology that Seller furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any entity that purchases from or sells or furnishes to Seller, any goods or services, or (iii) a beneficial interest in any agreements of Seller; provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an "interest in any entity" for purposes of this Section 2.22. 13 2.23. Minute Books. The minutes of Seller made available to counsel for Buyer are the only minutes of Seller and contain summaries, accurate in all material respects, of all meetings of the Members and managers of Seller, or actions by written consent, since the time of organization of Seller. 2.24. Complete Copies of Materials. Seller and the Members have delivered or made available true and complete copies of each document (or summaries of same) that has been requested specifically in writing by Buyer or its counsel. 2.25. Disclosure. No representation or warranty made by Seller, nor any statement made in the Schedules to this Agreement or certificate furnished by Seller pursuant to this Agreement contains or will contain, any untrue statement of a material fact or omits or will omit to state any material fact necessary in order to make the statements contained herein or therein not misleading. 2.26. Interest, Participation Rights and Ownership Position. Seller and the Members have no interest, participation rights, or ownership position in any corporation, partnership, joint venture, co-marketing arrangement, or similar enterprise or undertaking relating to the Business. 2.27. Assets. Except for the Excluded Assets, the Assets are all of the assets, properties, goodwill, and rights of every nature, kind and description, whether tangible or intangible, real, personal or mixed, wherever located, used in and material to, or necessary for the operation of, the Business. 2.28. Investment Representations. (a) Restricted Securities. Seller and the Members understand that the shares of Stock delivered to Seller by Buyer are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from Buyer in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, Seller and the Members represent that they are familiar with Rule 144 under the Securities Act, as presently in effect, and understand the resale limitations imposed thereby and by the Securities Act. (b) Investment Experience. Seller and the Members acknowledge that they are able to protect their own interests, can bear the economic risk of their investment in Buyer, and have such knowledge and experience in financial or business matters that they are capable of evaluating the merits and risks of the investment in the Stock. (c) Legends. It is understood that the certificate(s) evidencing the Stock shall bear the following legend: "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of such act." 14 2.29. General. No representation or warranty made herein or in any agreement, Schedule, exhibit or document delivered pursuant hereto contains any material misstatement of any fact or omits to state anything necessary to make any material statement made herein or therein not misleading. SECTION 3 Representations and Warranties of Buyer Buyer represents and warrants to Seller and the Members as follows, except as set forth on the Schedules numbered to correspond to the sections below: 3.1. Organization and Standing. Buyer is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. Buyer has all requisite corporate power to own and operate its properties and assets and to carry on its business as currently conducted and as proposed to be conducted. Buyer is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which it conducts business, except for those jurisdictions where the failure to so qualify would not have a material adverse effect on Buyer. 3.2. Requisite Power. Buyer has all requisite corporate power to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to carry out and perform its obligations under the terms of this Agreement and the other Transaction Documents to which it is a party. 3.3. Authorization. All action on the part of Buyer necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party has been taken and remains in full force and effect. This Agreement constitutes, and the other Transaction Documents to which Buyer is a party will each constitute, the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. 3.4. No Conflict. The execution, delivery, and performance of this Agreement and each of the other Transaction Documents to which it is a party by Buyer has not resulted and will not result in, nor will consummation of the transactions contemplated hereby or thereby result in, any material violation of, or conflict with, or constitute a default under, any of its charter documents or material agreements; and there exists no such violation or default that does or could reasonably be expected to materially and adversely affect the ability of Buyer to consummate its obligations hereunder. 3.5. Governmental Consents, etc. No consent, approval or authorization of or designation, declaration, or filing with any Authority on the part of Buyer is required in connection with the valid execution and delivery of this Agreement or any Transaction Document to which it is a party or the consummation of the transactions contemplated thereby or thereby. 