-----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, OTOY3FBnoqZWyKJxqwuCJOynBitOQPgCkgb8HOJt52xCbkRxZkvY5nUJv1tBSLCm SOH5cLVBvLqLs56T9RYaaw== 0000898430-97-000077.txt : 19970113 0000898430-97-000077.hdr.sgml : 19970113 ACCESSION NUMBER: 0000898430-97-000077 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEW TECH INC CENTRAL INDEX KEY: 0000746210 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 770312442 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19597 FILM NUMBER: 97504418 BUSINESS ADDRESS: STREET 1: 950 FLYNN RD STREET 2: STE F CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8054828277 SB-2 1 FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997 REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ________________ VIEW TECH, INC. (Exact Name of Small Business Issuer in Its Charter) DELAWARE 6676 77-0312442 (State or Other Jurisdiction of (Primary Standard (I.R.S. Employer Incorporation or Organization) Industrial Classification Identification No.) Code Number) _______________ 950 FLYNN ROAD CAMARILLO, CALIFORNIA 93012 (805) 482-8277 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ROBERT G. HATFIELD VIEW TECH, INC. 950 FLYNN ROAD CAMARILLO, CA 93012 (805) 482-8277 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ________________ Copies of all communications, including all communications sent to the agent for service, should also be sent to: V. JOSEPH STUBBS, ESQ. HOWARD J. KERN, ESQ. JOSEPH P. GALDA, ESQ. LAURIE A. ALLEN, ESQ. Richman, Lawrence, Mann, Greene, Buchanan Ingersoll Brobeck, Phleger & Harrison LLP Chizever, Friedman & Phillips, A Professional Corporation 550 S. Hope Street A Professional Corporation (Counsel to certain selling securityholders) Los Angeles, CA 90071-2604 9601 Wilshire Blvd., Penthouse 1200 Two Logan Square (213) 489-4060 Beverly Hills, CA 90210 18th and Arch Streets (310) 274-8300 Philadelphia, PA 19103-6933 (215) 665-3879
________________ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. If this form is filed to register securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), please 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 delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. [_] ________________ CALCULATION OF REGISTRATION FEE
PROPOSED AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING PROPOSED MAXIMUM REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PRICE PER SECURITY AGGREGATE OFFERING PRICE FEE - ---------------------------------------------------------------------------------------------------------------------------- Common Stock 575,000(1) $5.00 $2,875,000(3) $ 872.00 - ---------------------------------------------------------------------------------------------------------------------------- Common Stock 1,287,688(2) $5.38 $6,927,762(4) $2,100.00 - ---------------------------------------------------------------------------------------------------------------------------- Totals 1,862,688 $9,802,762 $2,972.00 ============================================================================================================================
(1) Represents 575,000 shares of common stock, par value $0.0001 per share ("Common Stock") of View Tech, Inc. ("View Tech" or the "Company"), underlying purchase warrants originally sold by the Company in connection with the Company's initial public offering in June 1995 (the "Public Warrants"). (2) Consists of 726,688 being offered for the account of the selling stockholders named herein (the "Selling Stockholders"), including 295,000 shares of Common Stock underlying purchase warrants (the "Private Warrants") and 266,000 shares of Common Stock underlying purchase options (the "Options"). (The Private Warrants and the Public Warrants are sometimes collectively referred to herein as the "Warrants.") (3) Pursuant to Rule 457(o) under the Securities Act, the registration fee is based on the maximum aggregate offering price of the Public Warrants. (4) Pursuant to Rule 457(c) under the Securities Act, the maximum aggregate offering price of the Common Stock is based upon the closing sales price of the Common Stock as reported on The NASDAQ National Market on January 7, 1997. _________________ 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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. VIEW TECH, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
ITEM NO. FORM SB-2 REGISTRATION STATEMENT HEADING LOCATION IN PROSPECTUS - -------- ----------------------------------------------------------- --------------------------------------------------- 1 Front of Registration Statement and Outside Front Cover Front Cover Page; Cross Reference Sheet; Outside Page of Prospectus......................................... Front Cover Page of Prospectus 2 Inside Front and Outside Back Cover Pages of Prospectus.... Inside Front Cover Page of Prospectus; Additional Information; Outside Back Cover Page of Prospectus 3 Summary Information and Risk Factors....................... Prospectus Summary; Risk Factors 4 Use of Proceeds............................................ Prospectus Summary; Use of Proceeds 5 Determination of Offering Price............................ Outside Front Cover Page of Prospectus 6 Dilution................................................... * 7 Selling Security Holders................................... Outside Front Cover Page of Prospectus; Prospectus Summary; Shares of the Selling Stockholders Being Registered 8 Plan of Distribution....................................... Plan of Distribution 9 Legal Proceedings.......................................... * 10 Directors, Executive Officers, Promoters and Control Management Persons.................................................... 11 Security Ownership of Certain Beneficial Owners and Principal Stockholders Management................................................. 12 Description of Securities.................................. Outside Front Cover Page of Prospectus; Prospectus Summary; Capitalization 13 Interest of Named Experts and Counsel...................... * 14 Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................. Disclosure of Commission Position on Indemnification for Securities Act Liabilities 15 Organization Within Last Five Years........................ Business 16 Description of Business.................................... Business 17 Management's Discussion and Analysis or Plan of Management's Discussion and Analysis or Plan of Operations................................................. Operations 18 Description of Property.................................... Business 19 Certain Relationships and Related Transactions............. Certain Relationships and Related Transactions 20 Market for Common Equity and Related Stockholder Matters.................................................... Market Data 21 Executive Compensation..................................... Executive Compensation 22 Financial Statements....................................... Supplemental Consolidated Financial Statements of View Tech, Inc. for the years ended June 30, 1995 and 1996 23 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure........................ * * Not applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+ +EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE + +SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JANUARY 10, 1997 1,862,688 Shares PROSPECTUS - ---------- VIEW TECH, INC. COMMON STOCK This prospectus (this "Prospectus") relates to: (i) an aggregate of 575,000 shares of common stock, $0.0001 par value ("Common Stock"), of View Tech, Inc. ("View Tech" or the "Company") which are being offered for sale by the Company pursuant to outstanding warrants at an exercise price of $5.00 per share (the "Public Warrants"); and (ii) 1,287,688 shares of Common Stock acquired by the selling stockholders named herein (the "Selling Stockholders") in private transactions which are being offered for the account of the Selling Stockholders, which include (A) an aggregate of 266,000 shares of Common Stock which are being offered for sale by the Company pursuant to outstanding options at exercise prices ranging from $5.00 to $7.38 per share (the "Options") and (B) an aggregate of 295,000 shares of Common Stock which are being offered by the Company pursuant to Common Stock purchase warrants at exercise prices ranging from $6.25 to $7.15 per share (the "Private Warrants") (collectively with the Public Warrants, the "Warrants") (collectively, this "Offering"). See "Shares of Selling Stockholders Being Registered." The Company will receive proceeds from the exercise of the outstanding Warrants and Options from time to time if and when they are exercised. However, the Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. Of the 1,136,000 shares of Common Stock covered by this Prospectus and issuable upon exercise of the Warrants and the Options, 575,000 of such shares were previously registered by the Company and were covered by a Prospectus dated June 15, 1995 and the registration statement to which it related. Such registration statement and prospectus have been superseded in their entirety by this Prospectus and the new Registration Statement to which it relates.
- ----------------------------------------------------------------------------------------------------------- Title of Each Class of Security Being Amount of Price to Public Proceeds to Issuer or Other Registered Securities Per Share Persons(3)(4) - ----------------------------------------------------------------------------------------------------------- Common Stock (1) 575,000 $5.00 $2,875,000 - ----------------------------------------------------------------------------------------------------------- Common Stock (2) 1,287,688 $5.38 $6,927,762(5) - ----------------------------------------------------------------------------------------------------------- Total 1,693,688 $9,802,762 /(6)/ - -----------------------------------------------------------------------------------------------------------
(1) Consists of 575,000 shares of Common Stock underlying the Public Warrants with exercise prices of $5.00 per share. (2) Consists of 1,287,688 shares of Common Stock being offered for the account of the Selling Stockholders, which include 295,000 shares of Common Stock underlying the Private Warrants at exercise prices ranging from $6.25 to $7.15 per share and 266,000 shares of Common Stock underlying the Options at exercise prices ranging from $5.00 to $7.38 per share. (3) The Company does not have any agreement to pay underwriting commissions with respect to the exercise of any of the Warrants or the Options. (4) All expenses of this Offering are being borne by the Company. The Company estimates that it will incur approximately $150,000 in registration, legal, accounting, printing and listing fees in connection with this Offering. (5) Represents the anticipated sale by the Selling Stockholders at $5.38 per share, the last reported sales price reported on The NASDAQ National Market on January 7, 1997, and does not give effect to ordinary brokerage commissions or other costs of sale that will be borne solely by the Selling Stockholders. There can be no assurances, however, that the Selling Stockholders will be able to sell their shares at this price, or that a liquid market will exist for the Company's Common Stock. The Company will receive no proceeds upon the sale of shares of Common Stock by the Selling Stockholders except for approximately $6,823,500 which will be paid by the Selling Stockholders to the Company upon the exercise of the Private Warrants and the Options. There can be no assurance that the Private Warrants and the Options will be exercised. See "Use of Proceeds." (6) The net proceeds from this Offering to be received by the Company from the issuance of 1,136,000 shares of Common Stock issuable upon exercise of the Warrants and the Options is estimated to be $6,673,500. There can be no assurances that any of the Warrants and/or the Options will be exercised, and accordingly, the Company may not receive any proceeds from this Offering. See "Use of Proceeds." THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS
PAGE ---- Available Information................................................................. 2 Prospectus Summary.................................................................... 4 Summary Consolidated Financial Data................................................... 6 Risk Factors.......................................................................... 7 Use of Proceeds....................................................................... 11 Market Data........................................................................... 11 Capitalization........................................................................ 13 Shares of the Selling Stockholders Being Registered................................... 14 Plan of Distribution.................................................................. 16 Disclosure of Commission Position on Indemnification for Securities Act Liabilities... 16 Management's Discussion and Analysis or Plan of Operations............................ 17 Business.............................................................................. 23 Management............................................................................ 30 Recent Developments................................................................... 35 Security Ownership of Certain Beneficial Owners....................................... 37 Description of Capital Stock.......................................................... 37 Dividend Policy....................................................................... 39 Legal Matters......................................................................... 39 Experts............................................................................... 39
______________ AVAILABLE INFORMATION View Tech is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy and information statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements and other information filed by View Tech can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and at 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Commission maintains a web site at http:/www.sec.gov containing reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. View Tech's Common Stock is listed on The NASDAQ National Market and reports, proxy and information statements and other information concerning View Tech can also be inspected at the offices of The NASDAQ, 1735 K Street, N.W., Washington D.C. 20006-1500. The Company has filed with the Commission a Registration Statement (together with all amendments and exhibits, the "Registration Statement") on Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered pursuant to this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any agreement or other document referred to herein are not necessarily complete and reference is made to the copy of such agreement or to the Registration Statement and to the exhibits and schedules filed therewith. Copies of the material containing this information may be obtained from the Commission upon payment of the prescribed fee. No person is authorized to give any information or make any representation not contained in this Prospectus, and, if given or made, such information or representation should not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Prospectus, in any jurisdiction, to or from any person to whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. Neither the delivery of this Prospectus nor any distribution of securities made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of View Tech since the date of this Prospectus. 2 Certain statements contained in this Prospectus that are not related to historical results, including, without limitation, statements regarding View Tech's business strategy and objectives, future financial position and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and involve risks and uncertainties. Although View Tech believes that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors," "Management's Discussion and Analysis or Plan of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. All forward-looking statements contained in this Prospectus are qualified in their entirety by this cautionary statement. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes appearing elsewhere in this Prospectus and in the documents incorporated in this Prospectus by reference and the exhibits hereto. See "Risk Factors" for certain information that should be considered by prospective investors. The Company View Tech, which commenced operations in July 1992, markets and installs video communications systems and provides continuing services related to installed systems. Video communications systems, utilizing advanced technology, enable users at separate locations to engage in face-to-face discussions with the relative affordability and convenience of using a telephone. In addition to the use of video conferences as a corporate communications tool, use of video communications systems is expanding into numerous additional applications, including (i) teachers providing lectures to students at multiple locations, (ii) judges conducting criminal arraignment proceedings while the accused remains incarcerated, (iii) physicians engaging in consultations utilizing x- rays and other pictographic material, (iv) coordination of emergency services by public utilities, (v) conducting multi-location staff training programs and (vi) engineers at separate design facilities coordinating the joint development of products. On November 29, 1996, View Tech completed the acquisition of USTeleCenters, Inc., a Massachusetts corporation ("USTeleCenters"), by means of a merger of USTeleCenters with and into View Tech Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of View Tech ("VTAI")(the "Merger"). The Merger was effected pursuant to a Merger Agreement by and among the Company, VTAI and USTeleCenters, dated as of September 5, 1996, as amended on October 31, 1996 (the "Merger Agreement"). In exchange for all of the outstanding shares of USTeleCenters common stock, $0.01 par value, the USTeleCenters shareholders received 2,240,976 shares of Common Stock (excluding options exercisable into 184,003 shares of Common Stock). Following the Merger, VTAI changed its name to "USTeleCenters, Inc." ("UST") and continued to operate the former businesses of USTeleCenters. Concurrent with the Merger, which was approved at View Tech's annual meeting of stockholders on November 26, 1996, View Tech reincorporated in Delaware from California, changed the par value of the Common Stock and its preferred stock to $0.0001 from $0.01, amended its bylaws to provide for a staggered board of directors, and increased the authorized number of shares of Common Stock to 20,000,000 shares from the original 10,000,000 shares. UST designs, sells, manages and supports telecommunications systems solutions for small and medium-sized businesses throughout the United States. UST develops and manages sales and customer service programs on an outsourced basis for (i) certain Regional Bell Operating Companies ("RBOCs"), (ii) other telecommunications service providers and (iii) equipment manufacturers under agency and value-added reseller ("VAR") agreements. In New England and New York, UST also provides systems integration and on-going account management consulting for middle market customers. On behalf of its RBOC clients, UST sells high speed data services, Internet access, Centrex network services, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services such as remote-call-forwarding. As a value-added equipment reseller, UST sells, installs and maintains data transmission products, video conferencing equipment and telephone systems. View Tech is headquartered in Camarillo, California. Its executive offices are located at 950 Flynn Road, Camarillo, California 93012. Its telephone number at that address is 805/482-8277. View Tech's e-mail address is tom@viewtech.com. 4 The Offering Common Stock offered by the Company............ 575,000 shares/1/ Common Stock offered by Selling Stockholders... 1,287,688 shares/2/ Common Stock outstanding after this Offering... 6,827,462 shares/3/ Use of Proceeds................................ The Company currently anticipates that it will use the net proceeds, if any, from the Common Stock offered by the Company to fund working capital requirements in connection with anticipated growth of the Company. Plan of Distribution........................... The shares of Common Stock offered by the Selling Stockholders may be initially offered for sale from time to time by the holders in regular brokerage transactions, either directly or through brokers or to dealers, in private sales or negotiated transactions, or otherwise, at prices related to then prevailing market prices. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. All expenses of the registration of such securities are, however, being borne by the Company. The Selling Stockholders, and not the Company, will pay or assume such brokerage commissions as may be incurred in the sale of their securities. See "Shares of the Selling Stockholders Being Registered." NASDAQ National Market Symbol.................. VUTK/4/
/1/ Consists of 575,000 shares of Common Stock underlying the Public Warrants. /2/ Consists of 1,287,688 shares of Common Stock being offered for the account of the Selling Stockholders which includes 295,000 shares of Common Stock underlying the Private Warrants and 266,000 shares of Common Stock underlying the Options. /3/ Excludes 1,068,605 shares of Common Stock underlying Options issued by the Company to certain of its directors, officers, employees and consultants. /4/ The NASDAQ National Market trading symbol for the Public Warrants is "VUTKW." 5 SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents summarized supplemental consolidated historical statements of operations and balance sheet data of the Company. The statements of operations data presented below as of June 30, 1996 and 1995, are derived from View Tech's audited financial statements for the years ended June 30, 1996 and 1995 and from UST's audited financial statements for the twelve months ended June 30 1996 and 1995. The balance sheet data presented below for the quarter ended September 30, 1996 and 1995 are derived from View Tech's and UST's unaudited historical financial statements. The summarized financial data should be read in conjunction with the supplemental financial statements and related notes thereto for the Company included elsewhere herein and in "Management's Discussion and Analysis or Plan of Operations."
Years Ended Three Months Ended June 30, September 30, --------------------------- ---------------------------- Statements of Operations Data: 1996 1995 1996 1995 ------------ ------------ ----------- ------------- REVENUES: Product sales and service revenues.......... $19,680,386 $10,801,669 $ 6,001,979 $2,693,287 Agency commissions.......................... 11,313,350 17,696,300 4,016,505 3,723,403 ----------- ----------- ----------- ---------- 30,993,736 28,497,969 10,018,484 6,416,690 ----------- ----------- ----------- ---------- COSTS AND EXPENSES: Costs of goods sold......................... 14,269,108 7,618,770 4,817,141 2,281,389 Selling and marketing expenses.............. 9,653,345 15,565,601 2,780,434 2,307,376 General and administrative expenses......... 6,247,785 4,990,572 1,952,191 1,549,898 ----------- ----------- ----------- ---------- 30,170,238 28,174,943 9,549,766 6,138,663 ----------- ----------- ----------- ---------- INCOME FROM OPERATIONS........................ 823,498 323,026 468,718 278,027 OTHER EXPENSE................................. (659,258) (592,853) (67,381) (63,091) LOSS ON SUBLEASE, Including shutdown of offices -- (1,312,900) -- -- ----------- ----------- ----------- ---------- INCOME (LOSS) BEFORE INCOME TAXES............. 164,240 (1,582,727) 401,337 214,936 PROVISION FOR INCOME TAXES.................... 259,816 (294,083) (13,964) 59,707 ----------- ----------- ----------- ---------- NET INCOME (LOSS) $ 424,056 $(1,876,810) $ 387,373 $ 274,643 =========== =========== =========== ========== EARNINGS (LOSS) PER SHARE $ .07 $ (.50) $ .07 $ .05 =========== =========== =========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 5,676,304 3,765,467 6,288,305 5,571,055 =========== =========== =========== ========== September 30, 1996 ---------------------------------- Actual As Adjusted/1/ ------ --------------- Balance Sheet Data: Total assets................................... $18,760,772 $24,234,272 Working capital................................ 3,796,981 9,270,481 Long-term liabilities.......................... 820,016 820,016 Stockholders' equity........................... 7,521,972 12,995,472
- -------------- /1/ Adjusted to reflect the sale of the 1,136,000 shares of Common Stock offered hereby by the Company underlying the Warrants and the Options at exercise prices ranging from $5.00 to $7.38 per share and after deducting estimated offering expenses of $150,000 and application of the estimated net proceeds therefrom. The as-adjusted amounts also reflect the issuance of Common Stock in connection with the Merger with UST in November 1996 and the write-off of estimated after-tax merger expenses of $1.2 million and the closing of the Company's private placement of 300,281 shares of Common Stock, resulting in net proceeds of $1.4 million. 6 RISK FACTORS The factors discussed below and elsewhere in this Prospectus could adversely affect the value of the Common Stock. In addition, the factors discussed below and elsewhere in this Prospectus may constitute forward-looking statements and, as such, may involve known or unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any forward-looking statements contained in this Prospectus should not be relied upon as predictions of future events. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "could," "seeks" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Such statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. The following factors may constitute or include cautionary, forward-looking statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. Actual results in the future could differ materially from those described in the forward-looking statements or as a result of the factors set forth below (which list does not purport to be exhaustive) and the matters set forth in this Prospectus generally. See "Management's Discussion and Analysis or Plan of Operations" and "Business" for a description of certain other factors generally affecting the Company's business. RISK RELATING TO THE COMPANY'S POTENTIAL INABILITY TO REFINANCE UST'S LINES OF CREDIT As of December 31, 1996, the Company owed UST's primary lender an aggregate of $2,451,817 under two credit facilities, which are payable in full on March 31, 1997. UST is subject to a forbearance agreement which enables the lender to foreclose on the debt if UST's financial condition falls below certain minimum standards. The forbearance agreement, as amended, was originally entered into on June 14, 1995. Based on UST's relationship with the lender, the Company's management anticipates that the lender will refinance the lines of credit or extend the date on which the lines of credit must be paid. However, if the lender does not refinance such lines of credit and the Company has not raised additional equity and/or arranged for alternative bank financing, the Company will not have sufficient cash to repay the lender when the debt comes due. There can be no assurance that View Tech will be able to renegotiate the lines of credit with the lender, and if the lender requires payment in March 1997, there can be no assurance that View Tech will be able to raise the additional funds necessary to meet the Company's operating needs and capital requirements or that such funds, if available, can be obtained on terms acceptable to the Company. The failure to refinance the lines of credit, raise additional capital or obtain additional bank financing will have a material adverse effect on the Company's business, financial condition and results of operations. To the extent that the Company raises additional capital by issuing equity securities, ownership dilution to current stockholders of the Company will result. See "Management's Discussion and Analysis or Plan of Operations." FUTURE FINANCING REQUIREMENTS The Company will require additional capital in order to operate its business efficiently and to implement its internal expansion and acquisition strategy. The Company plans to raise additional capital to meet such needs in either the form of a private placement of its securities and/or traditional bank financing, or a combination of both. There can be no assurance that the Company will be able to raise additional funds necessary to meet such needs or that such funds, if available, can be obtained on terms acceptable to the Company. The failure to raise additional capital on terms acceptable to the Company could force the Company to alter its business strategy, including but not limited to, its acquisition strategy, in the future. See "Management's Discussion and Analysis or Plan of Operations." UNASCERTAINABLE RISKS DUE TO RAPID EXPANSION AND FUTURE ACQUISITIONS Management anticipates that the Company will continue to grow not only through internal expansion and the opening of additional offices in new territories, but also through acquisitions of other entities. Since July 1992, View Tech, by virtue of its expansion activity, has grown from two employees in one location to 290 employees in 16 locations at December 31, 1996. In the past 18 months, View Tech has acquired three businesses, including USTeleCenters. By virtue of rapid internal growth and external growth through acquisitions, the Company will be subject to the uncertainties and risks associated with any expanding business. In light of the potential significance of these changes and the absence of a history of combined operations of View Tech with another entity, it is possible that the Company will encounter difficulties, such as, integration of operations, inefficiencies due to duplicative functions, management and administrative differences and overlapping, competing or incompatible areas of business and operations, that cannot presently be ascertained. There can be no assurance that the Company will achieve the anticipated benefits of its recent acquisitions. Such acquisitions could place significant demands on the Company's financial resources and management and cause 7 disruption of the Company's operations due to the additional demands placed on the Company's management in order to integrate such operations. See "Management's Discussion and Analysis or Plan of Operations." LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS; FUTURE RESULTS OF OPERATIONS UNCERTAIN View Tech and USTeleCenters have operated since 1992 and 1987, respectively. On a combined basis, the Company incurred a net loss for the fiscal year ended June 30, 1995, and has operated as a combined entity since November 29, 1996. Although View Tech achieved profitability during fiscal 1996 and reported net income of $424,056 for fiscal 1996, it reported a net loss for fiscal 1995 of $1,876,810. In the future, View Tech may continue to experience significant fluctuations in operating results as a result of a number of factors, including delays in product enhancements and new product introductions by its suppliers, market acceptance of new products and services and reduction in demand for existing products and services as a result of introductions of new products and services by its competitors or by competitors of its suppliers. In addition, View Tech's operating results may vary significantly depending on the mix of products and services comprising its revenues in any period. There can be no assurance that View Tech will achieve revenue growth or will be profitable on a quarterly or annual basis in the future. See "Management's Discussion and Analysis or Plan of Operations" and "Business." DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL AND NYNEX For the fiscal year ended June 30, 1996, approximately 38% and 21% of the Company's consolidated revenues were attributable to the sale of equipment manufactured by PictureTel Corporation ("PictureTel") and to the sale of network products and services provided by NYNEX, respectively. Termination of or change of the Company's business relationships with PictureTel or NYNEX, disruption in supply, failure of PictureTel or NYNEX to remain competitive in product quality, function or price or a determination by PictureTel or NYNEX to reduce reliance on independent providers such as the Company could have a material adverse effect on the Company's business, financial condition and results of operation. The Company is a party to agreements with PictureTel and NYNEX that authorize the Company to serve as a non-exclusive dealer and sales agent, respectively, in certain geographic territories. The PictureTel and NYNEX agreements expire on August 2000, and December 31, 1998 respectively. The PictureTel and NYNEX agreements can be terminated without cause upon 60 days and 12 months written notice by the suppliers, respectively. There can be no assurance that these agreements will not be terminated, or that they will be renewed on terms acceptable to the Company. These suppliers have no affiliation with the Company and are competitors of the Company. See "Management's Discussion and Analysis or Plan of Operations" and "Business." CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS Upon the effectiveness of this Offering, View Tech's officers and directors will beneficially own approximately 32.9% (assuming all options held by executive officers and directors are exercised) of the outstanding Common Stock of the Company. If the executive officers and directors act collectively, assuming they continue to own all their shares, there is a substantial likelihood that such holders will be able to elect all of the directors of View Tech and to determine the outcome of all corporate actions requiring the approval of the holders of the majority of shares, such as mergers and acquisitions. See "Security Ownership of Certain Beneficial Owners and Management." COMPETITION The video communications industry is highly competitive. The Company competes with manufacturers of video and other communications equipment, including PictureTel, its principal supplier, and their networks of dealers and distributors. It also competes with telecommunications carriers, such as AT&T, MCI Communications Corporation, SPRINT and other large corporations entering the video communications market including Apple Computers, Inc., IBM, Intel Corporation, NEC, Microsoft, Inc., Mitsubishi Ltd., Sony Corporation, Matsushita/Panasonic, Hitachi and British Telecom. View Tech also competes with large accounting and consulting firms that provide communications services, as well as other independent distributors and communications service providers. Many of these organizations have substantially greater name recognition and financial, technical, manufacturing, marketing, distribution and other resources than View Tech and, therefore, represent significant competition. In addition, View Tech management believes that as the demand for video communications systems and other communications products and services continues to increase, additional competitors, many of which also will have greater resources than View Tech, will enter the markets which View Tech currently serves. There can be no assurance that the current and future competitors of View Tech will not succeed in developing technologies and products that are more widely accepted in the marketplace or that will render View Tech's technology and products obsolete or noncompetitive. In addition, certain of such current and future competitors of View Tech may be able to undertake more extensive marketing campaigns or adopt more aggressive pricing policies than View Tech. There can be no assurance that View Tech will have the resources required to respond effectively to market or technological changes or to compete successfully 8 with current or future competitors or that competitive pressures will not have a material adverse effect View Tech's business, financial condition and results of operations. See "Management's Discussion and Analysis or Plan of Operations." The telecommunications industry is also highly competitive. The Company competes with many other companies in the telecommunications business which have substantially greater financial and other resources than the Company, selling both the same and similar services. The Company's competitors in the sale of network services include RBOCs such as NYNEX, Bell Atlantic, Southwestern Bell and GTE, long distance carriers such as AT&T, MCI and SPRINT, other long distance companies, by-pass companies and other agents. There can be no assurance that the Company will be able to compete successfully against such companies. See "Management's Discussion and Analysis or Plan of Operations" and "Business." RAPIDLY CHANGING TECHNOLOGY AND OBSOLESCENCE The market for communications products and services is characterized by rapidly changing technology, evolving industry standards and the frequent introduction of new products and services. View Tech's future performance will depend in significant part upon its ability to respond effectively to these developments. New products and services are generally characterized by improved quality and function and are frequently offered at lower prices than the products and services they are intended to replace. The introduction of products embodying new technologies and the emergence of new industry standards can render the Company's existing products and services obsolete, unmarketable or noncompetitive. The Company's ability to implement its growth strategies and remain competitive will depend upon its ability successfully to (i) maintain and develop relationships with manufacturers of new and enhanced products that include new technology, (ii) achieve levels of quality, functionality and price acceptability to the market, (iii) maintain a high level of expertise relating to new products and the latest in communications systems technology, (iv) continue to market quality telecommunications services on behalf of its RBOC and other exchange service carriers and (v) continue to design, sell, manage and support competitive telecommunications solutions for its customers. There can be no assurance, however, that the Company will be able to implement its growth strategies or remain competitive. See "Business." GOVERNMENT REGULATION; UNCERTAINTY RELATING TO THE TELECOMMUNICATIONS ACT OF 1996 The federal government and certain states in which the Company operates regulate various aspects of its business. On February 8, 1996, the Telecommunications Act of 1996 (the "Telecommunications Act") was enacted into law. This comprehensive federal legislation will affect many sectors of the telecommunications industry. Included in the new statute are provisions relating, subject to certain limitations, to the opening up of local telephone markets to competition and the elimination of restrictions on certain local carriers' entry into the long distance telecommunications market. It is unknown as of the date of this Prospectus what impact the Telecommunications Act will have on the Company's telecommunications business; however, it is likely that the Company will face significant additional competition from entities with greater financial and managerial resources. Furthermore, in October 1996, the United States Court of Appeals for the Eighth Circuit granted a stay of implementation of the Telecommunications Act in response to lawsuits filed by local telephone companies and state officials claiming that the new federal rules are arbitrary and usurp states' rights. There can be no assurance that the delay in implementation of the Telecommunications Act will not have a material adverse effect on the ability of the Company to compete in the local telephone markets. See "--Competition." DEPENDENCE UPON KEY PERSONNEL The Company depends to a considerable degree on the continued services of certain of its executive officers, including Mr. Hatfield, its chairman and chief executive officer, Mr. Hammon, its president and chief operating officer, and Mr. Reece, UST's chief executive officer, as well as on a number of highly trained technical personnel. The loss of any of Messrs. Hatfield, Hammon or Reece could have a material adverse effect on the Company. In addition, the loss of other key management or technical personnel or the failure to attract and retain such personnel could have a material adverse effect on the Company's business, operations or financial condition. See "Executive Compensation-- Employment Contracts." LIMITED PUBLIC MARKET AND VOLATILITY OF THE COMMON STOCK There has been only a limited public market for, and limited public trading in, the Common Stock, which is traded on The NASDAQ National Market. Continued qualification to trade on The NASDAQ National Market is subject to certain minimum stock price levels and financial requirements. There can be no assurance that View Tech will continue to satisfy these requirements. In addition, from time to time, there has been, and there again may be, significant volatility in the public market for the Common Stock. There can be no assurance that a stable or active market for the Common Stock will exist or be sustained following this Offering. Although certain broker-dealers presently make a market in the Common Stock, none is obligated to do so, and there can be no assurance that there will continue to be broker-dealers willing to make a market in the Common Stock. In the event that the market makers and specialists cease to function as such, public trading of the Common Stock will be adversely affected or may cease entirely. See "Market Data." 9 SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE IN MARKET; REGISTRATION RIGHTS A substantial number of shares of Common Stock and shares of Common Stock underlying options and warrants are or will become eligible for future sale in the public market. As of January 2, 1997, there were approximately 1,931,188 outstanding shares of Common Stock that are "restricted shares" as defined in Rule 144 promulgated under the Securities Act, of which 1,204,500 shares of Common Stock currently are eligible for public resale pursuant to Rule 144. The 726,688 shares of Common Stock not currently eligible for resale under Rule 144 are being registered in this Offering and will be eligible for resale without any restrictions upon the effectiveness of the Registration Statement of which this Prospectus forms a part. The sale of a substantial number of shares of Common Stock in the public market pursuant to Rule 144 or otherwise, and the potential for such sales, could adversely affect the prevailing market price for the Common Stock, including the shares of Common Stock offered hereunder, and impair View Tech's ability to raise additional capital through the sale of equity securities. See "Description of Capital Stock." POSSIBLE STATE AND FEDERAL RESTRICTIONS ON EXERCISE OF WARRANTS AND OPTIONS Holders of Warrants and/or Options will be able to sell the underlying Common Stock issuable upon exercise of the Warrants and/or the Options only if a current registration statement relating to such Warrants and/or Options or the underlying Common Stock is then in effect and on file with the Commission and only if such securities are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of Warrants and/or the Options reside. The agreements relating to the Warrants and/or the Options contain certain provisions requiring the Company to file for, and endeavor to secure, such current and effective registration of the shares of Common Stock issuable upon exercise of the Warrants and/or the Options. Although the Company has undertaken to use its best efforts to maintain the effectiveness of this Prospectus covering the securities underlying the Warrants and/or the Options, there can be no assurances that the Company will be able to do so. The Company will maintain the effectiveness of this Prospectus if the benefits of doing so (i.e., encouraging additional exercise of the Warrants and/or the Options) outweigh the cost of maintaining the Prospectus. Among other things, the Company's willingness to maintain the effectiveness of the Prospectus will be dependent on the market price of the Company's Common Stock and whether a liquid public market is developed. The likelihood of the Warrants and/or the Options being exercised and the Company obtaining any proceeds therefrom, may be greatly reduced if a current prospectus covering the securities issuable upon the exercise of Warrants and/or Options is not kept effective or if such securities are not qualified or exempt from qualification in the states in which the holders of the Warrants and/or the Options reside. See "Description of Securities." SUBSTANTIAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE; POSSIBLE DILUTIVE AND ANTI-TAKEOVER EFFECTS View Tech's Certificate of Incorporation authorizes the issuance of 20,000,000 shares of Common Stock, of which there are approximately 12,000,000 shares of Common Stock authorized but unissued and unreserved. The Board of Directors of the Company (the "Board of Directors") has the power to issue substantial amounts of additional shares without stockholder approval. The Company may issue a substantial number of additional shares in connection with future financings or acquisitions. To the extent that additional shares of Common Stock are issued, dilution of the interests of View Tech's stockholders will occur. The Company's Certificate of Incorporation authorizes the issuance of 5,000,000 shares of preferred stock, par value $0.0001 per share (the "Preferred Stock"), with such designations, rights and preferences as may be determined from time to time by the Board of Directors. The Board of Directors is empowered, without stockholder approval, to issue the Preferred Stock with dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting power or other rights of the holders of Common Stock. In addition, the issuance of Preferred Stock and Common Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although the Company currently has no commitments to issue any shares of Preferred Stock or Common Stock, other than as described as "Recent Developments" below, there can be no assurance that View Tech will not do so in the future. NO DIVIDENDS ON COMMON STOCK View Tech has never paid dividends on the Common Stock and anticipates that for the foreseeable future all earnings, if any, will be retained for ongoing operations and general corporate purposes. Accordingly, View Tech does not expect to pay dividends on the Common Stock in the foreseeable future. See "Dividend Policy." LIMITATION OF LIABILITY; INDEMNIFICATION Each of View Tech's Certificate of Incorporation and Bylaws contains provisions that limit the liability of directors for monetary damages and provides for indemnification of officers and directors under certain circumstances. Such provisions may discourage stockholders from bringing a lawsuit against directors for breaches of fiduciary duty and may also have the effect of reducing the likelihood of derivative litigation against directors and officers even though such action, if successful, might otherwise 10 have benefitted View Tech and its stockholders. In addition, a stockholder's investment in View Tech may be adversely affected to the extent that costs of settlement and damage awards against View Tech's officers or directors are paid by View Tech pursuant to such provisions. EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of View Tech's Certificate of Incorporation and Bylaws and of Delaware law may delay, defer or prevent a change in control of View Tech and may adversely affect the voting and other rights of the holders of Common Stock. In particular, the existence of the Company's classified Board of Directors and the ability of the Company's Board of Directors to issue "blank check" preferred stock without further stockholder approval may have the effect of delaying, deferring or preventing a change in control of the Company. See "Description of Capital Stock." USE OF PROCEEDS Assuming exercise of all of the Warrants and Options, the net proceeds from this Offering to be received by the Company from the issuance of 1,136,000 shares of Common Stock covered by this Prospectus and issuable upon exercise of the Warrants and the Options is estimated to be $6,673,500. The closing sales price of the Common Stock on The NASDAQ National Market was $5.25 on January 2, 1997. Approximately 48.9% of the Warrants and Options are exercisable for prices above $5.25. Accordingly, there is no assurance that any of the Warrants and/or the Options will be exercised and the Company may not receive any proceeds from this Offering. The Company will not receive any proceeds from the sale of shares of Common Stock offered by the Selling Stockholders. The Company currently anticipates that it will use the net proceeds of this Offering, if any, to fund working capital requirements. In the event sufficient proceeds are not received, the Company's short term plan is to meet cash needs through external financing sources such as bank financing and private offerings of debt and/or equity. The Company also expects that cash flow from operations will provide additional funds to the Company as operating revenues increase. The cost, timing and amount of funds required for such uses by the Company cannot be precisely determined at this time and will be based on, among other things, competitive developments, the rate of the Company's progress in product development, and the availability of alternative methods of financing. In addition, the Board of Directors has broad discretion in determining how the proceeds of this Offering received by the Company will be applied. MARKET DATA The Common Stock is traded on The NASDAQ National Market under the symbol "VUTK," and has been so traded since November 18, 1995. Prior to such date, the shares were traded on The NASDAQ SmallCap Market and also on the Pacific Stock Exchange under the symbols of "VUTK" and "VWK," respectively, since View Tech's initial public offering on June 15, 1995. Prior to the Company's initial public offering, there was no public trading market for View Tech's equity securities. In addition, the Public Warrants are traded on The NASDAQ National Market, and prior to November 18, 1995 the Public Warrants traded on The NASDAQ SmallCap Market and the Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively. The terms of the Public Warrants provide that one Public Warrant plus $5.00 are required to purchase one additional share of Common Stock. The Public Warrants are redeemable at View Tech's option commencing June 15, 1996 upon 30 days' notice to the holders thereof at $0.25 per share if the closing bid of the Common Stock has been at least $8.00 for a period of 30 consecutive trading days ending within 10 days of the date the notice of redemption is mailed. The Public Warrants expire June 15, 1998. 11 The following table sets forth the quarterly high ask and low bid prices for the Common Stock for the quarters indicated.
Sales Prices ------------ High Ask Low Bid ------------ ------- Fiscal 1995 Fourth Quarter June 30, 1995 (since June 16)... $6.88 $6.50 Fiscal 1996 First Quarter ended September 30, 1995.......... $8.88 $6.50 Second Quarter ended December 31, 1995.......... $8.75 $7.00 Third Quarter ended March 31, 1996.............. $8.00 $6.63 Fourth Quarter ended June 30, 1996.............. $8.25 $6.25 Fiscal 1997 First Quarter ended September 30, 1996......... $8.25 $6.25 Second Quarter ended December 31, 1996......... $8.25 $5.00
On January 2, 1997, the closing sales price for the Common Stock and for the Public Warrants on The NASDAQ National Market was $5.25 and $1.50, respectively. As of January 2, 1997, there were 156 holders of record of Common Stock and four holders of record of the Public Warrants. 12 CAPITALIZATION The following table sets forth, as of June 30, 1996, and the three months ended September 30, 1996, the consolidated short-term debt, long-term debt and capitalization of View Tech (i) on a historical basis and (ii) on a pro forma basis after giving effect to this Offering.
As of September 30, 1996 --------------------------- View Tech As Historical Adjusted/1/ ----------- ------------ Short-term debt: Notes payable and current portion of long-term debt........................... $ 2,261,362 $ 2,261,362 ----------- ------------ Long-term debt (less current portion).............. 820,016 820,016 ----------- ------------ Stockholders' equity: Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized but none issued and outstanding............. -- -- Common Stock, par value $0.01 per share (10,000,000 shares authorized; 5,112,623 issued and outstanding (5,334,033 on a combined pro forma basis at September 30, 1996)(2)...................... 53,340 901 Common stock subscribed, net.................. 1,390,102 -- Paid-in-capital............................... 8,190,017 16,306,058 Retained deficit.............................. (2,111,487) (3,311,487) ----------- ----------- Total stockholders' equity.................... 7,521,972 12,995,472 ----------- ----------- Total capitalization.......................... $10,603,350 $16,076,850 =========== ===========
- -------------- /1/ Adjusted to reflect the sale of the 1,136,000 shares offered hereby by the Company at exercise prices ranging from $5.00 to $7.38 per share and after deducting estimated offering expenses of $150,000 and application of the estimated net proceeds therefrom. The as-adjusted amounts also reflect the issuance of Common Stock in connection with the Merger with UST and the write-off of after-tax expenses of $1.2 million incurred in connection with the Merger with UST in November 1996 and the closing of the Company's private placement of 300,281 shares of the Company's common stock, resulting in net proceeds of approximately $1.4 million. The as-adjusted amounts for Common Stock and paid-in capital reflect the change in the par value of Common Stock from $0.01 to $0.0001. 13 SHARES OF THE SELLING STOCKHOLDERS BEING REGISTERED The following table sets forth certain information with respect to the beneficial ownership of View Tech's Common Stock as of January 2, 1997 and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by each of the Selling Stockholders. Except as indicated 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.
