-----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, KRog+eMq/DgOwBL4J1X+J2qCwCUb5uTwinTLuMmW8ouyzYi3+ujYqtcNSD4qb5Ip F7n2xiOooaRbSkfmtGl4Lw== 0000944209-00-000515.txt : 20000404 0000944209-00-000515.hdr.sgml : 20000404 ACCESSION NUMBER: 0000944209-00-000515 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000403 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25940 FILM NUMBER: 592042 BUSINESS ADDRESS: STREET 1: 3760 CALLE TECATE STREET 2: STE A CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8054828277 10-K 1 FOR THE YEAR ENDED DECEMBER 31, 1999 View Tech, Inc. Page 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the year ended December 31, 1999 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file number: 0-25940 VIEW TECH, INC. (Exact name of registrant as specified in its charter) Delaware 77-0312442 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3760 Calle Tecate, Suite A Camarillo, CA 93012 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (805) 482-8277 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ Common Stock, $.0001 Par Value NASDAQ National Market Indicate by check mark whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting and non-voting stock held by non- affiliates of the Registrant, based upon the closing sales price of the Common Stock on the NASDAQ National Market on March 24, 2000 was $62,031,860. The number of shares of the Registrant's Common Stock outstanding as of March 24, 2000 was 8,706,226. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the period Ended December 31, 1999 are incorporated by reference into Part III. =============================================================================== View Tech, Inc. Page 2 - -------------------------------------------------------------------------------- left blank View Tech, Inc. Page 3 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
ITEM PAGE - ---- ---- PART I ------ 1. Business............................................................. 4 2. Properties........................................................... 8 3. Legal Proceedings.................................................... 8 4. Submission of Matters to a Vote of Security Holders.................. 8 PART II ------- 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................................. 9 6. Selected Financial Data.............................................. 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 10 7A. Quantitative and Qualitative Disclosures about Market Risk........... 16 8. Financial Statements and Supplemental Data........................... 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................. 36 PART III -------- 10. Directors and Executive Officers of the Registrant................... 37 11. Executive Compensation............................................... 37 12. Security Ownership of Certain Beneficial Owners and Management....... 37 13. Certain Relationships and Related Transactions....................... 37 PART IV ------- 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................... 38 Signatures........................................................... 39
i View Tech, Inc. Page 4 - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL View Tech, Inc. ("View Tech"), a Delaware corporation, commenced operations in July 1992 as a California corporation. In June 1995, the Company completed an initial public offering of common stock. In November 1996, concurrent with a merger with USTeleCenters, Inc. ("USTeleCenters"), a Massachusetts corporation, with and into View Tech Acquisition, Inc. ("VTAI"), a Delaware corporation and a wholly-owned subsidiary of View Tech, the Company reincorporated in Delaware. Following the merger, VTAI changed its name to "USTeleCenters, Inc." ("UST"). In November 1997, the Company, through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc. ("NSI"), a Vermont corporation headquartered in Burlington, Vermont, which sells, manages and supports telecommunication network solutions as an agent for Bell Atlantic. On February 18, 2000, the Company completed the sales of its subsidiaries, UST and NSI, to OC Mergerco 4, Inc. Upon the sale of UST and NSI, the Company operates in one segment, video product sales and service. On or about December 1, 1999, the Company announced an agreement in principle to merge with All Communications, Inc. ("ACUC"). ACUC is a regional competitor of the Company, headquartered in the State of New Jersey. The merger agreement was signed by ACUC and the Company on or about December 27, 1999. A registration statement on Form S-4 relating to the merger was filed with the Securities & Exchange Commission (the "Commission") on or about January 21, 2000 (the "Registration Statement"). An Amended S-4 will be filed with the Commission shortly. The merger is expected to be completed following regulatory approval and stockholder approval by both ACUC and the Company. There is no assurance that the merger will ultimately be consummated. NARRATIVE DESCRIPTION OF BUSINESS The Company is a single source provider of voice, video and data equipment, network services and bundled telecommunications solutions for business customers nationwide. The Company has equipment distribution partnerships with Accord Telecommunications, Cisco Systems, Ezenia, FVC.com, Intel(C) Corporation, Lucent Technologies, Madge Networks, PictureTel Corporation, Polycom, Inc., Tandberg, VCON and VTEL Corporation. The Company currently has 19 offices nationwide. The Company is headquartered in Camarillo, California. Its offices are located at 3760 Calle Tecate, Suite A, Camarillo, California 93012. Its telephone number is 805/482-8277. VIDEO COMMUNICATIONS The Company's video communications group focuses on the sale, installation and service of video communications systems. Utilizing advanced technology, these systems enable users at separate locations to engage in face-to-face discussions and to exchange information with the relative affordability and convenience of using a telephone. In addition to the use of video conferences as a corporate communications tool, use of video communications systems is expanding into numerous productivity enhancing applications, including (i) the lecturing by teachers to students at multiple locations; (ii) the conduct by View Tech, Inc. Page 5 - -------------------------------------------------------------------------------- judges of criminal arraignment proceedings while the accused remains incarcerated; (iii) the utilization of video technology for the consultation and surgical applications for the health care industry; (iv) the coordination of emergency services by public utilities; (v) the conduct by businesses of multi- location staff training programs; and (vi) the coordination by engineers at separate design facilities of joint development of products. PRODUCTS Video The Company offers three types of video communications systems: integrated roll-about and room systems; vertical applications; and desktop computer systems. Roll-about systems may be moved conveniently from office to office and placed into operation quickly while room systems are stationary systems. Vertical applications include distance education and systems utilized in the healthcare industry. Finally, desktop computer systems involve personal computers with video communications capabilities which are generally used for one-on-one personal communications, or for a one-person presentation to a group. Apart from peripheral components manufactured by others, the Company primarily sells systems manufactured by PictureTel Corporation, Polycom, Inc. and VTEL Corporation. The prices of the complete systems sold by the Company range from $1,500 for a video communications desktop computer, to $30,000 for a roll-about system for a single location, to as much as $70,000 for a vertical application. Roll- about systems generally contain a minimum of a video camera, monitor and coding- decoding device to capture the image, display the image and to encode and decode the transmission over digital phone lines, respectively. Most installations have several additional peripherals including some of the following components: an inverse multiplexer, a multi-point control unit, a document camera, a keypad, a speakerphone, a videocassette recorder and/or an annotations slate and white board. The Company buys the components listed above from manufacturers and acquires the monitors, document cameras, video scan converters, videocassette recorders and white boards from various sources depending upon such factors as price and quality. Although the Company's desktop-computer systems involve different components, the desktop system has many of the capabilities of the roll-about and room systems. The Company's desktop video communications equipment is manufactured by PictureTel and others such as VCON, Inc. Data The Company sells products specifically designed to transmit data through the established local and long-distance telephone services infrastructure to business customers. Products from companies such as Adtran, Madge Networks, and Lucent Technologies allow business customers remote access into local area networks, and permit them to acquire bandwidth on demand and digitally transmit data. Video Services The Company offers its customers the convenience of single-vendor sourcing for most aspects of their communications needs and develops customized systems designed to provide efficient responses to customer communications technology requirements. The Company provides its customers with a full complement of video communications and telecommunications services to ensure customer satisfaction. Prior to the sale of its systems and services, the Company provides consulting services that include an assessment of customer needs and View Tech, Inc. Page 6 - -------------------------------------------------------------------------------- existing communications equipment, as well as cost-justification and return-on- investment analyses for systems upgrade. Once the Company has made recommendations with respect to the most effective method to achieve its customer's objectives and the customer has ordered a system, the Company delivers, installs and tests the communications equipment. When the system is functional, the Company provides training to all levels of its customer's organization, including executives, managers, management-information-systems and data-processing administrators, technical staff and end users. Training includes instruction in system operation, as well as planning and administration meetings. By means of thorough training, the Company helps to ensure that its customers understand the functionality of the systems and are able to apply the technology effectively. The Company's ViewCare(R) service product provides maintenance contracts and comprehensive customer support with respect to the communications equipment it provides. The Company offers a toll-free technical support hotline 24 hours a day, 365 days a year. Customers may also obtain answers to questions or follow- up training through video conferencing, telephone, facsimile, e-mail or the mail. The Company also provides onsite support and maintenance. The Company's service personnel maintain regular contact with customers. The Company also offers training