3.6. Brokers or Finders. Buyer has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar 15 charges in connection with this Agreement or any transaction contemplated hereby. Buyer shall indemnify and hold Seller and the Members harmless with respect to any claim by any broker, agent or finder claiming to have acted on behalf of Buyer respecting the subject matter hereof. 3.7. Stock. When the stock certificates representing the shares to be delivered at the Closing as part of the Purchase Price are delivered to Seller and the Escrow Agent, such shares of Stock will be duly authorized, validly issued and fully paid and nonassessable. SECTION 4 Closing Conditions and Documents 4.1. Conditions to Buyer's Obligations. The obligations of Buyer under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions: (a) Representations and Warranties. The representations and warranties of Seller and the Members contained in Section 2 of this Agreement shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. (b) Performance. Seller and the Members shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before Closing. (c) Proceedings and Documents. All limited liability company and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer's counsel. (d) Transaction Documents. The other Transaction Documents shall have been duly executed and delivered by Seller and the Members. (e) Payoff Letters. Seller shall have delivered to Buyer payoff letters from Royal American Bank in connection with Seller's obligations to Royal American Bank. 4.2. Conditions to Seller's Obligations. The obligations of Seller under this Agreement are subject to the fulfillment on or before the Closing Date of each of the following conditions by such party: (a) Representations and Warranties. The representations and warranties of Buyer contained in Section 3 of this Agreement shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. (b) Performance. Buyer shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before Closing. 16 (c) Payment of Purchase Price. Buyer shall have paid the Purchase Price as specified in Section 1.5(a). (d) Transaction Documents. The other Transaction Documents shall have been duly executed and delivered by Buyer. 4.3. Seller Deliveries. Simultaneously with the Closing of the transactions contemplated by this Agreement, the following documents shall be executed and/or delivered by Seller and/or the Members to Buyer: (a) the Bill of Sale, and such other instruments of assignment as Buyer and its counsel reasonably shall have requested prior to the Closing Date for the sale, transfer and conveyance and assignment of the Assets to Buyer; (b) the Escrow Agreement; (c) a certificate, dated the Closing Date, of the manager of Seller: (i) attaching resolutions of the members and managers of Seller in connection with the authorization and approval of the execution, delivery and performance by Seller of this Agreement and the other Transaction Documents to which Seller is a party, certified as being in full force and effect as of the Closing Date; (ii) attaching a copy, certified by the manager as true and complete, of Seller's Limited Liability Company Agreement, as amended to the Closing Date; (iii) setting forth the incumbency of the officers of Seller who have executed and delivered this Agreement and each of the other Transaction Documents to which Seller is a party, including therein a signature specimen of each such officer; and (iv) attaching a copy, certified by the manager as true and complete, of Seller's Certificate of Formation, as amended to the Closing Date; (d) a good standing certificate with respect to Seller from the Secretary of State of the State of Delaware; (e) all materials and documentation set forth in Section 1.2; and (f) an opinion of counsel to Seller addressed to Buyer and covering such matters as Buyer shall reasonably request, in substantially the form of Exhibit C hereto. 4.4. Buyer Deliveries. Simultaneously with the Closing of the transactions contemplated by this Agreement, the following documents shall be executed and/or delivered by Buyer to Seller: (a) the Bill of Sale; (b) the Escrow Agreement; and (c) the stock certificate representing the shares of Stock being issued to Seller as part of the Purchase Price pursuant to Section 1.5(a)(i). 17 SECTION 5 Covenants 5.1. Post-Closing Covenants. (a) From and after the Closing, Seller and the Members shall, at Buyer's expense, execute all such instruments or documents and take all such other actions as Buyer may reasonably request to effectuate the transactions contemplated hereby, including, without limitation (i) inventorying and listing of the Assets, (ii) obtaining of any necessary or advisable consents not required by Buyer prior to Closing in connection with the transactions contemplated hereby (including consents to assignment of contract rights and obligations as Buyer may reasonably request), (iii) filing of tax returns, including, without limitation, the filing of sales and use tax returns and notices as any party hereto may reasonably require; and (iv) cooperating with Buyer to facilitate the transition of Business customers, developers, content contributors and advertisers to Buyer. (b) Tracey T. Powell and Mutare, Inc. shall jointly and severally, and the other Members listed on the signature pages hereto shall severally but not jointly, defend and hold harmless Buyer, its officers, directors, employees, partners, members, shareholders, affiliates (and their officers, directors, employees, members, partners