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY OWNED PRIOR TO OF OWNED AFTER OFFERING SHARES OFFERING ------------------------ BEING -------------------- SELLING STOCKHOLDER NUMBER PERCENT(1) OFFERED NUMBER PERCENT(2) - ------------------- -------- ------------ ------- ------- ----------- Nicholson/Kenny Capital Management, Inc........ 255,500(3)(4) 4.5% 255,500(3)(4) 0 * Robert E. Yaw, II.............................. 210,000(5) 3.6% 210,000(5) 0 * Rolf N. Hufnagel............................... 187,000(6) 3.2% 180,000(6) 7,000 * Andrew W. Jamison.............................. 150,000 2.6% 150,000 0 * Kenny Securities Corporation................... 125,000(3)(8) 2.1% 125,000(3)(8) 0 * Robert T. Kirk................................. 76,500(7) 1.3% 76,500(7) 0 * William F. Coffin Corporation Defined Benefit Plan......................... 30,000 * 30,000 0 * WVC Holdings L.P............................... 30,000 * 30,000 0 * Windermere Holdings, Inc....................... 30,000 * 30,000 0 * Concord Partners, Ltd.......................... 24,550 * 24,550 0 * Mark McLain.................................... 17,619 * 17,619 0 * Richard Downs.................................. 17,619 * 17,619 0 * William Schofield.............................. 17,619 * 17,619 0 * Glenn Desort................................... 17,125(7) * 17,125(7) 0 * John Calabria.................................. 17,125(7) * 17,125(7) 0 * Leasehold Analysis Consulting Group, Inc. P/S Plan U/A/D 9/30/95, FBO Maria P. Kossmeyer.................................... 16,461(3) * 16,461(3) 0 * Wendy Tand Gusrae.............................. 13,600(7) * 13,600(7) 0 * Maria P. Kossmeyer Rev Trust U/A/D 1/13/94 Maria P. Kossmeyer TTEE...................... 10,205(3) * 10,205(3) 0 * MMCH Holdings L.P.............................. 9,000 * 9,000 0 * Michael Morrisett.............................. 8,500(7) * 8,500(7) 0 * Paul D. Medrano................................ 7,500(7) * 7,500(7) 0 * Los Robles Bank................................ 6,000(9) * 6,000(9) 0 * Gregory K. Allsberry........................... 5,000(3) * 5,000(3) 0 * Mark Kruger.................................... 5,000(3) * 5,000(3) 0 * Brian M. Herman................................ 4,500(7) * 4,500(7) 0 * Michael Ferraro................................ 3,750(7) * 3,750(7) 0 * David A. Carter................................ 3,400(7) * 3,400(7) 0 * Kenton Grimm................................... 3,000(7) * 3,000(7) 0 * Daniel O'Halloran.............................. 3,000(7) * 3,000(7) 0 * Phillip J. Aiello, Jr.......................... 2,250(7) * 2,250(7) 0 * Richard Gianella Rev Trust U/A/D 1/13/94 Richard Gianella TTEE........................ 2,040(3) * 2,040(3) 0 * Paul J. Wirtz.................................. 2,000(3) * 2,000(3) 0 * Eric Shore..................................... 1,500(7) * 1,500(7) 0 * Daren Dickson.................................. 1,500(7) * 1,500(7) 0 * David K. Evansen............................... 1,500(7) * 1,500(7) 0 * Michael E. Petrusha............................ 1,050(7) * 1,050(7) 0 * John A. Orlando................................ 1,050(7) * 1,050(7) 0 * Peter D. Andolpho, Jr.......................... 1,050(7) * 1,050(7) 0 * Scott Phillip Flynn............................ 1,050(7) * 1,050(7) 0 * Phil James Flynn............................... 1,050(7) * 1,050(7) 0 * Galen Clark.................................... 1,000(3) * 1,000(3) 0 * Steven M. Lange Rev Trust U/A/D 10/24/95 Steven M. Lange or His Successor TTEE........ 1,000(3) * 1,000(3) 0 * Dean Carlton & Darrell Carlton JT WROS......... 451(3) * 451(3) 0 * Bear Stearns and Company, Inc. FBO Clayton Kossmeyer IRA................................ 408(3) * 408(3) 0 * Bear Stearns and Company, Inc. FBO Chase Kossmeyer IRA(3)............................. 408(3) * 408(3) 0 *
14
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY OWNED PRIOR TO OF OWNED AFTER OFFERING SHARES OFFERING ---------------------- BEING -------------------- SELLING STOCKHOLDER NUMBER PERCENT(1) OFFERED NUMBER PERCENT(2) - ------------------- -------- ------------ ------- ------- ----------- Bear Stearns and Company, Inc. FBO Meryl Kossmeyer IRA................................ 408(3) * 408(3) 0 * Carolyn Enright & James Enright, Sr. JT WROS......................................... 400(3) * 400(3) 0 *
________________________________ * Less than one percent. (1) Based on 5,691,462 shares outstanding, but excluding all options other than options held by the stockholder and exercisable within 60 days of the date of this Prospectus. (2) Based on 6,827,462 shares outstanding, including 1,136,000 new shares being offered hereunder. (3) Acquired in a private placement (the "Private Placement") on October 31, 1996, in which 300,281 shares of Common Stock were issued to 76 investors, including the Selling Stockholder. The securities were issued in reliance on the exemption provided in Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated thereunder, because no public offering was involved and the securities were issued to no more than 35 non-accredited investors. Kenny Securities Corporation, a registered broker/dealer, assisted in the Private Placement and in connection therewith received a commission equal to 8% of the gross proceeds ($120,000) and 15,000 Common Stock purchase warrants, each exercisable until 2001 for one share of Common Stock at an exercise price of $6.25 per common stock purchase warrant. Each purchaser in the Private Placement acquired less than 1.0% of the Company's total shares of stock outstanding. (4) Nicholson/Kenny Capital Management, Inc. ("N/K") is a registered investment adviser which purchased the shares offered hereby on behalf of certain private accounts. N/K is an affiliate of Kenny Securities Corporation. Does not include 125,000 shares of Common Stock which may be issued to Kenny Securities Corporation pursuant to certain of the Private Warrants. (5) Includes 30,000 shares of Common Stock held by Windermere Holdings, Incorporated, of which Robert E. Yaw II is the chairman, and 130,000 shares of Common Stock underlying options granted to Mr. Yaw exercisable at prices ranging from $7.00 to $7.38. (6) Includes 130,000 shares of Common Stock underlying options granted to Mr. Hufnagel exercisable at prices ranging from $7.25 to $7.38. (7) Barron Chase Securities Corp. ("Barron Chase") is a registered broker dealer and acted as the managing underwriter in the Company's initial public offering in June 1995. The shares of Common Stock being registered in this Offering underlie the underwriter's warrants transferred by Barron Chase to the Selling Stockholder. The underwriter's warrants have an exercise price of $6.75 per share and expire in June 2001. (8) Consists of 125,000 shares of Common Stock underlying Private Warrants exercisable at prices ranging from $6.25 to $7.15 per share. (9) Consists of 6,000 shares of Common Stock underlying Private Warrants exercisable at $5.00 per share. 15 PLAN OF DISTRIBUTION The Selling Stockholders may from time to time sell all or a portion of the Common Stock offered by the Selling Stockholders hereby in transactions at prevailing market prices on The NASDAQ National Market, in private negotiated transactions at negotiated prices, or in a combination of such methods of sale. The Selling Stockholders may sell the Common Stock offered hereby to purchasers directly or may from time to time offer such Common Stock through dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders or the purchasers of the securities for whom they may act as agent. The Selling Stockholders and any persons who participate in the sale of the Common Stock offered hereby may be deemed to be "underwriters" within the meaning of the Securities Act and any commissions paid or discounts or concessions allowed to any such person and any profits received on resale of the securities offered hereby may be deemed to be underwriting compensation under the Securities Act. In order to comply with the securities laws of certain states, if applicable, the Common Stock offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions, such Common Stock may not be offered or sold unless registered or qualified for sale in such jurisdictions or an exemption from any registration or qualification requirement is available and the requirements thereof have been satisfied. The Company will receive no proceeds from the sale by the Selling Stockholders of the Common Stock offered hereby. All of the expenses incurred in connection with the registration of the Common Stock offered hereby will be paid by the Company, except for commissions of dealers or brokers and any transfer fees incurred in connection with the sales of the securities by the Selling Stockholders, which commissions and fees will be paid by the Selling Stockholders. Each Selling Stockholder will, prior to any sales, agree (a) not to effect any offers or sales of the Common Stock in any manner other than as specified in this Prospectus, (b) to inform the Company of any sale of Common Stock at least one business day prior to such sale and (c) not to purchase or induce others to purchase Common Stock in violation of Rule 10b-6 under the Exchange Act. The shares of Common Stock may be sold from time to time to purchasers directly by any of the Selling Stockholders acting as principals for their own accounts in one or more transactions in the over-the-counter market or in negotiated transactions at market prices prevailing at the time of sale or at prices otherwise negotiated. Alternatively, the shares of Common Stock may be offered from time to time through agents, brokers, dealers or underwriters designated from time to time, and such agents, brokers, dealers or underwriters may receive compensation in the form of commissions or concessions from the Selling Stockholders or the purchasers of the Common Stock. Under the Exchange Act, and the regulations thereunder, any person engaged in a distribution of the shares of Common Stock of the Company offered by this Prospectus may not simultaneously engage in market making activities with respect to the Common Stock of the Company during the applicable "cooling off" periods prior to the commencement of such distribution. In addition, and without limiting the foregoing, each Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder including, without limitation, Rule 15c2-6, and Rules 10b-6 and 10b- 7, which provisions may limit the timing of purchases and sales of Common Stock by the Selling Stockholder. There are possible limitations upon trading activities and restrictions upon broker-dealers effecting transactions in certain securities which may also materially affect the value of, and an investors ability to dispose of, the Company's securities. There can be no assurance that the Selling Stockholders will sell all or any of the securities offered by them hereby. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Article X of the Company's Certificate of Incorporation and Article VII, Section 6 of the Company's Bylaws provide for indemnification of its directors and officers to the fullest extent permitted by Delaware law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following discussion should be read in conjunction with the Company's supplemental consolidated financial statements and the notes thereto appearing elsewhere in this Form SB-2. Certain statements contained in this Form SB-2 that are not related to historical results, including, without limitation, statements regarding View Tech's business strategy and objectives, future financial position and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and involve risks and uncertainties. Although View Tech believes that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors" and "Business," as well as those discussed elsewhere in this Form SB-2. All forward-looking statements contained in this Form SB-2 are qualified in their entirety by this cautionary statement. GENERAL View Tech commenced operations in July 1992. Since its initial public offering of common stock in June 1995, the Company has grown rapidly through internal expansion and through acquisition. Prior to August 1995, the Company operated under a sales and service dealer agreement covering most of southern California. In August 1995 and May 1996, View Tech amended its sales and service agreement with its primary supplier, PictureTel. The amended agreement has a term of five years and substantially expanded the scope of the Company's business and its existing sales territory to include 13 additional states as well as northern California. In connection with its new agreement, during fiscal 1996, the Company established full-service offices in Atlanta, Georgia, Denver, Colorado, and Dallas, Texas and established sales offices in Nashville, Tennessee and San Jose, California. In July and August 1996, the Company acquired the net assets of VistaTel International, Inc., a Florida corporation headquartered in Boca Raton, Florida, and GroupNet, Inc., a Massachusetts corporation located in Boston, Massachusetts, respectively, both of which were engaged in the marketing and installation of video communication equipment. In addition, on November 29, 1996, the Company acquired USTeleCenters, Inc., a Massachusetts corporation headquartered in Boston, Massachusetts ("USTeleCenters"), in a merger transaction (the "Merger"), which was accounted for as a pooling-of-interests for financial reporting purposes and pursuant to which USTeleCenters, Inc., a Delaware corporation ("UST") became a wholly-owned subsidiary of the Company. At the time of the Merger, the Company operated out of 13 offices covering 23 states and employed 75 people. The Merger resulted in the addition of three offices and 225 additional employees. The Company markets and installs video communications systems and provides continuing services relating to installed systems. In addition, as a result of the Merger, the Company designs, sells, manages and supports telecommunications systems solutions for small and medium-sized businesses throughout the United States. In addition, the Company develops and manages sales and customer service programs on an outsourced basis for (i) certain Regional Bell Operating Companies ("RBOCs"), (ii) other telecommunications service providers and (iii) equipment manufacturers under agency and value added reseller ("VAR") agreements. In New England and New York, the Company also provides systems integration and on-going account management consulting for middle market customers. On behalf of its RBOC clients, the Company sells high speed data services, internet access, Centrex network services, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services such as remote-call-forwarding. The Company intends to continue its expansion activities in fiscal 1997 through both internal expansion and strategic acquisitions. The Company recently opened sales offices in Phoenix, Arizona and Salt Lake City, Utah. Although management anticipates that the revenues generated by its existing offices, as well as the offices acquired through acquisition or expansion, will exceed its operating costs for the next twelve months, there can be no assurance that such results will be achieved. To the extent that such costs exceed such revenues, View Tech's business, financial condition and results of operations will be adversely affected. 17 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from the Company's consolidated financial statements expressed as a percentage of the Company's revenues:
Years Ended Three Months Ended June 30, September 30, ------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- REVENUES: Product sales and service revenues................ 63.5% 37.9% 59.9% 42.0% Agency commissions.............. 36.5 62.1 40.1 58.0 ----- ----- ----- ----- 100.0 100.0 100.0 100.0 ----- ----- ----- ----- COSTS AND EXPENSES: Costs of goods sold............. 46.0 26.7 48.1 35.6 Selling and marketing expenses........................ 31.1 54.6 27.7 36.0 General and administrative expenses........................ 20.2 17.5 19.5 24.1 ----- ----- ----- ----- 97.3 98.8 95.3 95.7 ----- ----- ----- ----- INCOME FROM OPERATIONS............ 2.7 1.2 4.7 4.3 OTHER EXPENSE..................... (2.1) (2.1) (0.7) (1.0) LOSS ON SUBLEASE, including shutdown of offices... -- (4.6) -- -- ----- ----- ----- ----- INCOME (LOSS)BEFORE INCOME TAXES PROVISION................. 0.6 (5.5) 4.0 3.3 PROVISION FOR INCOME TAXES........................... 0.8 (1.0) (0.1) 0.9 ----- ----- ----- ----- NET INCOME (LOSS)................. 1.4% (6.5)% 3.9% 4.2% ===== ===== ===== =====
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995 REVENUES Total revenues for 1996 increased $2.496 million or 8.8% to $30.994 million from $28.498 million in 1995. Product Sales and Services Product sales and service revenues increased by $8.879 million or 82.2% to $19.680 million in 1996 from $10.802 million in 1995. The increase was primarily related to increased sales and marketing efforts for videoconferencing products and services, including increased staffing and to the opening of three regional and two sales offices devoted to the videoconferencing business in 1996. Agency Commissions Agency commissions for 1996 decreased by $6.383 million or 36.1% to $11.313 million from $17.696 million in 1995. The decrease in agency commissions was primarily due to the restructuring of UST's business in 1995. Regulatory changes, shifts in market conditions and the exhaustion of available "800" numbers caused the "800" number business to deteriorate rapidly during 1995. As a result of such changes, the Company curtailed its sales activities in the "800" number market and terminated its unprofitable relationships with certain telecommunication companies. In addition, as a result of such changing business conditions, the Company closed its satellite office in San Francisco, consolidated its Boston locations and reduced the size of its telemarketing staff. COSTS AND EXPENSES Costs of goods sold for 1996 increased by $6.650 million or 87.3% to $14.269 million from $7.619 million in 1995. Costs of goods sold as a percentage of product sales and service revenues increased to 72.5% in 1996 from 70.5% in 1995. The percentage increase in costs of goods sold as a percentage of product sales and service revenues is primarily related to increased competitive 18 pressures within the videoconferencing industry and to sales to various state- funded organizations, resulting in lower selling prices and correspondingly a higher ratio of cost of sales to revenues. Selling and marketing expenses for 1996 decreased by $5.912 million or 38.0% to $9.653 million from $15.566 million in 1995. The decrease was primarily due to lower compensation to sales personnel and related expenses as a result of the decrease in agency commission revenues, reductions in the number of sales personnel, and the closing and consolidation of certain of the Company's sales offices related to its telecommunications business. General and administrative expenses for 1996 increased by $1.257 million or 25.2% to $6.248 million from $4.991 million in 1995. General and administrative expenses as a percentage of total revenues increased to 20.2% in 1996 from 17.5% in 1995. The overall increase was primarily due to increases in general and administrative expenses primarily related to the expansion of the Company's videoconferencing business and to higher sales volume. Income from operations increased $500,472 to $823,498 in 1996 from $323,026 in 1995. Income from operations as a percentage of revenues increased to 2.7% for 1996 compared to 1.2% for 1995. The increase was primarily due to reductions in selling and marketing expenses as a result of the restructuring of the Company's telecommunications business. Other expense in 1996 increased by $66,405 or 11.2% to $659,258 from $592,853 in 1995. The increase was primarily due to the write-off of a note receivable from Power Data Services, Inc. ("PDS") of $265,000 in connection with the termination of the PDS acquisition in May 1996, offset by a decrease in net interest expense. The loss on sublease, including shutdown of offices (including severance and related expenses), of $1.313 million was incurred in 1995 as a result of the Company restructuring its telecommunications business as a result of the decline of the "800" number business discussed above. During 1995, the Company closed its sales offices in San Francisco and began to consolidate its Boston locations which were primarily engaged in the resale of telecommunications products and services on behalf of certain exchange carriers and RBOC's. Similar charges were not incurred during 1996. Provision for income tax expense decreased $553,899 to a tax benefit of $259,816 in 1996 from a tax expense of $(294,083) for 1995. The decrease in income tax expense relates to certain pre-tax losses incurred by the Company prior to the Merger. The Company has utilized approximately 51% of such benefit through carryback of such net operating loss, and expects to fully realize the remaining tax benefit in future periods. Net income (loss) increased $2.301 million to net income of $424,056 in 1996 from a loss of $(1.877) million for 1995. Net income as a percentage of revenues increased to 1.4% for 1996 compared to a net loss of (6.5)% for 1995. Net income (loss) per share increased to $0.07 for 1996 compared to a net loss of $(0.50) for 1995. The weighted average number of shares outstanding increased to 5,676,304 for 1996 from 3,765,467 in 1995. YEAR ENDED JUNE 30, 1995 COMPARED TO THE YEAR ENDED JUNE 30, 1994 REVENUES Total revenues for 1995 increased $2.679 million or 10.4% to $28.498 million from $25.818 million in 1994. Product Sales and Services Product sales and service revenues increased by $3.125 million or 40.7% to $10.802 million in 1995 from $7.676 million in 1994. The increase in revenues was primarily related to increased sales and marketing efforts related to the Company's nationwide expansion of its videoconferencing business, including increasing its videoconferencing sales force to ten representatives at June 30, 1995, compared to six representatives at June 30, 1994. Agency Commissions Agency commissions for 1995 decreased by $445,702 or 2.5% to $17.696 million from $18.142 million in 1994. The decrease in agency commissions was primarily due to the Company beginning the process of restructuring its telecommunications business in 1995 as a result of the decline in the "800" number business. Regulatory changes, shifts in market conditions and the exhaustion of available "800" numbers caused the "800" number business to deteriorate rapidly during the latter part of the fiscal year ended June 30, 1995. As a result of such changes, the Company curtailed its sales activities in the "800" number market and terminated its unprofitable relationships with certain exchange carriers. In addition, as a result of the changing business conditions 19 in the latter part of 1995, the Company began to phase down its operations resulting in the closure of its San Francisco office and the consolidation of its Boston locations and to reduce the size of its telemarketing staff. COSTS AND EXPENSES Costs of goods sold for 1995 increased by $2.045 million or 36.7% to $7.619 million from $5.574 million in 1994. Costs of goods sold as a percentage of product sales and service revenues decreased to 70.5% in 1995 from 72.6% in 1994. The percentage decrease in costs of goods sold as a percentage of product sales and service revenues is primarily related to an increase in the margin on video equipment sales due to volume discounts and corresponding lower unit costs, as well as an increase in service revenues as a percentage of product and service sales. Service revenues generally provide a higher profit margin than equipment revenues. Selling and marketing expenses for 1995 increased by $2.626 million or 20.3% to $15.566 million from $12.939 million in 1994. The increase was primarily due to higher compensation to sales personnel and related expenses as a result of increased staffing for telecommunications sales management and support personnel for the telecommunication business. General and administrative expenses for 1995 decreased by $1.568 million or 23.9% to $4.991 million from $6.558 million in 1994. General and administrative expenses as a percentage of total revenues decreased to 17.5% in 1995 from 25.4% in 1994. The overall decrease was primarily due to reductions in administrative personnel and related expenses and the consolidation of certain of the Company's administrative offices in connection with the restructuring of its telecommunication business. Income from operations decreased $423,983 to $323,026 in 1995 from $747,009 in 1994. Income from operations as a percentage of revenues decreased to 1.2% for 1995, compared to 2.9% for 1994. The decrease was primarily due to the overall increase in sales and marketing expenses related to the Company's telecommunication business. Other expense for 1995 increased by $309,355 or 109.1% to $592,853 from $283,498 in 1994. The increase was primarily related to an increase in interest expense relating to an increase in average bank debt outstanding in 1995 compared to 1994. The loss on sublease, including shutdown of offices (including severance and related expenses), of $1.313 million was incurred in 1995 as a result of the Company restructuring its telecommunications business as a result of the decline of the "800" number business discussed above. During 1995, the Company closed its sales offices in San Francisco and began to consolidate its Boston locations which were primarily engaged in the resale of telecommunications products and services on behalf of certain exchange carriers and RBOC's. Similar charges were not incurred during 1996. Provision for income tax expense increased $294,965 to a provision of $(294,083) in 1995 from a tax benefit of $882 for 1994. The increase in income tax expense relates to certain pre-tax earnings realized by the Company, prior to the Merger with USTeleCenters, for the year ended June 30, 1995. Net income decreased $2.341 million to net loss of $1.877 million in 1995 from net income of $464,393 for 1994. Net income (loss) as a percentage of revenues decreased to (6.5)% for 1995, compared to net income of 1.8% for 1994. Net income (loss) per share decreased to a loss of $(0.50) for 1995 compared to net income of $0.12 for 1994. The weighted average number of shares outstanding increased to 3,765,467 for 1995 from 3,716,974 in 1994. THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES Total revenues for the three months ended September 30, 1996 increased $3.602 million or 56.1% to $10.018 million from $6.417 million in 1995. Product Sales and Services Product sales and service revenues increased by $3.309 million or 122.8% to $6.002 million in 1996 from $2.693 million in 1995. The increase in revenues was primarily related to the Company's nationwide expansion of its videoconferencing business, including increasing its videoconferencing sales force to 24 representatives at September 30, 1996, compared to 15 representatives at September 30, 1995. 20 Agency Commissions Agency commissions for 1996 increased by $293,102 or 7.9% to $4.017 million from $3.723 million in 1995. The increase in agency commissions was due to the Company beginning to rebuild its telemarketing sales force in 1996 to enable it to market new product offerings on behalf of its RBOC and exchange carrier clients. COSTS AND EXPENSES Costs of goods sold for 1996 increased by $2.536 million or 111.2% to $4.817 million from $2.281 million in 1995. Costs of goods sold as a percentage of product sales and service revenues decreased to 80.3% in 1996 from 84.7% in 1995. The percentage decrease in costs of goods sold is primarily related to increased service revenues from the Company's videoconferencing business. Service revenues generally provide a higher profit margin than equipment revenues. Selling and marketing expenses for 1996 increased by $473,058 or 20.5% to $2.780 million from $2.307 million in 1995. Selling and marketing expenses as a percentage of revenues decreased to 27.7% in 1996 from 36.0% in 1995. The dollar increase in selling and marketing expenses was primarily due to higher compensation and related expenses for its sales force as a result of the increase in revenues related to the Company's videoconferencing business. General and administrative expenses for 1996 increased by $402,293 or 26.0% to $1.952 million from $1.550 million in 1995. General and administrative expenses as a percentage of total revenues decreased to 19.5% in 1996 from 24.1% in 1995. The overall increase in general and administrative expenses was primarily due to a general increase in such expenses as a result of the expansion of the Company's videoconferencing business. These expenses decreased as a percentage of revenues because the rate of increase in such expenses was less than the rate of increase in revenues. Income from operations increased $190,691 to $468,718 in 1996 from $278,027 in 1995. Income from operations as a percentage of revenues increased to 4.7% for 1996, compared to 4.3% for 1995. The overall improvement in income from operations was attributable to increased revenues relating to product sales and services. Other expense in 1996 increased by $4,290 or 6.8% to $67,381 from $63,091 in 1995. The increase was due to a slight increase in net interest expense related to capital lease obligations. Provision for income tax expense increased $73,671 to a provision of $(13,964) in 1996 from a tax benefit of $59,707 for 1995. The increase in income tax expense relates to the increase in pre-tax income in 1996 compared to 1995. Net income increased $112,730 to $387,373 in 1996 from $274,643 for 1995. Net income as a percentage of revenues decreased to 3.9% for 1996 compared to 4.2% for 1995. Net income per share increased to $.07 for 1996 compared to $.05 for 1995. The weighted average number of shares outstanding increased to 6,288,305 for 1996 from 5,571,055 in 1995. ACQUISITIONS VistaTel Effective July 1, 1996, View Tech acquired the net assets of VistaTel International, Inc. ("VistaTel"), a private company based in Boca Raton, Florida, which was a primary supplier of video conferencing products and services within the State of Florida and one of PictureTel's national re- sellers. View Tech issued 52,857 shares of Common Stock, valued at $7.00 per share, to the shareholders of VistaTel as consideration for the acquisition. The excess of the acquisition price over the net assets acquired of approximately $339,000 is being accounted for as goodwill which is amortized over 15 years. The Company continues to operate VistaTel's previous business, which sells and services video conferencing systems and provides network bridging services for businesses. GroupNet Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and Common Stock valued at $1.380 million. The purchase price consisted of 150,000 shares of Common Stock valued at $7.00 per share or $1.050 million in the aggregate and $330,000 in cash, of which $110,000 was paid on August 30, 1996 upon execution of the agreement and $220,000 is payable on or before January 15, 1997. The excess of the acquisition price over the net assets acquired of approximately $1.330 million is being accounted for as goodwill which is amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel Select Dealer in video communication product distribution in the northeastern United 21 States. View Tech is continuing to operate GroupNet's former business in Boston and New York. With the addition of GroupNet, View Tech has added the northeastern United States to its marketing territory. UST On September 5, 1996, View Tech announced that it had entered into a definitive agreement of merger with USTeleCenters, which was an authorized sales agent for several of the regional bell operating companies. The Merger was consummated, effective November 29, 1996, and was valued at $16.500 million. The transaction was accounted for as a pooling of interests in which the USTeleCenters' shareholders exchanged all of their outstanding USTeleCenters shares and options for View Tech Common Stock and options, respectively, USTeleCenters shareholders received 2,240,976 shares of View Tech Common Stock in exchange for all outstanding shares held by USTeleCenters shareholders. LIQUIDITY AND CAPITAL RESOURCES View Tech has financed its recent operations and expansion activities with the proceeds from its initial public offering completed in June 1995, bank debt and vendor credit arrangements. Net cash used for operating activities for the three months ended September 30, 1996 (the "Period") was $163,758. The primary uses of cash in 1996 were increases in accounts receivable and prepaids and other assets of $1,490,954 and $392,054 and a decrease in other accrued liabilities of $124,358. The uses of cash reflect the Company's higher sales volume and funds used to expand the Company's operations during 1996. Sources of cash from operating activities were primarily related to an increase in accounts payable of $1,110,533. Net cash used for investing activities for the Period was $373,104, relating to the purchase of office furniture and computer equipment for $223,791 and the acquisition of VistaTel and GroupNet during July and August 1996. Net cash provided by financing activities for the Period was $229,528, primarily generated from the proceeds of $1,390,102 from the Company's private placement of Common Stock, offset by the repayment of $1,165,824 in debt obligations. The Company maintains a $500,000 credit facility (the "Note") to assist in meeting its working capital needs, if required. The Note expires on February 28, 1997 and provides for interest at the prime rate plus 1.5% per year. The Company is currently in the process of increasing this credit facility to provide for a borrowing limit up to $1,750,000 to provide for some portion of its working capital needs. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at September 30, 1996, although the Company has as of September 30, 1996, five outstanding standby letters of credits aggregating $274,000. Four of such standby letters of credit were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture, and one is issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $226,000. The Company's wholly-owned subsidiary, UST, maintains a revolving credit agreement with a bank. The agreement, pursuant to the terms of a forbearance agreement, as amended, allows the subsidiary to borrow up to the lesser of the financial borrowing base, as defined, or $1,850,000. The bank has a security interest in the subsidiary's assets and the Company is guaranteeing the repayment of amounts borrowed under the line. In addition, the subsidiary has agreed, among other things, to maintain certain financial covenants and ratios, as defined. As of September 30, 1996, UST was in compliance with the covenants or had received waivers under the forbearance agreement. Interest on the outstanding balance is payable monthly at the bank's base rate (8.25% at September 30, 1996) plus 1.5%. In November 1996, UST amended its revolving line of credit and forebearance agreement with the bank whereby the revolving line of credit and forbearance agreement have been extended to March 31, 1997. In addition, UST had maintained a lease line-of-credit agreement with a bank which was converted into a term note as part of the forbearance agreement. At September 30, 1996, there was approximately $973,600 outstanding under this facility. UST is required to maintain certain restrictive covenants, including profitability and liquidity covenants. Amounts outstanding bear interest at rates ranging from 5.6% to 8.3%. As of September 30, 1996, UST was in compliance with the covenants or had received waivers under the forbearance agreement. UST's lines of credit are due on March 31, 1997. UST is subject to a forbearance agreement which enables the lender to foreclose on the debt if UST's financial condition falls below certain minimum standards. The forbearance agreement, as amended, was originally entered into on June 14, 1995. Based on UST's relationship with the lender, the Company's management anticipates 22 that the lender will refinance the lines of credit or extend the date on which the lines of credit must be paid. However, if the lender does not refinance such lines of credit and the Company has not raised additional equity and/or arranged for alternative bank financing, the Company will not have sufficient cash to repay the lender when the debt comes due. There can be no assurance that the Company will be able to renegotiate the lines of credit with the lender, and if the lender requires payment in March 1997, there can be no assurance that the Company will be able to raise the additional funds necessary to meet the Company's operating needs and capital requirements or that such funds, if available, can be obtained on terms acceptable to the Company. The failure to refinance the lines of credit, raise additional capital or obtain additional bank financing will have a material adverse effect on the Company's business, financial condition and results of operations. To the extent that the Company raises additional capital by issuing equity securities, ownership dilution to current stockholders of the Company will result. The Company's primary supplier, PictureTel, provides the Company with a purchasing line of credit and requires the Company to maintain a letter of credit for $250,000 in favor of PictureTel in connection with this arrangement. The $250,000 letter of credit is collateralized by cash deposits of $150,000 and the assets of the Company. The Company will require additional working capital to efficiently operate its business and to adequately provide for its working capital needs. In this regard, the Company is in the process of increasing the Note from $500,000 to $1,750,000 and is seeking private equity financing of up to approximately $3,000,000 to satisfy its working capital needs. In addition, if the Company continues its expansion and/or acquisition activities, it will require additional capital to finance such activities. Exclusive of the cash required to repay the UST debt obligations on March 31, 1997 and to fund additional expansion activities, the Company believes that its existing cash balances, combined with the proceeds from its anticipated private placement of Common Stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. The inability to obtain required additional financing could limit the Company's ability to operate the Company efficiently or to continue its expansion activities. BUSINESS GENERAL View Tech, which commenced operations in July 1992, markets and installs video communications systems and provides continuing services related to installed systems. Video communications systems, utilizing advanced technology, enable users at separate locations to engage in face-to-face discussions with the relative affordability and convenience of using a telephone. In addition to the use of video conferences as a corporate communications tool, use of video communications systems is expanding into numerous additional applications, including (i) teachers providing lectures to students at multiple locations, (ii) judges conducting criminal arraignment proceedings while the accused remains incarcerated, (iii) physicians engaging in consultations utilizing x- rays and other pictographic material, (iv) coordination of emergency services by public utilities, (v) conducting multi-location staff training programs, and (vi) engineers at separate design facilities coordinating the joint development of products. The Company is headquartered in Camarillo, California. Its executive offices are located at 950 Flynn Road, Camarillo, California 93012. Its telephone number at that address is 805/482-8277. View Tech's e-mail address is tom@viewtech.com. On November 29, 1996, View Tech completed the acquisition of USTeleCenters, Inc., a Massachusetts corporation ("USTeleCenters"), by means of a merger of USTeleCenters with and into View Tech Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of View Tech ("VTAI") (the "Merger"). The Merger was effected pursuant to a Merger Agreement by and among the Company, VTAI and USTeleCenters dated as of September 5, 1996, as amended on October 31, 1996. In exchange for all of the outstanding shares of USTeleCenters common stock, $0.01 par value, the USTeleCenters shareholders received 2,240,976 shares of Common Stock (excluding options convertible into 184,003 shares of Common Stock). Following the Merger, VTAI changed its name to "USTeleCenters, Inc." ("UST") and continued to operate the former businesses of USTeleCenters. Concurrent with the Merger, which was approved at View Tech's annual meeting of stockholders on November 26, 1996, View Tech reincorporated in Delaware from California, changed the par value of the Common Stock and its preferred stock to $0.0001 from $0.01, amended its bylaws to provide for a staggered board of directors, and increased its authorized number of shares of Common Stock to 20,000,000 shares from the original 10,000,000 shares. UST designs, sells, manages and supports telecommunications systems solutions for small- and medium-sized businesses throughout the United States. UST develops and manages sales and customer service programs on an outsourced basis for (i) certain Regional Bell Operating Companies 23 ("RBOCs"), (ii) other telecommunications service providers, and (iii) equipment manufacturers under agency and value-added reseller ("VAR") agreements. In New England and New York, UST also provides systems integration and on-going account management consulting for middle market customers. On behalf of its RBOC clients, UST sells high speed data services, Internet access, Centrex network services, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services such as remote-call- forwarding. As a value-added equipment reseller, UST sells, installs and maintains data transmission products, video conferencing equipment and telephone systems. UST is located in Boston, Massachusetts. Its main offices are located at 745 Atlantic Avenue, Boston, Massachusetts 02111-2747. Its telephone number at that address is 617/439-9911. UST's e-mail address is agentile@ustele.com. View Tech and UST (collectively referred to as the "Company") have 16 offices nationwide, and have significant market presence and organizational strength in the Northeast and in Southern California. The Company is a leading distributor of PictureTel's video conferencing equipment, a significant telecommunications equipment reseller, and one of the oldest and largest independent sales agents for certain RBOCs and long distance carriers. THE VIDEOCONFERENCING INDUSTRY Video communication entails the transmission of video and audio signals and computerized data between two or more locations through a digital telecommunication network. Video communications systems were first introduced in the late 1970s 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. During the 1980s, a series of technological developments resulted in a dramatic increase in the quality of video communication, as well as a substantial reduction in its 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, have further contributed to reduced transmission costs. As of January 2, 1997 there were three U.S. manufacturers of the equipment representing the core technology of conference room or "roll-about" video communications systems: PictureTel; Compression Labs, Incorporated ("CLI"); and VTEL Corporation ("VTEL"). This equipment, together with required peripheral equipment manufactured by others, is marketed directly by these three manufacturers, by telecommunications companies such as AT&T and SPRINT and by independent distributors such as View Tech. PictureTel, View Tech's primary supplier, has shown consistent growth in revenues over the past several years. PictureTel reported revenues of $346,800,000 for the year ended December 31, 1995, up from $255,200,000 and $176,300,000 for the years ended December 31, 1994 and 1993, respectively. As of the date of this Prospectus, VTEL and CLI had agreed to merge, with VTEL being the surviving corporation. THE TELECOMMUNICATIONS INDUSTRY Since the break-up of AT&T in 1984, the telecommunications industry has experienced dramatic change and has become increasingly competitive. An increased rate of technological development, combined with a substantial relaxation of regulatory restraints, has created an intensely competitive environment. Technology-based equipment manufacturers compete for quality distribution channels, while long-distance and local network service providers are positioning to participate in each other's market segments. On February 8, 1996, the Telecommunications Act was enacted into law. See "Risk Factors -- Government Regulation: Uncertainty Relating to the Telecommunications Act of 1996." This comprehensive federal legislation will affect many sectors of the telecommunications industry. Included in the new statute are provisions relating to, subject to certain limitations, the opening up of local telephone markets to competition and the elimination of restrictions on certain local carriers' entry into the long distance telecommunications market. Furthermore, in October 1996, the United States Court of Appeals for the Eighth Circuit granted a stay of implementation of the Telecommunications Act in response to lawsuits filed by local telephone companies and state officials claiming that the new federal rules are arbitrary and usurp states' rights. In this environment, management believes that the acquisition and retention of end-user customers is critical to revenue growth and profitability. The Company is developing into a high quality single-point-of-contact supplier of specialized communications equipment and telecommunications network services. The Company is a representative of a variety of client suppliers, and as such, believes that it is perceived by end-user customers to be a convenient and knowledgable resource and provider of telecommunications solutions. 24 EQUIPMENT PRODUCTS Video The Company offers three types of video communications systems: integrated roll-about systems, custom-built conference rooms and desktop computer systems. Roll-about systems may be moved conveniently from office to office and placed into operation quickly, while custom-built video conference rooms are permanent installations typically designed for specific applications. Desktop computer systems involve multi-purpose personal computers with video communications capabilities, and are generally used for one-on-one personal communications, or when one person is presenting information to a group. Apart from peripheral components manufactured by others, the Company exclusively sells systems manufactured by PictureTel. PictureTel is one of the largest manufacturers of video communications equipment (in terms of revenues), and the Company is PictureTel's U.S. Dealer of the Year for 1996, and has been recognized by PictureTel as such for the last four consecutive years. The Company is one of five PictureTel "elite dealers" worldwide that carry the entire PictureTel line of products. Management believes that PictureTel's equipment provides its customers with superior quality audio and video communications capabilities at a reasonable price, and that user interface with PictureTel equipment is more intuitive, thereby requiring less training, than that of the equipment produced by its competitors. The prices of the complete systems sold by the Company range from $1,500 for a video communications enhancement kit for a desktop computer, to $60,000 for a roll-about system for a single location, to as much as $200,000 for a custom-built conference room installation. Roll-about and custom-built systems generally contain the following components: Monitor. The monitor is a television set that is used at each participating location for viewing persons and objects involved in the communication. The screen of the monitor generally includes a window, or inset, that may be used to duplicate the image shown by a monitor located at another site, or to view documents or other graphic images related to the discussion. Some systems include dual monitors, providing full-sized simultaneous views of both graphic images and meeting participants. Video Camera. The video camera is similar to a camcorder and is generally located on top of the monitor. The video cameras included in View Tech's systems record full-color images and have pan, tilt and zoom capabilities. Some systems include auxiliary video cameras to provide additional camera angles or to view various locations within a room. Codec. The coding-decoding device, known as the "codec," is the heart of a video communications system. Because video images have high information content, their transmission requires significantly greater bandwidth (capacity) than is required to transmit audio signals or computer data. One codec converts analog signals into digital signals and compresses the digital signals, enabling them to be transmitted over conventional data networks, while a second codec decompresses and reconstitutes the signals into their analog form at the receiving location. The signals transmitted by codecs are bi-directional, enabling each codec simultaneously to send and receive signals. The compression-decompression process is accomplished using algorithms, or mathematical formulae, that are embedded in the codec. Inverse Multiplier. Because video signals (even after digital compression) require greater bandwidth than is available in most telephone lines, an inverse multiplexer is used to distribute the signals to several lines prior to transmission. The distributed signals are then simultaneously transmitted over the different lines, and a receiving inverse multiplexer recombines them to their original format. Multi-point Control Unit. A multi-point control unit, known as an "MCU" or "bridge," is a device that enables persons at more than two locations to participate simultaneously in video communication. The MCU is required at only one of the participating locations. Document Camera. The document camera may be used to display documents, photographs and small three-dimensional objects in color. Because the document camera produces "freeze-frame" images, enhanced resolution of the recorded item is possible. Videoscan Converter. The videoscan converter facilitates the transmission of computerized data. Keypad. The keypad, one of which is required at each participating location, is the device used to control the video cameras, monitors and other aspects of the system. Speakerphone. Each participating site has a speakerphone, which provides near-high-fidelity audio communications. 25 Videocassette Recorder. Videocassette recorders are generally installed at each location in order to provide a permanent record of the communication. Annotations Slate and White Board. An annotations slate allows a participant to draw, annotate and point to the high-resolution graphics recorded by a document camera, while a white board allows a participant to make a presentation using a large two dimensional writing surface similar to a grease board. The foregoing components included in View Tech's systems are purchased by View Tech from PictureTel, except the inverse multiplexers, which it purchases from either of two manufacturers, Teleos Communications, Inc. or Ascend Communications, Inc., and the monitors, document cameras, videoscan converters, videocassette recorders and white boards, which it acquires from various sources, depending upon price and quality. Although View Tech's desktop-computer systems involve different components, the desktop system has many of the capabilities of the conference-room and roll- about systems. View Tech's desktop video communications equipment is also manufactured by PictureTel. Telecommunications Equipment The Company sells telecommunications equipment from such manufacturers as Ascend (data transmission products) and Northern Telecom (telephone systems). Voice. The Company markets a variety of telephone and other voice equipment products designed specifically for small- to medium-sized business customers. Northern Telecom key systems, Tone Commander consoles, are sold by the Company under reseller agreements, and are installed and serviced by the Company for business customers throughout the Northeast. Such equipment also may be sold in conjunction with the provision of local and long-distance network services. This voice equipment, voice network services combination is an important ingredient in establishing the Company as a single-point-of-contact provider. Data. The Company sells to business customers products specifically designed to transmit data through the established local and long-distance telephone services infrastructure. Products from companies such as Adtran, Teleos and Ascend allow business customers to remote access into local area networks, acquire bandwidth on demand and digitally transmit data. Products such as these are sold in combination with local and/or long-distance network services provided by the RBOCs, SPRINT and AT&T. View Tech intends to continue providing its customers with additional product selections in the future to the extent they compliment and enhance such customers' communications capabilities. Future plans call for increased product offerings, including desk-top video, wireless communications devices, data products and telephone equipment for small- to medium-sized businesses, as well as tele-commuting and entertainment components for the work-at-home and residential markets. SERVICES The Company believes that the quality and depth of its customer services are critical factors in its ability to compete successfully. Because of the technical expertise and experience of its management and employees, the Company is able to offer its customers the convenience of single-vendor sourcing for every aspect of their communications needs and to develop customized systems designed to provide efficient responses to each customer's unique needs. The Company provides its customers with a full complement of video communications and telecommunications services to ensure customer satisfaction. Prior to the sale of its systems and services, the Company provides consulting services that include an assessment of customer needs and existing communications equipment, as well as cost-justification and return-on-investment analyses for systems upgrade. Once the Company has made recommendations with respect to the most effective method to achieve its customer's objectives and the customer has ordered a system, the Company delivers, installs and tests the communications equipment. When the system is functional, the Company provides training to all levels of its customer's organization, including executives, managers, management-information-systems and data-processing administrators, technical staff and end users. Training includes instruction in system operation, as well as planning and administration meetings. By means of thorough training, the Company ensures that its customers achieve a significant return on their investment in the systems and services provided by the Company. The Company provides one-year parts and service warranty contracts to each customer, follow-up maintenance and comprehensive customer support with respect to the communications equipment it provides and the integration thereof. The Company's suppliers, in turn, provide parts-replacement warranties ranging from 90 days for PictureTel equipment to between one and three years for other manufacturers' equipment. Customers can call the Company's toll-free technical support hotline 24 hours a day, 365 days a year. Customers may also obtain answers to questions or follow-up training through video conferencing, telephone, facsimile, e-mail or through the mail. The Company also provides onsite support and maintenance. The Company's service personnel maintain regular contact with customers. Prior to the expiration of the one-year warranty contract, the Company offers to perform an engineering study of each customer's equipment, to recommend the installation of replacement parts or equipment if appropriate and to provide an additional one-year warranty contract. The Company also offers training programs for new users, refresher and advanced training programs for experienced users and consulting services related to new equipment that has recently become available and systems expansion and upgrades. Charges for the engineering study, training 26 programs, consulting services and additional one-year warranty contract are generally comparable to the cost of services provided to the customer at the time its video communications equipment is installed. Critical to customer retention is on-going after-sale relationships with customers. Installation, training, maintenance, remote diagnostic, billing inquiry management, network order processing, new product introduction and system enhancements creating multipurpose solutions are a few of the many after-sale services that the Company performs for its customers. During 1996, View Tech started providing MCU, or bridge, services to its customers. Since bridges cost between $65,000 and $150,000 per unit, View Tech's customers typically elect to utilize such services when more than two locations participate simultaneously in video communication. Telecommunications Services The Company also provides on-going after-sales telecommunications services to its customers. Installation, maintenance, user training and network order- processing are some of the services provided by the Company to its end-user customers. The Company sells a wide range of telecommunications services including, high speed data connection, internet access, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services. In addition, the Company provides Account Management for NYNEX under which it serves as the primary interface between NYNEX and certain of its business customers. Under this program, sales personnel provide a single-point- of-contact and coordination for all of the customer's telecommunications needs. The Company provides systems integration services, processes so-called "moves, adds, and changes" on the telephone network, coordinates repairs, performs network analysis, manages billing issues and provides other customer services. In addition, the Company offers its customers telecommunications carrier services, which it purchases from AT&T and Pacific Bell at high-usage discounts and resells at rates that are more favorable than typically could be obtained by View Tech's customers directly from the carrier. The Company intends to pursue opportunities for providing such services to its customers with additional carriers, as such services provide the Company with recurring revenues based upon customer video communications systems use. To date, the revenues attributable to such services have not been material. STRATEGY The Company focuses its marketing efforts on industries and market segments that it believes will achieve significant benefits through utilization of video and telecommunications services and equipment. The Company then acquires a complete understanding of the operations of such industries, identifies the particular communications needs of such industries and integrates or bundles the services and/or equipment which will most effectively meet the needs of any given segment of the market. These services range from the simple bundling of long distance and local service to a small business to a complex installation of video communications equipment and network services to meet the needs of the health care practitioner. The Company believes that this focus on customer needs in particular market segments, together with an emphasis on providing comprehensive, high-quality service to its customers, enables the Company to market its video communications systems and other telecommunications equipment and services more effectively than competitive distribution channels. The Company believes that its broad product offerings, industry focus, wide geographic coverage and high quality service provide it with a unique competitive advantage. In addition to expanding its current key alliance partnerships with PictureTel, NYNEX, GTE, Bell Atlantic and its other service providers and equipment vendors, the Company intends to continue broadening it market focus as its customers' needs become more comprehensive, and to expand its activities into additional geographic markets by entering into further strategic alliances with manufacturers and service providers,acquiring companies in the video and telecommunications industries and establishing additional strategically located sales and service facilities. CUSTOMERS The Company's customer base is divided into two segments, large institutions with complex application-specific requirements for video communications and small to medium-sized businesses with voice and data transmission requirements. These segments are becoming less distinct as the market develops. The Company currently focuses on these customer segments separately but envisions such segments merging over time. Video Systems Customers While the Company has installed video communications systems for a diversified customer base, including Southern California Edison, UNOCAL, Loma Linda University, the Commonwealth of Massachusetts and Harvard University, it has attempted to focus its marketing efforts on specific industries. Among the industries in which the Company believes it has acquired substantial expertise are health care and distance-education. During 1996, the Company organized its Telemedicine Group to focus directly on the health care industry. The health care market includes HMOs, hospitals, insurers and other health care providers, whose personnel utilize video communications systems to interview patients, transfer medical records (including x-rays and other pictographic material) and to confer on a variety of professional and administrative matters. The Company has provided systems to customers in the health care industry including Allergan, Blue Cross of California, Catholic Healthcare West, Friendly Hills Hospital Group, and PacifiCare. The Company maintains a small inventory of equipment and spare parts, but orders most of its equipment on a project-by- project basis based upon firm orders by, and for delivery to, its customers. Substantially all of the video communications systems sold to 27 the customers named above were integrated roll-about systems. To date, the Company has not experienced difficulty associated with the timely delivery of equipment by its manufacturers. Telecommunications Clients and Customers The Company, through UST, markets telecommunication equipment and services for various strategic partners or clients. The equipment sales are performed under various reseller agreements and the customer is invoiced by UST. The telecommunication services are sold to the Company's customers under sales agency agreements, pursuant to which the customer is invoiced by the client for the services over the term of the agreement and the Company is paid a commission by the client. The Company's telecommunication clients include several RBOCs, including NYNEX, Bell Atlantic and Southwestern Bell; other telecommunication service providers, such as GTE and SPRINT; and equipment manufacturers, including Northern Telecom, Ascend and Teleos. The Company typically has renewable annual agreements with its telecommunication service clients, under which it receives commissions based on sales and in some cases, such as the Account Management Program with NYNEX and long distance services from SPRINT, the Company receives a recurring fee based on customer usage of the services sold. With respect to equipment sales, the Company purchases the equipment at its dealer discount and resells the products to its customers at the list price or other negotiated price. The Company focuses on small to medium-sized business customers which the major telecommunications providers cannot cost effectively service. The Company's clients have retained its services to sell products to and in some cases to manage the relationship with these customers. These customers are comprised of medium-sized businesses which are served by a direct face-to-face sales force based in the Company's Boston and New York offices, and small businesses which are served by the Company's telephone-based sales force in Boston and Cape Cod. The Company sells a range of products and services to these customers in order to meet their voice, data and video communication needs. The Company has developed sophisticated sales programs to allow the telephone-based sales group to sell complex products historically only sold by a direct sales force. No single customer accounted for more than 10% of the Company's revenues for the fiscal year ended June 30, 1996. SALES AND MARKETING Videoconferencing View Tech has a number of programs in place for promoting its products and services. Representatives of View Tech regularly attend video communications and advanced technology trade shows. View Tech hosts seminars and provides potential customers with the opportunity to learn more about View Tech's products and services using video communications demonstration facilities located in each of View Tech's offices. View Tech also places advertisements aimed at selected markets in industry trade publications and utilizes limited and selective direct mail advertising. In addition, View Tech has an agreement with a telemarketing firm to provide View Tech with information regarding organizations that may be interested in purchasing View Tech's products and services. Management has worked closely with the firm to develop approaches that it believes will enable the firm effectively to identify individuals within organizations who are likely to be interested in learning of the advantages of video communications. PictureTel and other suppliers also provide View Tech with sales leads. View Tech also maintains relationships with previous customers and attempts to provide for their continuing hardware and service needs, including continuing engineering, training and warranty services. See "--Services." Telecommunications Sales The Company utilizes a number of sales and marketing techniques, including outside sales (or face-to-face) and inside sales (or telephones sales). Outside Sales. The Company's outside sales activities are generally focused on medium-sized businesses in New England and New York where the Company maintains offices. Face-to-face sales are especially effective in selling more expensive and technologically advanced services and equipment such as NYNEX's Centrex network services and PictureTel's videoconferencing products. On-going account management stimulates repeat business while protecting market share and generating recurring revenue from certain clients such as NYNEX. Inside Sales. The Company's inside sales group sells a broad range of services over the telephone. In addition, the inside sales and service departments generate leads, and in some instances, provide back-up support to outside sales associates. The advantages of telemarketing include high response rates, low transaction costs, direct interaction with customers and on-line access to detailed customer or product information. The Company's telemarketing clients include BellAtlantic, GTE, Southwestern Bell, SPRINT and other telecommunications carriers. DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL AND NYNEX For the fiscal year ended June 30, 1996, approximately 38% and 21% of the Company's consolidated revenues were attributable to the sale of equipment manufactured by PictureTel Corporation ("PictureTel") and network products and services provided by NYNEX, respectively. Termination of or change of the Company's business relationships with PictureTel or NYNEX, disruption in supply, failure of PictureTel or NYNEX to remain competitive in product quality, function or price or a determination by PictureTel or NYNEX to reduce reliance on independent providers such as the Company could have a material adverse effect on the Company's business, financial condition and results of operation. The Company is a party to agreements with PictureTel and NYNEX that authorize the Company to serve as a non-exclusive dealer in certain geographic territories. The NYNEX and PictureTel agreements expire on December 31, 1998 and August 2000, respectively. The NYNEX and PictureTel agreements can be terminated without cause upon 12 months and 60 days' written notice by the suppliers, respectively. There can be no assurance that these 28 agreements will not be terminated, or that they will be renewed on terms acceptable to the Company. These suppliers have no affiliation with the Company and are competitors of the Company. See "Management's Discussion and Analysis or Plan of Operations" and "Business." COMPETITION The video communications industry is highly competitive. View Tech competes with manufacturers of video communications equipment and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Telecommunications carriers and other large corporations that have recently entered the video communications market include VTEL and CLI, which recently announced plans to merge, Apple Computers, Inc., AT&T, MCI, Sprint, some of the RBOCs, IBM, Intel Corporation, Nippon Electric Corporation, MicroSoft, Inc., Mitsubishi Ltd., Fujitsu Ltd., Sony Corporation, Matsushita/Panasonic, Hitachi and British Telecom. Many of these organizations have substantially greater financial and other resources than View Tech, furnish many of the same products and services provided by View Tech and have established relationships with major corporate customers that have policies of purchasing directly from them. Management believes that as the demand for video communications systems continues to increase, additional competitors, many of which will have greater resources than View Tech, will enter the video communications market. A specific manufacturer's network of dealers and distributors typically involves discreet territories that are defined geographically, in terms of vertical market, or by application (e.g., project management or government procurement). View Tech's current agreement with PictureTel authorizes View Tech to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Oklahoma, Tennessee, Texas, Utah and Wyoming. Because the agreement is non-exclusive, however, View Tech is subject to competition within these territories by other PictureTel dealers, whose customers elsewhere may have branch facilities in these territories, and by PictureTel itself, which directly markets its products to certain large national corporate accounts. The agreement expires in August 2000 and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with View Tech and is a competitor of View Tech. While there are suppliers of video communications equipment other than PictureTel, termination of View Tech's relationship with PictureTel could have a material adverse effect on View Tech. View Tech believes that customer purchase decisions are influenced by several factors, including cost of equipment and services, video communication system features, connectivity and compatibility, a system's capacity for expansion and upgrade, ease of use and services provided by a vendor. Management believes that its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment that View Tech sells, the quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video communications system enable View Tech to compete successfully in the industry. The telecommunications industry is also highly competitive. The Company competes with many other companies in the telecommunications business which have substantially greater financial and other resources than the Company, selling both the same and similar services. The Company's competitors in the sale of network services include RBOCs such as NYNEX, Bell Atlantic, Southwestern Bell and GTE, long distance carriers such as AT&T, MCI and SPRINT, other long distance companies, by-pass companies and other agents. There can be no assurance that the Company will be able to compete successfully against such companies. See "Management's Discussion and Analysis or Plan of Operations" and "Business." EMPLOYEES At January 2, 1997, View Tech had 290 full-time employees and a network of consultants who are available on an as-needed basis to provide technical and marketing support. View Tech has 150 full-time employees engaged in marketing and sales, 74 in technical services and 66 in finance, administration and operations. None of View Tech's employees is represented by a labor union. View Tech believes that its relations with its employees are good. REAL PROPERTIES View Tech leases office facilities in Camarillo, Irvine and San Diego, California, Atlanta, Georgia, Dallas, Texas, Englewood, Colorado, and Nashville, Tennessee. Its executive offices are located in Camarillo and consist of a total of approximately 6,700 square feet. View Tech's other facilities house sales, technical and administrative personnel and consist of aggregate square footage of approximately 13,500 square feet. The leases on those facilities expire at various dates through October 2000. In August and September 1996, View Tech entered into two new office leases aggregating approximately 2,700 square feet in Boca Raton, Florida and Phoenix, Arizona with terms of five and two years, respectively. View Tech may require additional space during the next 12 months to house its operations in Camarillo and Irvine, California and Atlanta, Georgia. View Tech believes that it can find 29 suitable additional space on reasonable terms. UST leases office facilities in Boston and Cape Cod, Massachusetts and New York, New York. Its executive offices are located in Boston and consist of a total of approximately 14,000 square feet. UST's other facilities house sales, technical and administrative personnel and consist of aggregate square footage of approximately 20,000 square feet. The leases on those facilities expire at various dates through 2001. CLAIMS AND LITIGATION The Company is not party to any material legal proceedings. It is anticipated that from time to time it will be subject to claims that arise in the ordinary course of its business. MANAGEMENT The directors and executive officers of View Tech are as follows:
Name Position - ------------------------- ------------------------------------------------ Robert G. Hatfield....... Chairman, Chief Executive Officer and Director John W. Hammon........... President, Chief Operating Officer and Director Franklin A. Reece, III... Director, Vice President William M. McKay......... Chief Financial Officer, Treasurer and Secretary Tom Bailey............... Vice President - Technical Services Calvin M. Carrera........ Director Robert F. Leduc.......... Director David F. Millet.......... Director
DIRECTORS Robert G. Hatfield, age 51, co-founded View Tech in 1992, and has since served as its chairman and chief executive officer. From 1977 to December 1991, Mr. Hatfield was Executive Vice President of Delphi Information Systems, Inc. ("Delphi"), a provider of data processing systems for the distribution portion of the property and casualty insurance industry. During Mr. Hatfield's 14 years with Delphi, the firm grew from $100,000 in annual revenues and six employees, to $50,000,000 in annual revenues and 350 employees. Mr. Hatfield's education includes a B.B.A. from California Western University and an M.B.A. from Thunderbird: American Institute for Foreign Trade. John W. Hammon, age 45, is Mr. Hatfield's brother. Mr. Hammon co-founded View Tech in 1992 and since then has served as a director, chief operating officer and president. He also served as secretary of View Tech until May 1, 1995. Mr. Hammon has over 14 years of experience in the computer industry, including the marketing of advanced software and hardware products. From 1987 to December 1991, he was Western Regional Director of PictureTel Corporation. Prior to joining PictureTel, he held positions in field sales, customer service and regional sales management with ADP, EDS and Tandem Computers. Mr. Hammon's educational background includes a B.S. in Finance from California State University - Los Angeles. Calvin M. Carrera, age 51, has been a director of View Tech since September 1994. Mr. Carrera is Director of Advanced Programs for Engineering Management Concepts ("EMC"), a firm which specializes in professional engineering and management services for government and industry clients. He is responsible for advanced program development and execution and has been with EMC since April 1995. From July 1994 to April 1995, he was Director of Western Operations for APEX Technologies, Inc., a privately-held company which provides professional engineering and training services for the federal and state governments. Prior to joining APEX, Mr. Carrera served 15 years as General Manager of Veda Incorporated, a privately-held firm which provides professional engineering services for a diverse client base. Since 1991, he has been president of the Defense Services Industry Executive Association, a non-profit corporation with 43 member companies dedicated to improving communications within the defense services industry and between the industry and government. Mr. Carrera holds a B.S. in Electrical Engineering from the University of Utah and an M.S. in Electrical Engineering from the University of Southern California, where he has also completed classroom work for a doctoral degree. Robert F. Leduc, age 51, has been a director of View Tech since September 1994. From January 1992 to the present, he has been president and chief executive officer of EconomicsAmerica of California, a California-based not-for- profit funding organization that promotes education in economics. From January 1990 to January 1992, he was president of Foundation Group, another non-profit organization. Mr. Leduc has also been a visiting professor at the L.B.J. School of Public Affairs at the University 30 of Texas at Austin since 1990, and was previously a visiting professor or lecturer at the Kennedy School of Public Administration at Harvard University, the University of Alberta and Rutgers University. Mr. Leduc has specialized in providing consulting services to not-for-profit organizations since 1972, and served as executive director of a charitable foundation from 1982 to 1985 and a trade association from 1985 to 1988. Mr. Leduc has an M.B.A. from Wayne State University and is completing the requirements for a Ph.D. in Public Administration from the University of Colorado. Franklin A. Reece, III, age 50, has been a director of the Company and vice president since November 29, 1996. Mr. Reece founded USTeleCenters in 1986. From 1986 through the effective date of the Merger, Mr. Reece served as chairman of the USTeleCenters Board of Directors and, from 1986 to 1995, as chief executive officer of USTeleCenters. He also served as president from 1986 until January, 1992. He was again elected president in March, 1995 and continues to serve in such capacity. Prior to founding USTeleCenters, Mr. Reece was Director of Manufacturing of Zymark Corporation, a manufacturer of robotic systems for laboratory automation. Prior to Zymark Corporation, he was General Manager of Sales for The Reece Corporation, a manufacturer of specialized automatic equipment for the apparel industry. A graduate of Harvard College, Mr. Reece has extensive international and domestic sales, distribution and management experience. Mr. Reece serves on the board of several Boston-based non-profit organizations. David F. Millet, 52, has been a director of the Company since November 29, 1996. Mr. Millet was one of the original founders of USTeleCenters and was a director of USTeleCenters from its inception in 1986 through the Effective Date of the Merger. He is president of Chatham Venture Corporation, a private investment firm and chairman and chief executive officer of Holographix, Inc., a manufacturer of holographic optical components and systems. Mr. Millet, a graduate of Harvard College, is also a director of Wall Data, Inc. and Natural Microsystems Inc., a general partner of Gateway Partners, LP, a director of Mohawk Metal Products and president and a director of Thomas Emery & Sons, LLC, an investment company. OTHER EXECUTIVE OFFICERS Tom Bailey, age 37, has been vice president - technical services of View Tech since January 1993. Prior to joining View Tech, Mr. Bailey was a product manager, service executive and lead software engineer for Delphi, where he was employed from 1988 to January 1993. During his six years with Delphi, Mr. Bailey was responsible for coordination of more than 200 installations of minicomputer and LAN-based information systems, as well as support, service and technical research. Mr. Bailey's education includes a B.A. in mathematics and computer science from California Lutheran University, as well as training in TCP/IP, Unix, Novell and switched digital network designations. William M. McKay, age 42, has been chief financial officer, treasurer and secretary of View Tech since May 1, 1995. From October 1992 through April 1995, he was an independent consultant and principal of MK Associates, a firm that provides financial and operational consulting services to businesses. From January 1991 to October 1992, Mr. McKay was senior vice president and chief financial officer of Kennedy-Wilson, Inc., a real estate brokerage concern. Prior to his service with Kennedy-Wilson, Mr. McKay was vice president and controller of HSM Group, a real estate investment company that is affiliated with Kennedy-Wilson with interests in partnerships owning residential and commercial properties. Mr. McKay also has ten years of public accounting experience with Deloitte & Touche, most recently as a senior manager in its audit department. Mr. McKay is a member of the American Institute of Certified Public Accountants, and has a B.S. in business administration with an emphasis in accounting from the University of Southern California - Los Angeles. For information with respect to securities ownership of Common Stock by the directors, executive officers and beneficial owners of more than 5% of the Common Stock, see "--View Tech Security Ownership of Certain Beneficial Owners and Management." 31 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the compensation for the chief executive officer and each of the most highly compensated executive officers whose individual remuneration exceeded $100,000 for the fiscal year ended June 30, 1996 (the "Named Executives"): SUMMARY COMPENSATION TABLE
Annual Long-Term Compensation Compensation ------------ ------------ All Other Name and Principal Position Year Salary Bonus Options (1) Compensation (2) - --------------------------------- ---- ------ ------- ------------ --------------- Robert G. Hatfield 1996 $168,000 $ -- 100,000 $28,175 Chairman and Chief 1995 $160,000 $ -- 50,000 $41,986 Executive Officer 1994 $126,000 $ -- $29,053 John W. Hammon 1996 $168,000 $ -- 100,000 $19,642 President and 1995 $160,000 $ -- 50,000 $17,989 Chief Operating Officer 1994 $126,000 $ -- $20,269 William M. McKay 1996 $118,216 $ -- 25,000 $ 6,000 Secretary and Chief 1995 $ 17,914 $ -- 72,800 $ 1,000 Financial Officer(3) Franklin A. Reece, III 1996 $120,000 $27,693 73,602 $ -- Vice President and 1995 $137,500 $20,300 -- $ -- Director(4) 1994 $135,000 $32,825 -- $ --
- ----------------------------- (1) All stock options to Messrs. Hatfield, Hammon and McKay were granted under the 1995 Stock Option Plan. Mr. Reece's options were originally options to acquire USTeleCenters common stock that were converted into options to acquire Common Stock upon consummation of the Merger. (2) For fiscal 1996, the amount listed includes: (i) for Mr. Hatfield (a) country club dues and expenses of $13,698, (b) automobile expenses of $12,812, and (c) 401(k) Retirement Savings Plan contributions of $1,665; (ii) for Mr. Hammon (a) country club dues and expenses of $2,577, (b) automobile expenses of $15,400, and (c) 401(k) Retirement Savings Plan contributions of $1,665; (iii) for Mr. McKay, an automobile allowance of $500 per month. Itemized disclosure of other compensation in 1995 and 1994, is not required. (3) Mr. McKay was not employed by View Tech prior to its 1995 fiscal year. (4) Mr. Reece became an employee of the Company on November 29, 1996 in connection with the Merger, which was treated as a pooling of interests for financial reporting purposes. The amounts shown were paid by UST. 32 OPTION GRANTS The following table sets forth information regarding stock option grants to each of the Named Executives during the fiscal year ended June 30, 1996. Option Grants In The Fiscal Year Ended June 30, 1996
Individual Grants -------------------------------------------------------------------------------- Number of Percent of Total Shares Underlying Options Granted to Options Employees in Exercise Price Name Granted (1) Fiscal Year (2) ($/Share) Expiration Date - ------------------------- ------------------ -------------------- --------------- --------------- Robert G. Hatfield 50,000 10.0% $6.375 6/12/06 50,000 10.0% $6.625 7/17/05 John W. Hammon 50,000 10.0% $6.375 6/12/06 50,000 10.0% $6.625 7/17/05 William M. McKay 25,000 5.0% $6.375 6/12/06 Franklin A. Reece, III 73,602 33.3% $ 0.41 9/12/00
- -------------------------- (1) All options are fully vested. (2) The percentages for Messrs. Hatfield, Hammon an McKay represent the percentage of total options granted by the Company. Mr. Reece's options were granted by USTeleCenters prior to the Merger and upon consummation of the Merger were converted into options to acquire View Tech Common Stock. The percentage stated for Mr. Reece represents the percentage of options granted by USTeleCenters during the twelve months ended June 30, 1996. Excludes 3,680 options granted to Mr. Reece by USTeleCenters and cancelled prior to the Merger. AGGREGATE OPTION EXERCISES The following table sets forth information regarding unexercised options held by the Named Executives. Mr. McKay was the only Named Executive who exercised options during the fiscal year ended June 30, 1996: Aggregate Option Exercises In The Fiscal Year Ended June 30, 1996 And Fiscal Year-End Option Values
Value of Unexercised Number of Unexercised "In-the-Money" Options at Options at Fiscal Shares Fiscal Year-End Year-End Acquired on ----------------------------- ---------------------------- Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------- ----------- -------------- ----------- -------------- ----------- ------------- Robert G. Hatfield N/A N/A 12,500 137,500 $87,500 $350,000 John W. Hammon N/A N/A 12,500 137,500 87,500 350,000 William M. McKay 12,500 $82,737 5,700 79,600 13,538 328,113 Franklin A. Reece, III N/A N/A -- 73,602 -- 485,037
The stock options described in the foregoing table became fully exercisable upon consummation of the Merger. 33 DIRECTOR COMPENSATION Outside directors receive $1,000 each month and $1,000 for each meeting of the Board of Directors attended. Directors receive no compensation for telephonic meetings. Outside directors who are members of either the Stock Option and Compensation Committee or the Audit Committee receive $1,000 per meeting attended as well. However, if a Committee meets on the same day that the Board of Directors is meeting, the outside director will only receive a single payment of $1,000 for all meetings attended on the same day. Outside directors are also reimbursed for their travel expenses. In addition to the per diem, pursuant to the 1995 Stock Option Plan, outside directors received options to acquire 10,000 shares of Common Stock on the day they were elected to the Board of Directors. Additionally, outside directors who served on the Board of Directors for a full year received options to acquire an additional 2,000 shares of Common Stock on the fifth business day following the annual meeting of stockholders. The exercise price of the stock options is equal to the last reported sales price of the Common Stock on The NASDAQ National Market. There are no options available under the 1995 Stock Option Plan, and, accordingly outside directors will no longer receive automatic grants. Members of the Board of Directors who are also employees of View Tech do not receive any additional compensation for service on the Board of Directors. No member of the Board of Directors received any other compensation for his services as a director. EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Employment Agreements. View Tech has entered into an employment agreement with Mr. Reece on November 29, 1996 which expires on December 31, 1998. Under the terms of this agreement, Mr. Reece's annual base salary is $150,000 and he is entitled to receive from the Company an annual cash bonus, the amount of which is subject to determination by the Company. On December 9, 1996, the directors increased Mr. Reece's base salary to $198,000. The agreement provides that upon termination of Mr. Reece's employment with the Company, either for Good Reason or without Cause (as defined in the employment agreement), he is entitled to receive salary payments through the first anniversary of the date on which his employment was terminated (the "Termination Date"), in addition to a cash lump-sum payment and the continuation of fringe benefits until the first anniversary of the Termination Date. Upon the voluntary termination of his employment with the Company, under certain circumstances, Mr. Reece is entitled to receive a cash lump-sum payment, and in any event of termination of his employment with the Company, he shall receive all accrued salary, bonus and other benefits. In the event that his employment is terminated in connection with a change of control of the Company, he will receive, for a period of time, which is to be not less than one year, his salary, all fringe benefits to which he is entitled and a cash lump-sum payment. View Tech also has reaffirmed annual salary levels for each of Messrs. Hatfield, Hammon and McKay of $220,000, $220,000 and $136,000, respectively, and is in the process of negotiating employment agreements with them. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with View Tech's Founders. In connection with View Tech's organization in 1992, View Tech sold 738,000 shares of Common Stock to each of its founders, Messrs. Hatfield and Hammon, for approximately $0.007 per share. On October 3, 1994, July 17, 1995 and June 12, 1996, View Tech granted options to purchase an aggregate of 150,000 shares (50,000 shares each grant) of Common Stock to each of Messrs. Hatfield and Hammon. The options, which have exercise prices of $0.375, $6.625 and $6.375 per share, respectively, are fully vested. Messrs. Hatfield and Hammon had guaranteed the repayment of $638,000 of View Tech's indebtedness, all of which was repaid with a portion of the proceeds from View Tech's initial public offering in June 1995. Transactions with Windermere Holdings, Inc. View Tech entered into a management services agreement with Windermere Holdings, Inc., ("WHI") effective as of September 1, 1994 (the "WHI Agreement"). The WHI Agreement provided that WHI would assist View Tech with respect to View Tech's management requirements, strategic initiatives, marketing strategies, contract negotiation, investor relations, organizational structure, retention of public relations advisors, board structure and committees and executive compensation. The WHI Agreement expired September 30, 1995. Pursuant to the terms of the WHI Agreement, View Tech paid WHI $25,000 in July 1995 and a monthly retainer of $2,500, and reimbursed WHI's reasonable expenses. Pursuant to the WHI Agreement, View 34 Tech also agreed to issue to WHI options to purchase 150,000 shares of View Tech Common Stock on October 1, 1995, if the agreement was then in effect, which options would be exercisable immediately and would have an exercise price equal to the fair market value per share of View Tech Common Stock on that date. The WHI Agreement also provided for certain registration rights with respect to Common Stock issuable upon the exercise of such options. On September 13, 1995, the WHI Agreement was amended so that (i) 75,000 options were issued to each of Rolf N. Hufnagel, a former member of the Board of Directors and managing director of WHI, and Robert E. Yaw II, chairman of WHI, with an exercise price equal to $7.375, which was the closing bid price of the Common Stock on The NASDAQ SmallCap Market on September 13, 1995 and (ii) View Tech was no longer obligated to pay WHI a monthly retainer. On November 1, 1995, View Tech entered into a subsequent agreement with WHI which provided for a payment of $5,000 per month through June 30, 1996. View Tech also made a short-term loan to Mr. Hufnagel of approximately $22,000 at a 10% interest rate in April 1996. The loan was repaid in June 1996 with interest. Subsequent to Mr. Hufnagel's resignation from the Board of Directors effective June 24, 1996, View Tech entered into a new agreement with WHI that provided for (i) a monthly retainer of $5,000 from July to September 1996; (ii) the issuance of options to purchase 55,000 shares of Common Stock to one of WHI's principals, which were issued on June 27, 1996 and (iii) the issuance of options to purchase 55,000 shares of Common Stock to Mr. Hufnagel, which were issued on August 22, 1996. The agreement provides that such options be issued at the market price as of the date of issuance. The agreement further provided for the issuance of options exercisable for View Tech Common Stock equal to 5% of the "Transaction Value" of any merger or acquisition ("M&A") transactions for which WHI provided advice. Pursuant to an amendment to such agreement entered into in October 1996, instead of issuing WHI options equal to 5% of the Transaction Value of the Merger, View Tech agreed to pay WHI $175,000 in cash and to issue to WHI 30,000 shares of Common Stock as follows: (i) $50,000 on October 3, 1996; (ii) $50,000 on November 1, 1996; and (iii) $75,000 and 30,000 shares of Common Stock on the effective date of the Merger. As of January 2, 1997, WHI received 30,000 shares of Common Stock and $130,000. During fiscal 1996, View Tech made payments totalling $72,500 to WHI, excluding payments made for reimbursement of expenses. Mr. Hammon, the president, chief operating officer and a director of View Tech, loaned (i) $50,000 to a managing director of WHI in February 1996, (ii) $250,000 to Mr. Yaw in February 1996, and (iii) $100,000 to Mr. Yaw in July 1996, for various purposes unrelated to the business of View Tech and WHI. The specific dates for repayment have not been established by Mr. Hammon. Transactions with Coffin.KCSA. View Tech entered into a consulting agreement with Coffin.KCSA ("Coffin") under which Coffin provided assistance to View Tech with respect to View Tech's investor relations, board structure and committees and executive compensation. The agreement, effective December 1, 1994, was for an indefinite term and could be terminated by either party upon 30 days' written notice. View Tech paid Coffin $25,000 in July 1996, and paid Coffin a monthly retainer and reimbursed Coffin's reasonable expenses. The monthly retainer was originally $2,500 and was raised to $4,000 per month following View Tech's initial public offering in June 1995. William F. Coffin, a former director of View Tech, is a partner in Coffin. During fiscal 1996, View Tech paid Coffin a total of $65,000, excluding payments made for reimbursement of expenses. Effective June 12, 1996, Mr. Coffin resigned as a director of View Tech. RECENT DEVELOPMENTS PRIVATE PLACEMENT On December 31, 1996, the Company entered into an agreement (the "Purchase Agreement") with Telcom Holding, LLC, a Massachusetts limited liability company (the "Purchaser") formed by The O'Brien Group, Inc., a Massachusetts corporation (the "O'Brien Group"), pursuant to which the Purchaser has agreed to use its reasonable best efforts to purchase (i) up to 650,000 shares of Common Stock (the "Purchase Shares") and (ii) Common Stock Purchase Warrants of the Company (the "Telcom Purchase Warrants," and together with the Purchased Shares the "Purchased Securities") for a purchase of up to 325,000 shares of Common Stock, at a price of $4.40 per unit ("Unit"). Each Unit consists of one (1) share of Common Stock and one (1) Telcom Purchase Warrant for the purchase of one-half (1/2) share of Common Stock at a purchase price per share of $6.50. If the aggregate purchase price for the Purchased Securities issued and sold to Telcom is at least $2,500,000, the Company also has agreed to issue to certain principals of the O'Brien Group additional Common Stock Purchase Warrants of the Company (the "O'Brien Purchase Warrants") for the purchase of one-half (1/2) the aggregate number of shares of Common Stock that are purchasable under the Telcom Purchase Warrants issued and sold to Telcom, at a purchase price per share of $6.50. The aggregate number of Purchased Securities may be increased by mutual agreement of the Company and the Purchaser, but not to a number that would require the Company to obtain stockholder approval under applicable rules promulgated by The NASDAQ National Market. 35 The Purchaser has agreed to use its reasonable best efforts to purchase Purchased Securities with an aggregate purchase price of $2,500,000 or more by January 15, 1997, and, cumulatively, Purchased Securities, including up to 650,000 Purchase Shares and Telcom Purchase Warrants to purchase up to 325,000 shares of Common Stock, by February 15, 1997; provided, however, that (i) the Purchaser may in its discretion extend either such date for a closing by 15 days, (ii) the Company may in its discretion designate a date earlier than January 15, 1997 for an initial closing with respect to issuance and sale of Purchased Securities with an aggregate purchase price of less than $2,500,000; (iii) there may not be more than three closings; and (iv) the last closing may not occur later than February 28, 1997. All proceeds from the sale of Purchased Securities are required to be used by the Company for working capital purposes, including payment of professional fees, costs and expenses approximating $1,100,000 associated with its merger with USTeleCenters, Inc., a Massachusetts corporation, effective November 29, 1996. Upon the first issuance and sale of any Purchased Securities to the Purchaser under the Agreement (the "Initial Closing"), the Company is required to take such actions as may be reasonably practicable to cause Paul C. O'Brien, the president of the O'Brien Group, to be nominated and elected to serve as Chairman and as a member of the Board of Directors. If Mr. O'Brien does not serve in such capacity for any reason, the Company is required to take such actions as may be reasonably practicable to cause another person designated by the Purchaser and reasonably acceptable to a majority of the Board of Directors to be nominated and elected to serve as a member of the Board of Directors. The foregoing requirements expire at the end of the initial three-year director term to which Mr. O 'Brien is elected. As long as Telcom Purchase Warrants to purchase at least fifty percent (50%) of the aggregate number of shares of Common Stock purchasable under all Telcom Purchase Warrants issued under the Agreement are outstanding, but not longer than six (6) months after the Initial Closing, subject to certain exceptions, (i) if the Company intends to issue any equity securities to a third party, it must offer to each holder of Purchased Shares and to each holder of shares of Common Stock issued upon exercise of the Telcom Purchase Warrants or the O'Brien Purchase Warrants (the "Warrant Shares") the right, for a period of twenty (20) days, to purchase for cash, at a purchase price equal to the price or other consideration for which such securities are to be issued, a number of such securities (up to but not exceeding that number of such equity securities that the Company intends to issue or has received an offer to purchase) that would enable, after giving effect to such issuance, such holder to maintain its same proportionate fully-diluted equity ownership in the Company as it held on the date of such notice, and (ii) the Company will not, except with the affirmative vote or consent of at least five (5) members of the Board of Directors, (A) merge or consolidate with, or sell, assign, lease or otherwise dispose of or voluntarily part with the control of (whether in one transaction or in a series of transactions) all or substantially all of its assets to any third party, or (B) permit any of its subsidiaries to do any of the foregoing, other than sales or other dispositions of assets in the ordinary course of business. In addition, holders of Purchased Shares and Warrant Shares are granted certain "piggyback" registration rights and certain registration rights on Form S-3 (or Form SB-2 if the Company is not eligible for any reason to use Form S-3) under the Agreement. The Telcom Purchase Warrants and the O'Brien Purchase Warrants are redeemable at View Tech's option on 30 days' notice to the holders thereof at a price of $0.50 per share of underlying Common Stock if (i) the average closing bid price of the Common Stock has been at least $10.00 per share for a period of 60 consecutive trading days ending within ten days prior to the Company's written notice of redemption, or (ii) the Company effects a best efforts or firm commitment underwritten public offering of Common Stock resulting in aggregate gross proceeds to the Company of not less than $7,500,000, provided that in such case the exercise price for the Telcom Purchase Warrants and the O'Brien Purchase warrants will be reduced in proportion to any amount by which the public offering price is less than $10.00 per share. CHANGE IN FISCAL YEAR END On December 9, 1996, the Company changed its fiscal year end from June 30 to December 31, effective for the fiscal year ending December 31, 1996. The Company will file a transition report on Form 10-KSB covering the period from July 1 to December 31, 1996. 36 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to (i) each director of View Tech, (ii) the Named Executives, (iii) all directors and executive officers of View Tech as a group at January 2, 1997, including the number of shares of Common Stock beneficially owned by each of them, and (iv) each person known by View Tech to own beneficially or of record more than 5% of the outstanding shares of Common Stock. Unless otherwise indicated below, the business address of each individual is the same as the address of View Tech's principal executive offices.
Prior to the Offering After the Offering ----------------------------------- ------------------------ Number of Number of Shares Shares Beneficially Beneficially Beneficial Owner Owned(1) Percentage Owned(1) Percentage (2) - ------------------------------------- --------------- ----------- --------------- -------------- Robert G. Hatfield (3)............... 720,000 12.3% 720,000 10.3% John W. Hammon (4)................... 600,000 10.3% 600,000 8.6% Calvin Carrera (5)................... 22,000 * 22,000 * Robert F. Leduc (6).................. 12,000 * 12,000 * Franklin A. Reece, III (7)........... 580,070 10.1% 580,070 8.4% David F. Millet (8).................. 218,658 4.0% 218,658 3.3% William M. McKay (9)................. 85,300 1.5% 85,300 1.2% Executive Officers and Directors as a Group (8 persons)... 2,422,293 39.0% 2,422,293 32.9%
- ------------------ * Less than one percent. (1) Based on 5,691,462 shares outstanding, and shares issuable upon the exercise of options or warrants that are exercisable within 60 days of January 2, 1997 which are deemed to be outstanding for the purpose of computing the percentage of outstanding stock owned by such persons individually and by each group of which they are a member, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person, including the following additional shares issuable upon exercise of options: for Mr. Hatfield, 150,000 shares; for Mr. Hammon, 150,000 shares; for Mr. Reece, 73,602 shares; for Mr. McKay, 85,300 shares; and for another View Tech executive officer, 47,000 shares. (2) Includes in the denominator 1,136,000 shares of Common Stock to be issued in connection with this Offering and underlying the Options and the Warrants. (3) Chief executive officer and chairman of View Tech. Includes 150,000 shares issuable upon exercise of View Tech options and 120,000 shares held in an irrevocable trust established for the benefit of Mr. Hammon's minor children, of which Mr. Hatfield is trustee. Mr. Hatfield has sole investment and voting power with respect to such shares. (4) President and chief operating officer of View Tech. Includes 150,000 shares issuable upon exercise of View Tech options. Mr. Hammon's address is 101 Pacifica, Suite 100, Irvine, California 92718. (5) Includes 12,000 shares issuable upon exercise of View Tech options. Mr. Carrera's address is 10550 Summer View Circle, Camarillo, California 93012. (6) Includes 12,000 shares issuable upon exercise of View Tech options. Mr. Leduc's address is 26 Thorn Oak, Trabuco Canyon, California 92679. (7) View Tech director and vice president of View Tech and chief executive officer of UST. Includes 73,602 shares issuable upon exercise of View Tech options. Mr. Reece's address is 745 Atlantic Avenue, Boston, Massachusetts 02111-2747. (8) View Tech director. Mr. Millet's address is 623 Chestnut Street, Needham, Massachusetts 02192. (9) Chief financial officer of View Tech. Includes 85,300 shares issuable upon exercise of View Tech Options. DESCRIPTION OF CAPITAL STOCK GENERAL View Tech is authorized to issue up to 20,000,000 shares of Common Stock, par value $0.0001 per share, 5,691,462 shares of which were issued and outstanding at January 2, 1997 and, at January 2, 1997 these shares were owned by approximately 122 holders of record. In addition, View Tech is authorized to issue up to 5,000,000 shares of Preferred Stock, $0.0001 par value. As of January 2, 1997, there were no shares of Preferred Stock outstanding. 37 COMMON STOCK The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to the rights of holders of Preferred Stock (if there are any shares outstanding), the holders of Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor and in the event of liquidation, dissolution or winding-up of View Tech, to share ratably in all assets remaining after payment of all liabilities. The holders of Common Stock have no preemptive or conversion rights and are not subject to further calls or assessments by View Tech. There are no redemption or sinking fund provisions applicable to the Common Stock. PREFERRED STOCK The Certificate of Incorporation of View Tech provide that the Board of Directors may issue an aggregate of 5,000,000 shares of Preferred Stock from time to time in one or more series. As of January 2, 1997, there were no shares of Preferred Stock outstanding. The Board of Directors is authorized to determine, among other things, with respect to each series of Preferred Stock which may be issued: (i) the dividend rate, conditions and preferences, if any; (ii) whether dividends will be cumulative and, if so, the date from which dividends will accumulate; (iii) whether, and to what extent, the holders of a series will enjoy voting rights, if any, in addition to those prescribed by law; (iv) whether and upon what terms, a series will be convertible into or exchangeable for shares of any other class of capital stock or other series of Preferred Stock; (v) whether, and upon what terms, a series will be redeemable; (vi) whether a sinking fund will be provided for the redemption of a series and, if so, the terms and conditions of the sinking fund; and (vii) the preference if any, to which a series will be entitled on voluntary or involuntary liquidation, dissolution or winding up of View Tech. With regard to dividends, redemption and liquidation preference, any particular series of Preferred Stock may rank junior to, on a parity with, or senior to any other series of Preferred Stock and Common Stock. The Board of Directors, without stockholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock under certain circumstances could have the effect of delaying or preventing a change of control of View Tech or other corporate action. The Board of Directors could issue Preferred Stock having terms that could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders, might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then market price of such stock. OPTIONS AND WARRANTS At January 2, 1997, 1,150,600 options (excluding the commitment to issue the Purchased Securities described in "Recent Developments" herein), including options outstanding under the View Tech Stock Option Plan, covering an aggregate of 859,600 shares of Common Stock, all of which options are fully vested, and warrants covering an aggregate of 870,000 shares of Common Stock were outstanding. All of the shares of Common Stock underlying the foregoing options and warrants are registered and/or are being registered hereunder and are fully transferable upon exercise. The foregoing options and warrants have exercise prices ranging from $0.25 per share to $7.75 per share, with a weighted average exercise price of $2.33 per share, and expiration dates ranging from March 21, 1998 to September 1, 2006. An additional 184,005 shares of Common Stock are issuable under a stock option plan previously administered by UST and assumed in connection with the Merger. These options have exercise prices ranging from $0.29 to $0.41 per share and expiration dates ranging from January 2001 to February 2005. DELAWARE ANTI-TAKEOVER LAW View Tech is governed by the provisions of Section 203 of the General Corporation law of the State of Delaware (the "GCL"), an anti-takeover law. In general, the law prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became and interested stockholder, unless the business combination is approved in a prescribed manner. "Business combination" includes merger, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with its affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. The provisions regarding certain business combinations under the GCL could have the effect of delaying or preventing a change in control of the Company or the removal of existing management. A takeover transaction frequently affords stockholders the opportunity to sell their shares at a premium over current market prices. 38 CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS General. Certain provisions of the Company's Certificate of Incorporation and Bylaws may make more difficult the acquisition of control of the Company by a tender offer, open market purchases not approved by the Company's Board of Directors, a proxy contest or otherwise. The provisions are designed to reduce the vulnerability of the Company to an unsolicited proposal for a takeover that does not contemplate the acquisition of all outstanding shares of the Company or which is otherwise unfair to stockholders of the Company. Set forth below is a description of certain provisions of the Company's Certificate of Incorporation and Bylaws. Such description is intended as a summary only and is qualified in its entirety by reference to the Company's Certificate of Incorporation and Bylaws. Election of Directors. The Company's Certificate of Incorporation provides that the Board of Directors is divided into three classes. One class of directors is elected at each annual meeting of stockholders for three-year terms. The Company's Bylaws provide that the number of directors shall be fixed by majority approval of the Board of Directors or by vote of a majority of the stockholders of the Company. Currently, the number of directors is set at six. In addition, the Bylaws provide that such provision establishing the number of directors may only be amended by majority approval of the Board of Directors or by a vote of a majority of the stockholders of the Company. Under Delaware law, in a corporation with a classified board of directors, a director can only be removed during his or her term for cause. Special Stockholders Meetings. The Company's Bylaws provide that special meeting of the stockholders, for any purpose or purposes, unless required by law, may be called by the president, a majority of the entire Board of Directors or the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote. A special meeting may not be held absent such a written request. The request must state the purpose or purposes of the proposed meeting. DIVIDEND POLICY View Tech has never paid any cash dividends on its Common Stock. As of January 2, 1997, it intends to retain earnings and capital for use in its business and does not expect to pay any dividends within the foreseeable future. Any payment of cash dividends in the future on the Common Stock will be dependent on View Tech's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, restrictions, if any, under debt obligations, as well as other factors that the Board of Directors deems relevant. LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the shares of View Tech Common Stock offered hereby will be passed upon for View Tech by Brobeck, Phleger & Harrison LLP, Los Angeles, California. EXPERTS The financial statements of View Tech, Inc. included in this Prospectus have been audited by Carpenter Kuhen & Sprayberry, independent accountants, as indicated in the reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. The financial statements for UST for the twelve months ended June 30, 1995 have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts giving said reports. 39 INDEX TO FINANCIAL STATEMENTS SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants........................................................ F-1 Supplemental Consolidated Balance Sheets as of June 30, 1996 and September 30, 1996 (unaudited)................................................................. F-2 Supplemental Consolidated Statements of Operations for the years ended June 30, 1996 and 1995 and the three month periods ended September 30, 1996 and 1995 (unaudited)................. F-3 Supplemental Consolidated Statement of Stockholders' Equity for the years ended June 30, 1996 and 1995 and the three month period ended September 30, 1996 (unaudited)....................... F-4 Supplemental Consolidated Statements of Cash Flows for the years ended June 30, 1996 and 1995 and the three month periods ended September 30, 1996 and 1995 (unaudited)............. F-5 Notes to Supplemental Consolidated Financial Statements as of June 30, 1996..................... F-6 Notes to Supplemental Consolidated Financial Statements as of September 30, 1996 (unaudited).... F-21 VIEW TECH Report of Independent Auditors.................................................................. F-24 Balance Sheets at June 30, 1996 and 1995........................................................ F-25 Statements of Operations for the Years Ended June 30, 1996 and 1995............................. F-26 Statement of Stockholders' Equity for the Years Ended June 30, 1996 and 1995.................... F-27 Statements of Cash Flows for the Years Ended June 30, 1996 and 1995............................. F-28 Notes to Financial Statements................................................................... F-29 Balance Sheets at September 30, 1996 (unaudited) and June 30, 1996.............................. F-40 Statements of Operations for the Three Months ended September 30, 1996 and 1995(unaudited)...... F-41 Statements of Cash Flows for the Three Months ended September 30, 1996 and 1995 (unaudited)..... F-42 Notes to Financial Statements as of September 30, 1996 (unaudited).............................. F-43 UST Reports of Independent Public Accountants....................................................... F-46 Balance Sheets as of June 30, 1996 and September 30, 1996 (unaudited)........................... F-48 Statements of Operations for the twelve months ended June 30, 1996 and 1995 and the three month periods ended September 30, 1996 and 1995 (unaudited).................................... F-49 Statements of Stockholders' Deficit for the twelve month periods ended June 30, 1996 and 1995 and the three month period ended September 30, 1996 (unaudited)................................ F-50 Statements of Cash Flows for the twelve month periods ended June 30, 1996 and 1995 and the three month periods ended September 30, 1996 and 1995 (unaudited).............................. F-51 Notes to Financial Statements as of June 30, 1996.............................................. F-52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of VIEW TECH, INC. We have audited the accompanying supplemental consolidated balance sheet of View Tech, Inc. and subsidiary as of June 30, 1996 and the related supplemental consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1996 and 1995. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental consolidated 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 supplemental consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the supplemental 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 audit provides a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of View Tech, Inc. and subsidiary as of June 30, 1996, and the results of their operations and cash flows for the years ended June 30, 1996 and 1995, in conformity with generally accepted accounting principles applied on a consistent basis applicable after financial statements are issued for a period which includes the date of consummation of the business combination. We previously audited and reported on the statements of operations and cash flows of View Tech, Inc. for the years ended June 30, 1996 and 1995, and of USTeleCenters, Inc. for the twelve month period ended June 30, 1996, prior to their restatement for the business combination consummated on November 29, 1996, which was accounted for as a pooling of interests. Separate financial statements of the wholly owned subsidiary included in the 1995 restated supplemental consolidated statements of operations and cash flows were audited and reported on separately by other auditors. The supplemental financial statements give retroactive effect to the merger of View Tech, Inc. and USTeleCenters, Inc. on November 29, 1996, which has been accounted for as a pooling of interest as described in the notes 1 and 3 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling of interest method in financial statements that do not extend through the date of consummation. These financial statements do not extend through the date of consummation, however, they will become historical consolidated financial statements of View Tech, Inc. and subsidiary after financial statements covering the date of consummation of the business combination are issued. /s/ Carpenter Kuhen & Sprayberry Oxnard, California December 23, 1996 F-1 VIEW TECH, INC. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
June 30, September 30, 1996 1996 ---------------------------- (unaudited) ASSETS CURRENT ASSETS: Cash $ 1,465,199 $ 1,157,865 Accounts receivable (net of reserves of $220,182 and $351,454) 7,907,284 9,908,707 Inventory 1,748,555 1,770,907 Other current assets 916,621 1,378,286 ----------- ----------- Total Current Assets 12,037,659 14,215,765 PROPERTY AND EQUIPMENT, NET: 2,720,422 2,737,458 GOODWILL (net of accumulated amortization of $11,121) - 1,654,203 OTHER ASSETS 83,008 153,346 ----------- ----------- $14,841,089 $18,760,772 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,910,774 $ 6,503,409 Notes payable to vendor 437,753 197,672 Current portion of long-term debt 2,998,582 2,063,690 Other current liabilities 1,319,583 1,654,013 ----------- ----------- Total Current Liabilities 9,666,692 10,418,784 ----------- ----------- LONG-TERM DEBT 952,864 820,016 ----------- ----------- COMMITMENT AND CONTINGENCIES - - STOCKHOLDERS' EQUITY: Preferred stock, par value $.01, authorized 5,000,000 shares, none issued or outstanding - - Common stock, par value $.01, authorized 10,000,000 shares, issued and outstanding 5,112,623 and 5,334,033 shares at June 30 and September 30, 1996, respectively 51,125 53,340 Common stock subscribed, net - 1,390,102 Additional paid-in capital 6,669,268 8,190,017 Retained deficit (2,498,860) (2,111,487) ----------- ----------- 4,221,533 7,521,972 ----------- ----------- $14,841,089 $18,760,772 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 VIEW TECH, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended Three Month Periods Ended June 30, September 30, ----------------------------- -------------------------- 1996 1995 1996 1995 ------------- ------------- ------------ ----------- (unaudited) Revenues: Product sales and service revenues $19,680,386 $10,801,669 $ 6,001,979 $2,693,287 Agency commissions 11,313,350 17,696,300 4,016,505 3,723,403 ----------- ----------- ----------- ---------- 30,993,736 28,497,969 10,018,484 6,416,690 ----------- ----------- ----------- ---------- Costs and Expenses: Costs of goods sold 14,269,108 7,618,770 4,817,141 2,281,389 Selling and marketing expenses 9,653,345 15,565,601 2,780,434 2,307,376 General and administrative expenses 6,247,785 4,990,572 1,952,191 1,549,898 ----------- ----------- ----------- ---------- 30,170,238 28,174,943 9,549,766 6,138,663 ----------- ----------- ----------- ---------- Income From Operations 823,498 323,026 468,718 278,027 Other Income (Expense) (659,258) (592,853) (67,381) (63,091) Loss on Sublease, Including Shutdown of Offices - (1,312,900) - - ----------- ----------- ----------- ---------- Income (Loss) Before Income Taxes 164,240 (1,582,727) 401,337 214,936 Provision for Income Taxes 259,816 (294,083) (13,964) 59,707 ----------- ----------- ----------- ---------- Net Income (Loss) $ 424,056 $(1,876,810) $ 387,373 $ 274,643 =========== =========== =========== ========== Earnings (Loss) Per Share .07 (.50) .07 .05 =========== =========== =========== ========== Weighted Average Shares Outstanding 5,676,304 3,765,467 6,288,305 5,571,055 =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. F-3 VIEW TECH, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Retained Total ----------------------- Paid-In Earnings Stockholders' Shares Amount Capital (Deficit) Equity ----------- --------- ---------- ----------- ----------- Balance, June 30, 1994 1,687,750 $16,877 $1,006,890 $ (853,989) $ 169,778 Issuance of common stock 1,380,000 13,800 5,270,414 - 5,284,214 Shares issued under stock option plan 2,226 22 17,978 - 18,000 Stockholders' distributions - - - (192,117) (192,117) Net loss - - - (1,876,810) (1,876,810) ----------- --------- ---------- ----------- ----------- Balance, June 30, 1995 3,069,976 30,699 6,295,282 (2,922,916) 3,403,065 Shares issued under stock option plan 34,200 342 11,170 - 11,512 Issuance of common stock 2,008,447 20,084 406,246 - 426,330 Additional costs of initial public offering of common stock - - (43,430) - (43,430) Net income - - - 424,056 424,056 ----------- --------- ---------- ----------- ----------- Balance, June 30, 1996 5,112,623 51,125 6,669,268 (2,498,860) 4,221,533 Issuance of common stock 202,857 2,029 1,417,970 - 1,419,999 Shares issued under stock option plan including deferred tax effects of exercise of stock options 18,553 186 102,779 - 102,965 Common stock subscribed, net - - - - 1,390,102 Net income - - - 387,373 387,373 ----------- --------- ---------- ----------- ----------- Balance, September 30, 1996 (unaudited) 5,334,033 $53,340 $8,190,017 $(2,111,487) $ 7,521,972 =========== ========= ========== =========== ===========
The accompanying notes are integral part of these financial statements. F-4
VIEW TECH, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended Three Month Periods Ended June 30, September 30, ----------------------------- ------------------------------ 1996 1995 1996 1995 ------------- ------------ ------------ ----------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 424,056 $(1,876,810) $ 387,373 $ 274,643 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amoritzation 872,969 909,258 266,539 112,455 Provision for bad debts (307,818) 159,300 101,516 (176,881) Noncash charge relating to loss on sublease including shutdown of offices - 678,847 - - Reserve on term loan to PDS 265,000 - - - Charges in assets and liabilities, net of effects of acquisitions: Accounts receivable (1,968,522) (1,488,827) (1,490,954) 216,173 Inventory (679,357) (586,790) (22,352) (779,684) Prepaids and other assets (617,359) 417,291 (392,054) (320,475) Accounts payable 2,299,539 532,287 1,110,532 1,321,627 Other accrued liabilities (1,232,266) 557,962 (124,358) (696,546) ----------- ----------- ----------- ----------- Net cash used by operating activities (943,758) (697,482) (163,758) (48,688) ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (865,496) (831,070) (223,791) (62,300) Term loan to PDS (265,000) - - - Acquisition of VisaTel and GroupNet - - (149,313) - ----------- ----------- ----------- ----------- Net cash used by investing activities (1,130,496) (831,070) (373,104) (62,300) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) on line of credit 43,473 418,103 (518,631) (559,160) Issuance of term note payable to bank - 1,500,000 - - Long Term debt reduction (1,734,620) (267,652) (583,568) (927,266) Lease payable reduction (85,531) (60,858) (19,103) (17,818) Payments on amounts due to former landlord (66,220) (370,467) (44,522) 89,151 Stockholder distributions - (192,117) - - Issuance of common stock, net 437,842 5,302,214 5,250 427,951 Additional costs for initial public offering of common (43,430) - - (43,430) stock Common stock subscribed for private placement - - 1,390,102 - offering, net ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities (1,448,486) 6,329,223 229,528 (1,030,572) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (3,522,740) 4,800,671 (307,334) (1,141,560) CASH, BEGINNING OF PERIOD 4,987,939 187,268 1,465,199 4,987,939 ----------- ----------- ----------- ----------- CASH, END OF PERIOD $ 1,465,199 $ 4,987,939 $ 1,157,865 $ 3,846,379 =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES: Operating activities reflect: Interest paid $ 467,061 $ 454,319 $ 85,676 $ 119,754 =========== =========== =========== =========== Income taxes paid $ 375,480 $ 27,580 $ 600 $ 255,300 =========== =========== =========== ===========
The accompanying notes are integral part of these financial statements. F-5 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 NOTE 1 -- THE BUSINESS - ---------------------- View Tech, Inc. markets and installs video communications systems and provides continuing services related to installed systems to customers in select states throughout the United States. The Company was incorporated under the laws of California in 1992 and commenced operations in July 1992. In November 1996, the Company changed its state of incorporation from California to Delaware. Also in November 1996, View Tech acquired USTeleCenters, Inc. ("UST"), which designs, sells, and supports telecommunication systems solutions for small and medium-sized businesses throughout the United States. UST also sells telecommunication services on behalf of certain Regional Bell Operating Companies ("RBOCs"). This business combination was accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods prior to the business combination to include the results of operations, financial position, and cash flows of UST. UST incurred significant losses in the year ended June 30, 1995, which resulted in noncompliance under certain of its bank covenants and resulted in UST restructuring its operations. Certain restructuring costs, primarily severance, lease termination costs and fixed-asset write-offs were recorded during the year ended June 30, 1995. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------- Principles of Consolidation. The accompanying consolidated financial --------------------------- statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation. Fiscal Periods. The Company's Fiscal year end is June 30. UST's year end -------------- is December 31. The accompanying Financial Statements for UST for the twelve month periods ended June 30, 1996 and 1995 are presented in order to conform with ViewTech, Inc.'s year end. 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 title to the equipment passes to the customer. 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 are billed as a single charge and 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 at the time of installation, with a reserve established for the estimated future costs of warranty services. Services rendered with respect to previously installed systems are also billed as a single charge and consist of engineering services related to evaluation and enhancement of equipment, additional technical and user training, and extended warranty services. The related revenue is also recognized at the time the majority of the services are rendered, with a similar reserve established for the estimated costs of the warranty services included in the charge. F-6 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 The Company has agency agreements with various local exchange carriers and telecommunications companies whereby the Company receives commissions on work referred to these entities. The agreements are subject to annual renewals. At June 30, 1995 the Company recognized revenues at the time that it received an order number for installation or at the time the service was performed by the local exchange carrier or telecommunications company. During fiscal year ended June 30, 1996 the Company changed its revenue recognition policy due to operational and procedural changes made by certain local exchange carriers whereby the carrier changed the procedures in issuing order numbers. The Company now recognizes revenue when the installation or service is ordered from the local exchange carrier or telecommunication company and a reserve is recorded for orders that will not receive an order number. Certain of the entities have the right to credit or charge back future commission payments on orders canceled within a 6 to 10 month period from the date of order. Provision for cancellations are made at the time revenue is recognized. The Company is not aware of any possible refunds or charge-backs that these entities might be seeking, which have not been reserved at June 30, 1996. In addition, under its agreement with NYNEX, the Company receives commissions on management contracts. The Company recognizes these revenues at the time the service is rendered. Use of Estimates. The preparation of financial statements in conformity ----------------- with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Net Income (Loss) Per Share. Net income per share is computed on the basis --------------------------- of the weighted average number of shares of Common Stock outstanding during the period after consideration of the shares issued to consummate the merger and of the dilutive effect, if more than 3%, of stock options. All options granted by the Company at a price less than the initial public offering price during the 12 months preceding the initial public offering (using the treasury stock method until shares are issued) have been included in the calculation of common and common equivalent shares outstanding for the periods presented if dilutive. 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. Short-term investments are stated at lower of cost or market and are insured up to $100,000 by the FDIC. 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 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 and amortization of property and equipment is provided using the straight-line and MACRS methods over estimated useful lives ranging from one to ten years. Expenditures for maintenance and repairs are charged to expense as incurred. F-7 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 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. UST has elected to be treated as an S corporation for federal income tax purposes pursuant to Section 1362(a) of the Internal Revenue Code. As an S corporation, all items of income or loss are passed through to the stockholders and are reportable on their individual income tax returns. UST has elected to be treated as a C corporation in California and New York. As a C corporation UST is responsible for paying all taxes or income allocable to these states. The Commonwealth of Massachusetts imposes income taxes at the corporate level on certain S corporations with annual revenues in excess of $6 million. As such, UST is subject to taxes at the corporate level in this state. Upon consummation of the business combination, (discussed in note 1 and 3) UST converted to a C corporation pursuant to Section 1362 of the Internal Revenue Code. The financial statements reflected herein are for periods while UST was still an S corporation, and accordingly, the provision for income taxes on UST income before taxes has been calculated as discussed above. Concentration of Risk. Items that potentially subject the Company to --------------------- concentrations of credit risk consist primarily of investments in excess of FDIC limits and the dependence on a major equipment vendor. Approximately 38% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel and approximately 21% of revenues are attributable to the sale of network products and services provided by NYNEX. Termination or change of the Company's business relationship with PictureTel and/or NYNEX, disruption in supply, failure of these suppliers to remain competitive in quality, function or price, or a determination by such suppliers to reduce reliance on independent distributors such as the Company could have a material adverse effect on the Company. Reclassifications. The Company has reclassified travel expenses relating ----------------- to technical services of $51,442 to cost of revenue from general and administrative expense for the year ended June 30, 1995 to conform to the current years presentation. NOTE 3 -- BASIS OF PRESENTATION - ------------------------------- On November 29, 1996, the Company acquired UST through a business combination accounted for as a pooling-of-interests for financial reporting purposes. Accordingly, the financial statements have been restated to include all the historical results for UST. A reconciliation of consolidated total revenues and net income to amounts applicable to the separate pooled companies prior to the date of combination (effective, November 29, 1996) is as follows: F-8 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995
Years Ended June 30, ----------------------------- 1996 1995 ----------------------------- Total revenues: View Tech............................................... $13,346,103 $ 6,963,487 USTeleCenters........................................... 17,647,633 21,534,482 ----------- ----------- $30,993,736 $28,497,969 =========== =========== Net income (loss): View Tech............................................... $ (696,060) $ 458,890 USTeleCenters........................................... 1,120,116 (2,335,700) ----------- ----------- $ 424,056 $(1,876,810) =========== =========== Net income (loss) per share (fully-diluted basis) View Tech............................................... $ (.13) $ .12 USTeleCenters........................................... .20 (.62) ----------- ----------- $ .07 $ (.50) =========== ===========
NOTE 4 -- CASH - --------------- Cash is summarized as follows:
June 30, ------------ 1996 ------------ Cash in money market...................................................... $1,014,356 Cash in other accounts.................................................... 450,843 ---------- $1,465,199 ===========
As of June 30, 1996, cash deposits of $150,000 are restricted for use as collateral in connection with an outstanding letter of credit of $250,000 to PictureTel. F-9 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 NOTE 5 -- INVENTORY - ------------------- Inventories are summarized as follows:
June 30, ------------ 1996 ------------ Finished goods.................................. $ 625,365 Demonstration equipment......................... 488,148 Spare parts..................................... 695,042 ---------- 1,808,555 Less reserve for obsolescence................... 60,000 ---------- $1,748,555 ==========
NOTE 6 -- PROPERTY AND EQUIPMENT - -------------------------------- Property and equipment are summarized as follows:
June 30, ------------ 1996 ------------ Computer equipment and software................. $1,049,367 Equipment....................................... 1,199,034 Furniture and fixtures.......................... 587,421 Leasehold improvements.......................... 321,889 Autos........................................... 18,931 ---------- 3,176,642 Less accumulated depreciation................... 1,696,614 ---------- 1,480,028 Leased equipment under capital leases, net of accumulated amortization................ 1,240,394 ---------- $2,720,422 ==========
F-10 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 NOTE 7-- LONG-TERM DEBT - ----------------------- At June 30, 1996 long-term debt consisted of the following:
June 30, ----------- 1996 ----------- Revolving line of credit with a bank.................. $1,868,105 Capital lease obligations (see Note-8)................ 1,379,380 Term note due to a bank............................... 430,000 Due to landlords (see Note-9)......................... 217,165 Deferred rent......................................... 56,796 ---------- 3,951,446 Less current maturities............................... 2,998,582 ---------- $ 952,864 ==========
The Company maintains a $500,000 credit facility (the "Note") to meet its working capital needs, if required. The Note expires on November 1, 1996 and provides for interest at the prime rate plus one and one-half percent per year. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at June 30, 1996, although the Company has as of June 30, 1996, five outstanding standby letters of credits aggregating $300,000 of which four were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture and one was issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $200,000. As of June 30, 1996, the Company was in technical default on two of its loan covenants for which it has received a waiver of default from the lender. The Company's wholly owned subsidiary maintains a revolving line of credit with a bank. The bank has a security interest in the Company's assets. In addition, the Company has agreed, among other things, to maintain certain financial covenants and ratios. As of June 30, 1996, the Company's subsidiary was in compliance with the covenants or had received waivers under the Forbearance Agreement. Under the terms of the Forbearance Agreement, the subsidiary may borrow up to the lesser of the financial borrowing base, or $2,000,000. At June 30, 1996, approximately $1,868,000 was utilized under the revolving line of credit. Interest on the outstanding balance is payable monthly at the bank's base rate (8.25% at June 30, 1996) plus 1.5%. The outstanding credit facilities are guaranteed by the Company. F-11 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1996 On November 27, 1996, the revolving line of credit and Forbearance Agreement was amended and extended to March 31, 1997. The amended revolving credit agreement provided for monthly reductions in the borrowing base of $50,000 from July to September 1996. The Company maintains a $1,500,000 term note with a bank. Under the term note, the subsidiary is required to make principal payments in twenty (20) equal, consecutive, monthly payments of $75,000 on the last day of each month, beginning on April 30, 1995. Interest under the note accrued at the bank's base rate plus 2.5% until March 31, 1995, and then, at the bank's base rate plus 4.5%. Interest is payable on the last day of each month. On June 3, 1996, the term note agreement was amended to bear interest at the bank's base rate. The outstanding principal balance of $430,000 and accrued interest under the term note were paid in full on September 1, 1996. The Company's subsidiary had maintained a lease line-of-credit agreement with a bank which was converted into a term note as part of the forebearance agreement. At June 30, 1996, there was approximately $1,045,000 outstanding under this facility. The subsidiary is required to maintain certain restrictive covenants, including profitability and liquidity covenants. Amounts outstanding bear interest at rates ranging from 5.6% to 8.3%. As of June 30, 1996, the subsidiary was in compliance with the covenants or had received waivers under the Forbearance Agreement. In January 1996, the Company's subsidiary converted approximately $700,000 payable to an equipment vendor into a promissory note bearing interest at 9% per annum. Principal and interest are scheduled to be repaid in monthly installments of approximately $73,000 from February to November 1996. NOTE 8 -- LONG-TERM CAPITAL LEASE OBLIGATIONS - ----------------------------------------------- The Company leases a portion of its machinery and equipment under certain capital lease agreements. The following is an analysis of the leased equipment:
June 30, 1996 ------------- Equipment........................................... $ 992,764 Furniture and fixtures.............................. 1,332,430 ---------- 2,325,194 Less accumulated amortization....................... 1,084,800 ---------- $1,240,394 ==========
The following is a schedule of future minimum lease payments required under capital leases, together with their present value as of June 30, 1996: F-12 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995
Year Ending June 30, ------------------- 1997................................................ $ 527,977 1998................................................ 379,180 1999................................................ 311,300 2000................................................ 133,468 2000 and thereafter................................. 27,455 ---------- $1,379,380 ========== Net minimum lease payment........................... $1,585,740 Less amount representing interest................... 206,360 ---------- Present value of net minimum lease payments......... $1,379,380 ==========
NOTE 9 -- AMOUNTS DUE TO LANDLORDS - ----------------------------------- In 1994, the Company's wholly owned subsidiary entered into a sublease agreement for its previously occupied facility. Under the terms of the sublease, the subsidiary is still primarily liable for the amounts due under the original lease. Under the terms of the sublease agreement, the subsidiary is required to make payments to the landlord for the monthly differential between the original lease amount (approximately $23,700 per month) and the sublease income (approximately $14,000 per month). The subsidiary is required to pay approximately $9,700 per month through June 1997. The balance of net future amounts due to the former landlord is $97,742 as of June 30, 1996. In 1995, the subsidiary financed $150,880 of leasehold improvements through an allowance from the landlord. As of June 30, 1996, approximately $86,000 is outstanding for these improvements. This amount is being repaid in monthly installments of approximately $5,000 through December 1997. In connection with the restructuring discussed in Note 1, the subsidiary wrote off these improvements and recorded a loss of approximately $151,000. Additionally, the subsidiary entered into a sublease agreement for this facility. The subsidiary recorded a loss of approximately $104,000 which represented the difference between the total future payments reduced by sublease amounts paid directly to the landlord. In the event that the sublease fails to make its required monthly payments of approximately $12,000 through August 1998, the Company is still primarily liable for such sums. NOTE 10 -- COMMITMENTS AND CONTINGENCIES - ----------------------------------------- The Company leases its facilities in California, Colorado, Georgia, Massachusetts, New York, Tennessee, and Texas, under operating leases expiring through September 30, 2001. Certain leases require the Company to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. The Company also leases certain equipment. Lease payments for the year ended June 30, 1996 and 1995 were approximately $1,160,000 and $ 885,000, respectively. Minimum future rental commitments under non cancelable operating leases (including amounts due to landlords, net of any sublease income) are as follows: F-13 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995
Year Ending June 30, - ------------------- 1997........................................ $ 908,554 1998........................................ 636,073 1999........................................ 437,823 2000........................................ 396,245 2001 and thereafter......................... 434,400 ---------- $2,813,095 ==========
The Company has received rent concessions during the first year of certain leases, which are being deferred and amortized over the term of the lease. The Company's primary equipment supplier, PictureTel Corporation ("Picturetel"), provides the Company with a purchasing line of credit and requires the Company to maintain a letter of credit for $250,000 in favor of PictureTel in connection with this arrangement. The $250,000 letter of credit is collateralized by cash deposits of $150,000 and the assets of the Company. The subsidiary is named in employee-related lawsuits, in which the plaintiffs are seeking undisclosed damages. The Company is vigorously defending itself against such litigation and does not expect the outcome to have a material impact on its financial position. NOTE 11 -- COMMON AND PREFERRED STOCK - ------------------------------------- Common Stock. On March 20, 1995, the Company effected a 100-for-1 stock ------------ split, increasing the number of outstanding shares to 1,476,000. All share and per-share data have been adjusted to reflect these adjustments to capital 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 it's stock from .01 to .0001 per share. Public Stock Offering. On June 15, 1995 the Company completed an initial --------------------- public stock offering, "IPO" for the sale of 1,200,000 shares of its common stock at $5.00 per share, less offering expenses. On June 25, 1995 the Company transferred and closed the sale of an additional 180,000 shares of it's common stock to a representative of the Underwriters on the same terms, solely to cover over-allotments. With the over-allotment option exercised in full, the total price to the public, total underwriting discounts and expenses, other expenses and net proceeds to the Company were $6,971,875, $978,343, $709,318, and $5,284,214, respectively. Warrants. Included in the public stock offering in June 1995, was the sale -------- of 575,000 warrants to the public. All warrants are exercisable at $5.00 per share for a period of two years commencing one year after the effective date of the registration statement. 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 F-14 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 years commencing June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants at an exercise price of $.1675 per warrant or 135 % of the public offering price. Each warrant is exercisable into one share of common stock at a price of $6.75 per share for a three year period commencing on June 15, 1995. Preferred Stock. On February 1, 1995, the shareholders approved an --------------- amendment to the Articles of Incorporation to authorize the issuance of 5,000,000 shares of $.01 par value Preferred Stock. 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. Stock Option Plan. In July 1994, the Company began granting stock options ----------------- to key employees and certain non-employee directors and consultants to the Company. 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 shareholders. The stock option plan generally requires 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 Plan, all outstanding options shall become immediately exercisable upon a greater than 30% change in control of the Company. Activity with respect to the Stock Option Plan has been as follows:
Shares Exercise Price --------- -------------- Options outstanding, June 30, 1994...... 16,560 $1.000 - 2.200 Granted............................ 380,600 .250 - 5.000 Exercised.......................... (2,208) 2.000 Cancelled.......................... (11,605) .375 - 2.000 --------- -------------- Options outstanding, June 30, 1995...... 383,347 .250 - 5.000 Granted............................ 682,503 6.375 - 7.750 Exercised.......................... (34,300) .250 - .375 Cancelled.......................... (23,447) .250 - 6.625 --------- Options outstanding, June 30, 1996...... 1,008,103 =========
In addition, as of June 30, 1996, the Company had outstanding an aggregate of 346,000 options primarily to consultants and advisors to the Company. Approximately 6,000 options were issued at a market price of $5.00, the remainder of such options were issued at market prices ranging from $6.375 to $7.375 and are fully vested. Upon consummation of the business combination on November 29, 1996 (as discussed in notes 1 and 3) all unvested stock options became immediately exercisable. At such time, the Company assumed all unexercised UST stock options, 184,003, based on a conversion ratio. These options, assumed upon consummation, are also fully vested and immediately exercisable. NOTE 12 -- PENSION AND PROFIT SHARING PLAN - ------------------------------------------- The Company and its wholly owned subsidiary participate in 401(k) retirement plans. Under plan 1, the Company's employees may contribute up to 15% of their compensation per year, with the F-15 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 Company matching 25% of the employees' contributions not to exceed 5% of compensation. All employees with six months of continuous service are eligible to participate in the plan. Company contributions vest at 20% annually over five years beginning on the second year of service. The Company's wholly owned subsidiary participates in plan 2. Under this plan, employees may contribute up to 15% of their compensation. The subsidiary may match employee contributions. Subsidiary contributions vest at 20% annually over five years. Employer contributions to the 401(k) plans for the years ended June 30, 1996 and 1995 were approximately $67,000 and $57,000, respectively. NOTE 13 -- OTHER INCOME (EXPENSE) - ----------------------------------- Included in other income (expense) at June 30, 1996, is a $265,000 expense incurred in connection with the write-off of the Company's note receivable from Power-Data Services, Inc. ("PDS") which was due on May 31, 1996. The note and interest were not paid when due, therefore, the Company has deemed this note to be uncollectible. Also included in other income (expense) at June 30, 1996, was approximately $344,000 of net interest expense. Other income (expense) at June 30, 1995 was primarily comprised of net interest expense. NOTE 14 -- PROVISION FOR INCOME TAXES - --------------------------------------- Provision for income taxes is as follows:
Years Ended June 30, ------------------------------ 1996 1995 --------- ---------- Current: Federal...................... $178,150 $(185,040) State........................ (93,100) (68,684) Deferred: Federal...................... 128,309 (34,031) State........................ 46,457 (6,328) -------- --------- $259,816 $(294,083) ======== =========
Total income tax expense differs from the expected tax expense (computed by multiplying the United States federal statutory rate of approximately 35 percent for the year ended June 30, 1996 and 1995 to income before income taxes) as a result of the following:
Year Ended June 30, -------------------------- 1996 1995 ---------- ---------- Computed "expected" tax (expense) benefit............. $(57,484) $ 553,955 State tax expense, net of federal benefit............. (9,608) 92,590
F-16 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 S corporation tax differential.............................. 424,346 (817,495) Other, net.................................................. (97,438) (123,133) -------- --------- $259,816 $(294,083) ======== =========
The current portion of the Federal income tax benefit is comprised of an income tax refund created by the carryback of a net operating loss. The primary components of temporary differences which give rise to deferred taxes at June 30, 1996 are as follows: Deferred tax asset: Reserves and allowances................ $ 22,677 Net operating loss carryforward........ 165,007 -------- $187,684 ========
The tax effect of temporary differences that give rise to deferred tax liabilities at June 30, 1996 was not material. Management has determined that the Company will be able to realize the tax benefits of the net deferred tax assets based on the future reversal of the taxable temporary differences. At June 30, 1996, the Company had available net operating loss (NOL) carryforwards of approximately $580,000 for federal income and state tax purposes, respectively. The federal NOL has a carryover period of 15 years and is available to offset future taxable income, if any, through 2011, and may be subject to an annual statutory limitation. NOTE 15 -- SEGMENT INFORMATION (UNAUDITED) - ------------------------------------------- The Company's operations are classified into two primary industry segments: (a) product sales and service revenue generated from the sale of telecommunication equipment and of videoconferencing and related services which involve the marketing and installation of video communication systems and providing continuing services related to installed systems, and (b) marketing telecommunication services on behalf of certain RBOCS and exchange carriers for an agency commission. Following is a summary of segment information for the twelve months ended June 30, 1996 and 1995: June 30, 1996
Product Sales and Service Agency Revenues Commissions Combined ------------- ----------- ------------ Total Revenue $19,680,386 $11,313,350 $30,993,736 =========== Operating profit 743,576 4,225,000 $ 4,968,576 General corporate expenses (4,145,078) Other expense (659,258) -----------
F-17 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 Income from continuing operations before income taxes $ 164,240 =========== Identifiable assets at June 30, 1996 2,404,065 1,257,000 $ 3,661,065 Corporate assets 11,180,024 ----------- Total assets at June 30, 1996 $14,841,089 =========== June 30, 1995
Product Sales and Service Agency Revenue Commissions Combined ------------- ----------- ------------ Total Revenue $10,801,669 $17,696,300 $28,497,969 =========== Operating profit 282,513 4,517,000 $ 4,799,513 General corporate expenses (4,476,487) Other expense (1,905,753) ----------- Income from continuing operations before income taxes $(1,582,727) ===========
NOTE 16 -- SUPPLEMENTAL DISCLOSURES-CASH FLOW INFORMATION - ----------------------------------------------------------
Years Ended June 30, ---------------------------- 1996 1995 ----------- ----------- Schedule of noncash transactions: Noncash investing and financing transactions: Cost of fixed assets purchased................... $1,260,935 $1,726,132 Less lease financing............................. (395,439) (895,062) ---------- ---------- Cash paid for fixed assets $ 865,496 $ 831,070 ========== ==========
During the twelve month period ended June 30, 1996, the Company converted approximately $700,000 of accounts payable to a vendor into a term note. During the twelve month period ended June 30, 1995, the Company acquired $150,880 of leasehold improvements under allowance for amounts due to landlords. NOTE 17 -- RELATED PARTY TRANSACTIONS - --------------------------------------- The Company had obtained a $100,000 letter of credit used to guarantee payment to a major supplier. The letter of credit matured on July 1, 1995 and was secured by a certificate of deposit owned by the Company's President. This certificate of deposit was redeemed and returned to the Company's President. A new letter of credit was obtained at the Company's primary banking institution. One individual who served as a director of the Company through June 24, 1996 is also an executive officer of Windermere Holdings, Incorporated ("Windermere"), who serves as an advisor to F-18 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 the Company. The Company has entered into a management services agreement with Windermere under which Windermere is obligated to assist the Company with a variety of management matters, including strategic initiatives, marketing strategies and contract negotiations. The initial agreement expired on September 30, 1995 and was subsequently renewed by the Company on November 1, 1995 for a period of eight months. In connection with Windermere's services, the Company paid fees and expenses of $72,500 and $32,642, respectively, for the year ended June 30, 1996. One of the Company's directors who served as a director of the Company through June 12, 1996, also serves as an executive officer of Coffin.KCSA, the Company's public relations firm and advisor. In connection with Coffin.KCSA's services, the Company paid fees and expenses of $65,000 and $13,173, respectively for the year ended June 30, 1996. NOTE 18 -- SUBSEQUENT EVENTS (UNAUDITED) - ----------------------------------------- VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, the Company acquired the net assets of VistaTel International, Inc., ("VistaTel") a private company, based in Boca Raton, Florida, which is a supplier of video conferencing products and services within the state of Florida and is one of PictureTel's national re-sellers. View Tech issued 52,857 shares of common stock, valued at $7.00 per share, to the sole shareholder of VistaTel. The excess of the acquisition price over the net assets acquired of approximately $339,000 will be accounted for as goodwill and amortized over 15 years. GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and View Tech common stock valued at $1,380,000. The purchase price consisted of 150,000 shares of common stock valued at $7.00 per share and $330,000 in cash, of which, $110,000 was paid on August 30, 1996 in connection with the execution of the agreement, and $220,000 is payable in equal installments of $110,000 due on October 15, 1996 and December 16, 1996, respectively. The excess of the acquisition price over the net assets acquired of approximately $1,330,000 will be accounted for as goodwill and amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel dealer in the northeastern United States. GroupNet merged into View Tech, which will continue to operate the business of GroupNet. USTELECENTERS, INC. - ------------------- On September 5, 1996, View Tech announced that it entered into a definitive agreement of merger with UST, an authorized sales agent for several of the regional bell operating companies. The merger was consummated, effective November 29, 1996, and was valued at $16.5 million. The transaction was accounted for as a pooling of interests in which UST's shareholders exchanged all of their outstanding UST shares and options for View Tech common stock and options, respectively. UST shareholders received 2,240,976 shares of ViewTech, Inc. common stock in exchange for all outstanding shares held by UST shareholders. F-19 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 The Company will require additional working capital to efficiently operate its business and to adequately provide for its working capital needs. In this regard, the Company is in the process of increasing the Note from $500,000 to $1,750,000 and is seeking private equity financing of up to approximately $3,000,000 to satisfy its working capital needs. In addition, if the Company continues its expansion and/or acquisition activities, it will require additional capital to finance such activities. Exclusive of the cash required to repay the UST debt obligations on March 31, 1997 and to fund additional expansion activities, the Company believes that its existing cash balances, combined with the proceeds from its anticipated private placement of Common Stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. The inability to obtain required additional financing could limit the Company's ability to operate the Company efficiently or to continue its expansion activities. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. Inability to obtain required additional financing could limit the Company's ability to efficiently operate the combined companies. PRIVATE PLACEMENT - ----------------- Subsequent to June 30, 1996, the Company received subscriptions for equity capital of approximately $1,500,000 through the private placement of 300,281 shares of common stock. The private placement was closed on October 31, 1996 with the Company realizing net proceeds of $1,380,000 million. The Company used the net proceeds for general working capital purposes and for working capital loans made to UST in connection with the merger. F-20 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) NOTE 1 - GENERAL - ---------------- View Tech, Inc. markets and installs video communications systems and provides continuing services related to installed systems to customers in select states throughout the United States. In November 1996, View Tech acquired USTeleCenters, Inc. ("UST") which designs, sells and supports telecommunication systems solutions for small and medium-sized businesses throughout the United States. UST also sells telecommunication services on behalf of certain Regional Bell Operating Companies ("RBOCs"). The business combination (the "Merger") was accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods prior to the business combination to include the results of operations, financial position and cash flows of UST. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. The financial statements presented herein should be read in conjunction with the audited financial statements and notes thereto included in this Form SB-2 for the fiscal years ended June 30, 1996 and 1995. NOTE 2 - NET INCOME PER SHARE - ----------------------------- Net income per share is computed on the basis of the weighted average number of shares of Common Stock outstanding during the period after consideration of the shares issued to consummate the merger and of the dilutive effect, if more than 3%, of stock options and common stock purchase warrants if dilutive. NOTE 3 - LINES OF CREDIT - ------------------------ The Company maintains a $500,000 credit facility (the "Note") to assist in meeting its working capital needs, if required. The Note expires on February 28, 1997 and provides for interest at the prime rate plus 1.5% per annum. The Company is currently in the process of renewing this credit facility to provide for a borrowing limit of up to $1.750 million to provide for some of its working capital needs. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at September 30, 1996, although the Company has as of September 30, 1996, five outstanding standby letters of credits aggregating $274,000. Four of such standby letters of credit were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture, and one is issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $226,000. The Company's wholly-owned subsidiary, UST, maintains a revolving credit agreement with a bank. The agreement, pursuant to the terms of a forbearance agreement, as amended, allows the subsidiary to borrow up to the lesser of the financial borrowing base, as defined, or $1.850 million. The bank has a security interest in the subsidiary's assets and the Company is guaranteeing the repayment of amounts borrowed under the line. In addition, the subsidiary has agreed, among other things, to maintain certain financial covenants and ratios, as defined. As of September 30, 1996, UST was in F-21 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) compliance with the covenants or had received waivers under the forbearance agreement. Interest on the outstanding balance is payable monthly at the bank's base rate (8.25% at September 30, 1996) plus 1.5%. In November 1996, UST amended its revolving line of credit and forbearance agreement with the bank whereby the revolving line of credit and forbearance agreement have been extended to March 31, 1997. In addition, UST had maintained a lease line-of-credit agreement with a bank which was converted into a term note as part of the forbearance agreement. At September 30, 1996, there was approximately $973,600 outstanding under this facility. UST is required to maintain certain restrictive covenants, including profitability and liquidity covenants. Amounts outstanding bear interest at rates ranging from 5.6% to 8.3%. As of September 30, 1996, UST was in compliance with the covenants or had received waivers under the forbearance agreement. UST's lines of credit are due on March 31, 1997. UST is subject to a forbearance agreement which enables the lender to foreclose on the debt if UST's financial condition falls below certain minimum standards. The forbearance agreement, as amended, was originally entered into on June 14, 1995. Based on UST's relationship with the lender, the Company's management anticipates that the lender will refinance the lines of credit or extend the date on which the lines of credit must be paid. However, if the lender does not refinance such lines of credit and the Company has not raised additional equity and/or arranged for alternative bank financing, the Company will not have sufficient cash to repay the lender when the debt comes due. There can be no assurance that View Tech will be able to renegotiate the lines of credit with the lender, and if the lender requires payment in March 1997, there can be no assurance that View Tech will be able to raise the additional funds necessary to meet the Company's operating needs and capital requirements or that such funds, if available, can be obtained on terms acceptable to the Company. The failure to refinance the lines of credit, raise additional capital or obtain additional bank financing will have a material adverse effect on the Company's business, financial condition and results of operations. NOTE 4 - COMMITMENTS - -------------------- The Company executed a new office lease agreement on October 11, 1996 for approximately 5,946 square feet to house its Atlanta operations. The lease provides for monthly rental payments of $10,653, plus its portion of building operating expenses. The lease commenced on December 1, 1996 for a term of three years. The office space previously occupied by the Company will be sub-let. NOTE 5 - ACQUISITIONS - --------------------- VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, View Tech acquired the net assets of VistaTel International, Inc. ("VistaTel"), a private company based in Boca Raton, Florida, which was a primary supplier of video conferencing products and services within the State of Florida and one of PictureTel's national re- sellers. View Tech issued 52,857 shares of Common Stock, valued at $7.00 per share, to the shareholders of VistaTel as consideration for the acquisition. The excess of the acquisition price of $339,000 over the net assets acquired is being accounted for as goodwill which is amortized over 15 years. The Company continues to operate VistaTel's previous business, which sells and services video conferencing systems and provides network bridging services for businesses. F-22 VIEW TECH, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and Common Stock valued at $1.330 million. The purchase price consisted of 150,000 shares of Common Stock valued at $7.00 per share or $1.050 million in the aggregate and $330,000 in cash, of which $110,000 was paid on August 30, 1996 upon execution of the agreement and $220,000 is payable on or before January 15, 1997. The excess of the acquisition price over the net assets acquired of approximately $1.330 million is being accounted for as goodwill which is amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel Select Dealer in video communication product distribution in the northeastern United States. View Tech is continuing to operate GroupNet's former business in Boston and New York. With the addition of GroupNet, View Tech has added the northeastern United States to its marketing territory. USTELECENTERS, INC. - ------------------- On September 5, 1996, View Tech announced that it had entered into a definitive agreement of merger with UST, which was an authorized sales agents for several of the regional bell operating companies. The Merger was consummated, effective November 29, 1996, and was valued at $16.500 million. The transaction was accounted for as a pooling of interests in which the UST's shareholders exchanged all of their outstanding UST shares and options for View Tech Common Stock and options, respectively, UST shareholders received 2,240,976 shares of View Tech Common Stock in exchange for all outstanding shares held by UST shareholders. PRIVATE PLACEMENT - ----------------- At September 30, 1996, the Company had received common stock subscriptions for equity capital of approximately $1.500 million through the private placement of 300,281 shares of common stock. The private placement was terminated on October 31, 1996 with the Company realizing net proceeds of approximately $1.390 million. The Company is using the net proceeds for general working capital purposes and to replenish its cash loaned to UST in connection with the Merger. F-23 INDEPENDENT AUDITORS' REPORT To Board of Directors and Shareholders of VIEW TECH, INC. We have audited the accompanying balance sheets of View Tech, Inc. as of June 30, 1996 and 1995 and the related statements of operations, stockholders' equity and cash flows for the years 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 financial statements referred to above present fairly, in all material respects, the financial position of View Tech, Inc., as of June 30, 1996 and 1995, and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. CARPENTER KUHEN & SPRAYBERRY Oxnard, California September 24, 1996 (except with respect to the matters discussed in Note 18, as to which the date is December 23, 1996) F-24 VIEW TECH, INC. BALANCE SHEETS JUNE 30, 1996 AND 1995
ASSETS June 30, ------------------------ 1996 1995 ---------- ---------- Current Assets: Cash $1,463,199 $4,987,939 Accounts receivable (net allowance for doubtful accounts of $23,756 and $0, respectively) 4,720,262 2,344,544 Inventory 1,104,577 492,098 Other current assets 709,671 74,210 ---------- ---------- Total Current Assets 7,997,709 7,898,791 Property and equipment, net 820,411 141,556 Other assets 31,001 18,483 ---------- ---------- $8,849,121 $8,058,830 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $3,254,527 $1,607,788 Income tax payable -- 252,924 Note payable -- 331,466 Other current liabilities 501,406 283,413 ---------- ---------- Total Current Liabilities 3,755,933 2,475,591 ---------- ---------- Long term capital lease obligations 242,283 4,356 ---------- ---------- Commitments and Contingencies -- -- Stockholders' Equity: Preferred stock, par value $.01, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.01, authorized 10,000,000 shares, issued and outstanding 2,890,200 and 2,856,000 shares at June 30, 1996 and 1995, respectively 28,902 28,560 Paid-in capital 5,253,234 5,285,494 Retained earnings (deficit) (431,231) 264,829 ---------- ---------- 4,850,905 5,578,883 ---------- ---------- $8,849,121 $8,058,830 ========== ==========
The accompanying notes are an integral part of these financial statements. F-25 VIEW TECH, INC. STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1996 AND 1995
Years Ended June 30, ------------------------- 1996 1995 ------------ ----------- Revenues $13,346,103 $6,963,487 Cost of Revenues 9,042,922 4,327,679 ----------- ---------- Gross Profit 4,303,181 2,635,808 ----------- ---------- Operating Expenses: Selling expenses 1,706,626 685,428 General and administrative expenses 3,491,509 1,209,982 ----------- ---------- 5,198,135 1,895,410 ----------- ---------- Income (Loss) from Operations (894,954) 740,398 Other Income (Expense) (153,222) 12,575 ----------- ---------- Income (loss) before income taxes (1,048,176) 752,973 Provision for Income Taxes 352,116 (294,083) ----------- ---------- Net Income (Loss) $ (696,060) $ 458,890 =========== ========== Earnings (Loss) Per Share $ (.24) $ .26 =========== ========== Weighted Average Shares Outstanding 2,870,242 1,761,550 =========== ==========
The accompanying notes are an integral part of these financial statements. F-26 VIEW TECH, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996 AND 1995
Common stock Additional Retained Total ------------------ Paid-In Earnings Stockholders' Shares Amount Capital (Deficit) Equity -------- ------- ----------- ----------- -------------- Balance, June 30, 1994 1,476,000 $14,760 $ 15,080 $(194,061) $ (164,221) Common stock issued 1,380,000 13,800 5,270,414 -- 5,284,214 Net Income for year ended June 30, 1995 -- -- -- 458,890 458,890 --------- ------- ---------- --------- ---------- Balance, June 30, 1995 2,856,000 28,560 5,285,494 264,829 5,578,883 Shares issued under stock option plan 34,200 342 11,170 -- 11,512 Additional costs of initial public offering of common stock (43,430) (43,430) Net loss for year ended June 30, 1996 -- (696,060) (696,060) --------- ------- ---------- --------- ---------- Balance, June 30, 1996 2,890,200 $28,902 $5,253,234 $(431,231) $4,850,905 ========= ======= ========== ========= ==========
The accompanying notes are an integral part of these financial statements. F-27 VIEW TECH, INC. STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996 AND 1995
Years Ended June 30, ------------------------- 1996 1995 -------- --------- Cash flows from operating activities: Net income (loss) $ (696,060) $ 458,890 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 168,792 54,479 Provision for bad debts 23,756 -- Loss on sale of fixed assets 2,007 -- Reserve on term loan to PDS 265,000 -- Changes in assets and liabilities: Accounts receivable (2,399,474) (1,459,665) Inventory (612,479) (298,330) Prepaids and other assets (647,979) 22,406 Accounts payable 1,646,739 456,156 Other accrued liabilities (106,912) 438,152 ----------- ----------- Net cash used by operating activities (2,356,610) (327,912) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (457,695) (66,983) Term loan to PDS (265,000) -- Proceeds from sale of assets 3,480 -- ----------- ----------- Net cash used by investing activities (719,215) (66,983) ----------- ----------- Cash flows from financing activities: Lease payable reduction (85,531) (60,858) Long-term debt reduction (331,466) (27,790) Draw on line of credit -- 299,970 Line of credit reduction -- (299,970) Issuance of common stock, net 11,512 5,284,214 Additional costs for initial public offering of common stock (43,430) -- ----------- ----------- Net cash provided (used) by financing activities (448,915) 5,195,566 ----------- ----------- Net increase (decrease) in cash (3,524,740) 4,800,671 Cash, beginning of period 4,987,939 187,268 ----------- ----------- Cash, end of period $ 1,463,199 $ 4,987,939 =========== =========== Supplemental disclosures: Operating activities reflect: Interest paid $ 40,281 $ 62,690 =========== =========== Income taxes paid $ 374,680 $ 800 =========== ===========
The accompanying notes are an integral part of these financial statements. F-28 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 NOTE 1 - THE BUSINESS - --------------------- View Tech, Inc. markets and installs video communications systems and provides continuing services related to installed systems to customers in Alabama, Arizona, Arkansas, California, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Oklahoma, Tennessee, Texas, Utah and Wyoming. The Company was incorporated under the laws of California in 1992 and commenced operations in July 1992. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Revenue Recognition. The Company sells both products and services. Product -------------------- revenue consists of revenue from the sale of video communications equipment and is recognized at the time title to the equipment passes to the customer. 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 are billed as a single charge and 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 at the time of installation, with a reserve established for the estimated future costs of warranty services. Services rendered with respect to previously installed systems are also billed as a single charge and consist of engineering services related to evaluation and enhancement of equipment, additional technical and user training, and extended warranty services. The related revenue is also recognized at the time the majority of the services are rendered, with a similar reserve established for the estimated costs of the warranty services included in the charge. Use of Estimates. The preparation of financial statements in conformity with ----------------- generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Net Income (Loss) Per Share. Net income per share is computed on the basis ---------------------------- of the weighted average number of shares of common stock outstanding during the period after consideration of the dilutive effect, if more than 3%, of stock options. All options granted by the Company at a price less than the initial public offering price during the 12 months preceding the initial public offering (using the treasury stock method until shares are issued) have been included in the calculation of common and common equivalent shares outstanding for the periods presented if dilutive. F-29 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) 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. Short-term investments are stated at lower of cost or market and are insured up to $100,000 by the FDIC. 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 sells its demonstration equipment after the six month holding period required by its primary supplier. Property and Equipment. Property and equipment are recorded at cost and ----------------------- include improvements that significantly add to utility or extend useful lives. Depreciation and amortization of property and equipment is provided using the straight-line and MACRS methods over estimated useful lives ranging from one to seven years. Expenditures for maintenance and repairs are charged to expense as incurred. 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. Concentration of Risk. Items that potentially subject the Company to ---------------------- concentrations of credit risk consist primarily of investments in excess of FDIC limits and accounts receivable. Credit losses have not been material to the Company's operations. Approximately 58% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel. Termination or change of the Company's business relationship with PictureTel, disruption in supply, failure of this supplier to remain competitive in quality, function or price, or a determination by this supplier to reduce reliance on independent distributors such as the Company could have a material adverse effect on the Company. Reclassifications. The Company has reclassified certain items including ------------------ travel expenses relating to technical services of $51,442 to cost of revenue from general and administrative expense for the year ended June 30, 1995 to conform to the current years presentation. F-30 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 3 - CASH - ------------- Cash is summarized as follows:
June 30, ------------------------ 1996 1995 ---------- ---------- Cash in money market....... $1,014,356 $4,602,035 Cash in other accounts..... 448,843 385,904 ---------- ---------- $1,463,199 $4,987,939 ========== ==========
As of June 30, 1996, cash deposits of $150,000 are restricted for use as collateral in connection with an outstanding letter of credit of $250,000 to PictureTel. NOTE 4 - ACCOUNTS RECEIVABLE - ---------------------------- The Company operates in a single business segment. Accounts receivable consist of amounts due from trade customers for direct sales of products and services. NOTE 5 - INVENTORY - ------------------ Inventories are summarized as follows:
June 30, ---------------------- 1996 1995 ---------- -------- Finished goods........................... $ 343,774 $228,916 Demonstration equipment.................. 488,148 155,142 Spare Parts.............................. 272,655 108,040 ---------- -------- $1,104,577 $492,098 ========== ========
NOTE 6 - OTHER CURRENT ASSETS - ----------------------------- Included in other current assets at June 30, 1996 are deferred and prepaid state and federal income taxes of $309,030. Also included are advances to employees, officers and stockholders of $52,790 and $20,787, at June 30, 1996 and 1995, respectively. F-31 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 7 - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment are summarized as follows:
June 30, ------------------- 1996 1995 -------- -------- Computer equipment and software.......... $253,565 $ 37,761 Equipment................................ 180,950 47,231 Furniture and fixtures................... 100,663 51,392 Leasehold improvements................... 103,247 25,557 Autos.................................... 18,931 2,793 -------- -------- 657,356 164,734 Less accumulated depreciation............ 172,656 58,186 -------- -------- 484,700 106,548 Leased equipment under capital leases, net of accumulated amortization......... 355,711 35,008 -------- -------- $820,411 $141,556 ======== ========
NOTE 8 - NOTE PAYABLE - --------------------- Note payable at June 30, 1995 represents a note, guaranteed by the Small Business Administration. The note was repaid in July 1995 with proceeds from the Company's initial public offering which closed on June 15, 1995. NOTE 9 - LONG TERM CAPITAL LEASE OBLIGATIONS - -------------------------------------------- The Company leases a portion of its machinery and equipment under certain capital lease agreements. The following is an analysis of the leased equipment and inventory:
June 30, -------------------- 1996 1995 --------- -------- Equipment....................... $426,570 $84,516 Less accumulated amortization... 90,859 49,508 -------- ------- $335,711 $35,008 ======== =======
F-32 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) The following is a schedule of future minimum lease payments required under capital leases, together with their present value as of June 30, 1996:
Year Ending June 30, -------------------- 1997.......................................... $ 91,986 1998.......................................... 63,900 1999.......................................... 71,900 2000.......................................... 79,028 2001 and thereafter........................... 27,455 -------- $334,269 ======== Net minimum lease payments.................... $412,808 Less amount representing interest............. 78,539 -------- Present value of net minimum lease payments... $334,269 ========
The current portion due under capital lease obligations at June 30, 1996 was $91,986. NOTE 10 - LINE OF CREDIT - ------------------------ The Company maintains a $500,000 credit facility (the "Note") to meet its working capital needs, if required. The Note expires on November 1, 1996 and provides for interest at the prime rate plus one and one-half percent per year. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at June 30, 1996, although the Company has as of June 30, 1996, five outstanding standby letters of credits aggregating $300,000 of which four were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture and one was issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $200,000. As of June 30, 1996, the Company was in technical default on two of its loan covenants for which it has received a waiver of default from the lender. NOTE 11 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- The Company leases its facilities in California, Colorado, Texas, Tennessee and Georgia, under operating leases, expiring through September 1998. The Company also leases certain equipment. Lease payments for the year ended June 30, 1996 and 1995 were $404,960 and $85,211 respectively. F-33 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Minimum future rental commitments under noncancelable operating leases are as follows:
Year Ending June 30, -------------------- 1997.................. $267,798 1998.................. 198,576 1999.................. 90,422 2000.................. 52,013 2001 and thereafter... 15,679 -------- $624,488 ========
Letter of Credit. The Company's primary supplier, PictureTel Corporation, ----------------- provides the Company with a purchasing line of credit and requires the Company to maintain a letter of credit for $250,000 in favor of PictureTel in connection with this arrangement. The $250,000 letter of credit is collateralized by cash deposits of $150,000 and the assets of the Company. NOTE 12 - COMMON AND PREFERRED STOCK - ------------------------------------ Common stock. On March 20, 1995, the Company effected a 100-for-1 stock ------------- split, increasing the number of outstanding shares to 1,476,000. All share and per-share data have been adjusted to reflect these adjustments to capital stock. Public Stock Offering. On June 15, 1995 the Company completed an initial ---------------------- public stock offering (the "IPO") for the sale of 1,200,000 shares of its common stock at $5.00 per share, less offering expenses. On June 25, 1996 the Company transferred and closed the sale of an additional 180,000 shares of its common stock to a representative of the underwriters on the same terms, solely to cover over-allotments. With the over-allotment option exercised in full, the total price to the public, total underwriting discounts and expenses, other expenses and net proceeds to the Company were $6,971,875, $978,343, $709,318, and $5,284,214, respectively. Warrants. Included in the public stock offering in June 1995, was the sale --------- of 575,000 warrants to the public. All warrants are exercisable at $5.00 per share for a period of two years commencing one year after the effective date of the registration statement. 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 $.1675 per warrant or 135 % of the public offering price. Each warrant is exercisable into one share of common stock at a price of $6.75 per share for a three year period commencing on June 15, 1995. F-34 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Preferred Stock. On February 1, 1995, the shareholders approved an ---------------- amendment to the Articles of Incorporation to authorize the issuance of 5,000,000 shares of $.01 par value Preferred Stock. 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. Stock Option Plan. In July 1994, the Company began granting stock options ------------------ to key employees and certain non-employee directors and consultants to the Company. 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 shareholders. The stock option plan generally requires 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 Plan, all outstanding options shall become immediately exercisable upon a greater than 30% change in control of the Company. Activity with respect to the Stock Option Plan has been as follows:
Exercise Shares Price -------- -------------- Options outstanding, June 30, 1995... 376,600 $ .250 - 5.000 Granted............................ 498,500 6.375 - 7.750 Exercised.......................... (34,300) .250 - .375 Canceled........................... (16,700) .250 - 6.625 ------- Options outstanding, June 30, 1996 824,100 =======
In addition, as of June 30, 1996, the Company had outstanding an aggregate of 346,000 options primarily to consultants and advisors to the Company. Approximately 6,000 options were issued at a market price of $5.00, the remainder of such options were issued at market prices ranging from $6.375 to $7.375 and are fully vested. NOTE 13 - PENSION AND PROFIT SHARING PLAN - ----------------------------------------- The Company has adopted a 401(k) retirement plan. Employees may contribute up to 15% of their compensation per year, with the Company matching 25% of the employees' contributions not to exceed 5% of the compensation. All employees with six months of continuous service are eligible to participate in the plan. F-35 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Company contributions vest based on the following schedule:
Years of Service Vested Percent ---------------- -------------- Less than 2........................ 0% 2........................ 20% 3........................ 40% 4........................ 60% 5........................ 80% 6 or more................ 100%
Employer contributions to the 401(k) plan for the years ended June 30, 1996 and 1995 were $23,757 and $13,636, respectively. NOTE 14 - OTHER INCOME (EXPENSE) - -------------------------------- Included in other income (expense) at June 30, 1996, is a $265,000 expense incurred in connection with the write-off of the Company's note receivable from Power-Data Services, Inc. ("PDS") which was due on May 31, 1996. The note and interest were not paid when due, therefore, the Company has deemed this note to be uncollectible. NOTE 15 - PROVISION FOR INCOME TAXES - ------------------------------------ Provision for income taxes is as follows:
Years Ended June 30, ------------------------ 1996 1995 ---------- ----------- Current: Federal......................... $178,150 $(185,040) State........................... (800) (68,684) Deferred: Federal......................... 128,309 (34,031) State........................... 46,457 (6,328) -------- --------- $352,116 $(294,083) ======== =========
The current portion of the Federal income tax benefit is comprised of an income tax refund created by the carryback of a net operating loss. The primary components of temporary differences which give rise to deferred taxes at June 30, 1996 are as follows: Deferred tax asset: Reserves and allowances........... $ 22,677 Net operating loss carryforward... 165,007 -------- $187,684 ========
F-36 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) The tax effect of temporary differences that give rise to deferred tax liabilities at June 30, 1996 was not material. Management has determined that the Company will be able to realize the tax benefits of the net deferred tax assets based on the future reversal of the taxable temporary differences. At June 30, 1996, the Company had available net operating loss (NOL) carryforwards of approximately $580,000 for federal income and state tax purposes, respectively. The federal NOL has a carryover period of 15 years and is available to offset future taxable income, if any, through 2011, and may be subject to an annual statutory limitation. NOTE 16 - SUPPLEMENTAL DISCLOSURES - CASH FLOW INFORMATION - ----------------------------------------------------------
Years Ended June 30, --------------------- 1996 1995 ---------- -------- Schedule of noncash transactions: Noncash investing and financing transactions: Cost of fixed assets purchased................ $ 853,134 $66,983 Less lease financing.......................... (395,439) -- --------- ------- Cash paid for fixed assets.................... $ 457,695 $66,983 ========= =======
NOTE 17 - RELATED PARTY TRANSACTIONS - ------------------------------------ The Company had obtained a $100,000 letter of credit used to guarantee payment to a major supplier. The letter of credit matured July 1, 1995, and was secured by a certificate of deposit owned by the Company's President. This certificate of deposit was redeemed and returned to the Company's President. A new letter of credit was obtained at the Company's primary banking institution. One individual who served as a director of the Company through June 24, 1996 is also an executive officer of Windermere Holdings, Incorporated ("Windermere"), who serves as an advisor to the Company. The Company has entered into a management services agreement with Windermere under which Windermere is obligated to assist the Company with a variety of management matters, including strategic initiatives, marketing strategies and contract negotiations. The initial agreement expired on September 30, 1995 and was subsequently renewed by the Company on November 1, 1995 for a period of eight months. In connection with Windermere's services, the Company paid fees and expenses of $72,500 and $32,642, respectively, for the year ended June 30, 1996. One of the Company's directors who served as a director of the Company through June 12, 1996, also serves as an executive officer of Coffin . KCSA, the Company's public relations firm and advisor. In connection with Coffin . KCSA's services, the Company paid fees and expenses of $65,000 and $13,173, respectively for the year ended June 30, 1996 and 1995. F-37 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 18 - SUBSEQUENT EVENTS (UNAUDITED) - --------------------------------------- VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, the Company acquired the net assets of VistaTel International, Inc., ("VistaTel") a private company, based in Boca Raton, Florida, which is a supplier of video conferencing products and services within the state of Florida and is one of PictureTel's national re-sellers. View Tech issued 52,857 shares of common stock, valued at $7.00 per share, to the sole shareholder of VistaTel. The excess of the acquisition price over the net assets acquired of approximately $339,000 will be accounted for as goodwill and amortized over 15 years. GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and View Tech common stock valued at $1,380,000. The purchase price consisted of 150,000 shares of common stock valued at $7.00 per share and $330,000 in cash, of which, $110,000 was paid on August 30, 1996 in connection with the execution of the agreement, and $220,000 is payable in equal installments of $110,000 due on October 15, 1996 and December 16, 1996, respectively. The excess of the acquisition price over the net assets acquired of approximately $1,330,000 will be accounted for as goodwill and amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel dealer in the northeastern United States. GroupNet merged into View Tech, which will continue to operate the business of GroupNet. USTELECENTERS, INC. - ------------------- On September 5, 1996, View Tech announced that it entered into a definitive agreement of merger with UST, an authorized sales agent for several of the regional bell operating companies. The merger was consummated, effective November 29, 1996, and was valued at $16.5 million. The transaction was accounted for as a pooling of interests in which UST's shareholders exchanged all of their outstanding UST shares and options for View Tech common stock and options, respectively. UST shareholders received 2,240,976 shares of ViewTech, Inc. common stock in exchange for all outstanding shares held by UST shareholders. F-38 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) The Company will require additional working capital to efficiently operate its business and to adequately provide for its working capital needs. In this regard, the Company is in the process of increasing the Note from $500,000 to $1,750,000 and is seeking private equity financing of up to approximately $3,000,000 to satisfy its working capital needs. In addition, if the Company continues its expansion and/or acquisition activities, it will require additional capital to finance such activities. Exclusive of the cash required to repay the UST debt obligations on March 31, 1997 and to fund additional expansion activities, the Company believes that its existing cash balances, combined with the proceeds from its anticipated private placement of Common Stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. The inability to obtain required additional financing could limit the Company's ability to operate the Company efficiently or to continue its expansion activities. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. Inability to obtain required additional financing could limit the Company's ability to efficiently operate the combined companies. PRIVATE PLACEMENT - ----------------- Subsequent to June 30, 1996, the Company received subscriptions for equity capital of approximately $1,500,000 through the private placement of 300,281 shares of common stock. The private placement was closed on October 31, 1996 with the Company realizing net proceeds of $1,380,000 million. The Company used the net proceeds for general working capital purposes and for working capital loans made to UST in connection with the merger. F-39 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VIEW TECH, INC. BALANCE SHEETS (UNAUDITED) ASSETS
September 30, June 30, 1996 1996 ------------- ------------ Current Assets: Cash and cash equivalents $ 1,155,565 $ 1,463,199 Accounts receivable (net allowance for doubtful accounts of $29,756 and $23,756, respectively) 6,141,682 4,720,262 Notes receivable 1,008,722 -- Inventory 1,264,398 1,104,577 Prepaid and other current assets 1,096,692 709,671 ----------- ----------- Total Current Assets 10,667,059 7,997,709 Property and equipment, net 946,251 820,411 Deferred charge - goodwill (net of accumulated amortization of $11,121) 1,654,203 -- Other assets 101,343 31,001 ----------- ----------- $13,368,856 $ 8,849,121 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,664,593 $ 3,254,527 Note payable 220,000 -- Other current liabilities 576,703 501,406 ----------- ----------- Total Current Liabilities 5,461,296 3,755,933 ----------- ----------- Long-Term Liabilities 223,181 242,283 ----------- ----------- Stockholders' Equity: Preferred stock, par value $.01, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.01, authorized 10,000,000 shares, issued and outstanding 3,093,157 and 2,890,200 shares at September 30, 1996 and June 30, 1996, respectively 30,931 28,902 Common stock subscribed, net 1,390,102 -- Paid-in capital 6,768,921 5,253,234 Retained deficit (505,575) (431,231) ----------- ----------- 7,684,379 4,850,905 ----------- ----------- $13,368,856 $ 8,849,121 ----------- -----------
See accompanying notes to financial statements F-40 VIEW TECH, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, -------------------------------- 1996 1995 ----------- ----------- Revenues $ 5,364,952 $ 1,689,673 Cost of Revenues 3,786,229 1,160,358 ----------- ----------- Gross Profit 1,578,723 529,315 ----------- ----------- Operating Expenses: Selling expenses 660,931 245,496 General and administrative expenses 1,054,291 585,993 ----------- ----------- 1,715,222 831,489 ----------- ----------- Loss from Operations (136,499) (302,174) Other Income 14,120 56,216 ----------- ----------- Loss Before Income Taxes (122,379) (245,958) Provision for Income Taxes 48,036 90,607 ----------- ----------- Net Loss $ (74,343) $ (155,351) ----------- ----------- Loss Per Share $ (.03) $ (.05) ----------- ----------- Weighted Average Shares Outstanding 2,959,248 2,858,750 ----------- -----------
See accompanying notes to financial statements F-41 VIEW TECH, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30, -------------------------------- 1996 1995 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (74,343) $ (155,351) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 68,739 20,455 Provision for bad debts 6,000 -- Changes in assets and liabilities net of effects of acquisitions: Accounts receivable (815,435) (136,973) Inventory (159,821) (537,784) Prepaids and other assets (326,136) (305,166) Accounts payable 885,702 751,405 Other accrued liabilities 20,769 (328,803) ---------- ---------- Net cash used by operating activities (394,525) (692,217) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (134,795) (59,231) Term loan to USTeleCenters, Inc. (1,000,000) -- Acquisitions of VistaTel and GroupNet (149,313) -- ---------- ---------- Net cash used by investing activities (1,284,108) (59,231) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment on capital lease obligations (19,103) (16,841) Repayment of long-term debt -- (331,466) Issuance of common stock -- 1,625 Additional costs for initial public offering of common stock -- (43,430) Common stock subscribed for private placement offering, net 1,390,102 -- ---------- ---------- Net cash provided (used) by financing activities 1,370,999 (390,112) ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (307,634) (1,141,560) CASH AND CASH EQUIVALENTS, beginning of period 1,463,199 4,987,939 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $1,155,565 $3,846,379 ---------- ---------- SUPPLEMENTAL DISCLOSURES: Operating activities reflect: Interest paid $ 9,446 $ 8,799 ---------- ---------- Income taxes paid $ 600 $ 255,300 ---------- ----------
See accompanying notes to financial statements F-42 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - GENERAL - ---------------- View Tech, Inc. markets and installs video communications systems and provides continuing services related to installed systems. The information for the three months ended September 30, 1996 and 1995 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. The financial statements presented herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996. NOTE 2 - NET INCOME PER SHARE - ----------------------------- Net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, including common stock options and common stock purchase warrants when dilutive. NOTE 3 - LINE OF CREDIT - ----------------------- The Company maintains a $500,000 credit facility (the "Note") to meet its working capital needs, if required. Although the Note expired on November 1, 1996, the Company is presently working with the bank to renew the Note at a greater amount through November 1, 1997. The Note provides for interest at the prime rate plus one and one-half percent per year. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at September 30, 1996, although the Company has as of September 30, 1996, five outstanding standby letters of credits aggregating $274,000 of which four were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture and one was issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $226,000. F-43 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4 - COMMITMENTS - -------------------- The Company executed a new office lease agreement on October 11, 1996 for approximately 5,946 square feet to house its Atlanta operations. The lease provides for monthly rental payments of $10,653, plus its portion of building operating expenses. The lease will commence on December 1, 1996 for a term of three years. The office space previously occupied by the Company will be sub- let. NOTE 5 - ACQUISITIONS - --------------------- VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, the Company acquired the net assets of VistaTel International, Inc., ("VistaTel") a private company, based in Boca Raton, Florida, which was a supplier of video conferencing products and services within the State of Florida and was one of PictureTel's national re-sellers. The acquisition was accounted for using the purchase method of accounting and accordingly, acquisition costs have been allocated to the assets acquired and liabilities assumed based upon their fair values at the date of acquisition. View Tech issued 52,857 shares of common stock, valued at $7.00 per share, to the sole shareholders of VistaTel. The excess of the acquisition costs over the net assets acquired of $354,919 is accounted for as goodwill and is being amortized over 15 years. The fair value of the assets acquired, excluding goodwill, and the liabilities assumed was $322,846 and $284,227, respectively. GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and View Tech common stock valued at $1.380 million. The purchase price consisted of 150,000 shares of common stock valued at $7.00 per share and $330,000 in cash, of which, $110,000 was paid on August 30, 1996 in connection with the execution of the agreement, and $220,000 is payable in equal installments of $110,000 due on November 15, 1996 and January 15, 1997, respectively. The acquisition was accounted for using the purchase method of accounting and accordingly, acquisition costs have been allocated to the assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The excess of acquisition costs over the net assets acquired of $1.310 million is accounted for as goodwill and is being amortized over 15 years. The fair value of the assets acquired, excluding goodwill, and the liabilities assumed was $380,036 and $289,667, respectively. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel dealer in the northeastern United States. GroupNet merged into View Tech, which will continue to operate GroupNet's Boston and New York offices. Following is summarized pro forma operating results assuming that the Company had acquired GroupNet on July 1, 1995.