programs for new users, refresher and advanced training programs for experienced users and consulting services related to new equipment and systems expansion and upgrades. Installation, training, maintenance, remote diagnostics, billing inquiry management, network order processing, new product introduction and system enhancements creating multi- purpose solutions are a few of the many after-sale services that the Company performs for its customers. During 1998 and 1999, the Company increased its MCU, MultiView Network Services(R), or bridge services, to its customers nationwide. The Company employs state-of-the-art conferencing servers in multiple U.S. call centers, providing seamless connectivity for all switched digital networks across the globe at an affordable rate. Because bridges cost between $30,000 and $200,000 per unit, the Company's customers typically elect to utilize such services when more than two locations participate simultaneously in video communication. Customers The Company focuses primarily on large organizations with complex application- specific requirements for video communications. The Company has installed video communications systems for a diversified customer base, including Pfizer Pharmaceuticals, PacifiCare, Region 18 Educational Service Center, Raytheon Corporation, and the State of Tennessee. The Company has attempted to focus its marketing efforts on specific industries. Among the industries in which the Company believes it has acquired substantial expertise are health care and distance-education. Sales and Marketing The Company has in place a number of programs to promote its video communications products and services. Representatives of the Company regularly attend video communications and advanced technology trade shows. The Company hosts seminars and provides potential customers with the opportunity to learn about the Company's products and services using video communications demonstration facilities located in each of the Company's offices. The Company also places advertisements aimed at selected markets in industry trade publications and utilizes limited and selective direct mail advertising. Dependence on Suppliers View Tech, Inc. Page 7 - -------------------------------------------------------------------------------- For the twelve months ended December 31, 1999, approximately 29% of the Company's revenues from continuing operations were attributable to the sale and servicing of equipment manufactured by PictureTel. Termination of or change of the Company's business relationships with PictureTel; disruption in supply, failure of PictureTel to remain competitive in product quality, function or price or a determination by PictureTel to reduce reliance on independent providers such as the Company, among other things, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is a party to an agreement with PictureTel that authorizes the Company to serve as a non-exclusive dealer and sales agent, respectively, in certain geographic territories. The PictureTel agreement can be terminated without cause upon written notice, subject to certain notification requirements. There can be no assurance that this agreement will not be terminated, or that it will be renewed on terms acceptable to the Company. This supplier has no affiliation with the Company and is a competitor of the Company. Competition The video communications industry is highly competitive. The Company competes with manufacturers of video communications equipment, which include PictureTel, VTEL and Lucent Technologies, and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Other telecommunications carriers and other corporations that have entered the video communications market include, AT&T, MCI, some of the Regional Bell Operating Companies ("RBOCs"), Intel Corporation, Microsoft Corporation, Sony Corporation and British Telecom. Many of these organizations have substantially greater financial and other resources than the Company, furnish many of the same products and services provided by the Company and have established relationships with major corporate customers that have policies of purchasing directly from them. Management believes that as the demand for video communications systems continues to increase, additional competitors, many of which will have greater resources than the Company, will enter the video communications market. A specific manufacturer's network of dealers and distributors typically involves discrete territories that are defined geographically, in terms of vertical market, or by application (e.g., project management or government procurement). The current agreement with PictureTel authorizes the Company to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and Wyoming. Because the agreement is non-exclusive, however, the Company is subject to competition within these territories from other PictureTel dealers, whose customers elsewhere may have branch facilities in these territories, and from PictureTel itself, which directly markets its products to certain large national corporate accounts. The agreement expires on August 1, 2000 and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with the Company and is a competitor of the Company. While there are suppliers of video communications equipment other than PictureTel, termination of the Company's relationship with PictureTel could have a material adverse effect on the Company. The Company believes that customer purchase decisions are influenced by several factors, including cost of equipment and services, video communication system features, connectivity and compatibility, a system's capacity for expansion and upgrade, ease of use and services provided by a vendor. Management believes its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment the Company sells, the quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video View Tech, Inc. Page 8 - -------------------------------------------------------------------------------- communications system enable the Company to compete successfully in the industry. Employees At March 1, 2000, the Company had 123 full-time employees. The Company had 41 full-time employees engaged in marketing and sales, 59 in technical services and 23 in finance, administration and operations. None of the Company's employees is represented by a labor union. The Company believes that its relations with its employees are good. ITEM 2. PROPERTIES The Company's video business leases office facilities in Camarillo, Irvine, Sacramento and San Diego, California; New York, New York; Baton Rouge, Louisiana; Chicago, Illinois; Dallas and Houston, Texas; Durham, North Carolina; Englewood, Colorado; Nashville and Knoxville, Tennessee; Jacksonville, Florida; Salt Lake City, Utah; and Chesterfield, Missouri. The Durham and Jacksonville locations were closed during the first quarter of 2000. The rest of locations are currently principally engaged in video conferencing sales and services. Its videoconferencing headquarters is located in Camarillo, California and consists of a total of approximately 19,000 square feet. The Company's other facilities house sales, technical and administrative personnel and consist of aggregate square footage of approximately 42,000. When UST and NSI were part of the Company, they leased office facilities in Boston and Cape Cod, Massachusetts, and Burlington, Vermont. Such locations were principally engaged in the sale and service of telephony products and services. Obligations under these leases have been assumed by OC Mergerco 4, Inc. The Company believes that the facilities it presently leases, combined with those presently under negotiations, will be adequate for the foreseeable future and that additional suitable space, if required, can be located and leased on reasonable terms. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business the Company experiences various types of claims which sometimes result in litigation or other legal proceedings. The Company does not anticipate that any of these proceedings that are currently pending will have any material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None View Tech, Inc. Page 9 - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK MARKET AND OTHER INFORMATION The Company's common stock is traded on The Nasdaq Stock Market[_], ("Nasdaq"), under the symbol "VUTK" on the National Market and has been so traded since November 18, 1995. Prior to such date, the shares were traded on Nasdaq's SmallCap Market and also the Pacific Stock Exchange under the symbols "VUTK" and "VWK," respectively, since the Company's initial public offering on June 15, 1995 (the "IPO"). In addition, warrants to purchase up to 575,000 shares of the Company's common stock were traded on Nasdaq's National Market and prior to November 18, 1995 the warrants traded on Nasdaq's SmallCap Market and the Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively. The terms of the warrants provided that one warrant plus $5.00 was required to purchase one additional share of the Company's common stock. The warrants were redeemable at the Company's option commencing June 15, 1996 upon 30 days notice to the warrant holders at $0.25 per share if the closing price of the common stock had been at least $8.00 for a period of 30 consecutive trading days ending within 10 days of the date the notice of redemption was mailed. The warrants expired on June 15, 1998. The following table sets forth the quarterly high and low bids for the Company's common stock as reported by Nasdaq's National Market for the periods indicated.
Calendar Year 1998 High Low --------------------------------------------------- First Quarter 5.87 4.75 Second Quarter 4.62 3.40 Third Quarter 3.25 1.50 Fourth Quarter 3.00 1.53 Calendar Year 1999 High Low --------------------------------------------------- First Quarter 4.12 1.87 Second Quarter 2.19 1.50 Third Quarter 2.19 1.37 Fourth Quarter 3.87 1.43
On March 24, 2000, the last reported bid for the Company's common stock on the Nasdaq was $7.125. As of March 24, 2000, there were 169 holders of record of the Company's common stock. Dividends The Company has never paid any cash dividends on its common stock. It presently intends to retain earnings and capital, if any, for use in its business and does not expect to pay any dividends within the foreseeable future. Any payment of cash dividends in the future on the common stock will be dependent on the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, restrictions under debt obligations, as well as other factors that the Board of Directors deems relevant. Recent Sales of Unregistered Securities In November 1999, the Company consummated a subordinated debt offering pursuant to which it issued subordinated secured notes to a limited number of accredited purchasers from which it received proceeds of approximately $2.0 million. The notes have an interest rate of the prime rate plus 2-1/2%, will be repaid in seven months, and are secured by a pledge of the Company's assets on a subordinated position to the Company's other lenders. As partial consideration for purchase of the notes, the Company issued 5-year warrants to purchase 925,000 shares of the Company's common stock to these purchasers, on a proportional basis of each purchaser's purchase of the notes, with an exercise price of $1.625 a share. The notes and the warrants were issued under Section 4(2) of the Securities Act of 1933, as amended. View Tech, Inc. Page 10 - -------------------------------------------------------------------------------- U.S. Stock Transfer Corporation of Glendale, California serves as transfer agent and registrar of the Company's common stock. ITEM 6. SELECTED FINANCIAL DATA