and shareholders), and agents (collectively, the "Buyer Indemnified Parties") from and against any action, loss, liability, damage, claim, fine, penalty, lien or expense, including legal costs, reasonable attorneys' fees, and expenses, (collectively, "Loss") to the extent the same arises out of (i) any breach by Seller or the Members of any representation, warranty, agreement, or covenant made by Seller or the Members herein or in any Transaction Document, (ii) Seller's failure to comply with any bulk sales or similar law, except to the extent such failure involves an Assumed Liability, (iii) except to the extent such tax is an Assumed Liability, any tax, including use or sales tax, for which Seller or the Members or any of Seller's directors or officers is or may be liable in respect of the conduct of the Business prior to the Closing, (iv) any claim arising out of or in connection with the conduct of the Business on or prior to the Closing Date alleging that all, or any portion of, the Business infringes any intellectual property right or other interest of any person or entity, and (v) any obligation of Seller or the Members relating to the period prior to the Closing Date, whether the claim relating to such obligation arises before or after the Closing, excluding obligations with respect to Assumed Liabilities except to the extent that any such obligation or Assumed Liability arose from or was the result of any facts or circumstances, the existence of which constitutes a breach of a representation or warranty made by Seller or the Members hereunder. Each Buyer Indemnified Party will give prompt notice to Seller and the Members of any claim or condition to which the foregoing indemnification covenant relates. At its election, Seller or the Members may control the defense of such claim, at its expense, but shall not settle any such claim without the consent of the respective Buyer Indemnified Party or Parties. If shares of Stock issued as part of the Purchase Price are used to satisfy the obligations of Seller and the Members under this Section 1.5(b), such shares shall be valued at the average of the last reported per share sale price of the Stock on the Nasdaq National Market during the ten (10) trading days immediately preceding the Closing Date. 18 (c) Buyer shall preserve and retain the corporate, accounting, tax, legal and other records of the Business that shall come into Buyer's possession as a result of the transactions contemplated hereby for a period of not less than five (5) years from the Closing Date and give reasonable access to Seller and the Members, and Seller's officers, auditors, counsel, and other representatives for the purpose of preparing or defending tax returns or for other reasonable business purposes. (d) The amount of any Loss for which indemnification is provided under this Section 5 shall be net of any amounts recovered or recoverable by Buyer under insurance policies with respect to such loss and shall be (i) increased to take account of any net tax cost incurred by Buyer arising from the receipt of indemnity payments hereunder (grossed up for such increase) and (ii) reduced to take account of any net tax benefit realized by Buyer arising from the incurrence or payment of any such Loss. In computing the amount of any such tax cost or tax benefit, Buyer shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified Loss. (e) Seller and the Members shall not be liable to Buyer under this Section 5.1 until the aggregate amount of Losses shall exceed $10,000, and then only for any amounts in excess thereof. The aggregate amount of Losses for which Seller and the Members shall be liable to Buyer under this Section 5.1 or otherwise in excess of the Escrowed Amount shall not exceed Four Hundred Thousand Dollars ($400,000). (f) From and after the Closing, Seller and the Members shall execute all such instruments or documents and take all such other actions as Buyer may reasonably request to transfer the domain name "2CONFER.com", the URL address "www.2CONFER.com", the address for the 2CONFER web site and all of such web site's content, from Seller to Buyer. (g) From and after the Closing, if Seller or any Member becomes aware of any Asset in their possession that was not delivered to Buyer at Closing, including but not limited to any Asset described in Section 1.2, Seller and any such Member shall have the obligation to promptly notify Buyer of any such Asset, and to deliver any such Asset to Buyer in accordance with Buyer's reasonable instructions. (h) From and after the date which is sixty (60) days after the Closing Date, Seller shall, upon the written request of Buyer, immediately destroy or erase all of Seller's copies of the Assets set forth in Schedule 1.2 and, upon Buyer's request, promptly confirm destruction of same by signing and returning to Buyer an "affidavit of destruction" acceptable to Buyer; provided, however, that Seller shall be entitled to retain a copy of those specific records, and only those specific records, that contain information (i) that is not related to the Business, (ii) that is neither confidential or privileged, or (iii) for which Seller has a reasonable need to retain. (i) For a period of one year from the Closing Date, Seller shall not, without Buyer's prior written consent, directly or indirectly, (A) solicit the employment of any key employee, officer or senior manager of Buyer