Three Months Ended September 30, -------------------------------- 1996 1995 ------------ ------------ Revenues $ 5,587,711 $ 1,867,604 Loss before income taxes (173,031) (224,008) Net loss (104,734) (142,181) Net loss per share (.03) (.05) Weighted average shares outstanding 3,109,248 3,008,750
The summarized pro forma operating results include the historical operating results for GroupNet for the two months ended August 30, 1996 and the three months ended September 30, 1995. GroupNet was an S Corporation prior to its acquisition by the Company, as such, GroupNet was not generally subject to federal income taxes. Therefore, the pro forma operating results for GroupNet include a pro forma tax provision at an effective rate of 40%. The summarized pro forma information may not be indicative of the results of operations that would have occurred if the acquisition had been concluded on July 1, 1996 or 1995 or which may be achieved in the future. USTELECENTERS, INC. - ------------------- On September 5, 1996, View Tech announced that it entered into a definitive agreement of merger with USTeleCenters, Inc. ("USTeleCenters"), who is an authorized sales agent for several of the regional bell operating companies. The merger is valued at $18.500 million and is subject to the approval by View Tech's and USTeleCenters' shareholders as well as satisfactory completion of due diligence and certain conditions precedent. USTeleCenters currently owes its primary lender (and such lender's affiliate) approximately $2.500 million which is to be paid in full or appropriately refinanced at the close of such merger. The transaction will be accounted for as a pooling of interests in which USTeleCenters' shareholders will exchange all of their outstanding USTeleCenters shares and options for View Tech common stock and options, respectively. The transaction is expected to be completed on F-44 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5 - ACQUISITIONS (CONT.) - ----------------------------- or about November 30, 1996. It is anticipated that USTeleCenters' shareholders and optionholders (upon exercise of their options) will receive up to 2.500 million shares of View Tech common stock. During July and August 1996, the Company advanced an aggregate of $1.000 million to USTeleCenters for working capital purposes and in order for USTeleCenters to repay certain bank debt due on September 1, 1996. The $1.000 million advanced is evidenced by a note which is subordinated to USTeleCenters' debt obligations to its primary lender (and such lender's affiliates). The promissory note evidencing USTeleCenters' indebtedness provides for interest at 10%, payable quarterly commencing on September 30, 1996. The principal and accrued interest are due on June 15, 1997. The Company is currently seeking bank financing, private debt and/or equity financing for purposes of meeting anticipated cash needs related to the merger with USTeleCenters. The Company is required to either refinance or repay certain debt and lease obligations aggregating approximately $2.500 million payable to USTeleCenters' primary lender (and such lender's affiliate) and is required to pay certain merger costs of approximately $1.800 million, primarily consisting of advisory fees and legal and accounting costs. In addition, the Company will require additional working capital to efficiently operate the combined companies during the months following the business combination. Exclusive of the cash required in connection with the merger with USTeleCenters, the Company believes that its existing cash balances, combined with the proceeds from its private placement of common stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. Inability to obtain required additional financing could limit the Company's ability to complete its business combination with USTeleCenters and/or to efficiently operate the combined companies. PRIVATE PLACEMENT - ----------------- At September 30, 1996, the Company had received common stock subscriptions for equity capital of approximately $1.500 million through the private placement of 300,281 shares of common stock. The private placement was terminated on October 31, 1996 with the Company realizing net proceeds of approximately $1.390 million. The Company is using the net proceeds for general working capital purposes and to replenish its cash loaned to USTeleCenters in connection with the proposed merger. F-45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of USTeleCenters, Inc. We have audited the accompanying balance sheet of USTeleCenters, Inc., as of June 30, 1996 and the related statements of operations, stockholders' equity and cash flows for the twelve month periods 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. The financial statements of USTeleCenters, Inc. as of June 30, 1995, were audited by other auditors whose report, dated December 20, 1996, is attached. 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 financial statements referred to above present fairly, in all material respects, the financial position of USTeleCenters, Inc., as of June 30, 1996, and the results of its operations and cash flows for the twelve month periods then ended, in conformity with generally accepted accounting principles. CARPENTER KUHEN & SPRAYBERRY Oxnard, California December 21, 1996 F-46 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To USTeleCenters, Inc.: We have audited the statements of operations, stockholders' deficit and cash flows of USTeleCenters, Inc. (a Massachusetts corporation) for the year ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of USTeleCenters, Inc. for the year June 30, 1995 in conformity with generally accepted accounting principles. As discussed in notes 1 and 14, USTeleCenters, Inc. consummated a merger agreement with View Tech, Inc. in November 1996. /s/ Arthur Andersen LLP Boston, Massachusetts December 20, 1996 F-47 USTELECENTERS, INC. BALANCE SHEETS
September 30, June 30, 1996 1996 (unaudited) ----------- ------------- ASSETS CURRENT ASSETS: Cash $ 2,000 $ 2,300 Accounts receivable, (net of reserves of $196,426 and $321,698, respectively) 3,187,022 3,767,025 Inventory 643,978 506,509 Other current assets 206,950 272,872 ----------- ----------- Total current assets 4,039,950 4,548,706 PROPERTY AND EQUIPMENT, NET 1,900,011 1,791,207 OTHER ASSETS 52,007 52,003 ----------- ----------- $ 5,991,968 $ 6,391,916 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,656,247 $ 1,838,816 Customer deposits 141,759 187,121 Accrued expenses 768,404 890,189 Note payable to vendor 437,753 197,672 Note payable - 1,000,000 Current portion of long-term debt 2,734,096 1,699,983 Current portion of amounts due to landlords 172,500 143,707 ----------- ----------- Total current liabilities 5,910,759 5,957,488 ----------- ----------- LONG-TERM DEBT 609,120 501,214 ----------- ----------- AMOUNT DUE TO LANDLORDS 44,665 28,936 ----------- ----------- DEFERRED RENT 56,796 66,684 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES - - STOCKHOLDERS' EQUITY: Common stock, par value $.01, authorized 11,000,000 shares, issued and outstanding 8,984,157 and 9,059,157 shares at June 30, and September 30, 1996, respectively 89,842 90,592 Paid-in capital 1,348,415 1,352,915 Stockholder distributions (2,027,674) (2,027,674) Retained earnings (deficit) (39,955) 421,761 ----------- ----------- (629,372) (162,406) ----------- ----------- $ 5,991,968 $ 6,391,916 =========== ===========
The accompanying notes are an integral part of these financial statements. F-48 USTELECENTERS, INC. STATEMENT OF OPERATIONS
Twelve Month Period Ended Three Month Periods Ended June 30, September 30, ------------------------------- ---------------------------- 1996 1995 1996 1995 ----------- ----------- ---------- ---------- (unaudited) Revenues: Agency commissions $11,313,350 $17,696,300 $4,016,505 $3,723,403 Product sales and service revenues 6,334,283 3,838,182 637,027 1,003,614 ----------- ----------- ---------- ---------- 17,647,633 21,534,482 4,653,532 4,727,017 ----------- ----------- ---------- ---------- Costs and Expenses: Costs of goods sold 5,226,186 3,291,091 1,030,912 1,121,031 Selling and marketing expenses 7,946,719 14,880,173 2,119,503 2,061,880 General and administrative expenses 2,756,276 3,780,590 897,900 963,905 ----------- ----------- ---------- ---------- 15,929,181 21,951,854 4,048,315 4,146,816 ----------- ----------- ---------- ---------- Income (loss) from operations 1,718,452 (417,372) 605,217 580,201 Other expense (506,036) (605,428) (81,501) (119,307) Loss on sublease, including shutdown of offices - (1,312,900) - - ----------- ----------- ---------- ---------- Income (loss) before state tax provision 1,212,416 (2,335,700) 523,176 460,894 State tax provision (92,300) - (62,000) (30,900) ----------- ----------- ---------- ---------- Net income (loss) $ 1,120,116 $(2,335,700) $ 461,716 $ 429,994 =========== =========== ========== ========== Pro Forma earnings (loss) per share $ .20 $ (.62) $ .07 $ .08 =========== =========== ========== ========== Pro Forma weighted average shares outstanding 5,676,304 3,765,467 6,288,305 5,571,055 =========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-49 USTELECENTERS, INC. STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Additional Retained Total ------------------- Paid-In Earnings Stockholder Treasury Stockholders' Shares Amount Capital (Deficit) Distributions Stock Deficit --------- -------- ----------- ----------- ------------- --------- ------------ Balance, July 1, 1994 866,500 $ 8,665 $1,006,262 $ 1,175,629 $(1,835,557) $(21,000) $ 333,999 Stockholder distributions - - - - (192,117) - (192,117) Exercise of stock options 9,000 90 17,910 - - - 18,000 Net loss - - - (2,335,700) - - (2,335,700) ---------- ------- ---------- ----------- ----------- -------- ----------- Balance, June 30, 1995 875,500 8,755 1,024,172 (1,160,071) (2,027,674) (21,000) (2,175,818) Issuance of common stock, net of offering costs 8,119,157 81,192 345,138 - - - 426,330 of $142,011 Retirement of treasury (10,500) (105) (20,895) - - 21,000 - stock Net income - - - 1,120,116 - - 1,120,116 ---------- ------- ---------- ----------- ----------- -------- ----------- Balance, June 30, 1996 8,984,157 89,842 1,348,415 (39,955) (2,027,674) - (629,372) Exercise of stock options 75,000 750 4,500 - - - 5,250 Net income - - - 461,716 - - 461,716 ---------- ------- ---------- ----------- ----------- -------- ----------- Balance, September 30, 1996 9,059,157 $90,592 $1,352,915 $ 421,761 $(2,027,674) $ - $ (162,406) ========== ======= ========== =========== =========== ======== ===========
The accompanying notes are an integral part of the financial statements. F-50 USTELECENTERS, INC. STATEMENT OF CASH FLOWS
Twelve Month Period Ended Three Months Ended June 30, September 30, ------------------------------- ------------------------ 1996 1995 1996 1995 ----------- ------------ --------- ---------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,120,116 $(2,335,700) $ 461,716 $ 429,994 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 702,200 809,612 197,800 92,000 Provision for bad debt (332,000) 159,300 125,698 (176,881) Noncash charge relating to loss on sublease including shutdown of offices 678,847 - - Changes in assets and liabilities Accounts receivable 431,378 (29,162) (705,701) 353,146 Inventory (66,878) (230,066) 137,469 (241,900) Other current assets (1,750) 364,198 (65,918) (41,968) Other assets 32,370 17,461 - 26,658 Accounts payable 652,800 76,132 182,569 570,221 Note payable to vendor (262,600) - (240,081) Accrued expenses (800,899) (26,681) 39,703 (465,271) Customer deposits (47,223) 75,061 45,362 115,602 Deferred rent (14,632) 71,428 9,888 (19,053) ----------- ----------- ---------- --------- Net cash provided (used) by operating activities 1,412,882 (369,570) 188,505 642,548 ----------- ----------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and improvements (411,311) (764,087) (88,996) (3,069) ----------- ----------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of term debt - 1,500,000 1,000,000 - Net borrowing (payment) on line of credit 16,231 383,642 (600,713) (810,719) Payments on term debt (1,403,154) (239,862) (541,306) (595,800) Payments on amounts due to former landlord (66,220) (370,467) (44,522) 89,151 Proceeds from stock issuance 426,330 18,000 5,250 426,330 Bank overdraft 27,242 34,461 82,082 251,559 Stockholder distributions - (192,117) - - ----------- ----------- ---------- --------- Net cash provided (used) by financing activity (999,571) 1,133,657 (99,209) (639,479) ----------- ----------- ---------- --------- NET INCREASE IN CASH 2,000 - 300 - CASH, BEGINNING OF PERIOD - - 2,000 - ----------- ----------- ---------- --------- CASH, END OF PERIOD $ 2,000 $ - $ 2,300 $ - =========== =========== ========== ========= SUPPLEMENTAL DISCLOSURES: Operating activities reflect: Interest paid $ 426,780 $ 391,629 $ 76,230 $ 110,955 =========== =========== ========== ========= Income taxes paid $ 806 $ 26,780 $ - $ - =========== =========== ========== =========
The accompanying notes are an integral part of the financial statements. F-51 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (1) Operations and Significant Accounting Policies USTeleCenters, Inc. (the Company), or UST, was incorporated in November 1986 to establish a regional telecommunications equipment distribution and service business. USTeleCenters, Inc. designs, sells, and supports telecommunication systems solutions for small and medium-sized businesses throughout the United States. UST also sells telecommunication services on behalf of certain Regional Bell operating Companies ("RBOCS"). The Company incurred significant losses in the year ended June 30, 1995, which resulted in noncompliance under certain of its bank covenants and resulted in the Company restructuring its operations. Certain restructuring costs, primarily severance, lease termination costs and fixed-asset write-offs were recorded during the year ended June 30, 1995. In November 1996, the Company was acquired by View Tech, Inc. (VTI), which markets and installs video communications systems and provides continuing services related to installed systems to customers in select states throughout the United States. The business combination was accounted for as a pooling of interests, however the accompanying financial statements present the financial position and results of operations of UST only. a) Fiscal Periods The Company's year end is December 31. The accompanying financial statements for the twelve month periods ended June 30, 1996 and 1995 are presented in order to conform with View Tech, Inc.'s year end. b) Revenue Recognition The Company has agency agreements with various local exchange carriers and telecommunications companies whereby the Company receives commissions on work referred to these entities. The agreements are subject to annual renewals. At June 30, 1995 the Company recognized revenues at the time that it received an order number for installation or the service was performed by the local exchange carrier or telecommunications company. During the twelve month period ended June 30, 1996, the company changed its revenue recognition policy due to operational and procedural changes made by certain RBOCS. The Company now recognizes revenue when the installation or service is ordered from the local exchange carrier or telecommunication company and a reserve is recorded for orders that will not receive an order number. Certain of the entities have the right to credit or charge back future commission payments on orders canceled within a 6 to 10 month period from the date of order. Provision for cancellations are made at the time revenue is recognized. The Company is not aware of any possible refunds or charge-backs that these entities might be seeking, which have not been reserved at June 30, 1996. In addition, under its agreement with NYNEX, the Company receives commissions on management contracts. The Company recognizes these revenues at the time the service is rendered. F-52 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 The Company sells certain products under various nonexclusive agreements with equipment manufacturers. The Company recognizes telecommunication and video conferencing system sales at the time of shipment. Installation costs, if material, are accrued. During the twelve month periods ended June 30, 1996 and 1995, agency commissions were generated primarily from the agreements with NYNEX and other local exchange carriers. Sales to such companies, which accounted for 10% or greater of total revenue, were as follows:
Twelve months ended June 30, ---------------------------- 1996 1995 ----- ----- NYNEX 37% 30% Bell Atlantic 14% -- GTE 12% 27% ---- ---- 63% 57% ==== ====
c) Use of Estimates in the Preparation of Financial Statement The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. d) Net Income (Loss) Per Share Pro Forma net income (loss) per share is computed on the basis of the weighted average number of shares of Common Stock outstanding during the period for View Tech, Inc. after consideration of the shares issued to consummate the merger and of the dilutive effect, if more than 3%, of stock options. e) Inventory Inventory is stated at the lower of cost or market, cost is determined on a FIFO (first-in, first-out) basis. f) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations in amounts estimated to allocate the cost of property and improvements over the estimated useful lives using the straight-line and accelerated methods as follows: F-53 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE Equipment 3-7 Years Furniture and fixtures 7 Years Leasehold improvements Term of lease
g) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Concentration of Credit Risk, requires disclosure of any significant off-balance-sheet credit risk concentrations. The Company derived 63% of revenue from three significant customers in 1996 (see note 1(b) above). The Company has no other significant off-balance- sheet concentration of credit risk such as foreign exchange contracts, open contracts or other foreign hedging arrangements. h) Reclassifications The Company has reclassified certain items for the year ended June 30, 1995 to conform to the current years presentation. (2) Property and Equipment Property and equipment at June 30, 1996 are summarized as follows: Equipment $1,813,886 Furniture and fixtures 486,758 Leasehold Improvements 218,642 ---------- 2,519,286 Less accumulated depreciation 1,523,958 ---------- 995,328 Equipment under capital lease net of accumulated amortization 904,683 ---------- $1,900,011 ==========
(3) Note Payable to Vendor In January 1996, the Company converted approximately $700,000 payable to an equipment vendor into a promissory note bearing interest at 9% per annum. Principal and interest are scheduled to be repaid in monthly installments of approximately $73,000 from February to November 1996. F-54 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (4) Long-Term Debt At June 30, 1996, long-term debt consisted of the following: Revolving line of credit with a bank $ 1,868,105 Term note due to a bank 430,000 Lease line-of-credit with a bank 1,045,111 ------------- 3,343,216 Less---Current maturities 2,734,096 ------------- $ 609,120 =============
The Company maintains a revolving line of credit with a bank. The bank has a security interest in the Company's assets. In addition, the Company has agreed, among other things, to maintain certain financial covenants and ratios. As of June 30, 1996, the Company was in compliance with the covenants or had received waivers under the Forbearance Agreement. Under the terms of the Forbearance Agreement, the Company may borrow up to the lesser of the financial borrowing base, or $2,000,000. Interest on the outstanding balance is payable monthly at the bank's base rate (8.25% at June 30, 1996) plus 1.5%. At June 30, 1996, approximately $1,868,000 was utilized under the revolving line of credit. On November 27, 1996, the revolving line of credit and Forbearance Agreement was amended and extended to March 31, 1997. The amended revolving credit agreement provides for monthly reductions in the borrowing base of $50,000 from July to September 1996. The Company maintains a $1,500,000 term note with a bank. Under the term note, the Company is required to make principal payments in twenty (20) equal, consecutive, monthly payments of $75,000 on the last day of each month, beginning on April 30, 1995. Interest under the note accrued at the bank's base rate plus 2.5% until March 31, 1995, and then, at the bank's base rate plus 4.5%. Interest is payable on the last day of each month. On June 3, 1996, the term note agreement was amended to bear interest at the bank's base rate. The outstanding principal balance of $430,000 and accrued interest under the term note were paid in full on September 1, 1996. The Company had maintained a lease line-of-credit agreement with a bank which was converted into a term note as part of the forbearance agreement. At June 30, 1996, there was approximately $1,045,000 outstanding under this facility. The Company is required to maintain certain restrictive covenants, including profitability and liquidity covenants. Amounts outstanding bear interest at rates ranging from 5.6% to 8.3%. As of June 30, 1996, the Company was in compliance with the covenants or had received waivers under the Forbearance Agreement. In connection with Company's merger with View Tech, Inc. in November 1996, View Tech guaranteed the Company's bank debt obligations. (5) Amounts Due to Landlords In 1994, the Company entered into a sublease agreement for its previously occupied facility. Under the terms of the sublease, the Company is still primarily liable for the amounts due under the original lease. Under the terms of the sublease agreement, the Company is required to make F-55 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 payments to the landlord for the monthly differential between the original lease amount (approximately $23,700 per month) and the sublease income (approximately $14,000 per month). The Company is required to pay approximately $9,700 per month through June 1997. The balance of net future amounts due to the former landlord is $97,792 as of June 30, 1996. In 1995, the Company financed $150,880 of leasehold improvements through an allowance from the landlord. As of June 30, 1996, approximately $86,000 is outstanding for these improvements. This amount is being repaid in monthly installments of approximately $5,000 through December 1997. In connection with the restructuring discussed in Note 1, The Company wrote off these improvements in 1995 and recorded a loss of approximately $151,000. Additionally, the Company entered into a sublease agreement for this facility. The Company recorded a loss of approximately $104,000 which represented the difference between the total future payments reduced by sublease amounts paid directly to the landlord. In the event that the sublease fails to make its required monthly payments of approximately $12,000 through August 1998, the Company is still primarily liable for such sums. (6) Long-Term Capital Lease Obligations The Company leases a portion of its equipment and furniture and fixtures under its lease line of credit with a bank. The following is an analysis of the leased equipment at June 30, 1996:
Equipment........................ $ 735,604 Furniture and Fixtures........... 1,163,020 ---------- 1,898,624 Less accumulated amortization.... 993,941 ---------- $ 904,683 ==========
The following is a schedule of future minimum lease payments required under the lease line of credit, together with their present value as of June 30, 1996:
Year Ending June 30, 1997............................................ $ 435,991 1998............................................ 315,280 1999............................................ 239,400 2000............................................ 54,440 ---------- $1,045,111 ========== Net minimum lease payment....................... 1,172,932 Less amount representing interest............... 127,821 ---------- Present value of net minimum lease payments..... $1,045,111 ==========
F-56 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (7) Income Taxes The Company has elected to be treated as an S corporation for federal income tax purposes pursuant to Section 1362(a) of the Internal Revenue Code. As an S corporation, all items of income or loss are passed through to the stockholders and are reportable on their individual income tax returns. The Company has elected to be treated as a C corporation in California and New York. As a C corporation the Company is responsible for paying all taxes on income allocable to these states. The Commonwealth of Massachusetts has enacted legislation that imposes Massachusetts income taxes at the corporate level on certain S corporations with annual revenues in excess of $6 million. As such, the Company is subject to taxes at the corporate level in this state. The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, by providing for state income taxes under the liability method. (8) Common Stock The stockholders are entitled to certain rights and privileges, including voter rights, dividend rights and distribution rights, in the event of liquidation. The Company has placed certain restrictions on the sale or transfer of stock by stockholders. Furthermore, the Company has deemed ownership of the stock if certain events occur and will purchase the stock at a determined price. The Company follows a policy of distributing to stockholders an amount estimated to equal the tax on their respective shares of S corporation quarterly taxable income. There were no distributions made to stockholders during the year ended June 30, 1996. During the year ended June 30, 1996, the Company recovered certain amounts of prior distributions to stockholders through an offering of common stock to existing stockholders. The Company issued 8,119,157 shares of common stock for net proceeds of $426,330. Upon consummation of the business combination on November 29, 1996 (as discussed in notes 1 and 14), all outstanding shares of the Company's common stock were exchanged for an equivalent amount of VTI common stock based on a .24534 per share conversion ratio. (9) Stock Option Plan On September 20, 1988, the Board of Directors approved an incentive stock option plan (the Plan) providing for a maximum of 82,500 shares that may be issued under the Plan. The number of shares that may be issued under the Plan was increased to 1,100,000 during the twelve month period ended June 30, 1996. The Plan stipulates that the option price may not be less than 100% of the fair market value of the stock on the date of grant. The Board of Directors has the right to determine a vesting period upon granting of options. F-57 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 The following is a summary of the stock option activity (excluding the nonqualified options discussed below) for the twelve month period ended June 30, 1996:
Shares Exercise Price -------- ---------------- Options outstanding June 30, 1994... 67,500 $1.00 - 2.20 Canceled....................... (31,000) 1.00 - 2.00 Exercised...................... (9,000) 2.00 ------- ------------ Options outstanding June 30, 1995... 27,500 $2.00 - 2.20 Granted........................ 750,000 .07 - .10 Canceled....................... (27,500) 2.00 - 2.20 ------- Options outstanding June 30, 1996... 750,000 .07 - .10 =======
In addition, during the twelve month period ended June 30, 1996, the Company granted its directors nonqualified options to purchase 150,000 shares of common stock at an exercise price of $.07 per share. Upon consummation of the business combination on November 29, 1996 (as discussed in notes 1 and 14), all unvested stock options became immediately exercisable. At such time, all unexercised options were assumed under VTI's stock option plan. The equivalent VTI options received are also fully vested and exercisable. (10) Commitments and Contingencies a) Commitments Future minimum annual rental payments under all operating leases (including amounts due to landlords, net of any of sublease income discussed in Note 5) as of June 30, 1996 are as follows:
FISCAL YEAR AMOUNT 1997 $640,756 1998 437,497 1999 347,401 2000 344,232 2001 and thereafter 418,721 ---------- $2,188,607 ==========
The leases require the Company to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Total rental expense included in the accompanying statements of operations for the twelve month periods ended June 30, 1996 and 1995 was approximately $757,000 and $800,000 respectively. The Company has received rent concessions during the first year of certain leases, which are being deferred and amortized over the term of the lease. F-58 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 b) Contingencies The Company is named in employee-related lawsuits, in which the plaintiffs are seeking undisclosed damages. The Company is vigorously defending itself against such litigation and does not expect the outcome to have a material impact on its financial position. (11) Profit Sharing Plan Effective January 1, 1993, the Company adopted a profit sharing plan in accordance with Internal Revenue Code Section 401(k). The plan covers all employees with six months or more of service. Eligible employees are permitted to contribute up to 15% of gross compensation. The Company may match employee contributions. The Company has made contributions of approximately $43,000 during the twelve month periods ended June 30, 1996 and 1995. (12) Segment Information (unaudited) The Company's operations are classified into two primary industry segments: (a) marketing telecommunication services on behalf of certain RBOCS and exchange carriers for an agency commission, and (b) product sales and service revenue generated from the sale of telecommunication equipment and of videoconferencing and related services which involve the marketing and installation of video communication systems and providing continuing services related to installed systems. Following is a summary of segment information for the twelve month periods ended June 30, 1996 and 1995: June 30, 1996
Product Sales and Agency Service Commissions Revenues Combined --------------- -------------- ------------ Total Revenue $11,313,000 $ 6,334,000 $17,647,000 =========== Operating profit 4,225,000 (317,000) $ 3,908,000 General corporate expenses (2,190,000) Other expense (506,000) ----------- Income from continuing operations before income taxes $ 1,212,000 =========== Identifiable assets at June 30, 1996 1,258,000 974,000 $ 2,232,000 Corporate assets 3,760,000 ----------- Total assets at June 30, 1996 $ 5,992,000 ===========
F-59 USTELECENTERS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 June 30, 1995
Product Sales and Agency Service Commissions Revenues Combined ----------- ----------- -------- Total Revenue $17,696,000 $ 3,838,000 $21,534,000 =========== Operating profit 4,517,000 (1,184,000) $ 3,333,000 General corporate expenses (3,751,000) Other expense (1,918,000) ----------- Income from continuing operations before income taxes $(2,336,000) ===========
(13) Supplemental Disclosures - Cash Flow Information During the twelve month period ended June 30, 1995, the Company financed the acquisition $895,062 of equipment under capital lease obligations. Also during this period, the Company acquired $150,880 of leasehold improvements under allowance for amounts due to landlords. During the twelve month period ended June 30, 1996, the Company converted approximately $700,000 of accounts payable to a vendor into a term note. (14) Subsequent Events On July 26, 1996, the Company entered into a promissory note payable to an equipment vendor, bearing interest at 9% per annum. Principal and interest are scheduled to be repaid in four monthly installments of approximately $27,000 from August to November 1996. During July and August 1996, the Company received an aggregate of $1 million from View Tech for working capital purposes and in order for the Company to repay certain bank debt due on September 1, 1996. The $1 million advance is evidenced by a note which is subordinated to the Company's debt obligations to its primary lender (and such lender's affiliates). The promissory note provides for interest at 10%, payable quarterly commencing on September 30, 1996. The principal and accrued interest are due on June 15, 1997. On September 5, 1996, the Board of Directors entered into a definitive agreement of merger with View Tech, Inc. who markets, integrates and installs video communications systems and provides continuing services related to installed systems to customers in specific states throughout the United States. The transaction was consummated on November 29, 1996, at a value of approximately $16.5 million. The business combination was accounted for as a pooling of interests. At such time, UST shareholders and optionholders exchanged all of their outstanding shares and stock options totaling 9,884,157 shares for 2,240,976 shares of VTI common stock and options to purchase 184,003 shares of VTI common stock. F-60 PART II ------- INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Article X of View Tech's Certificate of Incorporation and Article VII, Section 6 of View Tech's Bylaws provide for indemnification of its officers and directors to the fullest extent permitted by Delaware Law. Item 25. Other Expenses of Issuance and Distribution. Estimates of fees and expenses incurred or to be incurred by the Company in connection with the issuance and distribution of Common Stock incident to this Registration Statement are as follows: SEC Filing Fee $ 2,972.00 Accounting Fees 60,000.00 Legal 60,000.00 Printing and Mailing Costs and Fees 20,000.00 Miscellaneous 5,000.00 ----------- TOTAL $147,972.00 ===========
Item 26. Recent Sales of Unregistered Securities. On July 10, 1996, the Company issued 52,857 shares of Common Stock to the owners of VistaTel International, Inc. ("VistaTel") in connection with the purchase of all of the assets of VistaTel. The securities were issued in reliance of the exemption provided in Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), because no public offering was involved and the shares were issued exclusively to the three shareholders of VistaTel. On September 24, 1996, the Company issued 150,000 shares of Common Stock to the sole shareholder of GroupNet, Inc. ("GroupNet") in connection with the merger of GroupNet with and into the Company. The securities were issued in reliance on the exemption provided in Section 4(2) of the Securities Act, because no public offering was involved and the shares were issued exclusively to the sole shareholder of GroupNet. On October 31, 1996, 300,281 shares of Common Stock were issued to 76 investors pursuant to a private placement. The securities were issued in reliance on the exemption provided in Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated thereunder, because no public offering was involved and the securities were issued to no more than 35 non-accredited investors. Kenny Securities Corporation, a registered broker/dealer, assisted in the private placement and in connection therewith received a commission equal to 8% of the gross proceeds ($120,000) and 15,000 Common Stock Purchase Warrants, each exercisable until 2001 for one share of Common Stock at an exercise price of $6.25 per Common Stock Purchase Warrant. Each purchaser acquired less than 1% of the company's total shares of stock outstanding. On December 11, 1996, 30,000 shares of Common Stock were issued to the chairman of Windermere Holdings, Inc. ("WHI") in connection with WHI's assistance with respect to the merger of USTeleCenters, Inc. ("UST") with and into a wholly-owned subsidiary of the Company (the "Merger"). The securities were issued in reliance on the exemption provided in Section 4(2) of the Securities Act, because no public offering was involved and the shares were issued exclusively to the chairman of WHI. On January 6, 1997, 24,550 shares of Common Stock were issued to Concord Partners Ltd. ("Concord") in connection with Concord's assistance with respect to the Merger. The securities were issued in reliance on the exemption provided in Section 4(2) of the Securities Act because no public offering was involved. II-1 Item 27. Exhibits.
Exhibit Number Description - ------- ----------- 2.1 Agreement and Plan of Merger, dated September 5, 1996, by and among the Company, View Tech Acquisition, Inc., a California corporation and USTeleCenters, Inc., a Massachusetts corporation, as amended by Amendment No. 1, dated October 31, 1996, by and among the Company, View Tech Acquisition, Inc., a California corporation, USTeleCenters, Inc., a Massachusetts corporation and View Tech Acquisition, Inc., a Delaware corporation, to that certain Agreement and Plan of Merger, dated as of September 5, 1996, by and among the Company, View Tech Acquisition, Inc., a California corporation and USTeleCenters, Inc, a Massachusetts corporation. (1) 2.2 Form of Agreement of Merger by and among the Company, USTeleCenters, Inc., a Massachusetts corporation and View Tech Acquisition, Inc., a Delaware corporation. (1) 2.3 Agreement and Plan of Merger, dated as of November 27, 1996 by and among View Tech, Inc., a California corporation and View Tech Delaware, Inc., a Delaware corporation. (2) 2.4 Sale Agreement between the Company and VistaTel International, Inc., dated July 10, 1996. (3) 2.5 Agreement and Plan of Merger by and among the Company, GroupNet, Inc. and Andrew W. Jamison dated August 30, 1996. (4) 3.1 Certificate of Incorporation of the Company, as amended by Agreement and Plan of Merger, dated as of November 27, 1996. (2) 3.2 Bylaws of the Company. (2) 4.1 Warrant Agreement dated as of June 28, 1995 between the Company and U.S. Stock Transfer Corporation of America. (5) 4.2 Form of Warrant between the Company and Telcom Holding, LLC. (2) 5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel to the Company as to the legality of the securities being registered. (9) 10.1 Dealer Agreement between the Company and PictureTel Corporation dated as of March 30, 1995. (8) 10.2 Employment Agreement between the Company and Franklin A. Reece, III dated as of November 29, 1996. (9) 10.3 Employment Agreement between the Company and Robert G. Hatfield, dated as of December 9, 1996. (9) 10.4 Employment Agreement between the Company and John W. Hammon, dated as of December 9, 1996. (9) 10.5 Employment Agreement between the Company and William M. McKay, dated as of December 9, 1996. (9) 10.6 1995 Stock Option Plan, as amended. (6) 10.7 Amendment to Dealer Agreement between the Company and PictureTel Corporation dated August 1, 1995. (5)
II-2
Exhibit Number Description - ------- ----------- 10.8 1997 Stock Incentive Plan. (1) 10.9 Loan and Security Agreement, dated as of July 26, 1996, by and between the Company and USTeleCenters, Inc. and Promissory Note from USTeleCenters, Inc. (3) 10.10 Subordination Agreement, dated as of July 26, 1996, by and among the Company, the First National Bank of Boston, BancBoston Leasing, Inc., and USTeleCenters, Inc. (3) 10.11 Consulting Agreement, dated as of June 27, 1996, by and between the Company and Windermere Holdings, Incorporated. (3) 10.12 Option Agreement, dated as of August 22, 1996 by and between the Company and Rolf N. Hufnagel. (3) 10.13 Sublease Agreement dated as of October 11, 1996, by and between Atlantic Steel Industries, Inc. and the Company (together with prime Lease Agreement dated as of November 1, 1993 between Atlantic Steel Industries, inc. and State of California Public Employees' Retirement System). (2) 10.14 Common Stock and Common Stock Purchase Warrants Agreement, dated as of December 31, 1996, by and between the Company and Telecom Holding, LLC, a Massachusetts limited liability company. (2) 10.15 Letter Agreement, dated as of December 31, 1996, from the Company to Paul C. O'Brien and Mark P. Kiley. (2) 10.16 Promissory Note of the Company, dated August 30, 1996 payable to Andrew W. Jamison. (4) 10.17 Registration Rights Agreement, dated August 30, 1996, between the Company and Andrew W. Jamison. (4) 10.18 Revolving Note with City National Bank, dated February 20, 1996. (10) 10.19 Loan Agreements with Power-Data Services, Inc., dated February 15, 1996 and March 22, 1996. (10) 11.1 Computation of Earnings per Share. (2) 21.1 Subsidiaries of the Company. (2) 23.1 Consent of Carpenter, Kuhen and Sprayberry. (2) 23.2 Consent of Brobeck, Phleger & Harrison LLP. (Included as part of Exhibit 5.1) 23.3 Consent of Arthur Andersen LLP. (2) 24.1 Power of Attorney. (Included on page II-6 of this Registration Statement) 24.2 Certified Copy of Board of Directors' Resolution regarding Power of Attorney. (9) 27 Financial Data Schedule (2)
- ----------------- (1) Filed as an exhibit to the Company's Registration Statement on Form S-4 (Registration No. 333-13459) and incorporated herein by reference. (2) Filed herewith. (3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and incorporated herein by reference. (4) Filed as an exhibit to the Company's Report on Form 8-K dated September 24, 1996 relating to the completion of the acquisition by the Company of GroupNet, Inc., and incorporated herein by reference. (5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (6) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995, and incorporated herein by reference. II-3 (7) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1996, and incorporated herein by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form SB-2 (Registration No. 33-91232), and incorporated herein by reference. (9) To be filed by amendment. (10) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1996, and incorporated herein by reference. Item 28. Undertakings. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement 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; (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), each such post- effective amendment 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. (3) 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. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, 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 Securities 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 Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Camarillo, State of California, on January 9, 1997. View Tech, Inc. By: /s/ Robert G. Hatfield ---------------------------------------- Robert G. Hatfield Chief Executive Officer II-5 Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature to this Registration Statement appears below hereby appoints Robert G. Hatfield and William M. McKay, or either of them, as his attorney-in-fact to sign on his behalf individually and in the capacity stated below and to file all amendments and post-effective amendments to this Registration Statement, and any and all instruments or documents filed as a part of or in connection with this Registration Statement or the amendments thereto, and any such attorneys-in-fact may make such changes and additions in this Registration Statement as such attorney-in-fact may deem necessary or appropriate.
Signature Title Date --------- ----- ----- /s/ Robert G. Hatfield Chairman and January 9, 1997 - ---------------------------------- Chief Executive Officer Robert G. Hatfield (Principal Executive Officer) /s/ John W. Hammon President and Director January 9, 1997 - ---------------------------------- John W. Hammon /s/ William M. McKay Chief Financial Officer January 9, 1997 - ---------------------------------- (Principal Financial and William M. McKay Accounting Officer) /s/ Calvin M. Carrera Director January 9, 1997 - ---------------------------------- Calvin M. Carrera /s/ Robert F. Leduc - ---------------------------------- Director January 9, 1997 Robert F. Leduc /s/ Franklin A. Reece, III - ---------------------------------- Franklin A. Reece, III Director January 9, 1997 /s/ David F. Millet - ---------------------------------- Director January 9, 1997 David F. Millet
II-6 EX-2.3 2 AGREEMENT AND PLAN OF MERGER Exhibit 2.3 AGREEMENT AND PLAN OF MERGER ---------------------------- THIS AGREEMENT AND PLAN OF MERGER dated as of November 27, 1996 ("PLAN") involves VIEW TECH DELAWARE, INC., a Delaware corporation ("VIEW TECH- DEL") and VIEW TECH, INC., a California corporation ("VIEW TECH"). View Tech- Del and View Tech are sometimes referred to herein as the "CONSTITUENT CORPORATIONS." RECITALS -------- A. View Tech-Del is a corporation duly organized and existing under the laws of the State of Delaware. B. View Tech is a corporation duly organized and existing under the laws of the State of California. C. The authorized capital stock of View Tech-Del consists of Twenty Million (20,000,000) shares of Common Stock, $.0001 par value per share ("VIEW TECH-DEL COMMON STOCK"), of which One Thousand (1,000) shares are issued and outstanding, and Five Million (5,000,000) shares of Preferred Stock, $.0001 par value per share, of which no shares are issued and outstanding. View Tech is the sole shareholder of View Tech-Del. D. The authorized capital stock of View Tech consists of Ten Million (10,000,000) shares of Common Stock, par value $.01 ("VIEW TECH COMMON STOCK"), and Five Million shares of Preferred Stock, par value $.01. Three Million, Three Hundred Ninety-Three Thousand, Four Hundred Thirty-Eight (3,393,438) shares of View Tech Common Stock are issued and outstanding. There are also outstanding options for the purchase of One Million, One Hundred Thirty-Nine Thousand, One Hundred (1,139,100) shares or View Tech Common Stock (the "VIEW TECH OPTIONS") and warrants covering Eight Hundred Seventy Thousand (870,000) shares of View Tech Common Stock (the "VIEW TECH WARRANTS"). E. The board of directors of View Tech has determined that, for the purpose of effecting the reincorporation of View Tech in the State of Delaware, it is advisable and in the best interests of View Tech that it merge with and into View Tech-Del upon the terms and conditions herein provided. F. The respective boards of directors of View Tech and View Tech-Del have resolved that View Tech be merged under and pursuant to the General Corporation Law of the State of Delaware and the General Corporation Law of the State of California into a single corporation existing under the laws of the State of Delaware. G. The respective boards of directors of View Tech-Del and View Tech have approved the merger upon the terms and conditions set forth herein and have approved this Plan and the boards of directors of View Tech-Del and View Tech have directed that this Plan be submitted to a vote of their respective stockholders. NOW THEREFORE, each Constituent Corporation adopting this Plan agrees as follows: 1. MERGER ------ 1.1 Merger ------ Subject to Paragraph 4.2 below, and in accordance with the provisions of this Plan, the Delaware General Corporation Law and the California General Corporation Law, View Tech shall be, at the Effective Date (as defined in Paragraph 1.2 below), merged with and into View Tech-Del ("MERGER"), and the separate existence of View Tech shall cease and View Tech-Del shall be the surviving corporation (the "SURVIVING CORPORATION") and the capital stock of View Tech-Del shall be the capital stock of the surviving corporation (e.g., View Tech-Del Common Stock to become the "SURVIVING CORPORATION'S COMMON STOCK"). 1.2 Filing and Effectiveness ------------------------ The Merger shall become effective when this Plan, together with the resolution of the Board of Directors of View Tech adopting and approving same, shall have been filed with the Secretary of State of the State of Delaware (the "EFFECTIVE DATE OF MERGER"). For purposes of California Law, the Merger shall become effective as to View Tech on the Effective Date of the Merger, upon such filing in California as is required by Sections 1108 and 1110 of the General Corporation Law of California, which filing will be made by View Tech and/or View Tech-Del, as applicable. 1.3 Certificate of Incorporation ---------------------------- Except for the change of the name of the Surviving Corporation as provided in this paragraph 1.3, the Certificate of Incorporation of View Tech- Del as in effect immediately prior to the Effective Date of Merger shall continue in full force and effect as the Certificate of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. From and after the Effective Date of Merger, the Certificate of Incorporation of View Tech-Del shall be amended by deleting Article FIRST in its entirety and substituting in lieu thereof the following: "FIRST: The name of this Corporation is View Tech, Inc." 1.4 Bylaws ------ The Bylaws of View Tech-Del as in effect immediately prior to the Effective Date of Merger shall continue in full force and effect as the Bylaws of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. 1.5 Agreements ---------- 2 All agreements to which View Tech is a party and which are in effect immediately prior to the Effective Date of Merger shall continue in full force and effect and shall be assumed in their entirety by the Surviving Corporation as of the Effective Date of Merger. 1.6 Directors and Officers ---------------------- The directors and officers of View Tech-Del immediately prior to the Effective Date of Merger shall be the directors and officers of the Surviving Corporation until their successors shall have been duly elected and qualified or until otherwise as provided by law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation. 1.7 Effect of Merger ---------------- Upon the Effective Date of Merger, the separate existence of View Tech shall cease and View Tech-Del, as the Surviving Corporation, (i) shall continue to possess all of its assets, rights, powers and property as constituted immediately prior to the Effective Date of Merger, shall be subject to all actions previously taken by the View Tech board of directors and shall succeed, without other transfer, to all of the assets, rights, powers and property of View Tech in the manner as more fully set forth in Section 259 of the Delaware General Corporation Law, and (ii) shall continue to be subject to all of its debts, liabilities and obligations as constituted immediately prior to he Effective Date of Merger and shall succeed, without other transfer, to all of the debts, liabilities and obligations of View Tech in the same manner as if View Tech-Del had itself incurred them, all as more fully provided under the applicable provisions of the Delaware General Corporation Law and the California General Corporation Law. 2. MANNER OF CONVERSION OF STOCK ----------------------------- 2.1 View Tech Securities -------------------- Upon the Effective Date of Merger, each share of View Tech Common Stock, no par value, issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the holders of such shares or any other person, be converted into and exchanged for one fully paid and nonassessable share of Common Stock, $.0001 par value per share, of the Surviving Corporation, and all View Tech Options and all View Tech Warrants outstanding immediately prior to the Merger will be assumed by View Tech Delaware, and will continue to have, and be subject to, the same terms and conditions of each such option and as set forth in View Tech's employee stock option plan, if applicable, immediately prior to the Merger, except that such options and warrants will be exercisable for such number of shares of View Tech Delaware Common Stock as is equal to the number of shares of View Tech Common Stock that were issuable upon exercise of such options and warrants immediately prior to the Merger. No shares of View Tech Preferred Stock are outstanding. 2.2 View Tech-Del Securities ------------------------ Upon the Effective Date of Merger, each share of View Tech-Del Common Stock, issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any 3 action by the holder of such shares or any other person, be cancelled and returned to the status of authorized but unissued shares. 2.3 Exchange of Certificate ----------------------- After the Effective Date of Merger, each holder of an outstanding certificate formerly representing shares of View Tech Common Stock may at such shareholder's option surrender the same for cancellation to the Surviving Corporation, and each such holder shall be entitled to receive in exchange therefor a certificate representing the number of shares of the Surviving Corporation's Common Stock into which the surrendered shares were converted as herein provided. Until so surrendered, each outstanding certificate theretofore representing shares of View Tech Common Stock shall be deemed for all purposes to represent the number of whole shares of the Surviving Corporation's Common Stock into which such shares of View Tech were converted in the Merger. The registered owner on the books and records of the Surviving Corporation of any such outstanding certificate shall, until such certificate shall have been surrendered for conversion to the Surviving Corporation, have and be entitled to exercise any voting and other rights with respect to, and to receive dividends and other distributions upon, the shares of the Surviving Corporation's Common Stock represented by such outstanding certificate as provided in this paragraph 2.3. 2.4 Legends ------- Each certificate representing the Surviving Corporation's Common Stock so issued in the Merger shall bear the same legends, if any, with respect to restrictions on transferability as the certificates of View Tech so converted and given in exchange therefor, unless otherwise determined by the board of directors of the Surviving Corporation in compliance with applicable laws. 2.5 Endorsement of Surrendered Shares --------------------------------- If any certificate for shares of the Surviving Corporation's Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and that the party requesting such transfer pay to the Surviving Corporation any transfer or other taxes payable by reason of the issuance of such new certificate in the name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not payable. 3. COVENANTS TO BE PERFORMED PRIOR TO EFFECTIVE DATE OF MERGER ----------------------------------------------------------- 3.1 Consents -------- Each of View Tech and View Tech-Del shall use its best efforts to obtain the consent and approval of each person whose consent or approval shall be required in order to permit consummation of the Merger. 4 3.2 Governmental Authorizations --------------------------- Each of View Tech and View Tech-Del shall cooperate in filing any necessary reports or other documents with any federal, state, local or foreign authorities having jurisdiction with respect to the Merger. 4. GENERAL ------- 4.1 Further Assurances ------------------ View Tech-Del and View Tech each covenants and agrees that it will, before, on or after the Effective Date of Merger, take such other actions as may be required by the California General Corporation Law and/or the Delaware General Corporation Law. 4.2 Abandonment ----------- At any time before the Effective Date of Merger, this Plan may be terminated and the Merger may be abandoned for any reason whatsoever by the board of directors of either View Tech or View Tech-Del or both, notwithstanding the approval of this Plan by the shareholders of View Tech or the stockholders of View Tech-Del or both. 4.3 Amendment --------- The boards of directors of the Constituent Corporations may amend this Plan at any time prior to the filing of this Plan (or certificate in lieu thereof) with the Secretary of State of the State of Delaware, provided that an amendment made subsequent to the adoption of the Plan by the stockholders of either Constituent Corporation shall not: (1) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such Constituent Corporation, (2) materially alter or change any term of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger, or (3) alter or change any of the terms and conditions of this Plan if such alteration or change would adversely affect the holders of any class or series thereof of such Constituent Corporation. 4.4 Registered Office ----------------- The registered office of the Surviving Corporation in the State of Delaware is located at Corporate Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware and Corporation Trust Company is the registered agent of the Surviving Corporation at such address. 4.5 Plan ---- Copies of this Plan will be on file at the principal place of business of the Surviving Corporation at 950 Flynn Road, Camarillo, California 93012, and copies thereof will be furnished to any stockholder of either Constituent Corporation, upon request and without cost. 5 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. VIEW TECH, INC. By: /s/ Robert G. Hatfield ------------------------ Robert G. Hatfield Title: Chief Executive Officer The undersigned hereby affirms and acknowledges, under penalties of perjury, that this instrument is the act and deed of View Tech, Inc. and that the facts stated herein are true. By: /s/ Robert G. Hatfield ------------------------ Robert G. Hatfield Title: Chief Executive Officer VIEW TECH DELAWARE, INC. By: /s/ Robert G. Hatfield ------------------------ Robert G. Hatfield Title: Chief Executive Officer The undersigned hereby affirms and acknowledges, under penalties of perjury, that this instrument is the act and deed of View Tech Delaware, Inc. and that the facts stated herein are true. By: /s/ Robert G. Hatfield ------------------------ Robert G. Hatfield Title: Chief Executive Officer 6 The undersigned secretary of View Tech, Inc. hereby certifies that this Plan was adopted and approved by the shareholders of View Tech, Inc. at a meeting properly noticed and held on November 26, 1996. /s/ William M. McKay - ---------------------- William M. McKay Secretary The undersigned secretary of View Tech Delaware, Inc. hereby certifies that this Plan was adopted and approved by the sole stockholder of View Tech Delaware, Inc. by written consent dated November 26, 1996. /s/ William M. McKay - ---------------------- William M. McKay Secretary EX-3.1 3 CERTIFICATE OF INCORPORATION OF VIEW TECH DELAWARE Exhibit 3.1 CERTIFICATE OF INCORPORATION OF VIEW TECH DELAWARE, INC. ARTICLE I The name of this corporation is View Tech Delaware, Inc. ARTICLE II The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) Classes of Stock. This corporation is authorized to issue two ---------------- classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Twenty Five Million (25,000,000) shares. Twenty Million (20,000,000) shares shall be Common Stock, par value $.0001 per share and Five Million (5,000,000) shares shall be Preferred Stock, par value $.0001 per share. (B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to fix or alter the divided rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The name and mailing address of the incorporator is William M. McKay, View Tech, Inc., 950 Flynn Road, Camarillo, CA 93012. ARTICLE VI Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the bylaws of the corporation. ARTICLE VII The number of directors of the corporation shall be fixed from time to time by, or in the manner provided in, the bylaws or amendment thereof duly adopted by the Board of Directors or by the stockholders. The directors of the corporation shall be divided into three classes; the terms of office of those of the first class to expire at the annual meeting next ensuing; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, directors shall be chosen for a full term, as the case may be, to succeed those whose terms expire. ARTICLE VIII Elections of directors need not be by written ballot unless the bylaws of the corporation shall so provide. ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the corporation. ARTICLE X A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the 2 stockholders of this Article to authorize corporation action further eliminating or limiting the personal liability of directors then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article X by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. ARTICLE XI The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned has signed this Certificate this 31st day of October, 1996. /s/ William M. McKay ------------------------------ William M. McKay, Incorporator 3 AGREEMENT AND PLAN OF MERGER ---------------------------- THIS AGREEMENT AND PLAN OF MERGER dated as of November 27, 1996 ("PLAN") involves VIEW TECH DELAWARE, INC., a Delaware corporation ("VIEW TECH- DEL") and VIEW TECH, INC., a California corporation ("VIEW TECH"). View Tech- Del and View Tech are sometimes referred to herein as the "CONSTITUENT CORPORATIONS." RECITALS -------- A. View Tech-Del is a corporation duly organized and existing under the laws of the State of Delaware. B. View Tech is a corporation duly organized and existing under the laws of the State of California. C. The authorized capital stock of View Tech-Del consists of Twenty Million (20,000,000) shares of Common Stock, $.0001 par value per share ("VIEW TECH-DEL COMMON STOCK"), of which One Thousand (1,000) shares are issued and outstanding, and Five Million (5,000,000) shares of Preferred Stock, $.0001 par value per share, of which no shares are issued and outstanding. View Tech is the sole shareholder of View Tech-Del. D. The authorized capital stock of View Tech consists of Ten Million (10,000,000) shares of Common Stock, par value $.01 ("VIEW TECH COMMON STOCK"), and Five Million shares of Preferred Stock, par value $.01. Three Million, Three Hundred Ninety-Three Thousand, Four Hundred Thirty-Eight (3,393,438) shares of View Tech Common Stock are issued and outstanding. There are also outstanding options for the purchase of One Million, One Hundred Thirty-Nine Thousand, One Hundred (1,139,100) shares or View Tech Common Stock (the "VIEW TECH OPTIONS") and warrants covering Eight Hundred Seventy Thousand (870,000) shares of View Tech Common Stock (the "VIEW TECH WARRANTS"). E. The board of directors of View Tech has determined that, for the purpose of effecting the reincorporation of View Tech in the State of Delaware, it is advisable and in the best interests of View Tech that it merge with and into View Tech-Del upon the terms and conditions herein provided. F. The respective boards of directors of View Tech and View Tech-Del have resolved that View Tech be merged under and pursuant to the General Corporation Law of the State of Delaware and the General Corporation Law of the State of California into a single corporation existing under the laws of the State of Delaware. G. The respective boards of directors of View Tech-Del and View Tech have approved the merger upon the terms and conditions set forth herein and have approved this Plan and the boards of directors of View Tech-Del and View Tech have directed that this Plan be submitted to a vote of their respective stockholders. NOW THEREFORE, each Constituent Corporation adopting this Plan agrees as follows: 1. MERGER ------ 1.1 Merger ------ Subject to Paragraph 4.2 below, and in accordance with the provisions of this Plan, the Delaware General Corporation Law and the California General Corporation Law, View Tech shall be, at the Effective Date (as defined in Paragraph 1.2 below), merged with and into View Tech-Del ("MERGER"), and the separate existence of View Tech shall cease and View Tech-Del shall be the surviving corporation (the "SURVIVING CORPORATION") and the capital stock of View Tech-Del shall be the capital stock of the surviving corporation (e.g., View Tech-Del Common Stock to become the "SURVIVING CORPORATION'S COMMON STOCK"). 1.2 Filing and Effectiveness ------------------------ The Merger shall become effective when this Plan, together with the resolution of the Board of Directors of View Tech adopting and approving same, shall have been filed with the Secretary of State of the State of Delaware (the "EFFECTIVE DATE OF MERGER"). For purposes of California Law, the Merger shall become effective as to View Tech on the Effective Date of the Merger, upon such filing in California as is required by Sections 1108 and 1110 of the General Corporation Law of California, which filing will be made by View Tech and/or View Tech-Del, as applicable. 1.3 Certificate of Incorporation ---------------------------- Except for the change of the name of the Surviving Corporation as provided in this paragraph 1.3, the Certificate of Incorporation of View Tech- Del as in effect immediately prior to the Effective Date of Merger shall continue in full force and effect as the Certificate of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. From and after the Effective Date of Merger, the Certificate of Incorporation of View Tech-Del shall be amended by deleting Article FIRST in its entirety and substituting in lieu thereof the following: "FIRST: The name of this Corporation is View Tech, Inc." 1.4 Bylaws ------ The Bylaws of View Tech-Del as in effect immediately prior to the Effective Date of Merger shall continue in full force and effect as the Bylaws of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. 1.5 Agreements ---------- 2 All agreements to which View Tech is a party and which are in effect immediately prior to the Effective Date of Merger shall continue in full force and effect and shall be assumed in their entirety by the Surviving Corporation as of the Effective Date of Merger. 1.6 Directors and Officers ---------------------- The directors and officers of View Tech-Del immediately prior to the Effective Date of Merger shall be the directors and officers of the Surviving Corporation until their successors shall have been duly elected and qualified or until otherwise as provided by law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation. 