Six Months Year Ended December 31 Ended Years Ended June 30, ---------------------------------------- December 31, ------------------------- 1999 1998 1997 1996 1996 1995 ------------ ----------- ----------- ----------- ----------- ----------- Consolidated Statement of Operations Data: Revenues: Product $ 24,024,119 $27,902,078 $24,851,000 $ 8,925,451 $11,385,437 $ 5,805,368 Service 11,455,488 9,340,000 6,163,000 1,681,140 1,960,666 1,158,319 ------------ ----------- ----------- ----------- ----------- ----------- 35,479,607 37,242,078 31,014,000 10,606,591 13,346,103 6,963,687 ------------ ----------- ----------- ----------- ----------- ----------- Costs and Expenses: Cost of equipment sold 19,438,124 19,991,620 17,689,000 6,959,809 8,095,167 3,953,823 Cost of services provided 5,853,940 4,463,000 2,915,000 941,191 947,755 373,856 Selling and marketing expenses 9,955,816 7,830,654 6,346,000 2,301,000 2,724,000 686,000 General and administrative expenses 7,089,561 5,728,263 5,635,000 1,250,000 2,627,000 1,198,000 Restructuring costs -- 3,303,998 -- -- -- -- Merger costs -- -- -- 2,563,573 -- -- ------------ ----------- ----------- ----------- ----------- ----------- 42,337,441 41,317,535 32,585,000 14,015,573 14,393,922 6,211,679 ------------ ----------- ----------- ----------- ----------- ----------- Income (Loss) from Operations (6,857,834) (4,075,457) (1,571,000) (3,408,982) (1,047,819) 752,008 Interest Expense 687,083 246,000 338,000 -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes (7,544,917) (4,321,457) (1,909,000) (3,408,982) (1,047,819) 752,008 Benefit (Provision) For Income Taxes (382,798) (4,233) (4,512) 26,000 352,000 (294,000) ------------ ----------- ----------- ----------- ----------- ----------- Net Income (Loss) from Continuing Operations (7,927,715) (4,325,690) (1,913,512) (3,382,982) (695,819) 458,008 Income (Loss) from Discontinued Operations (825,000) 1,511,293 2,052,139 366,000 1,120,000 (2,335,000) Loss on Disposal of Discontinued Operations (3,237,588) -- -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Net Income (Loss) $(11,990,303) $(2,814,397) $ 138,627 $(3,016,982) $ 424,181 $(1,876,992) ============ =========== =========== =========== =========== =========== Income (Loss) from Continuing Operations Per Share (Basic & Diluted) $ (1.01) $ (0.63) $ (0.30) $ (0.63) $ (0.14) $ 0.12 ============ =========== =========== =========== =========== =========== Income(Loss) Per Share (Basic & Diluted) $ (1.53) $ (0.41) $ 0.02 $ (0.56) $ 0.08 $ (0.50) ============ =========== =========== =========== =========== =========== Shares Used in Computing Earnings (Loss) Per Share: Basic and Diluted 7,842,518 6,888,104 6,371,651 5,400,785 5,040,731 3,765,467 Consolidated Balance Sheet Data: Cash $ 69,493 $ 302,279 $ 1,028,424 $ 363,000 $ 1,463,000 $ 4,988,000 Total assets 16,497,094 22,622,569 21,585,236 12,328,000 8,220,000 5,883,000 Long-term liabilities 35,630 4,397,299 4,866,775 244,000 250,000 5,000 Stockholders' equity (deficiency) (3,573,793) 7,070,515 8,276,832 4,419,000 4,222,000 3,403,000
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. All statements contained herein that are not historical facts, View Tech, Inc. Page 11 - -------------------------------------------------------------------------------- including, but not limited to, statements regarding anticipated future capital requirements, the Company's future development plans, the Company's ability to obtain debt, equity or other financing, and the Company's ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Results of Operations The following table sets forth, for the periods indicated, information derived from the Company's consolidated financial statements expressed as a percentage of the Company's revenues:
Year Ended December 31 ------------------------- 1999 1998 1997 -------- ------- ------ Revenues: Product 67.7% 74.9% 80.1% Service 32.3 25.1 19.9 ------ ----- ----- 100.0 100.0 100.0 ------ ----- ----- Costs and Expenses: Cost of equipment sold 54.8 53.7 57.0 Cost of services provided 16.5 12.0 9.4 Sales and marketing expenses 28.0 21.0 20.5 General and administrative expenses 20.0 15.4 18.2 Restructuring costs -- 8.9 -- ------ ----- ----- 119.3 111.0 105.1 ------ ----- ----- Loss from Operations (19.3) (11.0) (5.1) Interest Expense (2.0) (0.7) (1.1) ------ ----- ----- Loss Before Income Taxes (21.3) (11.7) (6.2) Provision for Income Taxes (1.1) (0.0) (0.0) ------ ----- ----- Net Loss from Continuing Operations (22.4) (11.7) (6.2) Discontinued Operations (11.4) 4.1 6.6 ------ ----- ----- Net Income (Loss) (33.8)% (7.6)% 0.4% ====== ===== =====
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------- Revenues Total revenues for the twelve months ended December 31, 1999 decreased by $1.8 million, or 5% to $35.5 million from $37.3 million in 1998. Product revenues fell by $3.9 million, or 14%, to $24.0 million from $27.9 million in the comparable period for 1998. The decrease in product revenues was primarily the result of a liquidity crisis which began in September and extended to late November which disrupted the Company's product supply and ability to fulfill customer orders. Service revenues for the twelve months ended December 31, 1999 increased by $2.1 million, or 23%, to $11.5 million from $9.4 million in the comparable period for 1998. The increase in service revenues was due primarily to the growth in the installed customer base and bridging services. View Tech, Inc. Page 12 - -------------------------------------------------------------------------------- Costs and Expenses Cost of equipment sold for 1999 decreased by $0.6 million, or 3%, to $19.4 million from $20.0 million in 1998. Cost of equipment sold as a percentage of product revenue increased to 80.9% in 1999 from 71.6% in 1998. During the fourth quarter of 1999, the Company recorded a $1.6 million inventory reserve covering demonstration equipment, finished goods, and spare parts inventories. Approximately 75% of the inventory reserve applied to demonstration equipment which had not been sold by December 31, 1999. The remainder of the reserve applied to certain finished goods and excess spare parts. Management believes such reserves are adequate to reflect inventory at its net realizable value. It is reasonably possible that a change in the estimate could occur in the near term. In addition to the reserve causing the unfavorable year-to-year comparison, equipment margins shrank as part of an industry-wide trend away from large room systems to desktop systems and due to increased competition. Cost of services provided for 1999 increased by $1.4 million, or 31%, to $5.9 million from $4.5 million in 1998. Cost of services provided as a percentage of service revenue increased to 51.1% in 1999 from 47.8% in 1998. Service margins decreased as a result of adding personnel and bridging equipment to the cost base in advance of increased installation and bridging revenues. Selling and marketing expenses for 1999 increased $2.1 million, or 27%, to $9.9 million from $7.8 million in 1998. Selling and marketing expenses as a percentage of revenues increased to 28.0% in 1999 from 21.0% in 1998. The increase in selling and marketing expenses was primarily due to higher sales compensation and recruitment fees as a result of hiring additional sales personnel ($1.2 million) and other operating expenses incurred as a result of the increased number of sales offices ($0.9 million). General and administrative expenses for 1999 increased by $1.4 million, or 24%, to $7.1 million from $5.7 million in 1998. General and administrative expenses as a percentage of total revenues increased to 20.0% in 1999 from 15.4% in 1998. The increase in general and administrative expenses was primarily due to incurring an extraordinary amount of legal and consulting fees related to managing the Company through its liquidity crisis and negotiations with its bankers, trade creditors, and subordinated lenders ($0.8 million) and a $0.4 million accrual for employee retention bonuses. The Company recorded a restructuring charge of $3.3 million during 1998. The components of the restructuring charge were an impairment write-down of goodwill of $1.5 million, employee termination costs of $1.1 million and other costs of $0.7 million. Interest expense for 1999 increased by $0.4 million, or 179%, to $0.7 million from $0.3 million in 1998. Interest expense as a percentage of total revenues increased to 2.0% in 1999 from 0.7% in 1998. The increase in interest expense was a result of writing off the unamortized balance of its line of credit origination fee ($0.3 million) and one month of amortization of debt issuance costs relating to the forbearance agreement and the subordinated debt ($0.2 million). Loss from discontinued operations increased by $5.6 million from income of $1.5 million in the year ended December 31, 1998 to a loss of $4.1 million in the comparable period for 1999. Discontinued operations incurred an operating loss of ($0.8) million for the year ended December 31, 1999 compared to operating income of $1.5 million for the year ended December 31, 1998. The primary factor driving the year-to-year decline in operating results were significant commission rate cuts (30-40%) effected by the Regional Bell Operating Companies in 1999. In addition, for the year ended December 31, 1999, a $3.3 million loss on disposal of discontinued operations was recognized. Net loss increased $9.2 million to a loss of $12.0 million in 1999 from a loss of $2.8 million in 1998. Net loss as a percentage of revenues increased View Tech, Inc. Page 13 - -------------------------------------------------------------------------------- to (33.8)% for 1999 compared to (7.6)% for 1998. Net loss per share increased to a loss of $(1.53) for 1999 compared to loss per share of $(0.41) for 1998. The weighted average number of shares outstanding increased to 7,842,518 for 1999 from 6,888,104 in 1998, primarily due to the full year impact of the issuance of common stock through a private placement in November 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------- Revenues Total revenues for the twelve months ended December 31, 1998 increased by $6.2 million, or 20%, to $37.2 million from $31.0 million in 1997. The increase in revenues was primarily related to the Company's nationwide expansion of its videoconferencing business by opening new sales offices and hiring sales personnel. Costs and Expenses Cost of equipment sold for 1998 increased by $2.3 million, or 13%, to $20.0 million from $17.7 million in 1997. Cost of equipment sold as a percentage of product revenue increased slightly to 71.6% in 1998 from 71.2% in 1997. Cost of services provided for 1998 increased by $1.6 million, or 53%, to $4.5 million from $2.9 million in 1998. Cost of services provided as a percentage of service revenue increased slightly to 47.8% in 1998 from 47.3% in 1997. Cost of equipment sold and services provided as a percentage