or (B) hire any key employee, officer or senior manager whose employment with Buyer has ceased within 90 days of such solicitation or hire; provided, however, that this subparagraph (i) shall not prevent advertisements, solicitations, 19 position listings or notices of employment opportunities that are published or made available to members of the public or hiring of personnel responding thereto. (j) For a period of four (4) years from the Closing Date, Seller and the Members shall not, directly or indirectly, for purposes competitive with the Business, call on, solicit, or take away for Seller or for any other person or entity any person or entity who or which was a customer of Buyer on the Closing Date. (k) From and after the Closing, Seller shall use its best efforts to obtain promptly landlord consents and to perform all other actions necessary to effect the assignment to Buyer of the office leases set forth on Schedule 2.10 (the "Leases"). In the event Seller fails to effect the assignment of any of the Leases to Buyer, Seller will be liable for (i) reasonable moving expenses of Buyer and (ii) any increase in rent payments above those currently contemplated by the Leases, provided that, with respect to each Lease, any liability for such increase in rent payments shall not exceed 10% of the current rent payments for the remaining term of each Lease. (l) Buyer shall fully cooperate with Seller for purposes of enabling Seller to obtain the landlord consents and other third party consents necessary to assign and transfer office leases and other agreements and commitments to Buyer to the extent such consents have not been obtained by Closing. SECTION 6 Miscellaneous 6.1. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction that would cause the application of the laws of any jurisdiction other that the State of New York). 6.2. Survival. The representations and warranties made herein shall survive any investigation made by the parties and the Closing of the transactions contemplated hereby for a period of two (2) years after the Closing Date, except that Seller's representations and warranties with respect to title and tax matters shall survive for the period of any applicable statute of limitations. Except as expressly provided otherwise herein, the covenants and agreements made herein shall survive the Closing of the transactions contemplated hereby. 6.3. Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. No party may assign any of its rights or obligations hereunder without the express written consent of the other party hereto, which consent may not be unreasonably withheld; provided, however, any party may assign any and all of its rights and interests hereunder to one or more of its affiliates and designate one or more of its affiliates to perform its obligations hereunder; provided, however, that such party remains liable for full and total performance of its obligations hereunder. 20 6.4. Notices. Any notices authorized to be given hereunder shall be in writing and deemed given, if delivered personally or by overnight courier, on the date of delivery, if a Business Day, or if not a Business Day, on the first Business Day following delivery, or if mailed, three days after mailing by registered or certified mail, return receipt requested, and in each case, addressed, as follows: If to Buyer: Wire One Technologies, Inc. 225 Long Avenue Hillside, NJ 07205 Attention: President Facsimile: (973) 282-2033 and a copy to: Michael J. W. Rennock, Esq. Morrison & Foerster LLP 1290 Avenue of the Americas New York, NY 10104 Facsimile: (212) 468-7900 If to Seller Parties or Sellers' Representative (as defined below): 2CONFER L.L.C. 2401 West Hassell Road Suite 1510 Hoffman Estates, IL 60195 Attention: Tracey T. Powell Facsimile: (847) 781-2561 and a copy to: Craig T. Boyd Butler Rubin Saltarelli & Boyd 1800 Three First National Plaza 70 West Madison Street Chicago, IL 60602 Facsimile: (312) 444-9702 or if delivered by telecopier, on a Business Day before 4:00 PM local time of addressee, on transmission confirmed electronically, or if at any other time or day on the first Business Day succeeding transmission confirmed electronically, to the facsimile numbers provided above, or to such other address or telecopy number as any party shall specify to the other, pursuant to the foregoing notice provisions. 21 6.5. Waiver; Amendments. This Agreement, and the Transaction Documents, (i) set forth the entire agreement of the parties respecting the subject matter hereof, (ii) supersede any prior and contemporaneous understandings, agreements, or representations by or among the parties, written or oral, to the extent they related in any way to the subject matter hereof, and (iii) may not be amended orally, and no right or obligation of any party may be altered, except as expressly set forth in a writing signed by such party. 6.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed an original, and all such counterparts shall together constitute but one document. 