1.7 Effect of Merger ---------------- Upon the Effective Date of Merger, the separate existence of View Tech shall cease and View Tech-Del, as the Surviving Corporation, (i) shall continue to possess all of its assets, rights, powers and property as constituted immediately prior to the Effective Date of Merger, shall be subject to all actions previously taken by the View Tech board of directors and shall succeed, without other transfer, to all of the assets, rights, powers and property of View Tech in the manner as more fully set forth in Section 259 of the Delaware General Corporation Law, and (ii) shall continue to be subject to all of its debts, liabilities and obligations as constituted immediately prior to he Effective Date of Merger and shall succeed, without other transfer, to all of the debts, liabilities and obligations of View Tech in the same manner as if View Tech-Del had itself incurred them, all as more fully provided under the applicable provisions of the Delaware General Corporation Law and the California General Corporation Law. 2. MANNER OF CONVERSION OF STOCK ----------------------------- 2.1 View Tech Securities -------------------- Upon the Effective Date of Merger, each share of View Tech Common Stock, no par value, issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the holders of such shares or any other person, be converted into and exchanged for one fully paid and nonassessable share of Common Stock, $.0001 par value per share, of the Surviving Corporation, and all View Tech Options and all View Tech Warrants outstanding immediately prior to the Merger will be assumed by View Tech Delaware, and will continue to have, and be subject to, the same terms and conditions of each such option and as set forth in View Tech's employee stock option plan, if applicable, immediately prior to the Merger, except that such options and warrants will be exercisable for such number of shares of View Tech Delaware Common Stock as is equal to the number of shares of View Tech Common Stock that were issuable upon exercise of such options and warrants immediately prior to the Merger. No shares of View Tech Preferred Stock are outstanding. 3 2.2 View Tech-Del Securities ------------------------ Upon the Effective Date of Merger, each share of View Tech-Del Common Stock, issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the holder of such shares or any other person, be cancelled and returned to the status of authorized but unissued shares. 2.3 Exchange of Certificate ----------------------- After the Effective Date of Merger, each holder of an outstanding certificate formerly representing shares of View Tech Common Stock may at such shareholder's option surrender the same for cancellation to the Surviving Corporation, and each such holder shall be entitled to receive in exchange therefor a certificate representing the number of shares of the Surviving Corporation's Common Stock into which the surrendered shares were converted as herein provided. Until so surrendered, each outstanding certificate theretofore representing shares of View Tech Common Stock shall be deemed for all purposes to represent the number of whole shares of the Surviving Corporation's Common Stock into which such shares of View Tech were converted in the Merger. The registered owner on the books and records of the Surviving Corporation of any such outstanding certificate shall, until such certificate shall have been surrendered for conversion to the Surviving Corporation, have and be entitled to exercise any voting and other rights with respect to, and to receive dividends and other distributions upon, the shares of the Surviving Corporation's Common Stock represented by such outstanding certificate as provided in this paragraph 2.3. 2.4 Legends ------- Each certificate representing the Surviving Corporation's Common Stock so issued in the Merger shall bear the same legends, if any, with respect to restrictions on transferability as the certificates of View Tech so converted and given in exchange therefor, unless otherwise determined by the board of directors of the Surviving Corporation in compliance with applicable laws. 2.5 Endorsement of Surrendered Shares --------------------------------- If any certificate for shares of the Surviving Corporation's Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and that the party requesting such transfer pay to the Surviving Corporation any transfer or other taxes payable by reason of the issuance of such new certificate in the name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not payable. 3. COVENANTS TO BE PERFORMED PRIOR TO EFFECTIVE DATE OF MERGER ----------------------------------------------------------- 3.1 Consents -------- 4 Each of View Tech and View Tech-Del shall use its best efforts to obtain the consent and approval of each person whose consent or approval shall be required in order to permit consummation of the Merger. 3.2 Governmental Authorizations --------------------------- Each of View Tech and View Tech-Del shall cooperate in filing any necessary reports or other documents with any federal, state, local or foreign authorities having jurisdiction with respect to the Merger. 4. GENERAL ------- 4.1 Further Assurances ------------------ View Tech-Del and View Tech each covenants and agrees that it will, before, on or after the Effective Date of Merger, take such other actions as may be required by the California General Corporation Law and/or the Delaware General Corporation Law. 4.2 Abandonment ----------- At any time before the Effective Date of Merger, this Plan may be terminated and the Merger may be abandoned for any reason whatsoever by the board of directors of either View Tech or View Tech-Del or both, notwithstanding the approval of this Plan by the shareholders of View Tech or the stockholders of View Tech-Del or both. 4.3 Amendment --------- The boards of directors of the Constituent Corporations may amend this Plan at any time prior to the filing of this Plan (or certificate in lieu thereof) with the Secretary of State of the State of Delaware, provided that an amendment made subsequent to the adoption of the Plan by the stockholders of either Constituent Corporation shall not: (1) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such Constituent Corporation, (2) materially alter or change any term of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger, or (3) alter or change any of the terms and conditions of this Plan if such alteration or change would adversely affect the holders of any class or series thereof of such Constituent Corporation. 4.4 Registered Office ----------------- The registered office of the Surviving Corporation in the State of Delaware is located at Corporate Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware and Corporation Trust Company is the registered agent of the Surviving Corporation at such address. 4.5 Plan ---- 5 Copies of this Plan will be on file at the principal place of business of the Surviving Corporation at 950 Flynn Road, Camarillo, California 93012, and copies thereof will be furnished to any stockholder of either Constituent Corporation, upon request and without cost. 6 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. VIEW TECH, INC. By: /s/ Robert G. Hatfield ----------------------- Robert G. Hatfield Title: Chief Executive Officer The undersigned hereby affirms and acknowledges, under penalties of perjury, that this instrument is the act and deed of View Tech, Inc. and that the facts stated herein are true. By: /s/ Robert G. Hatfield ----------------------- Robert G. Hatfield Title: Chief Executive Officer VIEW TECH DELAWARE, INC. By: /s/ Robert G. Hatfield ----------------------- Robert G. Hatfield Title: Chief Executive Officer The undersigned hereby affirms and acknowledges, under penalties of perjury, that this instrument is the act and deed of View Tech Delaware, Inc. and that the facts stated herein are true. By: /s/ Robert G. Hatfield ----------------------- Robert G. Hatfield Title: Chief Executive Officer 7 The undersigned secretary of View Tech, Inc. hereby certifies that this Plan was adopted and approved by the shareholders of View Tech, Inc. at a meeting properly noticed and held on November 26, 1996. /s/ William M. McKay - ---------------------- William M. McKay Secretary The undersigned secretary of View Tech Delaware, Inc. hereby certifies that this Plan was adopted and approved by the sole stockholder of View Tech Delaware, Inc. by written consent dated November 26, 1996. /s/ William M. McKay - ---------------------- William M. McKay Secretary EX-3.2 4 BYLAWS OF VIEW TECH, INC. EXHIBIT 3.2 BYLAWS OF VIEW TECH, INC. ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Camarillo, State of California, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1996, shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not fewer than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of fifty percent (50%) of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. The directors of the corporation shall be divided into three classes; the terms of office of those of the first class to expire at the annual meeting next ensuing; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, directors shall be chosen for a full term, as the case may be, to succeed those whose terms expire. Section 2. Vacancies and new created directorships resulting from any increase in the 4 authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 5 Section 7. Special meetings of the board may be called by the president on two (2) days' notice to each director by mail or forty-eight (48) hours notice to each director either personally or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation of these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence of disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, 6 may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 14. Unless otherwise restricted by the certificate of incorporation or bylaw, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors, provided, however, that while the Board of Directors is 7 classified, stockholders may only remove directors for cause. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a president, treasurer and a secretary. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board of Directors may also choose one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, a treasurer, and a secretary and may choose vice presidents. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by 8 the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD Section 6. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present. He shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. Section 7. In the absence of the Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present. He shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. THE PRESIDENT AND VICE-PRESIDENTS Section 8. The president shall be the chief executive officer of the corporation; and in the absence of the Chairman and Vice Chairman of the Board he shall preside at all meetings of the stockholders and the Board of Directors; he shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 9. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 10. In the absence of the president or in the event of his inability or refusal to act, the vice-president, if any, (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers 9 as the Board of Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 11. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 12. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 13. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. Section 14. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 15. If required by the Board of Directors, he shall give the corporation a bond (which 10 shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 16. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATE OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice- chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof 11 and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholder or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall 12 not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time 13 designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. SEAL Section 5. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 6. The corporation shall, to the fullest extent authorized under the laws of the State of Delaware, as those laws may be amended and supplemented from time to time, indemnify any director made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of being a director of the corporation or a predecessor corporation or, at the corporation's request, a director or officer of another corporation, provided, however, that the corporation shall indemnify any such agent in connection with a proceeding initiated by such agent only if such proceeding was authorized by the Board of Directors of the corporation. The indemnification provided for in this Section 6 shall: (i) not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office, (ii) continue as to a person who has ceased to be a director, and (iii) inure to the benefit of the heirs, executors and administrators of such a person. The corporation's obligation to provide indemnification under this Section 6 shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the corporation or any other person. 14 Expenses incurred by a director of the corporation in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director of the corporation (or was serving at the corporation's request as a director or officer of another corporation) shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized by relevant sections of the General Corporation Law of Delaware. Notwithstanding the foregoing, the corporation shall not be required to advance such expenses to an agent who is a party to an action, suit or proceeding brought by the corporation and approved by a majority of the Board of Directors of the corporation which alleges willful misappropriation of corporate assets by such agent, disclosure of confidential information in violation of such agent's fiduciary or contractual obligations to the corporation or any other willful and deliberate breach in bad faith of such agent's duty to the corporation or its stockholders. The foregoing provisions of this Section 6 shall be deemed to be a contract between the corporation and each director who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The Board of Directors in its discretion shall have power on behalf of the corporation to indemnify any person, other than a director, made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was an officer or employee of the corporation. To assure indemnification under this Section 6 of all directors, officers and employees who are determined by the corporation or otherwise to be or to have been "fiduciaries" of any employee benefit plan of the corporation which may exist from time to time, Section 145 of the General Corporation Law of Delaware shall, for the purposes of this Section 6, be interpreted as follows: an "other enterprise" shall be deemed to include such an employee benefit plan, including without limitation, any plan of the corporation which is governed by the Act of Congress entitled "Employee Retirement Income Security Act of 1974," as amended from time to time; the corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise 15 involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to such Act of Congress shall be deemed "fines." ARTICLE VIII AMENDMENTS Section 1. These bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal bylaws is conferred upon the Board of Directors by the certificate or incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal bylaws. 16 EX-4.2 5 FORM OF WARRANT EXHIBIT 4.2 Form of Warrant No. W- 1 Right to Purchase _____ Shares of Common Stock of View Tech, Inc. VIEW TECH, INC. COMMON STOCK PURCHASE WARRANT VIEW TECH, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received Telcom Holding, LLC, or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 P.M., Eastern time, on December 31, 2001, ________ fully paid and nonassessable shares of Common Stock, $0.0001 par value, of the Company, at a purchase price per share of $6.50 (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants") evidencing the right to purchase shares of Common Stock of the Company, issued pursuant to a certain Common Stock and Warrant Purchase Agreement (the "Agreement"), dated as of December 31, 1996, between the Company and Telcom Holding, LLC, a copy of which is on file at the principal office of the Company, and the holder of this Warrant shall be entitled to all of the benefits of the Agreement, as provided therein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include View Tech, Inc. and any corporation which shall succeed to or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes the Company's Common Stock, $0.0001 par value per share, as authorized on the date of the Agreement and any other securities into which or for which any of such Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Market Price" means, as of any day, if the Common Stock is then traded on a national stock exchange or on the NASDAQ National Market System, the lower of the average closing sale price of the Common Stock, and if the Common Stock is not so traded, the lower of the average closing bid price of the Common Stock, during (i) the thirty (30) consecutive trading days or (ii) the three (3) consecutive trading days ending on the trading day next preceding such day. (d) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to 1 Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 5 or otherwise. (e) The term "Securities Act" means the Securities Act of 1933 or any similar federal statute, and the rules and regulations of the Securities and Exchange Commission (or of any other federal agency then administering the Securities Act) thereunder, all as the same shall be in effect at the time. 1. EXERCISE OF WARRANT. ------------------- 1.1. FULL EXERCISE. This Warrant may be exercised in full by the holder ------------- hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.2. PARTIAL EXERCISE. This Warrant may be exercised in part by surrender ---------------- of this Warrant in the manner and at the place provided in Subsection 1.1 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the subscription at the end hereof by (b) the Purchase Price then in effect. On any such partial exercise the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. 1.3. PAYMENT BY DEBT SURRENDER. Notwithstanding the payment provisions of ------------------------- Subsections 1.1 and 1.2, all or part of the payment due upon exercise of this Warrant in full or in part may be made by the surrender by such holder to the Company of any promissory note, debenture, bond or other evidence of indebtedness for borrowed money of the Company and such evidence of indebtedness so surrendered shall be credited against such payment in an amount equal to the principal amount thereof and accrued interest to the date of surrender. 1.4 NET ISSUE ELECTION. The holder hereof may elect to receive, without ------------------ the payment by such holder of any additional consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of subscription at the end hereof duly executed by such holder, at the office of the Company. Thereupon, the Company shall issue to such holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A 2 where X = the number of shares to be issued to such holder pursuant to this Subsection 1.4. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Subsection 1.4. A = the Market Price as of the date of the relevant net issue election pursuant to this Subsection 1.4. B = the Purchase Price in effect under this Warrant at the time such net issue election is made pursuant to this Subsection 1.4. 1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise ---------------------- of this Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company --------------------------- shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 4.2, such bank or trust company shall have all the powers and duties of a warrant agent appointed pursuant to Section 12 and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as ------------------------------------------------- practicable after the exercise of this Warrant in full or in part, and in any event within ten (10) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.; -------------------------------------------------------- RECLASSIFICATION. ETC. In case at any time or from time to time, prior to any - --------------------- exercise hereof as provided in Section 1, the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or 3 (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Subsection 4.4), then and in each such case the holder of this Warrant, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which such holder would hold on the date of such exercise if on the date hereof he had been the holder of record of the number of shares of Common Stock covered by such exercise and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 4 and 5. 4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. --------------------------------------------------------- 4.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or ------------------------------------------ from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, the holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Sections 3 and 5. 4.2. DISSOLUTION. In the event of any dissolution of the Company following ----------- the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company having its principal office in Boston, Massachusetts, as trustee for the holder or holders of the Warrants. 4.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger --------------------- or transfer (and any dissolution following any transfer) referred to in this Section 4, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of 4 stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 6. 4.4. EXTRAORDINARY EVENTS. In the event that the Company shall (i) issue -------------------- additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Subsection 4.4. The holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Subsection 4.4) be issuable on such exercise by a fraction of which (i) the numerator is the Purchase Price which would otherwise (but for the provisions of this Subsection 4.4) be in effect, and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 5. ADJUSTMENT FOR ISSUE OR SALE OF COMMON STOCK AT LESS THAN THE MARKET -------------------------------------------------------------------- PRICE IN EFFECT. - ---------------- 5.1. GENERAL. If the Company shall at any time or from time to time, issue ------- any additional shares of Common Stock (other than shares of Common Stock excepted from the provisions of this Section 5 by Subsection 5.4), in a transaction exempt from registration under the Securities Act, without consideration or for a net consideration per share less than the Market Price in effect immediately prior to such issuance, then, and in each such case: (a) the Purchase Price shall be lowered to an amount determined by multiplying such Purchase Price then in effect by a fraction: (1) the numerator of which shall be (a) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (b) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock so issued would purchase at the Purchase Price in effect immediately prior to such issuance, and (2) the denominator of which shall be (a) the number of shares of Common stock outstanding immediately prior to the issuance of such additional shares 5 of Common Stock plus (b) the number of such additional shares of Common Stock so issued; and (b) the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive the number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Subsection 5.1) be issuable on such exercise by the fraction of which (i) the numerator is the Purchase Price which would otherwise (but for the provisions of this Subsection 5.1) be in effect, and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 5.2. DEEMED ISSUANCE OF COMMON STOCK. The issuance 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), in a transaction exempt from registration under the Securities Act, shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share which may 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 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 in the manner provided in Subsection 5.1. Any obligation, agreement or undertaking to issue warrants, options, or other subscription or purchase rights at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made under Subsection 5.1 upon the issuance of any shares of Common Stock which are issued 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 of any such warrants, options or other rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant with respect to this Subsection 5.2 which relates to warrants, options or other subscription or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when, and to the extent that, any such warrants, options or other subscription or purchase rights expire or are canceled without being exercised, so that the Purchase Price effective immediately upon such cancellation or expiration shall be equal to the Purchase Price in effect at the time of the issuance of the expired or canceled warrants, options or other subscriptions or purchase rights, with such additional adjustments as would have been made to that Purchase Price had the expired or canceled warrants, options or other subscriptions or purchase rights not been issued. For purposes of this Subsection 5.2, the "Net Consideration Per Share" which may 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 of such warrants, options, subscriptions, or other purchase rights or convertible or 6 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 issued 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" which may be received by the Company shall be determined in each instance as of the date of issuance 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 which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible securities. For purposes of this Section 5, if a part or all of the consideration received by the Company in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this Section 5, 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. This Subsection 5.2 shall not apply under any of the circumstances described in Subsection 4.4. 5.3. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities ------------------------------------ (other than described in Subsection 5.1) shall be issued or sold, or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities or any other person referred to in Section 4) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or person), for a consideration per share such as to dilute the purchase rights evidenced by this Warrant, the computations, adjustments and readjustments provided for this Section 5 with respect to the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable on the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 5.4. EMPLOYEE STOCK OPTION PLANS (THE "PLANS"). The provisions of this ----------------------------------------- Section 5 shall not apply to the exercise of options granted to directors, officers and employees for any such Plan now existing or adopted after the date hereof, provided that such Plans do not provide for the purchase in the aggregate of more than 1,771,000 shares of Common Stock. 5.5. EXPIRATION. Notwithstanding anything to the contrary contained in ---------- this Warrant, the provisions of this Section 5 shall expire six (6) months after the initial Closing (as defined in the Agreement). 6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its ------------------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to 7 avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of all Warrants from time to time outstanding, (c) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets, and (d) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of the Warrants. 7. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any ------------------------------------------ adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of the Warrants and, on the written request at any time of any holder of a Warrant, prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. In case of any dispute concerning computation of any adjustment or readjustment, the Company at its expense will promptly cause independent certified public accountants of recognized standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of the Warrants. The determination of such accountants shall be final and binding for all purposes. 8. NOTICES OF RECORD DATE, ETC. In the event of --------------------------- (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or 8 (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding- up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than the issue of Common Stock on the exercise of the Warrants), THEN and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such 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, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least twenty (20) days prior to the date specified in such notice on which any such action is to be taken. 9. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The ------------------------------------------------------------ Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrants. 10. EXCHANGE OF WARRANTS. On surrender for exchange of any Warrant, ----------------------- properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9 12. WARRANT AGENT. The Company may, by written notice to each holder of a ------------- Warrant, appoint an agent having an office in either Los Angeles, California, Boston, Massachusetts or New York, New York for the purpose of issuing Common Stock (or Other Securities) on the exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to Section 10, and replacing Warrants pursuant to Section 1.1, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 13. REMEDIES. The Company stipulates that the remedies at law of the -------- holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, ------------------ to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) the Common Stock or other securities issued or issuable upon exercise of this Warrant shall not be transferable except in compliance with federal and applicable state securities laws. 15. NOTICES, ETC. All notices and other communications from the Company ------------ to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 16. MISCELLANEOUS. This Warrant and any term hereof may be changed, ------------- waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall 10 be construed and enforced in accordance with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 17. REDEMPTION. Notwithstanding anything to the contrary contained ---------- herein, on or after the first (1st) anniversary of the initial Closing (as defined in the Agreement), the Company may at its option redeem this Warrant (i) if the average closing bid price of the Common Stock was at least $10.00 during a period of sixty (60) consecutive trading days ending within ten (10) days prior to the date of the Company's written notice of redemption or (ii) if the Company effects a best efforts or firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale by the Company of its Common Stock (or units including Common Stock) with aggregate gross proceeds to the Company of not less than $7,500,000 (calculated after deducting underwriter's discounts and commissions but before expenses) (a "Qualified Public Offering"). The Company shall give written notice of any such election to the holder of this Warrant, which notice shall set forth the proposed redemption date, which shall be a date not less than thirty (30) nor more than sixty (60) days after such notice; the aggregate number of and the number of each affected holder's Warrants to be redeemed; and the redemption price per Registrable Share, which shall be $0.50 per Registrable Share (subject to adjustment upward, but not downward, in accordance with Sections 3, 4 and 5 hereof, mutatis mutandis). On the ------- -------- redemption date, the holders shall surrender their Warrants for cancellation. From and after the date on which the redemption price therefor is paid in full, all Warrants shall no longer be outstanding. Notwithstanding the foregoing, nothing herein shall be deemed to prevent the exercise of this Warrant after any such redemption notice is given and before the redemption date specified therein. Notwithstanding anything to the contrary contained in this Warrant, in the event of any redemption notice with respect to a Qualified Public Offering, (i) this Warrant shall automatically be deemed to be exercised in full pursuant to the provisions of Subsection 1.4 hereof, without any further action on behalf of the holder hereof, immediately prior to the effectiveness of the registration statement with respect thereto and (ii) in connection with such exercise the Purchase Price then in effect shall be reduced by an amount equal to (a) $10.00 less (b) the price per share (or unit) at which the Company's Common Stock (or units) is offered to the public in such Qualified Public Offering. 11 18. EXPIRATION; AUTOMATIC EXERCISE. The right to exercise this Warrant ------------------------------ shall expire at 5:00 P.M., Eastern time, on December 31, 2001. Notwithstanding the foregoing, this Warrant shall automatically be deemed to be exercised in full pursuant to the provisions of Subsection 1.4 hereof, without any further action on behalf of the holder hereof, immediately prior to the time this Warrant would otherwise expire pursuant to the preceding sentence. DATED: ___________, 1997 VIEW TECH, INC. BY: _________________ NAME: TITLE: 12 FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO VIEW TECH, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder shares of Common Stock of VIEW TECH, INC. and herewith makes payment of $_______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, __________________________ whose address is: __________________________________________________. If said number of shares is less than all te shares covered by the within Warrant, a new Warrant shall be registered in the name of the undersigned and delivered to the address stated below. Dated: _________, ____ ____________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant or the attached Assignment) Witness: _______________________________________ (Address) ______________________ __________________________________________ FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the assignee named below the right represented by the within Warrant to purchase the number of shares of Common Stock (or Other Securities) to which the within Warrant relates, and appoints _______________________ Attorney to transfer such right on the books of VIEW TECH, INC.. with full power of substitution in the premises: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated: __________, ____ ____________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) Witness: ______________________________________ (Address) _____________________ 13 EX-10.13 6 SUBLEASE AGREEMENT EXHIBIT 10.13 SUBLEASE AGREEMENT ------------------ THIS SUBLEASE AGREEMENT (the "Sublease"), made as of this 11th day of October, 1996, by and between Atlantic Steel Industries, Inc., having an office at 2859 Paces Ferry Road, Suite 1900, Atlanta, Georgia 30339 ("Sublessor"); and ViewTech, Inc., a California corporation, having an office at 950 Flynn Road, Camarillo, California 93012 ("Sublessee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Sublessor, as "Tenant", entered into a lease (the "Prime Lease") with State of California Employees Retirement System, agency of State of California (the "Prime Landlord"), dated November 1, 1993, leasing certain space on the 19th floor of that certain building known as "Overlook III" at 2859 Paces Ferry Road, Atlanta, Georgia (the "Building"). Said Prime Lease to which reference is made above is incorporated herein by this reference and made a part hereof as attachment "A". WHEREAS, Sublessor and Sublessee have agrees that Sublessor shall sublet approximately 5,946 square feet of such space as rented under the Prime Lease to Sublessee, as such space is shown on Exhibit "B" attached hereto and by this reference incorporated herein, upon the terms and conditions as herein described. NOW, THEREFORE, for Ten and No/100 Dollars ($10.00) and other good and valuable consideration, paid by the parties hereto to one another, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby covenant and agree as follows: 1. Premises, Rent and Term. (a) Sublessor hereby leases to Sublessee the ----------------------- 5,946 square feet, more or less, of space on the 19th floor of the Building, shown on Exhibit "B: (the "Sublease Premises"), beginning on December 1, 1996 and ending on December 31, 1999, (the "Term"). (b) The base rent ("Base Rent") for such Sublease Premises shall be Ten Thousand Six Hundred Fifty Three and 25/100 Dollars ($10,653.25) per month, plus the additional rent (the "Additional Rent") described in Paragraph 3 of this Sublease. (c) Sublessee shall pay the Base Rent and Additional Rent (collectively the "Rent") provided for hereunder in advance on the first day of every month during the Term. 2. No Assignment. Sublessee shall not assign this Sublease nor sublet ------------- the Premises in whole or in part and shall not permit Sublessee's interest in this Sublease to be vested in any third party by operation of law or otherwise. 1 3. Other Charges. If Sublessor shall be charged for Additional Rent or ------------- any other sums pursuant to the provisions of the Prime Lease, including, but not limited to, Paragraph 3 thereof, Sublessee shall be liable for all of such Additional Rent or other sums. If Sublessee shall procure any additional services from the Building, such as alterations or after-hour air conditioning, Sublessee shall pay for same at the rates charged therefor by the Prime Landlord and shall make such payment to the Sublessor or Prime Landlord, as Sublessor shall direct. Any Rent or other sums payable by Sublessee under this Paragraph 3 shall be Additional Rent and collectible by Sublessor as such. If Sublessor shall receive any refund from Prime Landlord, Sublessee shall be entitled to the return of so much thereof as shall be attributable to prior payments by Sublessee. 3.1 Payment of Operating Costs by Sublessee: In addition to Base Rent, --------------------------------------- Sublessee agrees to pay as Additional Rent to Sublessor all Operating Costs as described in paragraph 2 of Exhibit "D" and in Exhibit "E" of the Prime Lease. For the purposes of this Sublease, Base Year Operating Costs, as defined in Paragraph 2(a) of Exhibit D to the Prime Lease, shall be the actual Operating Costs, on a per square foot per annum basis, for the calendar year 1996, as adjusted in accordance with Exhibit "E" of the Prime Lease. Such payments shall begin on January 1, 1997. 4. Subordinate to Prime Lease. This Sublease is subject and subordinate -------------------------- in all instance and under all circumstances to the Prime Lease. Except as may be inconsistent with the terms hereof, all the terms, covenants and conditions in the Prime Lease contained shall be applicable to this Sublease with the same force and affect as if Sublessor were the "Landlord" under the Prime Lease and sublessee were the "Tenant" thereunder; and in case of any breach hereof by Sublessee, Sublessor shall have all the rights against Sublessee as would be available to Prime Landlord against Sublessor as "Tenant" under the Prime Lease for purposes of this Sublease. Base Year Operating Costs, as defined in Paragraph 2(a) of Exhibit "D" to the Prime Lease, shall be the actual Operating Costs, on a per square foot per annum basis, for the calendar year 1996, as adjusted in accordance with Exhibit "E: of the Prime Lease. Such payments shall begin on January 1, 1997. 4.1 The following provisions of the Master Lease are not incorporated herein and, as between Sublessor and Sublessee, are deemed deleted: (i) Paragraphs 3, 4, and 5 of Exhibit "D." 5. Services. Notwithstanding anything to the contrary contained herein, -------- the only services or rights to which Sublessee is entitled hereunder are those to which Sublessor is entitled to as "Tenant" under the Prime Lease and that for all such services and rights Sublessee will look to Prime Landlord under Prime Lease. 6. No Acts. Sublessee shall neither do nor permit anything to be done ------- which would cause the Prime Lease to be terminated or forfeited or any claims to accrue to the benefit of Prime Landlord by reason of any right of termination or forfeiture reserved or vested in Prime Landlord under the Prime Lease, or any rights to damages accruing to or for the benefit of Prime Landlord under the Prime Lease, and Sublessee shall indemnify and hold Sublessor harmless from and against all loss, cost, incurred by Sublessor by reason of any default on the part of Sublessee by 2 reason of which the Prime Lease may be terminated or forfeited, or any claims shall accrue to the benefit of or for Prime Landlord under the Prime Lease. 7. First Months Rent and Security Deposit: Sublessee has paid Sublessor, -------------------------------------- upon the execution and delivery of this Sublease, the sum of Twenty One Thousand Three Hundred Six and 50/100 Dollars ($21,306.50) one-half of which shall be applied to Sublessee's first months rent obligation and one-half of which shall be held as security for the full and faithful performance of the terms, covenants and conditions of this Sublease on Sublessee's part to be performed or observed, including, but not limited to, payment of Rent or for any other sum which Sublessor may expend or be required to expend by reason of Sublessee's failure to comply with the terms and conditions of the Prime Lease or this Sublease, including, but not limited to, any damages or deficiency incurred by Sublessor as "Tenant" under the Prime Lease in reletting the Sublease Premises, in whole or in part, whether such damages shall accrue before or after summary proceedings or other re-entry by Sublessor. If Sublessee shall fully and faithfully comply with all the terms, covenants and conditions of this Sublease on Sublessee's part to be performed or observed, the security, or any unapplied balance thereof, shall be applied to Sublessor's last month of Base Rent. 8. Sublease Premises. Sublessee shall take the Sublease Premises "as is, ----------------- where is", and Sublessor makes and has made no representations or warranties whatsoever with respect to the Sublease Premises or the fitness thereof for Sublessee's intended purpose. 9. Brokerage. Cushman & Wakefield of Georgia, Inc. has acted as agent --------- for Sublessor in this transaction. Cushman & Wakefield is to be paid a commission by the Sublessor. Shaw & Associates has acted as agent for Sublessee in this transaction. Shaw & Associates is to be paid a commission by Sublessor. Sublessor is obligated to pay commission in accordance with a separate written agreement between Sublessor and Cushman & Wakefield of Georgia, Inc. 10. No Other Agreement. All prior understandings and agreements between ------------------ the parties are merged within this Sublease, which alone fully and completely sets forth the understanding of the parties hereto. This Sublease may not be changed or terminated in any manner other than by an agreement in writing, executed by the party against whom enforcement of the change or termination is sought. 11. Notice. Any notice of demand which either party may or must give to ------ the other hereunder shall be in writing and delivered personally or sent by certified mail, return receipt requested, addressed if to Sublessor, as follows: Dan Coto SIVACO Georgia 24 Herring Road P.O. Box 1194 Newman, GA 30265 (770) 253-6333 and if to Sublessee, as follows: 3 Dianna Branch ViewTech, Inc. 950 Flynn Road Camarillo, CA 93012 Either party may, by notice in writing, direct that future notices or demand be sent to a different address. 12. Binding. The covenants and agreements herein contained shall bind and ------- inure to the benefit of Sublessor, Sublessee, and their respective executors, administrators, successors and assigns. SPECIAL STIPULATIONS 1. Sublessor agrees to give Sublessee, at no additional charge, the refrigerator, microwave and dishwasher. IN WITNESS WHEREOF, the undersigned have caused this Sublease to be executed under seal and delivered, on the day and year first above written. "SUBLESSOR" By: /s/ ------------------------- Its: Assistant Secretary ------------------- Attest: /s/ --------------------- Its: Office Manager ------------------- (CORPORATE SEAL) "SUBLESSEE" By: /s/ William M. McKay ----------------------------- Its: Chief Financial Officer ----------------------- Attest: /s/ ------------------------- Its: Facilities Manager ----------------------- (CORPORATE SEAL) State of California Public Employees' Retirement System, an agent of the State of California 4 Consented to by: ------------------------------------ By: LaSalle Advisors Limited, Agent By: /s/ -------------------------------- Its: Vice President -------------------------- Attest: /s/ ---------------------------- Its: Asst. Administrator -------------------------- (CORPORATE SEAL) By consenting to this Sublease, State of California Public Employees Retirement System, an agency of the State of California, as "Prime Landlord", in no way agrees to perform or be obligated to perform any services on behalf of Sublessee hereunder, but shall continue to provide any such services to the Sublease Premises in accordance with the terms and conditions of the Prime Lease. Sublessee shall have no rights or claims against Prime Landlord, but shall instead look solely to Sublessor for any such claims. 5 OVERLOOK III OFFICE BUILDING LEASE AGREEMENT This Lease Agreement (the "Lease") is entered into as of the _____ day of ____________, 199_, by and between the State of California Public Employees' Retirement System (hereinafter called "Landlord") and Atlantic Steel Industries, Inc. (hereinafter called "Tenant"). W I T N E S S E T H - - - - - - - - - - 1 Definitions and Basic Provisions. Certain definitions and basic -------------------------------- provisions (the "Basic Lease Information") of this Lease are: 1.1 Lease Date: __________________, 199_ 1.2 Tenant: Atlantic Steel Industries, Inc. 1.3 Tenant's Address: 2859 Paces Ferry Road Suite 1900 Atlanta, GA 30339 Contact __________________ Telephone: _______________ 1.4 Landlord: State of California Public Employees' Retirement System, an agency of the State of California 1.5 Landlord's Address: LaSalle Advisors Limited 11 South LaSalle Street Chicago, IL 60603 Contact: Calpers Portfolio Manager Telephone: (312) 782-5800 Copy to: LaSalle Partners Asset Management Limited Suite 250 2839 Paces Ferry Road Atlanta, GA 30339 Attn: Mr. Brad Jennings Telephone: (404) 319-8900 1.6 Premises: Suite No. 1900 in the office building located at 2839 Paces Ferry Road (the "Building"), known as Overlook III. The Building and the land upon which it is situated, which land is more particularly described in Exhibit "A" hereto, are herein sometimes collectively called the Project. - ----------- 1.7 Lease Term: The period commencing on January 1, 199__ (or the earlier date on which Tenant occupies the Premises with Landlord's prior written consent), and subject to adjustment as provided in the Lease (the "Commencement Date"), and continuing until December 31, 1999. 1.8 Base Rent: $9,414.50 per month. 1.9 Security Deposit: $9,414.50 1.10 Tenant's Share: the percentage that expresses the ratio between the number of rentable square feet comprising the Premises (5,946), and the number of rentable square feet of the Building (432,312), which, for the purposes of the Lease, shall be 1.375%. 1.11 Permitted Use: General Office Use. 1.12 Lease Year: The period of twelve (12) calendar months or less commencing with the Commencement Date and ending at midnight on the following December 31, each successive period of twelve (12) calendar months thereafter during the Lease Term, and the final period of twelve (12) calendar months or less commencing on January 1 of the calendar year in which the Lease Term expires. During any Lease Year within the Lease Term that is less than twelve (12) full months, any amount to be paid with respect to such period shall be prorated, based on the actual number of months and the actual number of days of any partial month assuming each month to have thirty (30) days. 2 Lease Grant. In consideration of rent to be paid and the other ----------- covenants and agreements to be performed by Tenant and upon the terms hereinafter stated, Landlord does hereby lease, demise and let unto Tenant the Premises, which are outlined in red on the plan attached hereto as Exhibit "A- ---------- 1", commencing on the Commencement Date and ending on the last day of the Lease - -- Term, unless sooner terminated as herein provided. If this Lease is executed before the Premises become vacant, or otherwise available and ready for occupancy, or if any present tenant or occupant of the Premises holds over, and Landlord cannot acquire possession of the Premises prior to the Commencement Date, Landlord shall not be deemed to be in default hereunder, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to tender the same, such date shall be deemed to have accepted the same as suitable for the purposes herein intended and to have acknowledged that the same comply fully with Landlord's obligations. Within five (5) days after Landlord's architect shall certify to Tenant that the Premises are substantially complete but prior to Tenant moving in to the Premises, Tenant shall make an inspection of the Premises, and except for latent defects, and except for incomplete or defective items other than latent defects of which Landlord is notified by Tenant within such period, Tenant shall be deemed t have accepted the Premises in their then condition. Any latent defects to the Premises which may be claimed by Tenant shall be claimed by Tenant within twelve (12) months of the Commencement Date, and any such claims not so raised by Tenant within said 2 twelve (12) month period shall be waived by Tenant. Within ten (10) days after request of Landlord, Tenant agrees to give Landlord a letter confirming the Commencement Date and certifying that Tenant has accepted delivery of the Premises and that the condition of the Premises complies with Landlord's obligations hereunder. 3 Rent. ---- 3.1 Tenant agrees to pay to Landlord in advance on or before the first day of each month starting with January 1, 199_, the Base Rent, subject to adjustment as hereinafter provided, without deduction or set off, for each month thereafter for the remainder of the entire Lease Term. One such monthly installment together with the Security Deposit shall be due and payable by Tenant to Landlord upon execution of this Lease, and a like monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the Commencement Date during the Lease Term. Rent for any period of less than a full month shall be prorated, based on one thirtieth (1/30) of the current monthly rent for each day of the partial month this Lease is in effect. 3.2 If any installment of the Base Rent, or any other sums which become owing by Tenant to Landlord under the provisions hereof, is not received within ten (10) days after the date of notice from Landlord of such late payment, without in any way implying Landlord's consent to such late payment, Tenant, to the extent permitted by law, agrees to pay, in addition to said installment of the Base Rent or such other sums owed, it being understood that said late payment charge shall constitute liquidated damages and shall be for the purpose of reimbursing Landlord for additional costs and expenses which Landlord presently expects to incur in connection with the handling and processing of late installment payments of the Base Rent and such other sums which become owing by Tenant to Landlord hereunder: provided, however, if more than one (1) payment due of Tenant hereunder in any one (1) calendar year is not made until after notice of such late payment is received by Tenant, then the late charge in this Paragraph shall be due by Tenant if any subsequent payments due of Tenant hereunder in the same calendar year are not made within five (5) days within the date when due (without the requirement for prior notice). Landlord and Tenant expressly covenant and agree that in the event of any such late payment by Tenant, the damages so resulting to Landlord will be difficult to ascertain precisely, and that the foregoing charge constitutes a reasonable and good faith estimate by the parties of the extent of such damages and does not constitute interest. Notwithstanding the foregoing, the foregoing late charges shall not apply to any sums which may have been advanced by Landlord to or for the benefit of Tenant pursuant to the provisions of this Lease. Notwithstanding the above, the late charge shall not be due unless the amount due is not paid by Tenant within ten (10) days of the date notice from Landlord of such late payment is received by Tenant; provided, however, if more than one (1) payment due of Tenant hereunder in any one (1) calendar year is not made until after notice of such late payment is received by Tenant, then the late charge in this paragraph shall be due by Tenant if any subsequent payments due of Tenant hereunder in the same calendar year are not made within five (5) days of the date when due. 3 3.3 The Security Deposit shall be held by Landlord without liability and as security for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that such deposit shall not be considered an advance payment of rent or a measure of Landlord's damages in case of default by Tenant. Upon the occurrence of any event of default by Tenant, Landlord may (but shall not be obligated to), from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrearage of Rent and any other damage, injury expense or liability caused to Landlord by such event of default. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not then in default hereunder, any remaining balance of the Security Deposit shall be returned by Landlord to Tenant upon termination of this Lease. If Landlord transfers its interest in the Premises during the Lease Term, Landlord may assign the Security Deposit to the transferee and thereafter shall have no further liability for the return of the Security Deposit. 3.4 All sums other than Base Rent payable by Tenant to Landlord under any provision of this Lease shall constitute Additional Rent. Base Rent and Additional Rent are herein referred to collectively as "Rent". All Rent due hereunder shall bear interest from the due date until paid in full at a rate equal to the lesser of: (a) the prime interest rate in effect from day to day at the First National Bank of Atlanta, Georgia plus three (3) percentage points; or (b) the maximum legal rate allowed by law. If more than the maximum legal rate of interest should ever be collected with regard to any sum due hereunder, said excess amount shall be credited against future payments of Rent thereafter first accruing hereunder. If no such further Rent accrues hereunder, said excess sums shall be promptly refunded by Landlord to Tenant upon written demand by Tenant. 3.5 No payment by Tenant or receipt by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction. Landlord may accept such check of payment without prejudice to Landlord's right to recover the balance or to pursue any other remedy in this Lease or otherwise provided by law or equity. 4 Consumer Price Index Increases. INTENTIONALLY DELETED. (See Special ------------------------------ Provision #2 of Exhibit "D"). ----------- 5 Landlord's Obligations. ---------------------- 5.1 Subject to the limitations hereinafter set forth, Landlord agrees to furnish Tenant while occupying the Premises facilities to provide (a) water at those points of supply provided for general use of tenants of the Building; (b) heated and refrigerated air conditioning in season, from 8:00 a.m. to 6:00 p.m. Monday through Friday and from 8:00 a.m. to 1:00 p.m. on Saturdays, except for holidays (the "Building Hours"), at such temperatures and in such amounts as are comparable to other first-class buildings in the area 4 of the Building, such service at night and on Saturday afternoons, Sundays and holidays to be furnished only at the written request of Tenant, who shall pay upon demand Landlord's customary charges for such services; (c) janitorial services to the Premises on weekdays other than holidays and such window washing, all such being comparable to the janitorial services and window washing services provided in other first-class buildings in the area of the Building; and (d) operatorless passenger elevators for ingress and egress to the floor on which the Premises are located, in common with other tenants, provided that Landlord may reasonably limit the number of elevators to be in operation at times other than during customary business hours for the Building and on holidays. In addition, Landlord agrees to maintain the public and common areas (the "Common Facilities") of the Building, such as lobbies, stairs, corridors and restrooms, in reasonably good order and condition, except for damage occasioned by Tenant, or its employees, agents or invitees. If Tenant shall desire any of the services specified in this Section 5.1 at any time other than times herein designated, such service or services shall be supplied to Tenant only at the written request of Tenant delivered to Landlord before 3:00 p.m. on the business days preceding such extra usage, and Tenant shall pay to Landlord as Additional Rent the cost of such service or services immediately upon receipt of a bill therefor. 5.2 Without additional cost to Tenant, Landlord shall provide standard electric lighting and current for Tenant's use and occupancy of the Premises and shall make available electric lighting and current for the common areas of the Building in the manner and to the extent deemed by Landlord to be standard. If Tenant's use of electric current (a) exceeds 110 volt power, or (b) exceed that required for routine lighting and operation of general office machines (such as typewriters, dictating equipment, desk model adding machines and the like) which use 110 volt electrical power, then the Tenant shall pay on demand the cost (as determined in good faith by the Landlord) of any such excess. Without Landlord's prior written consent, Tenant shall not install any data processing or computer equipment in the Premises or any other equipment which it shall require for its use other than the normal electric current or other utility service. When heat generating machines or equipment (other than general office machines as described hereinbefore) are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system or otherwise overload any utility, Landlord shall have the right to install supplemental air conditioning units or other supplemental equipment in the Premises, and the cost thereof (as determined in good faith by Landlord), including without limitation, the cost of installation, operation, use and maintenance, shall be paid by Tenant to Landlord on demand. The rate charged by Landlord shall not exceed the rate prevailing for Tenant as a user as established by the applicable rate classification published from time to time by the local electric power company or other utility supplier. The obligation of the Landlord hereunder to make available such utilities shall be subject to the rules and regulations of the supplier of such utilities and of any municipal or other governmental authority regulating the business of providing such utility service. Tenant will be billed monthly for such additional utility service and all such charges shall be considered due upon delivery of such bill and be deemed as so much Additional Rent due from Tenant to Landlord. 5 5.3 Landlord shall not in any way be liable or responsible to Tenant for any loss or damages or expense which Tenant may sustain or incur if either the quantity or character of any utility service is changed or is no longer available or is no longer suitable for Tenant's requirements. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the Building or the risers or wiring installations. Any riser or risers or wiring required or necessary to meet Tenant's excess electrical requirements upon written request of Tenant will be installed by Landlord at the sole cost and expense of Tenant (if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the Building or the Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants). At any time when Landlord is making such additional utility service available to the Premises pursuant to this Section, Landlord may, at its option, upon not less than thirty (30) days' prior written notice to Tenant, discontinue the availability of such additional utility service. If Landlord gives any such notice of discontinuancy, Landlord shall make all the necessary arrangements with the public utility supplying the utilities to the Premises with respect to obtaining such additional utility service to the Premises, but Tenant will contract directly with such public utility for the supplying of such additional utility service to the Premises). 5.4 Failure to any extent to make available, or any slow-down, stoppage or interruption of, these defined services resulting from any cause (including, but not limited to, Landlord's compliance with (a) any voluntary or similar governmental or business guideline now or hereafter published or (b) any requirements now or hereafter established by any governmental agency, board or bureau having jurisdiction over the operation and maintenance of the Building) shall not render Landlord liable in any respect for damages to either person, property, or business, nor be construed as an eviction of the Tenant or work an abatement of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery furnished by Landlord break down or for any cause cease to function properly, Landlord shall use reasonable diligence to repair same promptly, but Tenant shall have no claim for abatement of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Notwithstanding the above, if any services described above are interrupted for a period of ten (10) or more consecutive business days for an occurrence within Landlord's control or as a result of Landlord's gross negligence or willful misconduct, and such interruption materially and adversely affects Tenant's use of or access to the Premises or the Building, Rent due hereunder for the portion of the Premises actually affected shall abate after such period until such service is restored. 5.5 Tenant's obligations to pay any and all Additional Rent pursuant to this Article 5 shall continue and shall cover all periods up to the actual date of expiration or termination of this Lease; provided, however, if Landlord terminates this Lease without waiving Landlord's right to seek damages against Tenant, Tenant's obligation to pay any and all Additional Rent pursuant to this Article 5 shall not terminate as a result thereof. 6 6 Leasehold Improvements. ---------------------- 6.1 Intentionally deleted. 6.2 Intentionally deleted. 6.3 Final working drawings of all improvements that Tenant desires to be installed in the Premises, whether or not all or any of the work is to be done by Landlord, must have been submitted to and approved by Landlord no later than October 19, 1993. The final working drawings shall evidence improvements that comply with applicable law, shall be in a form commonly used in the Building for construction purposes and shall be signed by Tenant and Landlord. 6.4 If there are any changes by Tenant, Tenant's contractors, subcontractors, subcontractors or agents from the improvements set forth in the final working drawings approved by Landlord, each such change must receive the prior written approval of Landlord, and in the event of any such approved change in the working drawings, Tenant shall, upon completion of the improvements, furnish Landlord with an accurate "as-built" plan of the improvements as constructed, which plans shall be incorporated into this Lease by this reference for all intents and purposes. 6.5 Any contractors and subcontractors engaged by Tenant shall be subject to Landlord's approval and shall comply with all standards and regulations established by Landlord. Such contractors and subcontractors shall coordinate their efforts to insure timely completion of all work. Contractors or subcontractors engaged by Tenant shall employ labor, materials, and funds to insure the progress of the work without interruption on account of strikes, work stoppage, or similar causes for delay. During construction of any improvements, contractors and subcontractors shall coordinate with Landlord the movement of equipment and materials. Tenant's work shall be conducted in such manner so as to maintain harmonious labor relations and not to interfere with or delay Landlord's contractors or Landlord's operation of the Building or the use of the Building by other tenants. 