of product sales and service revenues decreased to 65.7% in 1998 from 66.4% in 1997. The percentage decrease is primarily related to an increase in service business. Service business provides a higher profit margin than equipment sales. Selling and marketing expenses for 1998 increased by $1.5 million, or 23%, to $7.8 million from $6.3 million in 1997. Selling and marketing expenses as a percentage of revenues remained constant at 21% in 1998 and in 1997. The increase in selling and marketing expenses was primarily due to higher sales compensation as a result of hiring additional sales personnel ($1.1 million) and other operating expenses incurred as a result of the increased number of sales offices ($0.4 million). General and administrative expenses for 1998 increased by $0.1 million, or 2%, to $5.7 million from $5.6 million in 1997. General and administrative expenses as a percentage of total revenues decreased to 15.4% in 1998 from 18.2% in 1997. The percentage decrease was primarily due to synergies achieved as part of the integration and restructuring efforts. The Company recorded a restructuring charge of $4.2 million during 1998 ($3.3 million related to video operations and $0.9 million related to discontinued operations) which resulted in an increase in loss from operations of $2.5 million from a loss of $1.6 million in 1997 to a loss of $4.1 million in 1998. The significant components of the restructuring charge were an impairment write-down of goodwill of $1.5 million, employee termination costs of $1.8 million and facility exit costs of $0.2 million. Interest expense decreased by $92,000 to $246,000 in 1998 compared to $338,000 in 1997. This decrease was primarily due to lower borrowings related to video related credit facilities and capital lease obligations. Discontinued operations realized a profit for the twelve months ended December 31, 1998 of $1.5 million, a decrease of $.6 million, or 26%, from the $2.1 million profit realized for the comparable period in 1997. Two factors driving the decline in operating results were the declining results of the outside network sales business (commission rate cuts by RBOC's) View Tech, Inc. Page 14 - -------------------------------------------------------------------------------- and the increase in general management costs of the discontinued operation (no synergies achieved from the mergers/acquisitions). Net income decreased by $2.9 million to a loss of $2.8 million in 1998 from net income of $.1 million. Net loss as a percentage of revenues was (7.6)% for 1998 compared to net income as a percentage of revenues of 0.4% for 1997. Net income (loss) per share decreased to a loss of $(0.41) for 1998 compared to income per share of $0.02 for 1997. The weighted average number of shares outstanding increased to 6,888,104 for 1998 from 6,371,651 in 1997, primarily due to the private placement completed in November 1998. Liquidity and Capital Resources View Tech has financed its recent operations with the proceeds from private placements of equity securities, bank debt, secured interim loans, and vendor credit arrangements Effective November 21, 1997, the Company entered into a Credit Agreement (the "Agreement") with Imperial Bank and BankBoston (now Fleet Bank). On August 5, 1999, the Company received a Notice of Event of Default and Notice of Reservations of Rights from the lenders. On November 23, 1999, the Company signed a six-month forbearance agreement with the Banks to be implemented in conjunction with an infusion of $2.0 million in subordinated debt. During the term of the forbearance period, the maximum aggregate amount of the facility will be equal to $4.75 million subject to certain collateral base adjustments. Subject to certain default provisions, which include the failure to pay certain obligations, the departure of the current, interim chief executive officer and president, or a particular material event concerning the Company, the forbearance would continue until May 31, 2000. Interest on the sum owed is set at the prime rate plus 2-1/2%. Interest on any over-advances is the prime rate plus 4%. At December 31, 1999, the interest rate was 11.0%. At December 31, 1999, amounts utilized were $4,363,527. In return, the lenders received the following consideration: the exercise price of the lenders' existing 80,000 warrants, which are exercisable until November 21, 2004, was changed to $1.63 from $4.50. The change was effective as of the date of the forbearance agreement. Under the forbearance agreement, the lenders will also receive a supplemental fee of $150,000. The Company, as noted above, secured interim loans totaling $2.0 million, of which $1.5 million came from individual investors, and $0.5 million in credit from one of the Company's suppliers. The individual investors and the supplier are to be re-paid in seven months with interest at the prime rate plus 2-1/2% for the $2 million in loans. In return, the Company pledged all of its assets, in a subordinated position to the Banks, to the subordinated lenders. Further, the Company issued 925,000 shares of 5-year exercisable warrants to these subordinated lenders, on a proportional basis of each investor's investment, with an exercise price of $1.625 a share. The Company does not believe it has available funds to meet the Company's working capital requirements for the foreseeable future. It has incurred a net loss of $11,990,303 during the year ended December 31, 1999, a working capital deficit of $6,172,005, and stockholders' deficiency of $3,573,793 at December 31, 1999. In addition, the Company is in default of the repayment terms of its obligations related to a credit agreement and has obtained relief through a forbearance agreement which expires on May 31, 2000. The Company has subordinated debt of $2,000,000 due on June 30, 2000. These conditions raise substantial doubt about the ability of the Company to continue as a going concern and as a consequence, the report of the independent certified public accountants for the year ended December 31, 1999 includes a going concern explanatory paragraph. Management's plan is to complete the proposed merger with ACUC. However, there is no assurance that the merger will be ultimately consummated. Accordingly, the consolidated financial statements do not include any View Tech, Inc. Page 15 - -------------------------------------------------------------------------------- adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. Cash Flow Net cash used by operating activities for the twelve months ended December 31, 1999 was $1.3 million, primarily caused by the Company's net loss of $12.0 million and a decrease in accrued restructuring charges of $0.9 million, partially offset by a decrease in accounts receivable of $1.2 million, an increase in accounts payable of $1.7 million, an increase in deferred revenue of $1.2 million and an increase in payroll and other accrued liabilities of $1.0 million. The non cash and non operating components of net loss include depreciation and amortization of $1.1 million, a $1.6 million reserve on inventory and the loss on discontinued operations of $4.1 million. Net cash provided by discontinued operations for the twelve months ended December 31, 1999 was $0.1 million. Net cash used by investing activities for the twelve months ended December 31, 1999 was $0.9 million, relating to the purchase of office furniture and computer and bridging equipment. Net cash provided by financing activities for the twelve months ended December 31, 1999 was $1.8 million, resulting from the issuance of subordinated debt ($1.5 million) and common stock ($.3 million). Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. Statement of Financial Accounting Standards No. 137 deferred the effective date of FAS 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect adoption of SFAS 133 to have a material effect, if any, on its financial position, results of operations, or cash flows. Year 2000 The statements under this caption include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. Many existing computer software programs and operating systems were designed such that the year 1999 was the maximum date that they would be able to process accurately. The failure of the Company's computer software programs, operating systems and product to process the change in calendar year from 1999 to 2000 had the potential to result in system malfunctions or failures. In the conduct of operations, the Company relies on equipment and commercial computer software primarily provided by independent vendors. In anticipation of potential system malfunctions or failures the Company undertook an assessment of its vulnerability to the so-called "Year 2000 issue" with respect to equipment, computer systems and product and with respect to vendors, and other parties with whom it conducts a substantial amount of business. To address the Year 2000 issue, management initiated a company-wide program to prepare the Company's computer systems and applications for the year 2000, as well as to identify critical third parties and major vendors, such as PictureTel, Polycom, and VTEL Corporation; and other parties such as Landlords and utility companies, which the Company relies upon to operate its business to assess their readiness for the year 2000. The Company's main computer applications include Platinum accounting software, Clientele customer service View Tech, Inc. Page 16 - -------------------------------------------------------------------------------- software, and OMS, the Company's internally developed Order Management System. Individual desktop computers are running on a Windows 95, 98 or NT operating system and include desktop applications such as Microsoft Office 97. The Company uses Dell personal computers on most desktops. For the year ended December 31, 1999, the Company spent a total of approximately $50,000 in connection with addressing the Year 2000 problem and does not anticipate any significant future costs. These costs were largely due to upgrading software systems and equipment. The Company's policy is to expense maintenance and modification costs and capitalize hardware and software purchases and upgrades. The Company funded the foregoing from operating cash flow. Since the change in the calendar from 1999 to 2000, the Company has not experienced any system malfunctions or failures. In addition, the Company has not experienced any loss in revenues due to the Year 2000 problem. Based on information to date, the Company is not aware of Third Parties with whom it conducts a significant amount of business that have experienced a material Year 2000 readiness issue affecting their ability to operate their business or raise adequate revenue to meet their contractual obligations to us. Although prepared to commit the necessary resources to enforce its contractual rights in the event any third parties with whom it conducts business encounter Year 2000 issues, the Company does not expect to incur any additional amounts to continue to monitor and prevent Year 2000 malfunctions and failures because it does not expect to encounter any material Year 2000 issues. Consequently, the Company does not feel that a contingency plan is necessary. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company maintains borrowings under a forbearance agreement with Imperial Bank and Fleet Bank and under a subordinated debt agreement which are not subject to material market risk exposure except for such risks relating to fluctuations in market interest rates. The carrying value of these borrowings approximates fair value since they bear interest at a floating rate based on the "prime" rate. There are no other material qualitative or quantitative market risks particular to the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA VIEW TECH, INC. INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements Reports of Independent Certified Public Accountants ................. 17 Consolidated Balance Sheets as of December 31, 1999 and 1998 ........ 19 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997 ................................. 20 Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1999, 1998 and 1997....................... 21 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 ................................. 22 Notes to Consolidated Financial Statements........................... 23 View Tech, Inc. Page 17 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of View Tech, Inc. We have audited the accompanying consolidated balance sheet of View Tech, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of View Tech, Inc. and subsidiaries at December 31, 1999, and the results of their operations and their cash flows for the year ended December 31, 1999, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred a net loss of $11,990,303 during the year ended December 31, 1999, and, as of December 31, 1999, has a working capital deficit of $6,172,005 and stockholders' deficiency of $3,573,793. In addition, the Company is in default of the repayment term of its obligations related to a credit agreement and has obtained relief through a forbearance agreement which expires on May 31, 2000. The Company has subordinated debt of $2,000,000 due on June 30, 2000. These matters raise substantial doubt about the ability of the Company to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ BDO Seidman, LLP Los Angeles, California March 10, 2000 View Tech, Inc. Page 18 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of View Tech, Inc.: We have audited the accompanying consolidated balance sheets of View Tech, Inc. and subsidiaries as of December 31, 1998 and 1997, and related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of View Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results of its operations and its consolidated cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts January 21, 1999 View Tech, Inc. Page 19 - -------------------------------------------------------------------------------- VIEW TECH, INC. CONSOLIDATED BALANCE SHEETS
December 31, -------------------------- 1999 1998 ------------ ----------- ASSETS CURRENT ASSETS: Cash $ 69,493 $ 302,279 Accounts receivable, net of reserves of $355,000 and $219,659, respectively 9,201,821 10,594,863 Inventory 2,824,578 4,223,390 Other current assets 1,510,947 509,797 Net assets of discontinued operations 256,412 4,455,351 ------------ ----------- Total Current Assets 13,863,251 20,085,680 PROPERTY AND EQUIPMENT, net 2,223,505 1,948,662 OTHER ASSETS 410,338 588,227 ------------ ----------- $ 16,497,094 $22,622,569 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,836,416 $ 6,644,930 Current portion of long-term debt 4,510,322 130,794 Subordinated debt 2,000,000 -- Accrued payroll and related costs 1,275,531 956,982 Deferred revenue 3,160,183 1,940,579 Accrued restructuring costs 80,449 1,026,496 Other current liabilities 1,172,356 454,974 ------------ ----------- Total Current Liabilities 20,035,257 11,154,755 ------------ ----------- LONG-TERM DEBT 35,630 4,397,299 COMMITMENTS AND CONTINGENCIES ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock, par value $.0001, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.0001, authorized 20,000,000 shares, issued and outstanding 7,921,135 and 7,722,277 shares at December 31, 1999 and 1998, respectively 792 772 Additional paid-in capital 16,607,566 15,261,591 Accumulated deficit (20,182,151) (8,191,848) ------------ ----------- Total Stockholders' Equity (Deficiency) (3,573,793) 7,070,515 ------------ ----------- $ 16,497,094 $22,622,569 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. View Tech, Inc. Page 20 - -------------------------------------------------------------------------------- VIEW TECH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 ------------------------------------------ 1999 1998 1997 ------------ ----------- ----------- Revenues: Product $ 24,024,119 $27,902,078 $24,851,000 Service 11,455,488 9,340,000 6,163,000 ------------ ----------- ----------- 35,479,607 37,242,078 31,014,000 ------------ ----------- ----------- Costs and Expenses: Costs of equipment sold 19,438,124 19,991,620 17,689,000 Cost of services provided 5,853,940 4,463,000 2,915,000 Sales and marketing expenses 9,955,816 7,830,654 6,346,000 General and administrative expenses 7,089,561 5,728,263 5,635,000 Restructuring costs -- 3,303,998 -- ------------ ----------- ----------- 42,337,441 41,317,535 32,585,000 ------------ ----------- ----------- Loss from Operations (6,857,834) (4,075,457) (1,571,000) Interest Expense 687,083 246,000 338,000 ------------ ----------- ----------- Loss Before Income Taxes (7,544,917) (4,321,457) (1,909,000) Provision for Income Taxes (382,798) (4,233) (4,512) ------------ ----------- ----------- Loss from Continuing Operations (7,927,715) (4,325,690) (1,913,512) Discontinued Operations: Income (Loss) from Discontinued Operations (825,000) 1,511,293 2,052,139 Loss on Disposal of Discontinued Operations (3,237,588) -- -- ------------ ----------- ----------- Net Income (Loss) $(11,990,303) $(2,814,397) $ 138,627 ============ =========== =========== Loss from Continuing Operations Per Share (Basic and Diluted) $ (1.01) $ (0.63) $ (0.30) ============ =========== =========== Income (Loss) from Discontinued Operations Per Share (Basic and Diluted) $ (0.52) $ 0.22 $ 0.32 ============ =========== =========== Earnings (Loss) Per Share (Basic and Diluted) $ (1.53) $ (0.41) $ 0.02 ============ =========== =========== Shares Used In Computing Earnings (Loss) Per Share: Basic and diluted 7,842,518 6,888,104 6,371,651 ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. View Tech, Inc. Page 21 - -------------------------------------------------------------------------------- VIEW TECH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Total Additional Stockholders' Common Stock Paid-In Accumulated Equity ------------------ Shares Amount Capital Deficit (Deficiency) --------- ------ ----------- ------------ ------------- Balance, January 1, 1997 5,666,814 $ 567 $ 9,934,236 $ (5,516,078) $ 4,418,725 Issuance of common stock 736,662 74 3,172,333 -- 3,172,407 Shares issued under stock option plan 113,648 11 56,914 -- 56,925 Shares issued in connection with exercise of warrants 72,447 7 364,853 -- 364,860 Issuance of warrants in connection with new banking relationship -- -- 125,288 -- 125,288 Net income -- -- -- 138,627 138,627 --------- ------ ----------- ------------ ------------- Balance, December 31, 1997 6,589,571 659 13,653,624 (5,377,451) 8,276,832 Issuance of common stock 985,872 98 1,554,973 -- 1,555,071 Shares issued under stock option plan 146,584 15 51,744 -- 51,759 Shares issued in connection with exercise of warrants 250 -- 1,250 -- 1,250 Net loss -- -- -- (2,814,397) (2,814,397) --------- ------ ----------- ------------ ------------- Balance, December 31, 1998 7,722,277 $ 772 $15,261,591 $ (8,191,848) $ 7,070,515 Shares issued under stock option and purchase plans 198,858 20 264,570 -- 264,590 Issuance of warrants in connection with subordinated debt -- -- 1,081,405 -- 1,081,405 Net loss -- -- -- (11,990,303) (11,990,303) --------- ------ ----------- ------------ ------------- Balance, December 31, 1999 7,921,135 $ 792 $16,607,566 $(20,182,151) $ (3,573,793) ========= ====== =========== ============ =============
The accompanying notes are an integral part of these consolidated financial statements. View Tech, Inc. Page 22 - -------------------------------------------------------------------------------- VIEW TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Year Ended December 31 ------------------------------------------ 1999 1998 1997 ------------ ----------- ----------- Cash Flows from Operating Activities: Net income (loss) $(11,990,303) $(2,814,397) $ 138,627 Adjustments to reconcile net income(loss) to net cash used by operating activities: Depreciation and amortization 626,483 559,213 472,245 Non-cash restructuring expenses -- 1,491,392 -- Reserve on accounts receivable 164,307 179,000 51,480 Reserve on inventory 1,602,000 163,020 -- Discontinued operations 4,062,588 (1,511,293) (2,052,139) Changes in assets and liabilities: Accounts receivable 1,228,735 (1,705,815) (3,218,242) Inventory (203,188) (2,282,287) (333,373) Other assets 258,144 (205,747) (77,695) Accounts payable 1,691,486 975,586 302,449 Accrued merger costs -- -- (1,160,495) Accrued restructuring charges (946,047) 1,026,496 -- Accrued payroll and related costs 318,549 (58,364) 1,015,346 Deferred revenue 1,219,604 853,418 1,087,161 Other current liabilities 717,382 134,886 (530,367) ------------ ----------- ----------- Net cash used by operating activities: (1,250,260) (3,194,892) (4,305,003) ------------ ----------- ----------- Net cash provided (used) by discontinued operations 136,351 2,417,469 (2,578,090) ------------ ----------- ----------- Cash Flows from Investing Activities: Purchase of property and equipment (901,326) (868,430) (856,063) ------------ ----------- ----------- Cash Flows from Financing Activities: Net borrowings under lines of credit 148,208 (218,896) 63,200 Issuance of subordinated debt 1,500,000 -- -- Issuance of debt -- -- 4,622,061 Repayments of capital lease and other debt obligations (130,349) (469,476) -- Issuance of common stock, net 264,590 1,608,080 3,719,480 ------------ ----------- ----------- Net cash provided by financing activities: 1,782,449 919,708 8,404,741 ------------ ----------- ----------- Net Increase (Decrease) in Cash (232,786) (726,145) 665,585 Cash, beginning of period 302,279 1,028,424 362,839 ------------ ----------- ----------- Cash, end of period $ 69,493 $ 302,279 $ 1,028,424 ============ =========== =========== Supplemental Disclosures: Operating activities reflect: Interest paid $ 467,296 $ 478,102 $ 352,808 ============ =========== =========== Income taxes paid $ 53,286 $ 105,471 $ 7,640 ============ =========== =========== Non-cash financing activity: Warrants issued in connection with subordinated debt recorded as debt issuance costs in other current assets $ 1,081,405 $ -- $ -- ============ =========== =========== Subordinated debt issued in satisfaction of accounts payable $ 500,000 $ -- $ -- ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. View Tech, Inc. Page 23 - -------------------------------------------------------------------------------- View Tech, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- THE BUSINESS View Tech, Inc.