6.7. Expenses. Each party shall bear its own expenses incurred with respect to the preparation of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby. 6.8. Arbitration. (a) If at any time there shall be a dispute arising out of or relating to any provision of this Agreement, any Transaction Document or any agreement contemplated hereby or thereby, such dispute shall be submitted for binding and final determination by arbitration in accordance with the regulations then obtaining of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) resulting from such arbitration shall be in writing, and shall be final and binding upon all involved parties. The site of any arbitration shall be within New York City, New York. The award may be confirmed and enforced in any court of competent jurisdiction. The parties hereby agree that any federal or state court sitting in the County of New York in the State of New York is a court of competent jurisdiction. This paragraph does not limit in any way a party's right to seek injunctive relief in any state or federal court sitting in the County of New York in the State of New York (jurisdictional, venue and inconvenient forum objections to which are hereby waived by both parties), including recovery of fees and costs. (b) This arbitration clause shall survive the termination of this Agreement and any other Transaction Document and the consummation of the transactions contemplated hereby and thereby. 6.9. Waiver of Jury Trial; Exemplary Damages. THE PARTIES HERETO HEREBY WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT. No party shall be awarded punitive or other exemplary damages respecting any dispute arising under this Agreement or any other Transaction Document contemplated hereby. 6.10. Appointment of Representative. (a) Powers of Attorney. Each Seller Party irrevocably constitutes and appoints Tracey T. Powell (the "Sellers' Representative") as such Seller Party's true and lawful agent, proxy, and attorney-in-fact and authorizes the Sellers' Representative to act for such Seller Party and in such Seller Party's name, place, and stead, in any and all capacities to do and perform every act and thing required or permitted to be done in connection with the transactions 22 contemplated by this Agreement and any other Transaction Document, as fully to all intents and purposes as such person might or could do in person, including, without limitation, the power to: (i) receive all notices required to be delivered to such Seller Party under this Agreement, including, without limitation, any notice of a claim for which indemnification is sought under Section 5 hereof; (ii) take any and all action on behalf of such Seller Party from time to time as the Sellers' Representative may deem necessary or desirable to defend, pursue, resolve, and/or settle claims under this Agreement, including, without limitation, claims for indemnification under Section 5 hereof; and (iii) engage and employ agents and representatives (including accountants, legal counsel, and other professionals) and incur such other expenses as he deems necessary or prudent in connection with the administration of the foregoing. Each Seller Party grants unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or desirable to be done in connection with the transactions contemplated by this Agreement and any other Transaction Document, as fully to all intents and purposes as such Seller Party might or could do in person, hereby ratifying and confirming all that the Sellers' Representative may lawfully do or cause to be done by virtue hereof. Each Seller Party, by executing this Agreement, agrees that such agency, proxy, and power of attorney are coupled with an interest, and are therefore irrevocable without the consent of the Sellers' Representative and shall survive the death, incapacity, or bankruptcy of such Seller Party to the extent permitted by applicable law. Each Seller Party acknowledges and agrees that, upon execution of this Agreement, any delivery by the Sellers' Representative of any waiver, amendment, agreement, opinion, certificate, or other documents executed by the Sellers' Representative or any decisions made by the Sellers' Representative pursuant to this Section 6.10 shall bind such Seller Party with respect to such documents or decision as fully as if such Seller Party had executed and delivered such documents or made such decisions. (b) Not Liable. The Sellers' Representative shall not have, by reason of this Agreement, a fiduciary relationship in respect of any Seller Party, except in respect of amounts received on behalf of such Seller Party. The Sellers' Representative shall not be liable to any Seller Party for any action taken or omitted by him or any agent employed by him hereunder or under any other Transaction Document, or in connection therewith, except that the Sellers' Representative shall not be relieved of any liability imposed by law for gross negligence or willful misconduct. The Sellers' Representative shall not be liable to the Seller Parties for any apportionment or distribution of payments made by him in good faith and, if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Seller Party to whom payment was due, but not made, shall be to recover from the other Seller Parties any payment in excess of the amount to which they are determined to have been entitled. The Sellers' Representative, in such capacity, shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any other Transaction Document. 