6.6 All design, construction and installation shall conform to the requirements of applicable building, plumbing and electrical codes and the requirements of any authority having jurisdiction over or with respect to such work. 6.7 If Tenant, with Landlord's prior written permission, employs its own contractors or decorators, or if Tenant or Tenant's agents makes changes in the work after approval of the plans by Landlord, and if such contractor or decorator or such changes shall delay the work to be performed hereunder, or if Tenant shall otherwise delay the completion of said work, then, notwithstanding any provision to the contrary in this Lease, Tenant's obligation to pay Rent hereunder shall nevertheless commence on the Commencement Date. If the Premises are not ready for occupancy on the Commencement Date for any reason other than the reasons specified in the immediately preceding sentence, the obligations of Landlord 7 and Tenant shall nevertheless continue in full force and effect, in which event the Rent provided for herein shall abate and not commence, and the Commencement Date shall not occur, until the date the leasehold improvements to the Premises are substantially complete (as determined by Landlord's architect), such abatement of Rent to constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of the Premises not being ready for occupancy by Tenant on the Commencement Date. 6.8 Tenant shall bear the entire cost of any improvements to be installed by Landlord in the Premises in excess of the "Allowance" (as herein defined) and shall pay for such as hereinafter provided. Tenant shall pay to Landlord upon Landlord's approval of the working drawings referred to herein, an advance payment equal to fifty percent (50%) of the cost (including labor, material and overhead) of such improvements in excess of the Allowance, as estimated by Landlord. Notwithstanding any provision contained herein to the contrary, it is understood and agreed that Landlord shall have no obligation to commence installation of such improvements in excess of the Allowance until (a) Tenant shall have furnished to Landlord and Landlord shall have approved the final working drawings as required by the provisions hereof, and (b) Landlord shall have received Tenant's advance payment for the portion of the cost of the installation of the improvements in excess of the Allowance as required by the immediately preceding sentence. After the commencement of the installation of the leasehold improvements referred to herein, Tenant agrees to make progress payments in advance to Landlord for the remainder of the cost (including labor, material and overhead as aforesaid) of the improvements in excess of the Allowance as estimated from time to time by Landlord and set forth in interim invoices therefor submitted by Landlord to Tenant at such intervals as Landlord may determine. Tenant shall pay to Landlord the amount specified in each such invoice upon delivery of each such invoice to Tenant, and upon substantial completion of the installation of such improvements, Tenant shall pay to Landlord the remainder of the actual cost of such work in excess of the Allowance, or Landlord shall refund to Tenant the amount, if any, by which all prior progress payments by Tenant exceed the actual cost of the installation of such improvements in excess of the Allowance, as the case may be. In no event credit be given to Tenant for any Building standard allowances not used. 7 Permitted Use. Tenant shall use the Premises only for the Permitted ------------- Use. Tenant will not occupy or use the Premises, or permit any portion of the Premises to be occupied or use, for any business or purpose other than the Permitted Use or for any use or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner or extra hazardous on account of fire, nor shall Tenant use, store, or discharge any "Hazardous Material" as defined in Section 46 hereof, nor permit anything to be done which will in any way increase the rate of insurance on the Building or contents; and in the event that, by reasons of acts of the Tenant, there shall be any increase in the rate of insurance on the Building or contents created by Tenant's acts or conduct of business, then such acts of Tenant shall be deemed to be an event of default hereunder and Tenant hereby agrees to pay to Landlord the amount of such increase on demand, and acceptance of such payment shall not constitute a waiver of any of Landlord's other rights provided herein. Tenant will 8 conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance, nor interfere with, annoy or disturb other tenants or Landlord in the management of the Building. Tenant will maintain the Premises in a clean, healthful and safe condition and will comply with all laws, ordinances, orders, rules and regulations (state, federal, municipal and other agencies of bodies having jurisdiction thereof) with reference to Tenant's specific use, specific condition or specific occupancy of the Premises. Tenant will not, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld or delayed, paint, install lighting or decorations, or install any signs, window or door lettering or advertising media of any type on or about the premises or any part thereof. 8 Tenant's Repairs and Alterations. Tenant will not in any manner -------------------------------- deface or injure the Building, and will pay the cost of repairing any damage or injury done to the Building or any part thereof by Tenant or Tenant's agents, employees or invitees. Tenant shall throughout the Lease Term take good care of the Premises and keep them free from waste and nuisance of any kind. Tenant agrees to keep the Premises, including all fixtures installed by Tenant, in good condition, and to make all necessary non-structural repairs except those caused by fire, casualty or acts of God covered by Landlord's fire insurance policy covering the Building, or which would be covered under a standard fire insurance policy. The performance by Tenant of its obligations to maintain and make repairs shall be conducted only by contractors and subcontractors approved in writing by Landlord, it being understood that Tenant shall procure and maintain and shall cause such contractors and subcontractors engaged by or on behalf of Tenant to procure and maintain insurance coverage against such risks, in such amounts and with such companies as Landlord may require in connection with any such maintenance and repair. If Tenant fails to make such repairs within fifteen (15) days after the occurrence of the damage or injury, Landlord may at its option make such repair, and Tenant shall, upon demand therefor, pay Landlord for the cost thereof. At the end or other termination of this Lease, Tenant shall deliver up the Premises with all improvements located thereon (except as otherwise herein provided)in good repair and condition, reasonable wear and tear excepted; and shall deliver to Landlord all keys to the Premises. Tenant will not make or allow to be made any alterations or physical additions in or to the Premises without the prior written consent of Landlord. All alterations, additions or improvements (whether temporary or permanent in character) made in or upon the Premises without either by Landlord or Tenant, shall be the Landlord's property on termination of this Lease and shall remain on the Premises without compensation to Tenant, provided that Landlord, at its option, may by written notice to Landlord, require Tenant to remove any such alterations, additions or improvements at Tenant's cost which Landlord has not consented to or which Landlord has not stated, at the time of Landlord's consent to the making of such improvements, that such improvement need not be removed by Tenant at the end of the Term or Lease. Tenant shall, subject to the above, restore the Premises to the condition of the Premises at the Commencement Date, normal wear and tear excepted. All furniture, movable trade fixtures and equipment installed by Tenant may be removed by Tenant at the termination of this Lease if Tenant so elects, and shall be so removed if required by Landlord, or if not so removed shall, at the option of Landlord, become the 9 property of Landlord. All such installations, removals and restoration shall be accomplished in a good workmanlike manner so as not to damage the Premises or the primary structure or structural qualities of the Building or the plumbing, electrical lines or other utilities. 9 Subletting and Assigning. ------------------------ 9.1.1 Tenant shall not assign, mortgage or encumber this Lease, nor sublet, suffer or permit the Premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance, which consent of Landlord shall not be unreasonably withheld. Tenant shall have the right to assign the Lease or sublet the Premises, or any part thereof, without Landlord's consent, but subject to Landlord's rights to notice and prohibition contained herein, to any parent, subsidiary, affiliate or controlled corporation or to corporation which Tenant may be converted or which it may merge as a result of a consolidation, reorganization or merger or to any transferee of substantially all of the stock or assets of Tenant. Tenant shall have the obligation to notify Landlord if its intent of any such arrangement, and if Landlord reasonably determines that the proposed assignee or sublessee is engaged in a business which would materially interfere with the operation of the Property or its obligations under lease covering a portion of the Property, Landlord shall, within Landlord's sole reasonable consent, have the right to prohibit such arrangement based upon the issue of the business of the proposed assignee or sublessee of the compatibility of the proposed assignee or sublessee with the businesses in the Building. 9.1.2 For the purposes of this Lease, an "assignment" prohibited by this Section 9 shall be deemed to include the following: if Tenant is a partnership, a withdrawal or change (voluntary, involuntary, by operation of law) of any one or more of the partners thereof, or the dissolution of the partnership; or, if Tenant is a corporation, any dissolution, merger consolidation or other reorganization of Tenant, or any change in the ownership (voluntary, involuntary, by operation of law, creation of new stock or otherwise) of fifty percent (50%) or more of its capital stock from the ownership existing on the date of execution hereof, or, the sale of fifty percent (50%) of the value of the assets of Tenant. 9.1.3 Notwithstanding the foregoing, without Landlord's consent, but upon ten (10) days' notice to Landlord, this Lease may be assigned, or the 9.2 No less than thirty (30) days prior to the effective date of a proposed assignment or sublease other than one made pursuant to Subsection 9.1.3), Tenant shall offer to reconvey to Landlord, as of said effective date, that portion of the Premises which Tenant is seeking to assign or sublet, which offer shall contain an undertaking by Tenant to accept, as full and adequate consideration for the reconveyance, Landlord's release of Tenant from all future Rent and other obligations under this Lease with respect to the Premises or the portion thereof so reconveyed. Landlord, in its absolute discretion, shall accept or reject the offered reconveyance within thirty (30) days of the offer and if Landlord accepts, the reconveyance shall be evidenced by an agreement to Landlord in form and substance. If 10 Landlord fails to accept or reject the offer within the thirty (30) day period, Landlord shall be deemed to have rejected the offer. 9.3 If Landlord rejects or is deemed to have rejected Tenant's offer of reconveyance and if Landlord gives its consent to any assignment of this Lease or to any sublease, or if Tenant is otherwise permitted to make any assignment or sublease pursuant to this Lease, Tenant shall in consideration therefor, pay to Landlord, as Additional Rent: 9.3.1 In the case of an assignment, an amount equal to all sums and consideration paid to Tenant by the assignee for or by reason of such assignment (including any sums paid for the sale, rental, or use of Tenant's Property in excess of the then unamortized value of Tenant's Property as reflected in Tenant's federal income tax returns) less the reasonable brokerage commissions and legal fees, if any, actually paid by Tenant in connection with such assignment; and 9.3.2 In the case of a sublease, any rents, additional charge or other consideration payable under the sublease to Tenant by the subtenant (including any sums paid for the sale, rental or use of Tenant's Property in excess of the then unamortized value of Tenant's Property as reflected in Tenant's federal income tax returns) that are in excess of the Rent during the term of the sublease with respect to the sublease space, less the reasonable brokerage commissions and legal fees, if any, actually paid by Tenant in connection with such subletting. The sums payable hereunder shall be paid to Landlord as and when payable by the assignee or subtenant to Tenant. 9.4 Tenant shall reimburse Landlord on demand for any reasonable costs that Landlord may incur in connection with said assignment or sublease, including the reasonable costs of investigating the acceptability of the proposed assignee or subtenant, and reasonable legal costs incurred in connection with the granting of any requested consent. 9.5 No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee), and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease. 10 Indemnity. (a) Landlord shall not be liable for and Tenant will --------- indemnify and save harmless Landlord of and from any fines, suits, demands, losses and actions (including attorneys' fees) for any injury to person or damage to or loss of property on or about the Premises caused by the gross negligence or willful misconduct of, or breach of the Lease by Tenant, its employees or subtenants, or arising out of Tenant's use of the Premises. Landlord shall not be liable or responsible for any loss or damage to any property or death or injury to any person occasioned by theft, fire, act of God, public enemy, criminal conduct of third parties, injunction, riot, strike, insurrection, war, court order, requisition of other 11 governmental body or authority, by other tenants of the Building or any other matter, or for any injury or damage or inconvenience which may arise through repair or alteration of any part of the Building, or failure to make repairs, or from any cause whatever except Landlord's willful misconduct. (b) Landlord will indemnify and save harmless Tenant of and from all fines, suits, demands, losses and actions (including attorney's fees) for any injury to person or damage to or loss of property by Tenant, if such is caused by the gross negligence or willful misconduct of Landlord. 11 Subordination and Mortgagee's Right to Cure Landlord's Defaults. --------------------------------------------------------------- 11.1 Landlord currently owns the Building free and clear of any mortgages, deeds to secure debt or other like instruments. This Lease and all rights of Tenant hereunder are subject and subordinate to any deeds to secure debt, mortgages or any other instruments of security, as well as to any ground leases or primary leases, that hereafter cover all or any part of the Building, the land situated beneath the Building or any interest of Landlord therein, and to any and all advances made on the security thereof, and to any and all increases, renewals, modifications, consolidations, replacements and extensions of any such deeds to secure debt, mortgages, instruments of security or leases. This provision shall be self-operative and no further instrument shall be required to effect such subordination of this Lease. Tenant shall, however, upon demand at any time or times execute, acknowledge and deliver to Landlord any and all instruments and certificates that in the judgment of Landlord may be necessary or proper to confirm or evidence such subordination. Notwithstanding the generality of the foregoing provisions of the Section 11, Tenant agrees that any such mortgagee shall have the right at any time to subordinate any such deeds to secure debt, mortgages or other instruments of security, or sale of the Building pursuant to any such deeds to secure debt, mortgages or other instruments of security, or sale of the Building pursuant to any such deeds to secure debt, mortgages or other instruments of security, to attorn to such purchaser upon any such sale and to recognize such purchaser as Landlord under this Lease. The agreement of Tenant to attorn upon demand of Landlord's mortgagee contained in the immediately preceding sentence shall survive any such foreclosure sale. Tenant shall upon demand at any time or times before or after any such foreclosure sale, execute, acknowledge and deliver to Landlord's mortgagee any and all instruments and certificates that in the judgment of Landlord's mortgagee may be necessary or proper to confirm all instruments and certificates that in the judgment of Landlord's mortgagee may be necessary or proper to confirm or evidence such attornment, and Tenant hereby irrevocably appoints Landlord's mortgagee as Tenant's agent and attorney-in-fact for the purpose of executing, acknowledging and delivering any such instruments and certificates. 11.2 Anything contained in this Lease to the contrary notwithstanding, if Tenant is leasing more than ten percent (10%) of the Building, in the event of a breach or default hereunder on the part of the Landlord, Tenant shall not terminate this Lease, assert any claim for damages against the Landlord, or assert any right of setoff against of Rent, 12 because of such breach or default without first giving to any mortgagee, from time to time, of the property of which the Premises is part, written notice of and the right, but not the obligation, for a reasonable time, not to exceed sixty (60) days, to cure such breach or default, provided Tenant has been notified in writing of the name and address of such mortgagee. 12 Rules and Regulations. Tenant and Tenant's agents, employees and --------------------- invitees will comply fully with all requirements of the rules and regulations of the Building and related facilities which are attached hereto as Exhibit "C", ----------- and made a part hereof as though fully set forth herein. Landlord in its sole judgment shall at all times have the right to change such rules and regulations or to promulgate other rules and regulations in such manner as may be deemed advisable for safety, care, or cleanliness of the Building and related facilities or premises, and for preservation of good order therein, all of which rules and regulations, changes and amendments will be forwarded to Tenant in writing and shall be carried out and observed by Tenant. Tenant shall further be responsible for the compliance with such rules and regulations by the employees, servants, agents, visitors and invitees of Tenant. 13 Inspection. Landlord or its officers, agents, and representatives ---------- shall have the right to enter into and upon any and all parts of the Premises at all reasonable hours (or, in any emergency, at any hour) and (a) inspect same or clean or make repairs or alterations or additions as Landlord may deem necessary (but without any obligation to do so, except as expressly provided for herein) or (b) show the Premises to prospective tenants, purchasers or lenders; and Tenant shall not be entitled to any abatement or reduction of Rent by reason thereof, nor shall such be deemed to be an actual or constructive eviction. 14 Condemnation. If the Premises, or any part thereof, or if the ------------ Building or any portion of the Building, leaving the remainder of the Building unsuitable for use as an office building comparable to its use on the Commencement Date of this Lease, shall be taken or condemned in whole or in part for public purposes, or sold in lieu of condemnation, then the Lease Term shall, at the sole option of Landlord, forthwith cease and terminate. All compensation awarded for taking (or sale proceeds in lieu thereof) shall be the property of Landlord, and Tenant shall have no claim thereto, the same being hereby expressly waived by Tenant. 15 Fire or Other Casualty. In the event the Building should be totally ---------------------- destroyed by fire, tornado or other casualty or in the event the Premises or the Building should be so damaged that rebuilding or repairs cannot be completed within one hundred eighty (180) days after the date of such damage, Landlord or Tenant may at its option terminate this Lease, in which event the Rent shall be abated during the unexpired portion of this Lease effective from the date of such damage, or if the damage should be more serious but neither Landlord nor Tenant elects to terminate this Lease, in either such event Landlord shall within ninety (90) days after the date of such damage commence to rebuild or repair the Building and/or Premises and shall proceed with reasonable diligence to restore the Building 13 and/or Premises to not less than substantially the same condition in which it was immediately prior to the happening of the casualty except that Landlord shall not be required to rebuild, repair or replace any part of the furniture, equipment, fixtures and other improvements which may have been placed by Tenant or other tenants within the Building on the Premises. Landlord shall allow Tenant a fair diminution of Rent during the time the Premises are unfit for occupancy, on the basis of the portion of the Premises which is unfit for occupancy. In the event any mortgagee under a deed to secure debt, security agreement or mortgage on the Building should require that the insurance proceeds be used to retire the mortgage debt, Landlord shall have no obligation to rebuild and this Lease shall terminate upon notice to Tenant. Except as hereinafter provided, any insurance which may be carried by Landlord or Tenant against loss or damage to the Building or to the Premises shall be for the sole benefit of the party carrying such insurance and under its sole control. 16 Holding Over. Should Tenant hold over the Premises, or any part ------------ thereof, after the expiration of the Lease Term, unless otherwise agreed in writing by Landlord, such holding over shall constitute and be construed as a tenancy at will only, at a daily rental equal to one hundred fifty percent (150%) of the daily Rent payable for the last month of the Lease Term. The inclusion of the preceding sentence shall not be construed as Landlord's consent for Tenant to hold over. 17 Taxes on Tenant's Property. Tenant shall be liable for all taxes -------------------------- levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises (herein called "Tenant's Property"). If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property, furniture or fixtures placed by Tenant in the Premises, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes for which Tenant is primarily liable hereunder. 18 Events of Default. The following events shall be events of default by ----------------- Tenant under this Lease. 18.1 Tenant shall fail to pay when due any Rent or other sums payable by Tenant hereunder (or under any other lease now or hereafter executed by Tenant in connection with space in the Building), which failure is not cured within ten (10) days after written notice thereof is given by Landlord to Tenant; provided, however, that Landlord shall not be required to give a notice of default under this Section 18.1 more than one (1) time in any period of twelve (12) consecutive months with respect to any repeated or reoccurring default. 18.2 Tenant shall fail to comply with or observe any other provision of this Lease (or any other lease now or hereafter executed by Tenant in connection with space in the Building); provided, however, that, except as provided in the following sentence, it shall 14 not be an event of default if Tenant immediately commences to cure the matter for which notice of default was given under this Paragraph 18.2 with all due diligence and all reasonable effort, and successfully cures such matter as soon as is reasonably possible, and in any event within fifteen (15) days of the date notice of such default was given; provided, however, if Tenant is continuously, diligently pursuant such cure to completion, and such cure cannot be accomplished in fifteen (15) days, Tenant shall have up to forty-five (45) days to accomplish such cure, prior to such failure being an event of default hereunder. Notwithstanding the above, it shall be an immediate event default on the part of Tenant if the matter in question is such that it presents a danger of life or the possibility of substantial property damage. 18.3 Tenant or any guarantor of Tenant's obligations hereunder shall make an assignment for the benefit of creditors. 18.4 Any petition shall be filed by or against Tenant or any guarantor of Tenant's obligations hereunder under any section or chapter of the Federal Bankruptcy Act, as amended from time to time, or under any similar law or statute of the United States or any State thereof; or Tenant or any guarantor of Tenant's obligations hereunder shall be adjudged bankrupt or insolvent in proceedings filed thereunder; provided, however, that with respect to any such petition filed against, but not by, Tenant, it shall not be an event of default unless Tenant does not have such petition dismissed within sixty (60) days of the filing thereof. 18.5 A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant or any guarantor of Tenant's obligations hereunder. 18.6 Tenant shall desert or vacate any portion of the Premises. Notwithstanding the terms and conditions of Paragraph 18.6 of the Lease, if Tenant has abandoned or vacated the Premises, then Landlord's sole remedy shall be in such instance to terminate the Lease (which Landlord shall have the option, but not the obligation, to do). In the event of such a termination, Tenant shall not be liable for damages for such early termination of the Lease; provided, however, in no event shall such termination eliminate or otherwise limit any claims which Landlord might have against Tenant for any acts, omissions or defaults on the part of Tenant occurring on or prior to the date of such termination. 18.7 Any writ of execution, attachment, or garnishment shall be levied against any interest of Tenant in this Lease, the Premises, or any property located in the Premises. 19 Remedies. If Tenant defaults under this Lease, then without any -------- notice or demand to Tenant whatsoever, Landlord shall have the right (but not any duty) to exercise, on a cumulative basis, any or all of the following remedies: 15 19.1 Landlord may continue this Lease in full force and effect, and proceed to collect all Rent when due. 19.2 Landlord may continue this Lease in full force and effect and may enter the Premises and relet all or any part of them to other parties for Tenant's account. Tenant shall be liable to pay on demand to Landlord all costs Landlord incurs in entering the Premises and reletting them, including, without limitation, brokers' commissions, expenses of repairs and remodeling, attorneys' fees, and all other actual costs. Reletting may be for a period shorter or longer than the remaining term of this Lease. During the term of any reletting, Tenant shall pay to Landlord the Rent due under this Lease on the dates due, less any net rents Landlord receives from any reletting. 19.3 Landlord may, without any notice or demand whatsoever, terminate Tenant's rights under this Lease at any time. On termination, Landlord shall have the right to recover from Tenant all costs, expenses, losses and damages caused by said default and termination including, but not limited to: 19.3.1 An amount equal to all unpaid Rent that had accrued at the time of termination of this Lease; 19.3.2 An amount equal to (a) the amount of Rent that would have accrued under this Lease between (i) the date of termination of this Lease, and (ii) the date the calculation is made under this subsection 19.3.2 if this Lease had been prematurely terminated; less (b) any net amounts of rent actually received by Landlord with respect to such time period; plus 19.3.3 An amount equal to (a) the present value of all Rent (assuming that the Additional Rent payable hereunder for the future will be the same as for the most recent Lease Year) which would have accrued under this Lease had this Lease not been terminated, for the period of time between (i) the date of calculation of Rent under subsection 19.3.2, and (ii) the date the Lease Term would have ended if this Lease had not been prematurely terminated; less (b) the present value of rent at that time being actually collected for comparable leases in the immediate geographic area of the Project; plus 19.3.4 An amount equal to (a) all actual costs and expenses, including but not limited to attorneys' fees that have at that time been incurred by Landlord, plus the present value of all actual costs and expenses, including, but not limited to, attorneys' fees, that with reasonable certainty are likely to have to be incurred thereafter by Landlord, which are reasonably necessary to compensate Landlord for all economic losses proximately caused by Tenant's default. In computing the present value of amounts for purposes of this subsection 19.3, a capitalization rate of eight percent (8%) per annum shall be used. 16 19.4 Without any showing of need or the presence of any statutory or common law grounds, all of which requirements are hereby expressly waived, Landlord may have a receiver appointed to take possession of the Premises and relet in accordance with subsection 19.2. 19.5 Landlord may cure any default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, the sum so paid by Landlord shall be immediately due from Tenant to Landlord on demand, and shall bear interest from the date paid by Landlord until Landlord shall have been reimbursed by Tenant. Said sum, together with interest thereon, shall be Additional Rent. 19.6 Landlord may apply all or part of the Security Deposit, as provided in Section 3.3. 19.7 Landlord may exercise any or all other rights or remedies available at law or equity, including, without limitation, the right to restraining orders, injunctions and decrees of specific performance. 20 Attorneys' Fees. If either party should bring any action under this --------------- Lease against the other, then the party found liable, responsible or guilty, as applicable, in such action agrees in such case to pay to the other, prevailing party all costs, including but not limited to court costs and a reasonable attorney's fee occurred in connection therewith. 21 Security Interest. In addition to the statutory landlord's lien, ----------------- Landlord shall have, at all times, and Tenant hereby grants to Landlord, a valid security interest to secure payment of damages or loss which Landlord may suffer by reason of the breach of Tenant of any covenant, agreement or condition contained herein, upon all goods, wares, equipment, fixtures, furniture, improvements and other personal property of Tenant presently or which may hereafter be situated on the Premises, and all proceeds therefrom, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in Rent as well as any and all sums of money then due to Landlord hereunder shall first have been paid and discharged and all the covenants, agreements and conditions hereof have been fully complied with and performed by Tenant. Upon the occurrence of an event of default by Tenant, Landlord may, in addition to any other remedies provided herein, enter upon the Premises and take possession of any and goods, wares, equipment, fixtures, furniture, improvements and other personal property of Tenant situated on the Premises, without liability for trespass or conversion, and sell the same at public or private sale, with or without having such property at the sale, after giving Tenant reasonable notice of the time and place of any public sale or of the time after which any private sale is to be made, at which sale Landlord or its assigns may purchase said property unless otherwise prohibited by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the manner prescribed in Section 28 of this Lease at least five (5) days before the time of sale. The proceeds from any such disposition, less any and all expenses 17 connected with the taking of possession, holding and selling of the property (including reasonable attorneys' fees and other expenses), shall be applied as a credit against the debts secured by the security interest granted in this Section 21. Any surplus shall be paid to Tenant or as otherwise required by law; and Tenant shall pay any deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and deliver to Landlord a financing statement in form sufficient to perfect the security interest of Landlord in the said property and the proceeds thereof under the provisions of the Uniform Commercial Code in force in the State of Georgia. The statutory lien for rent is not hereby waived, the security interest herein granted being in addition and supplementary thereto. 22 Mechanic's Lien. Tenant will not permit any mechanic's lien to be --------------- placed upon the Premises, the Building or any improvements thereon during the Lease Term caused by or resulting from any work performed, materials furnished or obligation incurred by or at the request of Tenant, and in the case of the filing of any such lien, Tenant will promptly pay or otherwise discharge the same. If default in payment or discharge thereof shall continue for twenty (20) days after written notice thereto from Landlord to Tenant, Landlord shall have the right and privilege at Landlord's option of paying the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be so much Additional Rent hereunder due from Tenant to Landlord and shall be repaid to Landlord immediately on demand. 23 Waiver of Subrogation. Each party to this Lease (the "Waiving Party") --------------------- hereby waives any cause of action it might have against the other party hereto on account of any loss or damage that is covered by any insurance policy that covers the Premises, Tenant's fixtures, personal property, leasehold improvements or business and which names Tenant as a party insured, it being understood and agreed that this provision is cumulative of Section 10 hereof. Tenant agrees that it will request its insurance carrier to endorse all applicable policies waiving the carrier's rights of recovery under subrogation or otherwise against Landlord. 24 Liability Insurance. Tenant shall procure and maintain throughout the ------------------- Lease Term a policy or policies of insurance at its sole cost and expense and in amounts of not less than a combined single limit of $2,000,000 or such other amounts as Landlord may from time to time require, insuring Tenant and Landlord against any and all liability to the extent obtainable for injury to or death of a person or persons or damage to property occasioned by or arising out of or in connection with the use, operation and occupancy of the Premises and specifically providing coverage for Tenant's indemnification obligations imposed by Section 10 of this Lease. Landlord retains the right in its sole reasonable discretion to increase the amount of insurance required not more frequently than annually based on such factors as inflation, Tenant's insurance claims history, the advice of Landlord's insurance advisors and any other relevant factors. Tenant shall furnish a certificate of insurance and such other evidence satisfactory to Landlord of the maintenance of all insurance coverages required hereunder, and Tenant shall obtain a written obligation on the part of each insurance 18 company to notify Landlord at least thirty (30) days prior to cancellation or material change of any such insurance. 25 Brokerage. Tenant warrants that it has had no dealings with any --------- broker or agent in connection with the negotiation or execution of this Lease, other than with Cushman and Wakefield of Georgia, Inc. ("CW") and Tenant agrees to indemnify Landlord against all costs, expenses, attorneys' fees or other liability for commissions or other compensation or charges claimed by any broker other than CW claiming the same by, through or under Tenant. 26 Change of Building Name. Landlord reserves the right to change the ----------------------- name by which the Building is designated. 27 Estoppel Certificates. Tenant agrees to furnish from time to time --------------------- when requested by Landlord or the holder of any deed to secure debt or mortgage covering all or any part of the Building or the improvements therein or the Premises or any interest of Landlord therein, a certificate signed by Tenant confirming and containing such factual certifications and representations deemed appropriate by Landlord or the holder of any deed to secure debt or mortgage covering all or any part of the Building or the improvements therein or the Premises or any interest of Landlord therein, and Tenant shall, within ten (10) days following receipt of said proposed certificate from Landlord, return a fully executed copy of said certificate to Landlord. In the event Tenant shall fail to return a fully executed copy of such certificate to Landlord within the foregoing ten (10) day period, then Tenant shall be deemed to have approved and confirmed all of the terms, conditions and representations contained in such certificate. 28 Notices. Each provision of this Lease, or of any applicable laws, ------- ordinances, regulations, and other requirements with reference to the sending, mailing or delivery of any notice, or with reference to the making of any payment by Tenant to Landlord, shall be deemed to be compiled with when and if the following steps are taken: 28.1 All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Address set forth in section 1.5 or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith, and 28.2 Any notice or document required to be delivered hereunder shall be deemed to be delivered if actually received and whether or not received when deposited in the United States mail, postage prepaid, certified or registered mail (with or without return receipt requested), addressed to the parties hereto at the respective addresses set forth in Article 1 or at such other address as either of said 19 parties shall have theretofore specified by written notice delivered in accordance herewith. 29 Force Majure. When a period of time is herein prescribed for any ------------ action to be taken by Landlord, Landlord shall not be liable or responsible for and there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages or labor or materials, war, laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the control of Landlord. 30 Severability. If any clause or provision of this Lease is illegal, ------------ invalid or unenforceable under present or future laws effective during the Lease Term, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. 31 Amendments; Binding Effect. This Lease may not be altered, changed or -------------------------- amended, except by instrument in writing signed by both parties hereto. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord and addressed to Tenant, nor shall any custom or practice which may evolve between the parties in the administration of the terms hereof be construed to waive or lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms hereof. The terms and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise herein expressly provided. 32 Quiet Enjoyment. Provided Tenant has performed all of the terms and --------------- conditions of this Lease, including the payment of Rent, to be performed by Tenant, Tenant shall peaceably and quietly hold and enjoy the Premises for the Lease Term, without hinderance from Landlord, subject to the terms and conditions of this Lease. 33 Gender. Words of any gender used in this Lease shall be held and ------ construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. 34 Joint and Several Liability. If there be more than one Tenant, the --------------------------- obligations hereunder imposed upon Tenant shall be joint and several. If there be a guarantor of Tenant's obligations hereunder, the obligations hereunder imposed upon Tenant shall be the joint and several obligations of Tenant and such guarantor 20 and Landlord need not first proceed against Tenant before proceeding against such guarantor nor shall any such guarantor be released from its guaranty for any reason whatsoever, including without limitation, in case of any amendments hereto, waivers hereof or failure to give such guarantor any notices hereunder. 35 Captions. The captions contained in this Lease are for convenience or -------- reference only, and in no way limit or enlarge the terms and conditions of this Lease. 36 Exhibits and Attachments. All exhibits, attachments, riders and ------------------------ addenda referred to in this Lease are incorporated into this Lease and made a part hereof for all intents and purposes. 37 No Joint Venture. Landlord and Tenant are not and shall not be deemed ---------------- to be, for any purpose, partners or joint venturers with each other. 38 Time of the Essence. Time is of the essence with regard to each ------------------- provision of this Lease. 39 Evidence of Authority. If Tenant is other than a natural person, --------------------- Tenant shall deliver to Landlord such legal documentation as Landlord may request to evidence the authority of those signing this Lease to bind the Tenant. 40 Governing Law. This Lease shall be construed and interpreted in ------------- accordance with and governed by the laws of Georgia. 41 Entire Agreement. This Lease constitutes the entire agreement between ---------------- the parties, and there is no other agreement between the parties relating in any manner to the Project. 42 Exculpation. The term Landlord as used in this Lease so far as ----------- covenants or obligations on the part of Landlord are concerned shall be limited to mean and include only the owner or owners at the time in question of the Landlord's interest in the Building. Tenant acknowledges and agrees, for itself and its successors and assigns, that no trustee, director, officer, employee or agent of Landlord shall be personally liable for any of the terms, covenants or obligations of Landlord hereunder, and Tenant shall look solely to Landlord's interest in the Building for the collection of any judgment (or enforcement or any other judicial process) requiring the payment of money by Landlord with respect to any of the terms, covenants and conditions of this Lease to be observed or performed by Landlord and no other property or assets of Landlord shall be subject to levy, execution or other enforcement for the satisfaction of any obligation due Tenant or its successors or assigns. 21 43 Covenants are Independent. Each covenant of Landlord and Tenant under ------------------------- this Lease is independent of each other covenant under this Lease, and no default by either party in performance of any covenant shall excuse the other party from the performance of any other covenant. 44 Usufruct. The rights of Tenant hereunder constitute a usufruct, which -------- is not subject to levy or sale. No estate shall pass out of Landlord. 45 Right to Relocate Tenant. (a) Except as provided below, at any time ------------------------ during the Term, Landlord shall have the right upon thirty (30) days' prior notice to Tenant, to relocate Tenant from the Premises to any other portion of the Project which is constructed with a floor plan and tenant finishes substantially equivalent to the Premises; provided, however, that Landlord may not locate Tenant to a floor below the 8th floor, unless such space is located on the south side of the Building. As to any relocation to the 8th floor or higher of the Building, such relocation may be to any location on said floor. Notwithstanding the above, so long as Tenant is still leasing and occupying at least 5946 rentable square feet in the Building and is in full compliance with the terms of the Lease, then Landlord shall not relocate Tenant in the first eighteen (18) months of the Term. (b) Landlord shall bear the expenses of said relocating, plus the expense of any renovation or alterations necessary to make said substituted space substantially equivalent to the Premises. If Landlord exercises either of its rights set forth in this Section 45, then the substituted space shall for all purposes constitute the Premises and all other terms and conditions of this Lease shall continue in full force and effect and shall apply to the substituted space. 46 Hazardous Materials. ------------------- 46.1 Tenant shall not cause or permit any Hazardous Material (as defined in Section 46.3 below) to be brought, kept or used in or about the Building by Tenant, its agents, employees, contractors or invitees. Tenant hereby indemnifies Landlord from and against any breach by Tenant of the obligations stated in the preceding sentence, and agrees to defend and hold Landlord harmless from and against any and all loss, damage, cost and/or expenses (including, without limitation, diminution in value of the Building, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Building, damages arising from any adverse impact on marketing of space in the Building, and sums paid in settlement of claims, attorneys' fees, consultant fees, and expert fees) which arise during or after the term of this Lease as a result of such breach. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present 22 in the soil or ground water on or under the Building which results from such a breach. Without limiting the foregoing, if the presence of any Hazardous Material in the Building caused or permitted by Tenant results in any contamination of the Building, Tenant shall promptly take all actions at its sole expense as are necessary to return the Building to the conditions existing prior to the introduction of such Hazardous Material to the Building; provided that the Landlord's approval of such actions, and the contractors to be used by Tenant in connection therewith, shall first be obtained. 46.2 Notwithstanding any provision in this Lease to the contrary, it shall not be unreasonable for Landlord to withhold its consent to any proposed transfer, assignment, or subletting of the Premises if (i) the proposed transferee's anticipated use of the Premises involves the generation, storage, use, treatment or disposal of Hazardous Material; (ii) the proposed transferee has been required by any prior Landlord, lender, or governmental authority to take remedial action in connection with Hazardous Material contaminating a property if the contamination resulted from such transferee's actions or use of the property in question; or (iii) the proposed transferee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal, or storage of a Hazardous Material. 46.3 As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material, or waste which is or becomes regulated by any local governmental authority or the United States Government. The term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste", "extremely hazardous waste", or "restricted hazardous waste" or similar term under the law of the jurisdiction where the property is located, or (ii) designated as a hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. (S) 1317), (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et. seq. (42 U.S.C. (S) 9601). 46.4 As used herein, the term "Laws" means any applicable federal, state or local laws, ordinances, or regulation relating to any Hazardous Material affecting the Building, including, without limitation, the laws, ordinances, and regulations referred to in Section 46.3 above. 46.5 Landlord and its employees, representatives and agents shall have access to the Building during reasonable hours and upon reasonable notice to Tenant in order to conduct periodic environmental inspections and tests of Hazardous Material contamination of the Building. 23 Special Provisions. The special provisions set forth in Exhibit "D" herein are - ------------------ ----------- made a part hereof. SIGNED, SEALED AND DELIVERED as of the date first above written. LANDLORD: By: State of California Public Employees' Retirement System, an agency of the State of California By: [insert name] , Agent By: TENANT: [insert name] By: Its: Attest: Its: 24 EXHIBIT "A" ----------- ALL THAT TRACT or parcel of land lying and being in Land Lots 909 and 910, 7th District, 2nd Section, Cobb County, Georgia and being more particularly described as follows: TO FIND THE POINT OF BEGINNING commence at an iron pin located at the intersection of the southern right of way of Mt. Wilkinson Parkway (160 foot public right of way) with eastern right of way of Overlook Lane (a 60 foot public right of way); thence South 54 degrees 40' 17" East 12.53 feet to a marble monument located on the eastern right of way of Overlook Parkway (a 70 foot private right of way); thence South 02 degrees 58' 17" East along said right of way of Overlook Parkway 173.70 feet to a marble monument which is the POINT OF BEGINNING; thence leaving said eastern right of way of Overlook Parkway run South 75 degrees 55" 27" East 178.85 feet to a marble monument; thence South 61 degrees 24' 13" East 28.86 feet to a marble monument; thence South 89 degrees 19' 24" East 31.12 feet to a marble monument; thence North 75 degrees 16' 20" East 197.60 feet to an iron pin; thence South 02 degrees 47' 13" East 703.01 feet to a point; thence South 48 degrees 27' 35" West 212.29 feet to a point; thence North 82 degrees 13' 45" West 124.66 feet to a point located on the eastern right of way of Overlook Parkway; thence in a generally northerly direction along said eastern right of way to Overlook Parkway and following the curvature thereof the following courses and distances: along the arc of a curve to the left having a radius of 195.00 feet, said arc being subtended by a chord bearing North 35 degrees 20' 53" west for 146.11 feet, an arc distance of 149.76 feet to a point; North 56 degrees 21' 106" West 39.34 feet to a point; along the arc of a curve to the right having a radius of 80.00 feet, said arc being subtended by a chord bearing north 13 degrees 38' 55" West for 110.55 feet, an arc distance of 122.04 feet to a point; North 30 degrees 03' 16" East 9490 feet to a point; along the arc of a curve to the left having a radius of 215.00 feet, said arc being subtended by a chord bearing North 13 degrees 20' 32" East for 123.65 feet, an arc distance of 125.43 feet to a point; North 02 degrees 27' 46" West 371.44 feet to a marble monument, being the POINT OF BEGINNING. being property designated as Parcel "A" and containing 7.92 acres according to that certain Boundary Survey of the Overlook #3 Office Building for Atlanta Overlook Associates #3. United States Fidelity and Guaranty Company, BA Mortgage and International Realty Corporation. The First National Bank of Atlanta and Lawyers Title Insurance Corporation, prepared by Planners and Engineers Collaborative, dated May 15, 1985, last revised July 26, 1985, and bearing the certification of Robert Lee White, Georgia Registered Land Surveyor No. 2080. 25 EXHIBIT "A-1" Attached to and made a part of this Lease Dated:__________________________ Landlord: State of California Public Employees' Retirement System Tenant: Atlantic Steel Industries, Inc. 26 EXHIBIT "B" ----------- INTENTIONALLY DELETED 27 EXHIBIT "C" ----------- Attached to and made part of Lease Agreement dated: November 1, 1993 Landlord: State of California Public Employees' Retirement System Tenant: Atlantic Street Industries, Inc. The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking garage associated therewith, the land situated beneath the Building and the appurtenances thereto: 1 Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by tenants or used by any tenant for any purpose other than ingress and egress to and from the leased premises and for going from one to another part of the Building. 2 Plumbing, fixtures and appliances shall be used only for the purpose for which designed, and no sweepings, rubbish, rags, Hazardous Material as defined herein, or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by a tenant or such tenant's agents, employees or invitees, shall be paid by such tenant, and Landlord shall not in any case be responsible therefore. 3 No signs, advertisements or notices shall be painted or affixed on or to any windows or doors or other part of the Building except of such color, size and style and in such places as shall be first approved in writing by Landlord. No nails, books, or screws shall be driven or inserted in any part of the Building except by the building maintenance personnel and except for the hanging of ordinary and customary sized art or other like objects on the walls of the interior of the Premises, nor shall any part of the Building be defaced by tenants. No curtains or other window treatments shall be placed between the glass and the Building standard window treatments. 4 Landlord will provide and maintain an alphabetical directory board for all tenants in the main lobby of the Building and no other directory shall be permitted unless previously consented to by Landlord in writing. 5 Landlord shall provide all locks for doors in each tenant's leased premises, such initial locks to be at Landlord's cost, and for any subsequent replacement thereof at the cost of such Tenant, and no Tenant shall place any additional lock or locks on any door in its leased area without Landlord's prior 28 written consent. A reasonable number of keys to the locks on the doors in each tenant's leased premises shall be furnished by Landlord to each tenant, such initial keys to be at Landlord's cost, and for any subsequent replacement thereof at the cost of such tenant, and the tenants shall not have any duplicate keys made. 6 With respect to work being performed by tenants in any leased premises with the approval of Landlord, all tenants will refer all contractors, contractors' representatives and installation technicians rendering any service to them to Landlord for Landlord's supervision, approval and control before the performance of any contractual services. This provision shall apply to all work performed in the building including, but not limited to, installations of telephones, telegraph equipment, electrical devices and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment and any other physical portion of the Building. 7 Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by tenants of any bulky material, merchandise or materials which requires the use of elevators or stairways, or movement through the Building entrances or lobby shall be restricted to such hours as Landlord shall designate. All such movement shall be under the supervision of Landlord and in the manner agreed between the tenants and Landlord by prearrangement before performance. Such prearrangement initiated by a tenant will include determination by Landlord, and subject to its decision and control, as to the time, method, and routing of movement and as to limitations for safety or other concern which may prohibit any article, equipment or any other item from being brought into the Building. The tenants are to assume all risks as to the damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for a tenant from the time of entering the Project to completion of work; and Landlord shall not be liable for acts of any person engaged in, or any damage or loss to any of said property or persons resulting from, and act in connection with such service performed for a tenant. 8 Landlord shall have the power to prescribe the weight and position of safes and other heavy equipment or items, which shall in all cases, to distribute weight, stand on supporting devices approved by Landlord. All damages done to the Building by the installation or removal of any property of a tenant, or done by a tenant's property while in the Building, shall not be repaired at the expense of such tenant. 9 A tenant shall notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building, and the moving shall be done under the supervision of the Building manager, after written permission from 29 Landlord. Persons employed to move such property must be acceptable to Landlord. 10 Corridor doors which are not the main entrance to the Premises, when not in use, shall be kept closed. The main entrance door to the Premises may be kept open during the Building Hours. 11 Each tenant shall cooperate with Landlord's employees in keeping its leased premises neat and clean. Tenants shall not employ any person for the purposes of such cleaning other than the Building's cleaning and maintenance personnel. Landlord shall be in no way responsible to the tenants, their agents, employees, or invitees for any loss of property from the leased premises or public areas or for any damages to any property thereon from any cause whatsoever. 12 To insure orderly operation of the Building, no ice, mineral or other water, towels, newspapers and the like shall be delivered to any leased area during times outside the Building Hours, except by persons appointed or approved by Landlord in writing. 13 Should a tenant require telegraphic, telephone, annunciator or other communication service, Landlord will direct the electrician where and how wires are to be introduced and placed and none shall be introduced or placed except as Landlord shall direct. Electric current shall not be used for power of heating without Landlord's prior written permission. 14 Tenants shall not make or permit any improper, objectionable or unpleasant noises or odors in the Building or otherwise interfere in any way with other tenants or persons having business with them. 15 Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairway. No birds or animals shall be brought into or kept in, on or about any tenant's leased premises. 16 Machinery not typically found in a commercial or professional office shall not be operated by any tenant in its leased premises without the prior written consent of Landlord, nor shall any tenant use or keep in the Building any inflammable or explosive fluid or any other Hazardous material. 17 No portion of any tenant's leased premises shall at any time be used or occupied as sleeping or lodging quarters. 18 Landlord reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its sole judgment shall from time to time be deemed appropriate for the safety, protection, 30 care and cleanliness of the Building, the operation thereof, the preservation of good order therein and the protection and comfort of the tenants and their agents, employees and invitees, which rules and regulations, when made and written notice thereof is given to tenant, shall be binding upon it in like manner as if originally herein prescribed. 19 Landlord will not be responsible for lost or stolen personal property, money or jewelry from tenant's leased premises or public or common areas regardless of whether such loss occurs when the area is locked against entry or not. 20 Any additional services, not required by lease to be performed by Landlord, which Tenant request Landlord to perform and which are performed by Landlord shall be billed to Tenant at Landlord's cost plus fifteen percent (15%). 31 EXHIBIT "D" ----------- SPECIAL PROVISIONS INVOLVING LEASE BETWEEN STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND ATLANTIC STEEL INDUSTRIES, INC. 1 Early Occupancy. The Lease Term shall not commence until January --------------- 1, 1994, provided, however, if the Premises are available prior to that date (with no representation or warranty whatsoever as to whether or not such Premises shall be so available). Landlord will permit Tenant to occupy the Premises prior to the Commencement Date, under the terms and conditions of the Lease. 2 Operating Costs. (a) The initial Operating costs shall be, as to --------------- the Premises, the actual Operating Costs, on a per square foot per annum basis, for the calendar year 1994 (the "Base Year Operating Costs"), adjusted in accordance with Exhibit "E" of the Lease. ----------- (b) Notwithstanding the terms and conditions of paragraph 3 of this Lease, except as described below, in no event shall Tenant's Share of Operating Costs for any year exceed the amount which would have been due in such year had such costs increased in each and every year by one hundred ten percent (110%) of Tenant's Share of Operating costs for each prior year of the Lease Term (such increases being cumulative and compounding); provide, however, and notwithstanding the above limitation, that for the purposes of determining whether or not the aforesaid limit on increases in Tenant's Share of Operating Costs from year to year is exceeded or not, the components of Operating Costs related to taxes and assessments attributable to the property or Building or its operation, utilities costs to the Building, property or Premises and insurance premiums related to or payable in connection with the Building, Property or Premises shall not be considered or factored in to such determination, and there shall be no limit on the amounts of Operating Costs related to taxes, utilities and insurance premiums for the Building, Property or Premises that can be passed on by Landlord to Tenant or that shall be due of Tenant at any time and from year to year, except as expressly provided for in this Lease. 3 Tenant Improvements. Landlord shall cause the tenant fit-up and ------------------- finish work in the Premises to be completed in accordance with construction documents (the "Construction Documents") dated October 18, 1993 (the "Allowance") and shall provide an allowance of $15.75 per rentable square foot of space in the Premises. To the extent the costs to complete the tenant fit-up and finish work int eh Premises are less than the Allowance, then the difference shall be applied to the first installments of Monthly Rental Due from Tenant. 32 4 Renewal of Lease. Provided this Lease is then in full force and ---------------- effect and there has been no assignment of this Lease by Tenant or a sublease of the Premises or any portion thereof, and Tenant is in full compliance with the terms and conditions of this Lease, landlord hereby grants to tenant an option to renew this Lease for one (1) period of five (5) years, at a rental rate equal to the then prevailing per rentable square foot rate payable by tenants having a credit standing substantially similar to that of Tenant for office space which is comparable in quality, size, utility and location to the Premises being leased Project, as evidenced by recent transactions in the Building and Project and/or in comparable buildings and projects located within a three (3) mile radius of the Building and Project. Tenant shall notify Landlord not less than twelve (12) months prior to the end of the Term if Tenant desires to renew this Lease under the terms of this Special Provision 4. If Tenant does give such notice, Landlord shall indicate to Tenant within thirty (30) days after Tenant's notice as described above, with the rental rate which shall be in effect for the Term as extended, on the basis as above-described. Tenant shall have thirty (30) days from the date Landlord make such offer to either accept or reject such offer. If Tenant rejects such offer or fails to respond within such thirty (30) day period, then this Lease shall terminate as of the end of the Term as established herein. If Tenant accepts such offer, then the Term shall be extended by said five (5) year period, upon the same terms and conditions as contained in this Lease, and the rent for such period shall be the rent as offered by Landlord and accepted by Tenant pursuant to the terms and conditions of this Special Provision 4. 5 Vinings Club Memberships. (a) As long as Tenant is in full ------------------------ compliance with the terms and conditions of this Lease and this Lease is in full force and effect. Landlord will pay the initiation fee at the Vinings Club for up to three (3) full individual memberships. (b) Nothing contained herein shall mean or be construed to mean that Landlord shall be obligated to pay any additional or special charges or fees which Tenant might incur in or with respect to the Club and all such charges and fees shall be the responsibility of Tenant. (c) Nothing contained herein shall mean or be construed to mean that landlord guarantees that the Club shall remain open for business, or that Landlord would have an obligation to provide access or memberships in another club if the Club ceases to operate or changes its method of operation. 6 Conference Room. Tenant shall have the right to use the conference --------------- room in the Building, upon such rules for such use as Landlord shall adopt from time to time, without additional charge or expense to Tenant only as long as Landlord makes available to al the tenants in the Building said conference room. 33 7 Failure to Deliver Premises. Notwithstanding anything to the --------------------------- contrary contained herein, in the event the Premises are not ready on or before July 1, 1994 (as extended by one (1) day for every day Landlord is delayed due to causes created by, through or under Tenant or due to any causes as described in Paragraph 29 herein), then Tenant shall, before July 1, 1994 (as such date may be extended for every day Landlord is delayed due to causes created by, through or under Tenant or due to any causes as described in Paragraph 29 herein) be entitled to terminate the Lease. If Tenant has the right to so terminate the Lease for said reason, than Tenant shall make such election within ten (10) days of the date Tenant first has the right to so terminate the lease. If Tenant does not deliver such notice within said period, then Tenant shall be deemed to have waived its right to cancel this Lease for the aforesaid reasons, unless Landlord and Tenant agree otherwise in writing. 34 EXHIBIT "E" ----------- Lease Agreement dated: November 1, 1993 Landlord: State of California Public Employees' Retirement System Tenant: Atlantic Steel Industries, Inc. 1 Reimbursement for Operating Costs. --------------------------------- 1.1 Definitions. The definitions set forth in this section 1.1 shall ----------- be applied whenever any of the following terms are used in this special Stipulation 1. 1.1.1 Operating Costs: shall mean all costs paid by Landlord or --------------- its representatives in connection with the ownership, management, maintenance, operation, insuring, repairing, redecorating, cleaning, and securing of the Building, as determined by Landlord to be necessary or appropriate for a first-class building, including, but not limited to, all of the following costs: 1.1.1.1 All wages, salaries, and related expenses of all on-site and off-site agents, employees and contractors engaged in the management, operation, maintenance, repair, redecoration, cleaning, and security of the Building, plus the cost of all management, maintenance, and security offices in the Building. Agents, employees and contractors who do not spend their time exclusively on the Building shall have their aforesaid charges pro-rated by landlord, based upon the time spent on, in connection with or in relation to the Building. 1.1.1.2 All supplies and materials used and labor charges incurred in the management, operation, maintenance, repair, redecoration, cleaning and security of the Building. 1.1.1.3 All equipment purchased or leased for the performance of Landlord's obligations hereunder. 1.1.1.4 All management, maintenance, cleaning, security, promotional and other service agreements for the Building and the equipment therein, including, but not limited to, alarm service, security service, window cleaning, and elevator and escalator maintenance. 1.1.1.5 All accounting, legal and engineering fees and expenses, including, but not limited to, the cost of audits by certified public accountants for the Building. 35 1.1.1.6 All insurance premiums, including, but not limited to, fire, casualty, extended coverage, public liability, rent abatement, boiler, and worker's compensation insurance applicable to the Building, Landlord's employees and Landlord's personal property used in connection therewith. 1.1.1.7 All redecorating (including painting, wallpapering and floor coverings), maintaining and repairing of the Building, except for space leased to a particular tenant, structural or non-structural, including, but not limited to, the mechanical, electrical, heating, ventilating and air conditioning equipment, landscape maintenance and the replacement of trees and shrubbery. 