("the Company"), a Delaware corporation, commenced operations in July 1992 as a California corporation. In June 1995, the Company completed an initial public offering of common stock. In November 1996, View Tech merged with USTeleCenters, Inc. ("UST"), a Massachusetts corporation, and the Company reincorporated in Delaware. In November 1997, the Company, through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc. ("NSI"), a Vermont corporation headquartered in Burlington, Vermont. On February 18, 2000, the Company sold its subsidiaries, UST and NSI, to OC Mergerco 4, Inc. ("OCM") as further described in Note 6 and has treated these entities as discontinued operations. Upon the sale of UST and NSI, the Company operates in one segment, video product sales and service. The Company entered into a merger agreement in December 1999 with All Communications, Inc. ("ACUC"), a regional competitor of the Company headquartered in the State of New Jersey. The merger is pending subject to regulatory approval and stockholder approval. On completion of the merger, each outstanding share of ACUC common stock will be converted into the right to receive 3.3 shares of fully paid and non-assessable Company common stock, $.0001 par value per share. Based on the number of currently outstanding shares of ACUC and Company stock as of January 11, 2000, assuming that all outstanding options and warrants of the two companies are exercised, the shareholders of ACUC, will own approximately 74.5% of the outstanding common stock following consummation of the merger. There is no assurance that the merger will ultimately be consummated. The Company is a single source provider of voice, video and data equipment, network services and bundled telecommunications solutions for business customers from its 19 offices throughout the United States. The Company has equipment distribution partnerships with Accord Telecommunications, Cisco Systems, Ezenia, FVC.com, Intel Corporation, Lucent Technologies, Madge Networks, PictureTel Corporation, Polycom, Inc., Tandberg, VCON, and VTEL Corporation. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. REVENUE RECOGNITION. The Company sells both products and services. Product revenue consists of revenue from the sale of video communications and telephone equipment and is recognized at the time of shipment. Service revenue is derived from services rendered in connection with the sale of new systems and from services rendered with respect to previously installed systems. Services rendered in connection with the sale of new systems consist of engineering services related to system integration, installation, technical training, user training, and one-year parts-and-service warranty. The majority of these services are rendered at or prior to installation, and all of the revenue is recognized when services are rendered. Revenue related to extended warranty contracts is deferred and recognized over the life of the extended warranty period. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. PER SHARE DATA. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock View Tech, Inc. Page 24 - -------------------------------------------------------------------------------- outstanding. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding and the effect of the potentially dilutive shares. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity not exceeding three months at the date of purchase to be cash equivalents. INVENTORIES. Inventories are accounted for on the basis of the lower of cost or market. Cost is determined on a FIFO (first-in, first-out) basis. Included in inventory is demonstration equipment held for resale in the ordinary course of business. The Company generally sells its video demonstration equipment after the six-month holding period required by its primary equipment supplier. PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and include improvements that significantly add to utility or extend useful lives. Depreciation of property and equipment is provided using straight-line and accelerated methods over estimated useful lives ranging from one to ten years. Expenditures for maintenance and repairs are charged to expense as incurred. INTANGIBLES. Cost in excess of the fair value of net assets of purchased businesses (goodwill) is amortized using the straight-line method over 15 years, its estimated useful life. LONG-LIVED ASSETS. The Company assesses the realizability of long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets To Be Disposed of. SFAS No. 121 requires, among other things, that an entity review its long-lived assets including intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. During 1998, the Company recorded charges of approximately $1,465,000 relating to the impairment of goodwill that is included in restructuring costs in the consolidated statements of operations. During 1999, the Company recorded charges of $2.9 million relating to impairment of goodwill and fixed assets in connection with the sale of its discontinued operations. INCOME TAXES. The Company accounts for income taxes using SFAS No. 109, Accounting for Income Taxes, which requires a liability approach to financial accounting and reporting for income taxes. Deferred taxes are recognized for timing differences between the basis of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. CONCENTRATION OF RISK. Items that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and the dependence on a major equipment vendor. Accounts receivable subject the Company to potential credit risk with customers. The Company performs on-going credit evaluations of its customers' financial condition but does not require collateral. Approximately 29% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel. Termination or change of the Company's business relationship with PictureTel, disruption in supply, failure of this supplier to remain competitive in quality, function or price, or a determination by such supplier to reduce reliance on independent distributors such as the Company could have a materially adverse effect on the Company. COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) is comprised of net income (loss) and all changes to stockholders' equity except those due to investments by owners and distributions to owners. Other than net income View Tech, Inc. Page 25 - -------------------------------------------------------------------------------- (loss), the Company does not have any other components of comprehensive income (loss) for each of the years ended December 31, 1999, 1998, and 1997. NEW ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. Statement of Financial Accounting Standards No. 137 deferred the effective date of FAS 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect adoption of SFAS 133 to have a material effect, if any, on its financial position, results of operations, or cash flows. NOTE 3 - GOING CONCERN UNCERTAINTY The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $11,990,303 during the year ended December 31, 1999, and at December 31, 1999 has a working capital deficit of $6,172,005, and stockholders' deficiency of $3,573,793. In addition, the Company is in default of the repayment terms of its obligations related to a credit agreement and has obtained relief through a forbearance agreement which expires on May 31, 2000 (Note 10). The Company has subordinated debt of $2,000,000 due on June 30, 2000. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management's plan is to complete the proposed merger with ACUC (Note 1). However, there is no assurance that the merger will be ultimately consummated. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. NOTE 4 -- BUSINESS COMBINATION On November 29, 1996, the Company acquired USTeleCenters, which is an authorized sales agent for several of the Regional Bell Operating Companies ("RBOCs"). The transaction was accounted for as a pooling of interests in which USTeleCenters' shareholders exchanged all of their outstanding shares and options for View Tech common stock and options, respectively. USTeleCenters' shareholders and option holders (upon exercise of their options) received 2,240,976 shares of View Tech common stock and options to purchase 184,003 shares of View Tech common stock. The value of the transaction was approximately $16.5 million. In connection with the acquisition, the Company issued 24,550 shares in January 1997 to certain investment bankers. NOTE 5 -- ACQUISITIONS On November 13, 1997, the Company, through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc. ("NSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase Agreement, (the "Agreement"), the Company acquired ownership of the assets and assumed certain liabilities of NSI, effective November 1, 1997. The aggregate purchase price for the net assets of NSI consisted of (i) $2,000,000 cash paid at the closing, (ii) a promissory note in the original amount of $250,000, bearing interest at the rate of 8% per annum subsequently paid in full on November 21, 1998, (iii) a contingent note in the original amount of $250,000, bearing interest at the rate of 8% per annum and payable in full on November 21, 1999, and (iv) $400,000 paid by the issuance of 62,112 shares of the Company's common stock. The contingent note in the amount of $250,000 is due View Tech, Inc. Page 26 - -------------------------------------------------------------------------------- only if NSI, achieves EBIT, as defined, equal to or greater than $700,000 for the year ended December 31, 1998. In addition, View Tech is required to pay an additional amount equal to 40% of NSI's EBIT, as defined, in excess of $900,000 per calendar year commencing January 1, 1998 and ending December 31, 2000. The calculation of NSI's EBIT for the year ended December 31, 1998, was conclusively determined under the Agreement in December 1999 and a liability was calculated. This liability of $180,000 was assumed as part of the sale of UST and NSI by OC Mergerco 4, Inc. (see Note 6). The cash portion of the purchase price of $2,000,000 was paid utilizing the Company's bank line of credit. The excess of the acquisition price over the net assets acquired of approximately $2,708,000 was accounted for as goodwill and was being amortized over 15 years until December 1999 when an impairment loss of $2.1 million related to this goodwill was recognized as further described in Note 6. NSI, based in Burlington, Vermont, is an authorized agent selling Bell Atlantic services in Vermont, New Hampshire, upstate New York and western Massachusetts. The acquisition has been accounted for as a purchase transaction and, accordingly, the accompanying financial statements include the accounts and transactions of NSI since the acquisition date. NOTE 6 -- DISCONTINUED OPERATIONS On May 7, 1999, the Company executed a letter of intent to sell the assets of UST and NSI. However, by the end of September 1999, the negotiations with the original purchaser relative to said sale were terminated without completing the sale. The Company, in September 1999, initiated discussions with alternative parties which ultimately resulted in finding a buyer for UST and NSI. On February 18, 2000, the Company completed the sale of its subsidiaries to OC Mergerco 4, Inc. The Company sold net assets of UST and NSI as of December 31, 1999 to OC Mergerco 4, Inc. for cash consideration amounting to $182,147 and shares of the Common Stock of the Purchaser's parent company, Pentastar Communications, Inc. which the Company valued at $74,265. This sale resulted in a loss of $2.9 million. OC Mergerco 4, Inc. also assumed a $180,000 commitment to Zoltan Keve, the former principal of NSI, related to certain agreements signed in conjunction with the Company's purchase of NSI in November 1997 (see Note 5). In addition, the Company assumed the liability of funding the cash needs of the discontinued operation for the period January 1, 2000 to February 18, 2000 which amounted to $0.3 million. This liability was accrued at December 31, 1999 in the Company's financial statements. The balance sheets, statements of operations, and statements of cash flows have been restated to show the net effect of the discontinuance of the network business. Assets and liabilities to be disposed of consists of the following:
December 31, ------------------------- 1999 1998 ----------- ----------- Accounts receivable.................................. $ 1,807,000 $ 3,497,000 Other current assets................................. 566,400 571,000 Property and equipment............................... 280,012 1,600,000 Goodwill............................................. -0- 2,300,000 Other assets......................................... 84,000 100,351 Current liabilities.................................. (2,316,000) (3,380,000) Long-term liabilities................................ (165,000) (233,000) ----------- ----------- TOTAL............................................. $ 256,412 $ 4,455,351 =========== ===========
Results of operations of UST and NSI are as follows: View Tech, Inc. Page 27 - --------------------------------------------------------------------------------
Twelve Months Ended December 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Sales................................................ $12,453,000 $20,739,988 $18,930,306 Cost and expenses.................................... 13,071,000 18,947,102 16,849,164 ----------- ----------- ----------- Operating income (loss).............................. (618,000) 1,792,886 2,081,142 Interest expense..................................... 207,000 281,593 29,003 ----------- ----------- ----------- (825,000) 1,511,293 2,052,139 Disposal loss and accrual of future cash obligations.......................... 3,237,588 -- -- ----------- ----------- ----------- Net income (loss).................................... $(4,062,588) $ 1,511,293 $ 2,052,139 =========== =========== ===========
In accordance with EITF 87-24, interest expense has been allocated to discontinued operations based on the debt that could be identified as specifically attributable to those operations. No general corporate overhead has been allocated to these operations. NOTE 7 -- Restructuring and Other Costs During 1998, the Company recorded a restructuring and asset impairment charge of $4.2 million ($3.3 million related to continuing operations and $.9 million related to discontinued operations). The significant components of the restructuring charge are as follows: Impairment write-down of goodwill related to previous acquisitions.............. $1,465,000 Employee termination costs...................... 1,793,000 Facility exit costs............................. 157,000 Write-down of Property and Equipment............ 27,000 Travel related expenses......................... 140,000 Consulting expenses............................. 322,000 Other costs..................................... 297,013 ---------- $4,201,013 ========== The impairment write-down of goodwill relates to the Company's determination that there was no future expected cash flows from two acquisitions that represented $1,465,000 of goodwill. The employee termination costs relate to approximately 33 employees and officers of the Company. The Company closed one of its outside network sales offices. The Company also terminated its internet service provider reseller agreement. In connection with these decisions, the Company recorded employee termination, facility exit related expense, and a write-down of leasehold improvements. In addition, the Company's decision to eliminate duplicative corporate overhead functions resulted in employee termination and travel related expenses. The Company utilized the services of consultants in connection with the plan of restructuring. The total cash impact of the restructuring amounted to $2,709,621 of which $80,449 is included in the accompanying balance sheet at December 31, 1999. The Company anticipates the balance of the restructuring costs will be paid by February 29, 2000. The following table summarizes the activity against the restructuring charge: Restructuring Charge............................ $ 4,201,013 Cash paid................................... (2,629,172) Non-cash expenses........................... (1,491,392) ------------ Balance, December 31, 1999...................... $ 80,449 ============ View Tech, Inc. Page 28 - -------------------------------------------------------------------------------- NOTE 8 -- INVENTORY Inventories are summarized as follows:
DECEMBER 31, ------------------------- 1999 1998 ----------- ---------- DEMONSTRATION EQUIPMENT.............. $ 2,562,723 $1,664,031 Finished goods....................... 1,301,902 2,261,965 Spare parts.......................... 724,973 460,414 ----------- ---------- 4,589,598 4,386,410 Reserve.............................. (1,765,020) (163,020) ----------- ---------- $ 2,824,578 $4,223,390 =========== ==========
During the fourth quarter of 1999, the Company recorded an additional $1.6 million inventory reserve covering demonstration equipment, finished goods and spare parts inventories. Approximately 75% of the reserve applied to demonstration equipment which had not been resold by December 31, 1999. The remainder of the reserve applied to certain finished goods and excess spare parts. Management believes such reserves are adequate to reflect inventory at its net realizable value. It is reasonably possible that a change in the estimate could occur in the near term. NOTE 9 -- PROPERTY AND EQUIPMENT, NET Property and equipment are summarized as follows:
December 31, ------------------------ 1999 1998 ----------- ----------- Computer equipment and software ..... $ 1,569,619 $ 1,216,462 Equipment............................ 1,508,353 1,138,756 Furniture and fixtures............... 570,777 469,001 Leasehold improvements............... 409,252 332,456 ----------- ----------- 4,058,001 3,156,675 Less accumulated depreciation ....... (1,834,496) (1,208,013) ----------- ----------- $ 2,223,505 $ 1,948,662 =========== ===========
Property and equipment under capital lease obligations, net of accumulated amortization, at December 31, 1999 and 1998 were $300,840 and $365,064, respectively. NOTE 10 -- SUBORDINATED DEBT The Company secured interim loans totaling $2.0 million, of which $1.5 million came from individual investors and $0.5 million in credit from one of the Company's suppliers (Note 11). The individual investors and the supplier are to be re-paid in seven months with interest at the prime rate plus 2-1/2% for the $2.0 million in loans. In return, the Company pledged all of its assets in a junior position to the Banks, to the subordinated lenders. Further, the Company issued 925,000 5-year exercisable warrants to the subordinated lenders, on a proportional basis of each investor's investment with an exercise price of $1.625 a share (Note 11). NOTE 11 -- LONG TERM DEBT View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15 million credit agreement (the "Agreement") with Imperial Bank and BankBoston (now Fleet Bank) effective November 21, 1997. The Agreement provided for three separate loan commitments consisting of (i) a Facility A Commitment of up to $7 million for working capital purposes; (ii) a Facility B Commitment of up to $5 million, which expired on December 1, 1998; and (iii) a Facility C Commitment of up to $3 million for merger/acquisition activities. Amounts under the Agreement are collateralized by the assets of the Company. Funds available under the Agreement vary from time to time depending on many variables such as the amount of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as such terms are defined in the Agreement. View Tech, Inc. Page 29 - -------------------------------------------------------------------------------- On August 5, 1999, the Company received a Notice of Event of Default and Notice of Reservations of Rights from the lenders. The Facility C Commitment was terminated. On November 23, 1999, the Company signed a six-month forbearance agreement to be implemented in conjunction with an infusion of $2.0 million in subordinated debt (Note 10). During the term of the forbearance period, the maximum aggregate amount of the Facility A facility will be equal to $4.75 million subject to collateral base adjustments. Subject to certain default provisions, which include the failure to pay certain obligations, the departure of the current, interim chief executive officer and president, or a particular material event concerning the Company, the forbearance continues until May 31, 2000. Interest on the sum owed on Facility A is set at the prime rate plus 2-1/2%. Interest on any over-advances is the prime rate plus 4%. At December 31, 1999, the interest rate on Facility A was 11%. At December 31, 1999, amounts utilized under the Facility were $4,363,527. In return, the lenders received the following consideration: the exercise price of the lenders' existing 80,000 warrants, which are exercisable until November 21, 2004, was changed to $1.63 from $4.50 as of the date of the forbearance agreement. Under the forbearance agreement, the lenders will also receive a supplemental fee of $150,000. The fee was deferred and is being amortized to expense over the forbearance period. The change of the exercise price of the lenders' existing warrants and the issuance of warrants to the subordinated lenders at $1.63 and $1.625, respectively required the recognition of $1,081,405 in deferred debt issuance costs and additional paid-in capital. The fair value of the warrants at the repricing/issuance dates was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: expected life - 1 year; volatility - 74.08%; dividend yield -0.00%; interest rate - 6.00%. Deferred debt issuance costs of $901,171 were included in other current assets at December 31, 1999. Long-term debt consists of the following:
DECEMBER 31, ------------------------- 1999 1998 -------- ---------- LINE OF CREDIT (NOTE 9)................. $4,363,527 $4,215,319 CAPITAL LEASE OBLIGATIONS............... 182,425 312,774 --------- --------- 4,545,952 4,528,093 LESS CURRENT MATURITIES................. 4,510,322 130,794 --------- --------- $ 35,630 $4,397,299 ========= =========