23 (c) Replacement of the Sellers' Representative. Upon the death, disability, or incapacity of the initial Sellers' Representative appointed pursuant to Section 6.10(a) above, each Seller Party acknowledges and agrees that such Sellers' Representative's executor, guardian, or legal representative, as the case may be, shall (in consultation with the Members) appoint a replacement reasonably believed by such person to be capable of carrying out the duties and performing the obligations of the Sellers' Representative hereunder within thirty (30) days. In the event that the Sellers' Representative resigns for any reason, the Sellers' Representative shall (in consultation with the Seller Parties) select another representative to fill such vacancy. Any substituted representative shall be deemed the Sellers' Representative for all purposes of this Agreement and any other Transaction Document. (d) Actions of the Sellers' Representative; Liability of the Sellers' Representative. Each Seller Party agrees that Buyer shall be entitled to rely on any action taken by the Sellers' Representative, on behalf of the Seller Parties, pursuant to Section 6.10(a) above (each, an "Authorized Action"), and that each Authorized Action shall be binding on each Seller Party as fully as if such Seller Party had taken such Authorized Action. Buyer agrees that the Sellers' Representative shall have no liability to Buyer for any Authorized Action, except to the extent that such Authorized Action is found by a final order of a court of competent jurisdiction to have constituted fraud or willful misconduct. The Seller Parties hereby release and discharge Buyer from and against any liability arising out of or in connection with the Sellers' Representative's failure to distribute any amounts received by the Sellers' Representative on Seller Parties' behalf to the Seller Parties. 6.11. Business Day. When used in this Agreement, the term "Business Day" shall mean a day other than a Saturday, Sunday or a day on which commercial banks in New York City are generally closed for business. [The remainder of this page is intentionally left blank.] 24 IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase Agreement as of the date first written above. BUYER: WIRE ONE TECHNOLOGIES, INC. By: /s/ Richard Reiss --------------------------------------------- Name: Richard Reiss Title: President and Chief Executive Officer SELLER: 2CONFER L.L.C. By: /s/ Tracey T. Powell --------------------------------------------- Name: Tracey T. Powell Title: Manager MEMBERS: Mutare, Inc. By: /s/ Tracey T. Powell --------------------------------------------- Name: Tracey T. Powell Title: President and Chief Executive Officer /s/ Tracey T. Powell ------------------------------------------------ Tracey T. Powell /s/ Anna Powell ------------------------------------------------ Anna Powell /s/ Steve Rossdeutcher ------------------------------------------------ Steve Rossdeutcher /s/ Seth Catelli ------------------------------------------------ Seth Catelli S-1 EX-21.1 7 0007.txt SUBSIDIARIES Exhibit 21.1 SUBSIDIARIES 1. AllComm Products Corp., a Delaware corporation; 2. VTC Resources Corp., a Delaware corporation; 3. Glowpoint, Inc., a Delaware corporation; and 4. Virtual DSL Communications Corp., a Delaware corporation. EX-23.1 8 0008.txt CONSENT OF BDO SEIDMAN, LLP (NEW JERSEY) EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Wire One Technologies, Inc. We hereby consent to the use in the prospectus constituting a part of this Registration Statement of our report dated February 29, 2000, except for Note 15 which is as of March 24, 2000, relating to the consolidated financial statements of All Communications Corporation as of December 31, 1999 and for the year then ended, and subsidiaries as of December 31, 1999 and for the year then ended, which are contained in that prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP BDO SEIDMAN, LLP Woodbridge, New Jersey July 28, 2000 EX-23.2 9 0009.txt CONSENT OF ARTHUR ANDERSEN [Arthur Andersen LLP Letterhead] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our auditor's report dated January 21, 1999 (and to all references to our Firm) included in or made a part of this Registration Statement File for Wire One Technologies, Inc. on Form S-1. 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. We also consent to the reference to us under the caption "Experts" in the prospectus. /s/ Arthur Andersen LLP Boston, MA July 28, 2000 EX-23.3 10 0010.txt CONSENT OF BDO SEIDMAN, LLP EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Wire One Technologies, Inc. We hereby consent to the use in the prospectus constituting a part of this Registration Statement of our report dated March 10, 2000, relating to the consolidated financial statements of View Tech, Inc. as of December 31, 1999 and for the year then ended, which is contained in that prospectus. We also consent to the reference to us under the caption "Experts" in the Sprospectus. /s/ BDO Seidman, LLP Los Angeles, California July 28, 2000 EX-27.1 11 0011.txt FDS FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-2000 JAN-01-2000 MAR-31-2000 69,768 0 7,088,744 (285,000) 2,773,101 10,466,446 4,058,738 (1,997,581) 12,896,047 14,224,773 0 0 0 941 (1,353,314) 12,896,047 9,213,788 9,213,788 5,901,545 9,768,974 0 0 741,040 (1,296,226) 0 (1,296,226) 0 0 0 (1,296,226) (0.16) (0.16)
EX-27.2 12 0012.txt FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 7,166,978 0 5,134,682 355,000 4,279,518 16,644,749 1,318,786 686,899 17,427,741 3,680,182 0 0 0 13,796,290 (56,748) 17,427,741 5,983,507 5,983,507 3,846,211 5,848,585 (17,706) 0 23,483 129,145 53,400 75,745 0 0 0 75,745 .01 .01
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