1.1.1.8 All removing of trash, rubbish, garbage and other refuse from the Building, as well as removal of ice and snow from the sidewalks, driveways and parking lots. 1.1.1.9 All amortization of capital improvements (including, but not limited to, accounting, legal, architectural and engineering fees incurred in connection therewith) made to the Building subsequent to the Commencement Date which will improve operating efficiencies (but only to the extent of the savings achieved thereby) or which may be required by any law. 1.1.1.10 All charges for electricity, gas, water, sewer, and other utilities furnished by the Building. 1.1.1.11 All ad valorem property taxes covering all real and personal property constituting a part of the Building, including, but not limited to, all general and special assessments of every kind. 1.1.1.12 All other expenses of owning, maintaining, operating, insuring, securing, managing, cleaning, redecorating or repairing the Building. 1.1.2 Notwithstanding any of the foregoing to the contrary, Operating Costs shall not include: 1.1.2.1 Costs which are directly reimbursed to Landlord by other tenants. 36 1.1.2.2 Payments on mortgages or ground leases owned by Landlord. 1.1.2.3 Costs of leasehold improvements for which Landlord has agreed to pay. 1.1.2.4 Payment of any return on equity to any owner of the Building. 1.1.2.5 Costs reimbursed by proceeds of insurance. 1.1.2.6 Costs of the initial construction of the Building or any depreciation thereof. 1.1.2.7 Payments of claims, damages or expenses resulting from any willful misconduct of Landlord or any of its authorized representatives. 1.1.3 Tenant's Share. Shall mean the percentage that expresses -------------- the ratio between the number of rentable square feet comprising the Premises (5946), and the number of rentable square feet of the Building (432,312), which, for the purposes of the Lease, shall be 1.375". This figure shall be adjusted if the number of rentable square feet comprising the Premises changes. 1.2 Payment of Operating Costs by Tenant. In addition to the Base Rent, ------------------------------------ tenant agrees to pay as additional Rent to Landlord tenant's Share of Operating Costs in excess of the Operating Costs for the Building for 1994, on a per square foot per annum basis and adjusted as required herein (the "Initial Operating Costs"), which Additional Rent shall be due in twelve (12) equal installments in each Lease Year, beginning in January, 1995 and continuing each month thereafter throughout the remainder of the Lease. One monthly installment of Tenant's Share of estimated Operating Costs shall be due and payable by Tenant to Landlord upon the execution of this Lease. All subsequent payments of Tenant's Share of Operating Costs in excess of Initial Operating Costs shall be due and payable without demand, deduction or set off in advance on or before the first day of each month of the Lease Term. During any Lease Year within the Lease Term that is less than twelve (12) full months, any amount to be paid with respect to such period shall be proportionately adjusted based on that portion of the Lease Year that this Lease is in effect. 1.3 Calculation of Operating Costs. On or before December 15 of each ------------------------------ Lease Year, Landlord shall provide Tenant with Landlord's estimate of Tenant's Share of Estimated Operating Costs for the following Lease Year. Beginning on the 37 January 1 of each Lease Year the amount of Tenant's Share of Estimated Operating Costs shall be adjusted tot he amount set forth in Landlord's notice. As promptly as practicable after the end of each Lease Year, Landlord shall compute the actual Operating Costs for the previous Lease Year. If Tenant's Share of the actual Operating Costs is greater than the amount Tenant paid to Landlord as Tenant's Share of the Estimated Operating Costs for the previous Lease Year, Tenant shall, within fifteen (15) days after receipt of notice of Tenant's Share of actual Operating Costs, pay to Landlord as Additional Rent an amount equal to the difference between tenant's Share of actual Operating Costs and tenant's Share of Estimated Operating Costs. If Tenant's Share of the actual Operating Costs for such Lease Year, such excess amount shall be applied against the installment of Additional Rent next coming due until the same has been fully applied. 1.4 Adjustments to Operating Costs. Notwithstanding anything to the ------------------------------ contrary contained herein, if the Building is not fully occupied during any calendar year, appropriate adjustments shall be made to determine Operating Costs as though the Building has been fully occupied in such calendar year. 38 EX-10.14 7 COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS EXHIBIT 10.14 VIEW TECH, INC. 950 FLYNN ROAD CAMARILLO, CALIFORNIA 93012 AS OF DECEMBER 31, 1996 TELCOM HOLDING, LLC C/O THE O'BRIEN GROUP, INC. TWO INTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110 RE: COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS GENTLEMEN: View Tech, Inc., a Delaware corporation (the "Company"), hereby agrees with Telcom Holding, LLC, a Massachusetts limited liability company (the "Purchaser") as follows: ARTICLE I PURCHASE, SALE AND TERMS OF COMMON STOCK AND WARRANTS 1.01. THE COMMON STOCK AND WARRANTS. The Company has authorized the ----------------------------- issuance and sale to the Purchaser of up to (i) 650,000 shares (the "Purchased Shares") of common stock, $0.0001 par value per share ("Common Stock") of the Company and (ii) the Company's Common Stock Purchase Warrants for the purchase (subject to adjustment as provided therein) of up to 325,000 shares of the Company's Common Stock, at a price of $4.40 per unit consisting of one (1) share of Common Stock and Common Stock Purchase Warrants for the purchase of one-half (1/2) share of Common Stock, subject to increase as provided below. The Common Stock Purchase Warrants shall be substantially in the form set forth in Exhibit ------- 1.01 hereto and are herein referred to individually as a "Warrant" and - ---- collectively as the "Warrants", which terms shall also include any warrants delivered in exchange or replacement therefor. The Purchased Shares and the Warrants are sometimes referred to collectively herein as the "Purchased Securities." Any shares of Common Stock issued or issuable upon exercise of the Warrants, and such shares when issued, are herein referred to as the "Warrant Shares." 1.02. PURCHASE AND SALE OF PURCHASED SHARES AND WARRANTS. -------------------------------------------------- (a) THE CLOSING. The Company agrees to issue and sell to the Purchaser, ----------- and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchaser agrees to purchase, Purchased Securities including up to 650,000 Purchased Shares and Warrants to purchase up to 325,000 Warrant Shares; provided, however, that the aggregate number of -------- ------- Purchased Securities may be increased by mutual agreement, but not to a number that would require Company stockholder approval under rules of the National 1 Association of Securities Dealers, Inc. Such purchase and sale shall take place at one or more closings (singly and collectively, the "Closing") to be held at the office of Jager, Smith, Stetler & Arata, P.C., One Financial Center, Boston, Massachusetts, 02111 on such dates and at such times as may be mutually agreed upon, but not later than February 28, 1997. At each Closing the Company will issue Common Stock and one Warrant, registered in the name of the Purchaser, to purchase (subject to adjustment as provided therein) one-half the number of shares of Common Stock purchased at such Closing, against delivery to the Company of a check or a receipt of a wire transfer, in the amount of the aggregate purchase price of the number of shares of Common Stock purchased at such Closing in payment of the full purchase price for the Purchased Shares and Warrants purchased at such Closing. (b) TIMING OF CLOSING. The Purchaser is conducting an offering of its Class ----------------- A membership interests to a limited number of accredited investors, in a transaction exempt from registration under the Securities Act pursuant to Regulation D thereunder, in order to fund its investment in the Company. The Purchaser agrees to use its reasonable best efforts to purchase Purchased Securities with an aggregate purchase price of $2,500,000 or more by January 15, 1997, and, cumulatively, Purchased Securities including up to 650,000 shares of Common Stock and Warrants to purchase up to 325,000 Warrant Shares (subject to increase as provided above) by February 15, 1997; provided, however, that (i) -------- ------- the Purchaser may in its discretion extend either such anticipated date for a Closing by up to fifteen (15) days, (ii) the Company may in its discretion designate an earlier date for an initial Closing with respect to issuance and sale of Purchased Securities with an aggregate purchase price of less than $2,500,000, (iii) there shall not be more than three (3) Closings and (iv) the last Closing shall occur not later than February 28, 1997. (c) USE OF PROCEEDS. The Company agrees to use the full proceeds from the --------------- sale of the Purchased Shares and Warrants solely for working capital, which will include payment of costs associated with its recent merger with USTeleCenters, Inc. 1.03. REPRESENTATIONS BY THE PURCHASER. (a) INVESTMENT REPRESENTATIONS. -------------------------------- -------------------------- The Purchaser represents that it is its present intention to acquire the Purchased Securities to be acquired by it for its own account and that the Purchased Securities are being and will be acquired by it for the purpose of investment and not with a view to distribution or resale thereof. The acquisition by the Purchaser of the Purchased Securities acquired by it shall constitute a confirmation of this representation by the Purchaser. The Purchaser further represents that it understands and agrees that, until registered under the Securities Act or transferred pursuant to the provisions of Rule 144 as promulgated by the Commission, all certificates evidencing any of the Purchased Shares, the Warrants and the Warrant Shares, whether upon initial issuance or upon any transfer thereof, shall bear a legend, prominently stamped or printed thereon, reading substantially as follows: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the "Act") or the securities laws of any state, have been acquired for investment and not with a view to distribution or resale and may not be offered for sale, sold, delivered after sale, transferred, pledged or hypothecated in the absence of an effective registration statement covering such securities under the Act and any applicable state securities laws, unless the holder 2 shall have obtained an opinion of counsel satisfactory to the corporation that any such transfer shall not be in violation of the Act." (b) ACCESS TO INFORMATION. The Purchaser, during the course of this --------------------- transaction and prior to the purchase of any Purchased Securities, has had the opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of the offering of the Purchased Securities, and to obtain any additional information, documents, records and books relative to the Company, its business and an investment in the Company necessary to verify the accuracy of information contained in the Securities Filings or otherwise relative to the business, operations and financial condition of the Company. (c) GENERAL ACCESS. The Purchaser has received and read or reviewed, and -------------- is familiar with, this Agreement and confirms that all documents, records and books pertaining to the Purchaser's investment in the Company and requested by the Purchaser have been made available or delivered to it. (d) SOPHISTICATION AND KNOWLEDGE. The Purchaser is capable of evaluating ---------------------------- the merits and risks of the purchase of the Purchased Securities. The Purchaser can bear the economic risks of this investment and can afford a complete loss of its investment. (e) TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAWS. The Purchaser ------------------------------------------------ understands that the Purchased Securities and the Warrant Shares have not been registered under the Securities Act and applicable state securities laws, and cannot be resold unless their resale is subsequently registered under the Securities Act and applicable state securities laws or unless an exemption from such registration is available; the Purchaser is purchasing the Purchased Securities for investment for the account of the Purchaser and not for the account of others, and not with any present view toward resale or other distribution thereof; the Purchaser agrees not to resell or otherwise dispose of all or any part of the Purchased Securities or Warrant Shares purchased by the Purchaser except as permitted by law, including, without limitation, any regulations under the Securities Act and applicable state securities laws; the Company does not have any present intention and is under no obligation to register the Purchased Securities or Warrant Shares under the Securities Act and applicable state securities laws, except as provided in this Agreement; and Rule 144 under the Securities Act may not be available as a basis for exemption from registration of the Shares thereunder. (f) LACK OF LIQUIDITY. The Purchaser has no present need for liquidity in ----------------- connection with the purchase of the Purchased Securities. (g) SUITABILITY AND INVESTMENT OBJECTIVES. The purchase of the Purchased ------------------------------------- Securities by the Purchaser is consistent with the general investment objectives of the Purchaser. The Purchaser understands that the purchase of the Purchased Securities involves a high degree of risk. (h) ACCREDITED INVESTOR STATUS; PURCHASER'S MEMBERS. Each of the ----------------------------------------------- Purchaser's Class A members is an "accredited investor" as that term is defined in Rule 501 of Regulation D under the Securities Act. Each Class A member of the Purchaser has made or will make to the Purchaser and its members representations and warranties to the same effect as set forth in this 3 Section 1.04 with respect to itself and its purchaser representative, if any. The Purchaser shall provide the Company with such further information and documents as the Company may reasonably request in order to confirm the availability of an exemption from registration under the Securities Act with respect to the issuance and sale of the Purchased Securities, including without limitation copies of materials provided by the Purchaser to its Class A members and their completed offeree questionnaires. ARTICLE II CONDITIONS TO PURCHASER'S OBLIGATION The obligation of the Purchaser to purchase and pay for the Purchased Shares and Warrants at the Closing is subject to the following conditions: 2.01. REPRESENTATIONS AND WARRANTIES. Each of the representations and ------------------------------ warranties of the Company set forth in Article III hereof shall be true on the date of the Closing. 2.02. DOCUMENTATION AT CLOSING. The Purchaser shall have received prior ------------------------ to or at the Closing all of the following, each in form and substance satisfactory to the Purchaser and its counsel: (a) A certified copy of all charter documents of the Company; a certified copy of the resolutions of the Board of Directors of the Company evidencing approval of this Agreement, the Purchased Shares, the Warrants, and other matters contemplated hereby; a certified copy of the By-laws of the Company; and certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, with respect to this Agreement, the Purchased Shares and the Warrants. (b) A favorable opinion of Brobeck, Phleger & Harrison, counsel for the Company, as to such matters as the Purchaser, or its counsel, may reasonably request. (c) A certificate of the Secretary or an Assistant Secretary of the Company which shall certify the names of the officers of the Company authorized to sign this Agreement, the Purchased Shares, the Warrants and the other documents or certificates to be delivered pursuant to this Agreement by the Company, or any of its officers, together with the true signatures of such officers. The Purchaser may conclusively rely on such certificates until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Company canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate. (d) A certificate from a duly authorized officer of the Company stating that the representations and warranties of the Company contained in Article III hereof and otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct. (e) Payment for the costs, expenses and taxes identified in Section 7.04 as to which the Purchaser gives the Company notice prior to the Closing. 4 ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants as follows: 3.01. ORGANIZATION AND STANDING OF THE COMPANY AND ITS SUBSIDIARIES. The ------------------------------------------------------------- Company and each Subsidiary is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction in which it was organized and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. The Company and each Subsidiary is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased, or the nature of the activities conducted, by it makes such licensing or qualification necessary unless the failure to so qualify would not have a Material Adverse Effect. USTeleCenters, Inc., a Delaware corporation, and View Tech Acquisition, Inc., a California corporation, are the only Subsidiaries of the Company as of the date hereof. All of the outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and nonassessable, and is owned beneficially and of record by the Company, free and clear of any lien, right, encumbrance or restriction of any nature, including, without limitation, any lien, right, encumbrance or restriction on transfer. 3.02. CORPORATE ACTION. The Company has all necessary corporate power and ---------------- has taken all corporate action required to make all the provisions of this Agreement, the Purchased Shares, the Warrants and any other agreements and instruments executed in connection herewith and therewith the valid and enforceable obligations they purport to be. Sufficient shares of authorized but unissued Common Stock of the Company have been reserved by appropriate corporate action in connection with the prospective exercise of the Warrants. Neither the issuance of the Purchased Shares or Warrants, nor the issuance of shares of Common Stock upon the exercise of the Warrants, is subject to preemptive or other similar statutory or contractual rights and will not conflict with any provisions of the Company's charter or by-laws or of any agreement or instrument to which the Company or any Subsidiary is a party or by which it is bound. 3.03. GOVERNMENTAL APPROVALS. No authorization, consent, approval, ---------------------- license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the offer, issuance, sale, execution or delivery by the Company of, or for the performance by it of its obligations under, this Agreement, the Purchased Shares or the Warrants, other than filings under federal or state securities laws. 3.04. CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a total --------------------------------------- authorized capitalization consisting of 20,000,000 shares of Common Stock, of which 5,691,462 shares are issued and outstanding. All the outstanding shares of capital stock of the Company have been duly authorized, are validly issued and are fully paid and nonassessable. The Purchased Shares, when issued and paid for in accordance with the terms of this Agreement, will be duly authorized, validly issued and fully paid and nonassessable. The shares of Common Stock 5 issuable upon exercise of the Warrants, when issued and paid for in accordance with the terms of the Warrants, will be duly authorized, validly issued and fully paid and nonassessable. Except as set forth in Exhibit 3.04, there are no ------------ options, warrants or rights to purchase shares of capital stock or other securities of the Company authorized, issued or outstanding, nor is the Company obligated in any other manner to issue shares of its capital stock or other securities. There are no restrictions on the transfer of shares of capital stock of the Company other than those imposed by relevant state and federal securities laws. No holder of any security of the Company is entitled to preemptive or similar statutory or contractual rights, either arising pursuant to any agreement or instrument to which the Company is a party, or which are otherwise binding upon the Company. Neither the issuance of the Purchased Shares, the Warrants nor the Warrant Shares will result in an adjustment under the antidilution or exercise rights of any holders of any outstanding shares of capital stock, options, warrants or other rights to acquire any securities of the Company. The offer and sale of all shares of capital stock and other securities of the Company issued before the Closing complied with or were exempt from all federal and state securities laws. 3.05. COMPLIANCE WITH OTHER INSTRUMENTS. The Company and each Subsidiary --------------------------------- is in compliance in all respects with the terms and provisions of this Agreement and of its charter and by-laws and in all material respects with the terms and provisions of the mortgages, indentures, leases, agreements and other instruments, and of all judgments, decrees, governmental orders, statutes, rules and regulations by which it is bound or to which its properties or assets are subject, the failure to comply with which could have a Material Adverse Effect with respect to the Company or any Subsidiary. There is no term or provision in any of the foregoing documents and instruments which could have a Material Adverse Effect with respect to the Company or any Subsidiary. Neither the execution and delivery of this Agreement or the Warrants, nor the consummation of any transactions contemplated hereby or thereby has constituted or resulted in or will constitute or result in a default or violation of any term or provision in any of the foregoing documents or instruments. 3.06. TITLE TO ASSETS, PATENTS. Except as set forth in Exhibit 3.06, the ------------------------ ------------ Company and each Subsidiary has good and clear record and marketable title in fee to such of its fixed assets as are real property, and good and merchantable title to all of its other assets, now carried on its books including those reflected in the most recent balance sheets of the Company and its Subsidiaries included in the Securities Filings, or acquired since the date of such balance sheets (except personal property disposed of since said date in the ordinary course of business) free of any mortgages, pledges, charges, liens, security interests or other encumbrances. The Company and each Subsidiary enjoys peaceful and undisturbed possession under all leases under which it is operating, and all said leases are valid and subsisting and in full force and effect. The Company and each Subsidiary owns or, to the best of the Company's knowledge, has a valid right to use the patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights being used to conduct its business as now operated and as now proposed to be operated; and, to the best of the knowledge of the Company, the conduct of its business as now operated and as now proposed to be operated does not and will not conflict with valid patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights of others. Neither the Company nor any Subsidiary has any obligation to compensate any 6 Person for the use of any such patents or such rights nor has the Company or any Subsidiary granted to any Person any license or other rights to use in any manner any of such patents or such rights of the Company or any Subsidiary. 3.07. FINANCIAL AND OTHER INFORMATION. The financial statements of the ------------------------------- Company and its Subsidiaries included in the Securities Filings present fairly the respective financial positions of the Company and its Subsidiaries as at the dates thereof and their respective results of operations for the periods covered thereby and have been prepared in accordance with generally accepted accounting principles consistently applied. Neither the Company nor any Subsidiary has any liability contingent or otherwise not disclosed in the aforesaid financial statements or in the notes thereto that could, together with all such other liabilities, have a Material Adverse Effect with respect to the Company or any Subsidiary, nor does the Company have any reasonable grounds to know of any such liability. Since the date of said financial statements, (i) there has been no material adverse change in the business, assets or condition, financial or otherwise, operations or prospects, of the Company or any Subsidiary; (ii) to the best of the knowledge of the Company, no Material Adverse Effect with respect to the Company or any Subsidiary has resulted from 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; and (iii) neither the Company nor any Subsidiary has entered into any material transaction not in the ordinary course of business, except as disclosed in the Securities Filings, or made any distribution on its capital stock. Other than the transactions contemplated by this Agreement, no event or circumstances has occurred or exists with respect to the Company or any Subsidiary or its respective business, properties, operations or condition, financial or otherwise, which, under applicable law, the Company is required to disclose publicly and which has not been so disclosed. 3.08. LITIGATION. There is no litigation, proceeding or investigation ---------- (governmental or otherwise) pending or, to the best of the knowledge of the Company, threatened against the Company or any Subsidiary affecting any of its properties or assets, or against any officer, key employee or principal stockholder of the Company or any Subsidiary which might result, either in any case or in the aggregate, in any Material Adverse Effect with respect to the Company or any Subsidiary, or which might call into question the validity of this Agreement, the Purchased Shares, the Warrants or any action taken or to be taken pursuant hereto or thereto. Neither the Company nor any Subsidiary, nor, to the best of the knowledge of the Company, any officer or key employee of the Company or any Subsidiary, or principal stockholder of the Company or any Subsidiary, is in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or, other government agency affecting the Company or any Subsidiary. 3.09. SECURITIES ACT. Neither the Company nor anyone acting on its behalf -------------- has offered any of the Purchased Shares, Warrants or similar securities, or solicited any offers to purchase or made any attempt by preliminary conversation or negotiations to dispose of the Purchased Shares, Warrants or similar securities, to any Person other than the Purchaser. Neither the Company nor anyone acting on its behalf has offered or will offer to sell the Purchased Shares, Warrants or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any Person, 7 so as to bring the issuance and sale of the Purchased Shares and Warrants under the registration provisions of the Securities Act. 3.10. DISCLOSURE. Neither this Agreement, the financial statements ---------- included in the Securities Filings nor any other agreement, document, certificate or written statement furnished to the Purchaser or its counsel by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated hereby 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. 3.11. REGISTRATION RIGHTS. Other than the Purchaser pursuant to the terms ------------------- of Article V hereof and except as set forth in Exhibit 3.11, no Person has ------------ demand or other rights to cause the Company to file any registration statement under the Securities Act relating to any securities of the Company or any right to participate in any such registration statement. ARTICLE IV COVENANTS OF THE COMPANY 4.01. AFFIRMATIVE COVENANTS OF THE COMPANY. Without limiting any other ------------------------------------ covenants and provisions hereof, the Company covenants and agrees that, as long as Warrants to purchase at least fifty percent (50%) of the aggregate Warrant Shares are outstanding, it will perform and observe the following covenants and provisions and will cause each Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Subsidiary: (a) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and cause ----------------------------------- each Subsidiary to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect; provided, however, that nothing herein -------- ------- contained shall prevent any merger, consolidation or transfer of assets permitted by Section 4.02. (b) BOARD OF DIRECTORS. The Company shall take such actions as may be ------------------ reasonably practicable to ensure that Paul C. O'Brien is nominated and elected to serve as Chairman and a member of the Company's Board of Directors. At any time when Mr. O'Brien does not so serve for any reason, the Company shall take such actions as may be reasonably practicable to ensure that another person designated by the Purchaser and reasonably acceptable to a majority of the Company's Board of Directors is nominated and elected to serve as a member of the Company's Board of Directors. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Subsection (b) shall expire at the end of the initial three-year term as a director to which Mr. O'Brien is elected, without prejudice to the right of any Person to nominate him for subsequent election or reelection. (c) REPORTS AND FILINGS. Promptly after sending, making available, or filing ------------------- the same, the Company shall send to the Purchaser, in such quantities as the Purchaser may 8 reasonably request, such reports and financial statements as the Company or any Subsidiary shall send or make available to the stockholders of the Company or the Commission. The Company will also provide to the Purchaser such other filings under the Exchange Act or the Securities Act as the Purchaser may from time to time reasonably request. Subject to such limitations and restrictions with respect to non-public or confidential information as may be necessary or appropriate under the federal securities laws, policies and practices from time to time adopted by the Company's Board of Directors and the advice of securities counsel, the Company will also provide to the Purchaser such other information respecting the business, properties, operations and the condition, financial or otherwise, of the Company or any of its Subsidiaries, as the Purchaser may from time to time reasonably request, subject to the Purchaser's execution of such confidentiality or non-disclosure agreement in customary form as the Company may reasonably request. (d) RIGHT OF PARTICIPATION. In the event that the Company intends to issue ---------------------- to a third party or receives from a third party an offer to purchase any securities of the Company (other than debt securities with no equity feature), it shall offer to each holder of Purchased Shares or Warrant Shares, by written notice, the right, for a period of twenty (20) days, to purchase for cash, at a purchase price equal to the price or other consideration for which such securities are to be issued, a number of such securities (up to but not exceeding that number of such securities that the Company intends to issue or has received an offer to purchase) that would enable, after giving effect to such issuance, such holder to maintain its same proportionate fully-diluted equity ownership in the Company as it held as of the date of such notice; provided, however, that the participation rights pursuant to this Subsection (d) - -------- ------- shall not apply to securities issued: (A) as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities issued pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock, (B) pursuant to subscriptions, warrants, options, convertible securities, or other rights which are listed in Exhibit 3.04, (C) solely in ------------ consideration for the acquisition (whether by merger or otherwise) by the Company of stock or assets of any other entity, (D) pursuant to a best efforts or firm commitment underwritten public offering and (E) upon exercise of options granted to directors, officers and employees after the date hereof. The Company's written notice to each holder of Purchased Shares or Warrant Shares shall describe the securities proposed to be issued by the Company and specify the number, price, payment terms. Each holder of Purchased Shares or Warrant Shares may accept the Company's offer as to the full number of securities offered or any lesser number, by written notice thereof given by it to the Company at any time prior to the expiration of the aforesaid twenty (20) day period, in which event the Company shall, contemporaneously with or promptly after the sale to any third party pursuant to this Subsection (d), sell and such holder shall buy, upon the terms specified, the number of securities agreed to be purchased by such holder. The Company shall be free at any time after the date of its notice of offer to the holders of Purchased Shares or Warrant Shares, to offer and sell the number of such securities specified in its notice of offer to any third party; provided, however, if such third party sale or -------- ------- sales are not consummated within ninety (90) days after the date of the Company's notice of offer, the Company shall not sell such securities as shall not have been purchased within such period without again complying with this Subsection (d). All calculations set forth in this Subsection (d) shall give effect to and assume the conversion, exercise and exchange into or for (whether directly or indirectly) shares of Common Stock of all such securities, that are so convertible, exercisable or 9 exchangeable. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Subsection (d) shall expire six (6) months after the initial Closing. 4.02. NEGATIVE COVENANT OF THE COMPANY. Without limiting any other -------------------------------- covenants and provisions hereof, the Company covenants and agrees that, as long as Warrants to purchase at least fifty percent (50%) of the aggregate Warrant Shares are outstanding, it will not, except with the affirmative vote or consent of at least five (5) members of its Board of Directors, (i) merge or consolidate with, or sell, assign, lease or otherwise dispose of or voluntarily part with the control of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit any Subsidiary to do any of the foregoing, except for sales or other dispositions of assets in the ordinary course of business and except that (1) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary and (2) any Subsidiary may merge into or transfer assets to the Company, or (ii) issue any securities, or agree to issue or authorize the issuance of any securities, in a transaction exempt from registration under the Securities Act, if any of Sections 3, 4, 5 or 6 of the Warrants (whether or not Section 5 of the Warrants shall then be in effect in accordance with its terms) would be applicable as a result of such merger or other transaction or issuance of securities. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Section 4.02 shall expire six (6) months after the initial Closing. ARTICLE V REGISTRATION RIGHTS 5.01. "PIGGY BACK" REGISTRATION. If at any time the Company shall ------------------------ determine to register under the Securities Act (including pursuant to a demand of any stockholder of the Company exercising registration rights) any of its Common Stock of the type which has been or may be issued upon the exercise of the Warrants (other than (i) on Form S-4, S-8 or its then equivalent or (ii) a registration statement on Form SB-2 which the Company intends to file imminently with respect to up to 1,693,688 shares of Common Stock and shares of Common Stock underlying certain existing warrants and stock options), it shall send to each holder of Registrable Shares, including each holder who has the right to acquire Registrable Shares, written notice of such determination and, if within thirty (30) days after receipt of such notice, such holder shall so request in writing, the Company shall use its best efforts to include in such registration statement all or any part of the Registrable Shares such holder requests to be registered, except that if, in connection with any offering involving an underwriting of Common Stock to be issued by the Company, the managing underwriter shall impose a limitation on the number of shares of such Common Stock which may be included in any such registration statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, and such limitation is imposed pro rata among the holders of such Common Stock --- ---- having an incidental ("piggy back") right to include such Common Stock in the registration statement according to the amount of such Common Stock which each holder had requested to be included pursuant to such right, then the Company shall be obligated to include in such registration statement only such limited portion of the Registrable Shares with respect to which such holder has requested inclusion hereunder. No incidental 10 right under this Section 5.01 shall be construed to limit any registration required under Section 5.02. 5.02. REGISTRATION ON FORM S-3 OR SB-2. In addition to the rights -------------------------------- provided the holders of Registrable Shares in Section 5.01 above, after at least six (6) months from the date of the initial Closing under this Agreement, if the registration of Registrable Shares under the Securities Act can be effected on Form S-3 (or any similar form promulgated by the Commission), the Company will promptly so notify each holder of Registrable Shares, including each holder who has a right to acquire Registrable Shares, and then will at any time, and from time to time, thereafter, as expeditiously as possible, use its best efforts to effect qualification and registration under the Securities Act on said Form S-3 of all or such portion of the Registrable Shares as the holder or holders shall specify; provided, however, that if the registration of Registrable Shares under -------- ------- the Securities Act cannot then be effected on Form S-3 (or any similar form promulgated by the Commission), but can then be effected on Form SB-2 (or any similar form promulgated by the Commission), the Company will so notify each holder of Registrable Shares, including each holder who has a right to acquire Registrable Shares, and upon written request of one or more holders of at least two-thirds (2/3rds) of the Registrable Shares, the Company will use its best efforts to cause such of the Registrable Shares as may be requested by any holder or holders thereof to be so registered under the Securities Act as expeditiously as possible; provided, further, that the minimum market value of --------- ------- any offering and registration of Registrable Shares made pursuant to this Section 5.02 shall be at least $2,000,000 (calculated after deducting underwriter's discounts and commissions but before expenses). The Company shall not be required to effect more than (i) one (1) registration during any l2-month period pursuant to this Section 5.02 and (ii) two (2) such registrations on Form SB-2 (or any similar form promulgated by the Commission) in the aggregate. If, in connection with any such offering the holder or holders are unable to include in such offering or registration the full number of Registrable Shares for which registration has been requested, either as a result of any limitation on the registration of shares placed by the managing underwriter or for any other reason, then such registration shall be deemed to have been a "piggy-back" registration under Section 5.01 of this Agreement. If, prior to the time of any request by holders of Registrable Shares pursuant to this Section 5.02, the Company has publicly announced its intention to register any of its securities for a public offering under the Securities Act, no registration of Registrable Shares shall be initiated pursuant to this Section 5.02 until 180 days after the effective date of the registration so announced unless the Company is no longer proceeding diligently to effect such registration, whether such registration is for the sale of securities for the Company's own account or for the account of others. 5.03. EFFECTIVENESS. The Company will use its best efforts to maintain ------------- the effectiveness for up to nine (9) months of any registration statement pursuant to which any of the Registrable Shares are being offered, and from time to time will amend or supplement such registration statement and the prospectus contained therein as and to the extent necessary to comply with the Securities Act and any applicable state securities statute or regulation. The Company will also provide each holder of Registrable Shares with as many copies of the prospectus contained in any such registration statement as it may reasonably request. 11 5.04. INDEMNIFICATION OF HOLDER OF REGISTRABLE SHARES. In the event that ----------------------------------------------- the Company registers any of the Registrable Shares under the Securities Act, the Company will indemnify and hold harmless each holder and each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such shares may be sold) and each person, if any, who controls such holder or any such underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse each such holder, each such underwriter and each such controlling person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the prospectus (or the registration statement or prospectus as from time to time amended or supplemented by the Company) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with such registration, unless such untrue statement or omission was made in such registration statement, preliminary or amended, preliminary prospectus or prospectus in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by such holder of Registrable Shares, any such underwriter or any such controlling person expressly for use therein. Promptly after receipt by any holder of Registrable Shares, any underwriter or any controlling person, of notice of the commencement of any action in respect of which indemnity may be sought against the Company, such holder of Registrable Shares, or such underwriter or such controlling person, as the case may be, will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to such holder of Registrable Shares, such underwriter or such controlling person, as the case may be), and the payment of expenses insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Such holder of Registrable Shares, any such underwriter or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has been specifically authorized by the Company. The Company shall not be liable to indemnify any person for any settlement of any such action effected without the Company's consent. The Company shall not, except with the approval of each party being indemnified under this Section 5.04, 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 the parties being so indemnified of a release from all liability in respect to such claim or litigation. 5.05. INDEMNIFICATION OF COMPANY. In the event that the Company registers -------------------------- any of the Registrable Shares under the Securities Act, each holder of the Registrable Shares so registered will indemnify and hold harmless the Company, each of its directors, each of its 12 officers who have signed the registration statement, each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such of the shares may be sold) and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the prospectus (or the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by such holder of Registrable Shares expressly for use therein; provided, however, that such holder's obligations ----------------- hereunder shall be limited to an amount equal to the gross proceeds to such holder of the Registrable Shares sold in such registration. Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against such holder of Registrable Shares, the Company will notify such holder of Registrable Shares in writing of the commencement thereof, and such holder of Registrable Shares shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel, who shall be counsel satisfactory to the Company) and the payment of expenses insofar as such action shall relate to the alleged liability in respect of which indemnity may be sought against such holder of Registrable Shares. The Company and each such director, officer, underwriter or controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of such holder of Registrable Shares unless employment of such counsel has been specifically authorized by such holder of Registrable Shares. Such holder of Registrable Shares shall not be liable to indemnify any person for any settlement of any such action effected without such holder's consent. 5.06. EXCHANGE ACT REGISTRATION. In connection with any registration of ------------------------- the resale of Registrable Shares pursuant to the preceding Sections of this Article V, the Company will, at its expense, simultaneously cause such Registrable Shares to be listed on any securities exchange, or included on the NASDAQ trading system, on which the Company's Common Stock is then listed or included. So long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, the Company will use its best efforts to timely file with the Commission such information as the Commission may require under either of said Sections; and in such event, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any successor exemptive rule hereinafter in effect) with respect to such Common Stock. The Company shall furnish to any holder of Registrable Shares forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the 13 Company as filed with the Commission, and (iii) such other reports and documents as a holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a holder to sell any such Registrable Securities without registration. 5.07. DAMAGES. The Company stipulates that the remedies at law of the ------- holder of Registrable Shares in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Article V are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 5.08. FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the preceding ---------------------------------- Sections of this Article V, the Company is required hereunder to register Registrable Shares, it agrees that it shall also do the following: (a) Furnish to each selling holder such copies of each preliminary and final prospectus and such other documents as said holder may reasonably request to facilitate the public offering of its Registrable Shares; (b) Use its best efforts to register or qualify the Registrable Shares covered by said registration statement under the applicable securities or "blue sky" laws of such jurisdictions, in the case of an underwriter registration, as the underwriter or, otherwise, as any selling holder may reasonably request; provided, however, that the Company shall not be obligated to qualify to do - -------- ------- business in any jurisdiction where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the registration statement in any jurisdiction where it is not then so subject; (c) Furnish to each selling holder upon request photocopies of (i) an opinion of counsel for the Company, dated the effective date of the registration statement, and (ii) "comfort" letters signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the registration statement, to the extent permitted by the standards of the American Institute of Certified Public Accountants, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants' "comfort" letters) with respect to events subsequent to the date of the financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' "comfort" letters delivered to the underwriters in underwritten public offerings of securities, to the extent that the Company is required to deliver or cause the delivery of such opinion or "comfort" letters to the underwriters in an underwritten public offering of securities; 14 (d) Subject to the third sentence of Section 4.01(c), permit each selling holder or his counsel or other representatives to inspect and copy such corporate documents and records as may reasonably be requested by them; (e) Furnish to each selling holder, upon request, a copy of all documents filed and all correspondence from or to the Commission in connection with any such offering; and (f) Use its best efforts to insure the obtaining of all necessary approvals from the National Association of Securities Dealers, Inc. 5.09 EXPENSES. In case of a registration under the preceding Sections of -------- this Article V, the Company shall bear all costs and expenses of each such registration, including without limitation printing, legal and accounting expenses, Commission and National Association of Securities Dealers, Inc. filing fees and expenses, and "blue sky" fees and expenses and the reasonable fees and disbursements of not more than one counsel for the selling holders of Registrable Shares in connection with the registration of their Registrable Shares; provided, however, that the Company shall have no obligation to pay or -------- ------- otherwise bear any portion of the underwriters, commissions or discounts attributable to the Registrable Shares. The Company shall pay all expenses in connection with any registration initiated pursuant to this Agreement which is withdrawn, delayed or abandoned at the request of the Company, unless such registration is withdrawn, delayed or abandoned solely because of any actions of the holders of Registrable Shares. 5.10. DELAY OF REGISTRATION. For a period not to exceed ninety (90) days, --------------------- the Company shall not be obligated to prepare and file, or prevented from delaying or abandoning, a registration statement pursuant to this Agreement at any time when the Company, in its good faith judgment with advice of counsel, reasonably believes: (a) that the filing thereof at the time requested, or the offering of Registrable Shares pursuant thereto, would materially and adversely affect (a) a pending or scheduled public offering of the Company's securities, (b) an acquisition, merger, recapitalization, consolidation, reorganization or similar transaction by or of the Company, (c) preexisting and continuing negotiations, discussions or pending proposals with respect to any of the foregoing transactions, or (d) the financial condition of the Company in view of the disclosure of any pending or threatened litigation, claim, assessment or governmental investigation which may be required thereby; and (b) that the failure to disclose any material information with respect to the foregoing would cause a violation of the Securities Act or the Exchange Act. ARTICLE VI DEFINITIONS 15 6.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms --------------------- shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" means this Common Stock and Warrant Purchase Agreement as from time to time amended and in effect between the parties. "Commission" means the Securities and Exchange Commission or any other or successor agency then administering the Securities Act or the Exchange Act. "Company" means and shall include View Tech, Inc. and its successors and assigns. "Common Stock" includes the Company's Common Stock, $0.0001 par value per share, as authorized on the date of this Agreement and any other securities into which or for which any of such Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Exchange Act" means the Securities Exchange Act of 1934 or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Material Adverse Effect" means, with respect to any Person, any material adverse effect upon its business, properties, operations or condition, financial or otherwise. "Person" means an individual, corporation, partnership, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Purchaser" means and shall include not only Telcom Holding, LLC but also any other holder or holders of any of the Purchased Shares or Warrants. "Registrable Shares" means and shall include the Purchased Shares and the Warrant Shares. "Securities Act" means the Securities Act of 1933 or any similar federal statute, and the rules and regulations of the Securities and Exchange Commission (or of any other federal agency then administering the Securities Act) thereunder, all as the same shall be in effect at the time. "Securities Filings" means, collectively, the Company's Form 10K-SB dated September 29, 1996 and any filing of the Company with the Commission thereafter pursuant to the Securities Act or the Exchange Act, including its Joint Proxy Statement/Prospectus dated November 5, 1996, its Form 10Q-SB dated November 14, 1996, its Form 8-K dated November 29, 1996 and its Form 8-K/A-1 dated October 30, 1996, in each case as filed with the Commission. "Subsidiary" or "Subsidiaries" means any corporation, limited liability company or other Person of which the Company and/or any of its other Subsidiaries (as herein defined) 16 directly or indirectly owns at the time fifty percent (50%) or more of the outstanding shares, membership interests or other equity interests of every class of such Person other than directors' qualifying shares. "Warrants" shall have the meaning assigned to that term in Section 1.01. ARTICLE VII MISCELLANEOUS 7.01. No Waiver; Cumulative Remedies. No failure or delay on the part of ------------------------------ the Purchaser, or any other holder of the Purchased Shares or Warrants 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. 7.02. Amendments, Waivers and Consents. Any provision in this Agreement -------------------------------- or the Warrants to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein or therein set forth may be omitted or waived, if the Company shall obtain the consent thereto in writing from the holder or holders of at least fifty percent (50%) of the Warrant Shares. 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. Written notice of any waiver or consent effected under this Subsection shall promptly be delivered by the Company to any holders who did not execute the same. 7.03. Addresses for Notices, etc. All notices, requests, demands and -------------------------- other communications provided for hereunder shall be in writing (including telegraphic communication) and mailed or telegraphed or delivered to the applicable party at the addresses indicated below: If to the Company: View Tech, Inc. 959 Flynn Road Camarillo, CA 93012 Attention: Chief Executive Officer with a copy to: Brobeck, Phleger & Harrison 550 South Hope Street Los Angeles, CA 90071-2604 Attention: V. Joseph Stubbs, Esq. 17 If to the Purchaser: Telcom Holding, LLC c/o The O'Brien Group, Inc. Two International Place Boston, Massachusetts 02110 Attention: Manager with a copy to: Jager, Smith, Stetler & Arata, P.C. One Financial Center Boston, MA 02111 Attention: John L. Bronson, Esq. If to any other holder of the Purchased Shares or Warrants: at such holder's address for notice as set forth in the register maintained by the Company, 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 party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall, when mailed or telegraphed, respectively, be effective when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid. 7.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay within thirty ------------------------- (30) days after demand (i) all costs and expenses of the Purchaser in connection with the preparation, execution and delivery of this Agreement, the Purchased Shares, the Warrants and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Jager, Smith, Stetler & Arata, P.C., counsel for the Purchaser, with respect thereto, but not exceeding $25,000 in the aggregate, as well as (ii) the reasonable fees and out-of-pocket expenses of legal counsel, independent public accountants and other outside experts reasonably retained by the Purchaser in connection with the amendment (other than an amendment requested by the Purchaser) or enforcement of this Agreement, the Warrants and other instruments and documents to be delivered hereunder or thereunder. In addition, the Company shall 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 Purchased Shares, the Warrants and the other instruments and documents to be delivered hereunder or thereunder and agrees to save the Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and filing fees. 7.05. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon -------------------------- and inure to the benefit of the Company and the Purchaser and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Purchaser. 7.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and ------------------------------------------ warranties made in this Agreement, the Warrants or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof or thereof and the making of the loans. 18 7.07. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement ---------------- between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. 7.08. SEVERABILITY. The invalidity or unenforceability of any provision ------------ hereof shall in no way affect the validity or enforceability of any other provision. 7.09. GOVERNING LAW. This Agreement shall be governed by, and construed ------------- in accordance with, the laws of the State of Delaware. 7.10. HEADINGS. Article, Section and Subsection headings and the Table of -------- Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 7.11. SEALED INSTRUMENT. This Agreement is executed as an instrument ----------------- under seal. 7.12. COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. 7.13. FURTHER ASSURANCES. From and after the date of this Agreement, upon ------------------ the request of the Purchaser, the Company and each Subsidiary shall execute and deliver such instruments, documents and other writings as may be necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the Warrants. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. VIEW TECH, INC. BY: /s/ Robert G. Hatfield ______________________ ROBERT G. HATFIELD CHIEF EXECUTIVE OFFICER TELCOM HOLDING, LLC BY: /s/ Paul C. O'Brien ______________________ PAUL C. O'BRIEN MANAGER 20 EX-10.15 8 LETTER AGREEMENT, DATED 12/31/96 EXHIBIT 10.15 VIEW TECH, INC. 950 Flynn Road Camarillo, California 93012 As of December 31, 1996 Paul C. O'Brien and Mark P. Kiley c/o The O'Brien Group, Inc. Two International Place Boston, Massachusetts 02110 Re: Common Stock Purchase Warrants ------------------------------ Gentlemen: Pursuant to an agreement dated today's date (the "Purchase Agreement") between View Tech, Inc. (the "Company") and Telcom Holding, LLC ("Telcom"), the Company has agreed to issue and sell, and Telcom has agreed to purchase, up to 650,000 shares of Common Stock and up to 325,000 Common Stock Purchase Warrants ("Purchased Securities") of the Company, subject to increase as provided therein, upon the terms and subject to the conditions set forth therein. In consideration of financial advisory and consulting services performed by you for the Company and its subsidiaries, in the event that the aggregate purchase price of Purchased Securities issued and sold in one or more closings under the Purchase Agreement is at least $2,500,000, the Company agrees to issue to you warrants for the purchase of its Common Stock in substantially the same form and upon the same terms and conditions as the warrants included in the Purchased Securities, covering in the aggregate one-half (1/2) the aggregate number of shares of Common Stock as are covered by the warrants which are included in the Purchased Securities. Very truly yours, View Tech, Inc. By: /s/ Robert G. Hatfield ________________________ Robert G. Hatfield Chief Executive Officer 1 EX-11.1 9 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 - Computation of Earnings Per Share The following is a calculation of the historical and fully diluted per share amounts included within this Form SB-2 for the years ended June 30, 1996 and 1995 and the three month periods ended September 30, 1996 and 1995. The weighted average number shares outstanding reflect the shares issued to consummate the merger on November 29, 1996, all stock splits, stock dividends and shares issued in the initial public offering during the year ended June 30, 1995.
Fully Diluted Fully Diluted Year Ended Year Ended Earnings Per Share Earnings Per Share June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 ------------- ------------- ------------------ ----------------- Total number of outstanding stock options and warrants 1,572,737 245,066 1,572,737 $ 245,066 ========== ========== ========== ========== Proceeds upon exercise of options (exercise price $.250 - $7.750) $7,031,542 $ 281,168 $7,031,542 $ 281,168 Market value of stock at date of treasury stock purchase 7.50 6.65 7.38 6.50 ---------- ---------- ---------- ---------- Number of shares that can be repurchased from proceeds under treasury stock method 937,164 42,262 953,429 43,257 Total number of outstanding stock options and warrants 1,572,737 245,066 1,572,737 245,066 ---------- ---------- ---------- ---------- Excess of options and warrants over treasury shares that could be repurchased (1) 635,573 202,804 619,308 201,809 Weighted average number of shares outstanding (2) 5,040,731 3,765,467 5,040,731 3,765,467 ---------- ---------- ---------- ---------- Total number of common and common equivalent shares (3) 5,676,304 3,765,467 5,660,039 3,765,467 ========== ========== ========== ========== Net income $ 424,056 ($1,876,810) $ 424,056 ($1,876,810) ========== ========== ========== ========== Earnings per share $ 0.07 ($0.50) $ 0.07 ($0.50) ========== ========== ========== ========== Three Month Three Month Fully Diluted Fully Diluted Period Ended Period Ended Earnings Per Share Earnings Per Share September 30, September 30, September 30, September 30, 1996 1995 1996 1995 ------------ ------------ ------------------ ----------------- Total number of outstanding stock options and warrants 2,128,128 1,296,782 2,128,128 1,296,782 =========== ========== =========== ========== Proceeds upon exercise of options (exercise price $.250 - $7.750) $10,721,885 $5,722,139 $10,721,885 $5,722,139 Market value of stock at date of treasury stock purchase 7.27 7.60 7.13 8.00 ----------- ---------- ----------- ---------- Number of shares that can be repurchased from proceeds under treasury stock method 1,040,045 753,111 1,504,826 715,267 Total number of outstanding stock options and warrants 2,128,128 1,296,782 2,128,128 1,296,782 ----------- ---------- ----------- ---------- Excess of options and warrants over treasury shares that could be repurchased (1) 1,088,083 543,671 623,302 581,515 Weighted average number of shares outstanding (2) 5,200,222 5,027,384 5,200,222 5,027,384 ----------- ---------- ----------- ---------- Total number of common and common equivalent shares (3) 6,288,305 5,571,055 5,823,524 5,608,899 =========== ========== =========== ========== Net income $ 433,373 $ 274,643 $ 433,373 $ 274,643 =========== ========== =========== ========== Earnings per share $ 0.07 $ 0.05 $ 0.07 $ 0.05 =========== ========== =========== ==========
Notes: (1) The excess of options and warrants over treasury shares that could be repurchased is limited to 20% of the number shares outstanding at the end of the period. This limitation was applied during the three-month period ended September 30, 1995. The excess of the number of shares that could be repurchased over the 20% limitation is assumed to be first applied to short and long term borrowings and any remainder invested in govern-ment secuities. These assumptions increased net income by $46,000, which represents the decrease in interest expense during the period. (2) The weighted average number of shares outstanding is determined by relating (a) the portion of time within the reporting period that a particular number of shares of a certain security has been outstanding to (b) the total time in that period. (3) The total number of common and common equivalent shares used for weighted average number of shares outstanding included in EPS for the year ended June 30, 1995, is limited to the actual weighted average number of shares outstanding before excess of options and warrants over treasury shares that could be repurchased due to the antidilutive effect on EPS brought about by the net loss incurred in this period. EX-21.1 10 SUBSIDIARIES OF VIEW TECH, INC. Exhibit 21.1 SUBSIDIARIES OF VIEW TECH, INC. ------------------------------- View Tech, Inc., a Delaware corporation (the "Company" and "Registrant"), has the following wholly-owned subsidiaries incorporated in the jurisdicitions identified: (1) USTeleCenters, Inc., a Delaware corporation; and (2) View Tech Acquisition, Inc., a California corporation. EX-23.1 11 CONSENT OF CARPENTER, KUHEN AND SPRAYBERRY EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form SB-2 of the following: 1) Our report dated December 23, 1996, relating to the supplemental consolidated financial statements of View Tech, Inc., which appear in such Prospectus; 2) Our report dated September 24, 1996, relating to the Financial Statements of View Tech, Inc. for the year ended June 30, 1996, which appear in such Prospectus; 3) Our report dated December 21, 1996, relating to the financial statements of USTeleCenters, Inc., which appear in such Prospectus; and 4) Reference to us under the heading "Experts" in such Prospectus. \s\ CARPENTER KUHEN & SPRAYBERRY Oxnard, California January 8, 1997 EX-23.3 12 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this Registration Statement. /s/ Arthur Andersen LLP Arthur Andersen LLP Boston, Massachusetts January 9, 1997 EX-27 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM SB-2 FILED ON JANUARY 10, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS. YEAR 3-MOS JUN-30-1996 JUN-30-1996 JUL-01-1995 JUL-01-1996 JUN-30-1996 SEP-30-1996 1,465,199 1,157,865 0 0 8,127,466 10,260,161 (220,182) (351,454) 1,748,555 1,770,907 12,037,659 14,215,765 4,417,036 5,752,132 (1,696,614) (3,014,674) 14,841,089 18,760,772 9,666,692 10,418,784 0 0 0 0 0 0 51,125 53,340 4,170,408 7,468,632 14,841,089 18,760,772 30,993,736 10,018,484 30,993,736 10,018,484 30,170,238 9,549,760 30,170,238 9,549,760 265,000 0 0 0 394,258 67,381 164,240 401,337 259,816 (13,964) 0 387,373 0 0 0 0 0 0 424,056 387,373 .07 .07 .07 .07
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