Capital Lease Obligations The Company leases certain equipment and furniture under capital lease arrangements. The following is a schedule of future minimum lease payments View Tech, Inc. Page 30 - -------------------------------------------------------------------------------- required under capital leases, together with their present value as of December 31, 1999: Years Ending December 31, 2000.................................... $ 156,331 2001.................................... 33,596 2002.................................... 5,613 --------- Net minimum lease payments.............. 195,540 Less amount representing interest....... 13,115 --------- Present value of net minimum lease payments......................... $ 182,425 ========= The current portion due under capital lease obligations at December 31, 1999 and 1998 was $146,795 and $130,794, respectively. Note Payable to Former NSI Owner In connection with the Company's acquisition of NSI, part of the purchase price consisted of a promissory note in the original amount of $250,000, bearing interest at the rate of 8% per annum which was paid in full on November 21, 1998. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company leases various facilities under operating leases expiring through 2003. Certain leases require the Company to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Lease payments for the years ended December 31, 1999, 1998, and 1997, were approximately $1,219,000, $908,000, and $859,000, respectively. Minimum future rental commitments under non-cancelable operating leases are as follows: Years Ending December 31, 2000 ................................... $1,047,894 2001 ................................... 891,566 2002 ................................... 705,155 2003 and thereafter .................... 922,464 ---------- $3,567,079 ========== The Company has been named as a defendant in employee-related lawsuits or claims before administrative boards filed by former employees of UST and/or NSI. The Company is vigorously defending itself against such matters and does not expect the outcome to have a material adverse impact on its financial position, results of operations or cash flow. NOTE 13 -- COMMON AND PREFERRED STOCK COMMON STOCK. In November 1996, the Company increased the number of shares of common stock authorized for issuance from 10,000,000 to 20,000,000 and changed the par value of its stock from $0.01 to $0.0001 per share. WARRANTS AND OPTIONS. Included in the public stock offering in June 1995, was the sale of 575,000 warrants to the public. All warrants were exercisable at $5.00 per share for a period of two years commencing one year after the effective date of the registration statement. All unexercised warrants expired on June 15, 1998. View Tech, Inc. Page 31 - -------------------------------------------------------------------------------- Upon consummation of the public offering, the Company issued the underwriter 120,000 warrants to purchase common stock of the Company at an exercise price of $6.75 or 135% of the public offering price per share. Such warrants may be exercised at any time during the period of five years commencing June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants at an exercise price of $6.918 per warrant or 138% of the public offering price. Each warrant is exercisable into one share of common stock at a price of $6.918 per share for a three-year period commencing on June 15, 1995. These warrants expired on June 15, 1998. In connection with the Company's credit agreement, the Company issued common stock warrants for the purchase of 80,000 shares of the Company's common stock. During 1998, the exercise price of the warrants was reduced to $4.50 per share. The exercise price was further reduced to $1.63 per share in connection with the forbearance agreement signed on November 23, 1999. The warrants are exercisable until November 21, 2004. PRIVATE OFFERINGS. In the first quarter of 1997, the Company completed a private placement with Telcom Holding, LLC, a Massachusetts limited liability company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts corporation. Telcom purchased (i) 650,000 shares of Common Stock and (ii) Common Stock Purchase Warrants exercisable at $6.50 per share of the Company to purchase up to 325,000 shares of Common Stock. The Company issued additional Common Stock Purchase Warrants to certain managing members of Telcom for the purchase of 162,500 shares of Common Stock at a purchase price per share of $6.50. On August 18, 1998, the Company received a notice (the "Initial Notice") from NASDAQ that it did not meet the applicable listing requirements as of June 30, 1998 because it did not have $4,000,000 in net tangible assets and therefore its Common Stock was subject to delisting. The Company sought immediate action to rectify this situation through the private placement of 826,668 shares of the Company's Common Stock to accredited investors. The offering was completed on November 10, 1998 and raised $1.2 million. Subsequently, in February, 1999, NASDAQ informed the Company that it was closing its de-listing proceedings. However, in or about January 2000, NASDAQ has informed the Company that it must re-apply for NASDAQ national market listing after the merger with ACUC and that it may not be approved to remain on the NASDAQ national market exchange. PREFERRED STOCK. The Company has 5,000,000 shares of authorized Preferred Stock. In November 1996, the Company changed the par value of the preferred stock from $0.01 to $0.0001 per share. The Preferred Stock may be issued in one or more series with such rights and preferences as may be determined by the Board of Directors. No shares of preferred stock have been issued. EMPLOYEE STOCK PURCHASE PLAN. The Company has an Employee Stock Purchase Plan (the "Purchase Plan") under which a maximum of 500,000 shares of Common Stock, (pursuant to the Amendment of the Purchase Plan approved by the Board of Directors of June 3, 1998), may be purchased by eligible employees. Substantially all full-time employees of the Company are eligible to participate in the Purchase Plan. Shares are purchased through accumulation of payroll deductions (of not less than 1% nor more than 10% of the employees compensation, as defined not to exceed 2,000 shares per purchase period) for the number of whole shares, determined by dividing the balance in the employee's account by the purchase price per share which is equal to 85% of the fair market value of the Common Stock, as defined. In 1999 and 1998, 114,504 and 159,204 shares were purchased under this Plan. The Company, in February 2000, terminated the Employee Stock Purchase Plan program. STOCK OPTION PLAN. In July 1994, the Company began granting stock options to key employees, consultants and certain non-employee directors. The options are intended to provide incentive for such persons' service and future services View Tech, Inc. Page 32 - -------------------------------------------------------------------------------- to the Company thereby promoting the interest of the Company and its stockholders. The Company currently maintains four stock option plans that generally require the exercise price of options to be not less than the estimated fair market value of the stock at the date of grant. Options vest over a maximum period of four years and may be exercised in varying amounts over their respective terms. In accordance with the provisions of such plans, all outstanding options become immediately exercisable upon a change in control, as defined, of the Company. The Company has authorized an aggregate of 2,322,000 shares of common stock to be available under all the current option plans. On October 20, 1998, the Company's Board of Directors authorized the repricing of certain options previously issued to employees. In accordance with APB Opinion 25, which the Company applies in accounting for its stock option plans, no additional compensation was recognized on the repricing of these options since the fair value of the common stock on this date was less than or equal to the revised exercise price of the options. On April 16, 1999 the Board of Directors authorized the Company to transfer all unused or returned as unexercised stock options in the 1995 Stock Option Plan to be transferred into the 1997 Stock Incentive Plan. The stockholders approved this transfer at the annual meeting on or about May 25, 1999. An S-8 was filed with the Commission to reflect this transfer into the 1997 Stock Incentive Plan. On April 16, 1999, the Board of Directors authorized an additional 400,000 stock options to be added to the 1997 Special Non-Officer Stock Option Plan. An S-8 filing to reflect that addition of stock options is expected to be filed no later than April 2000. On or about November 10, 1999, in an addendum to the October 8, 1999 employment contract among the Company, Nightingale & Associates and S. Douglas Hopkins, the Company agreed to provide stock options in the amount of 195,000 to S. Douglas Hopkins or his designees. The stock options are to be immediately vested upon registration and can be exercised over five years from the date of the grant. The strike or exercise price of the stock option award is $1.75, which was the fair market value on October 8, 1999 and which amount was above fair market value of the stock as of November 10, 1999. The Company also provided additional compensation to Mr. Hopkins or his designees which can be, and is now expected to be provided in the nature of 156,000 shares of common stock at the fair market value when Mr. Hopkins satisfactorily completes his tenure as Chief Executive Officer and President of the Company. The stock options and stock grant, however, have not, at present been registered with the Commission in any S-8 or other filing at this time. Activity in the plans on a consolidated basis is summarized as follows:
Wtd. Avg. Number of Price Exercise Shares per Share Price --------- ------------- -------- Options Outstanding at January 1, 1997 1,041,605 .250 - 7.250 $4.09 Granted 617,500 3.000 - 5.812 3.21 Exercised (113,535) .250 - 6.250 0.50 Canceled (154,500) 5.812 - 7.625 6.80 --------- ------------- ----- Options Outstanding at December 31, 1997 1,391,070 .250 - 7.625 3.69 Granted 669,960 2.250 - 4.940 2.91 Exercised (146,584) .250 - 5.000 0.35 Canceled (481,130) 3.000 - 7.630 4.83 --------- ------------- ----- Options Outstanding at December 31, 1998 1,433,316 .250 - 7.630 3.21 Granted 1,273,850 1.500 - 2.250 1.89 Exercised (65,700) .250 - 3.000 1.24 Canceled (784,838) 1.750 - 7.625 3.44 --------- ------------- ----- Options Outstanding at December 31, 1999 1,856,628 .250 - 7.500 $2.34 ========= ============= =====
View Tech, Inc. Page 33 - -------------------------------------------------------------------------------- At December 31, 1999, 741,971 options were exercisable at a weighted average exercise price of $2.87 per share. The options outstanding at December 31, 1999 have a weighted average remaining contractual life of 7.93 years. The range of exercise prices for options outstanding and options exercisable at December 31, 1999 are as follows:
Options Outstanding Options Exercisable ------------------------------------------------------ --------------------- Weighted Average Remaining Average Average Range of Options Contractual Exercise Options Exercise Exercise Price Outstanding Life (Years) Price Exercisable Price --------------- ----------- ----------- ---------- ----------- -------- $0.250 - $2.250 1,160,736 7.87 $1.71 205,736 $1.04 2.375 - 2.375 200,000 9.00 2.38 150,000 2.38 2.500 - 2.500 140,310 8.96 2.50 123,098 2.50 2.688 - 2.875 20,000 8.69 2.76 3,500 2.77 3.000 - 3.000 148,582 7.59 3.00 90,137 3.00 3.062 - 6.250 78,000 7.37 3.97 60,500 4.24 6.375 - 6.375 55,000 6.48 6.38 55,000 6.38 6.625 - 6.625 50,000 5.54 6.63 50,000 6.63 7.500 - 7.500 4,000 5.87 7.50 4,000 7.50 --------------- --------- ---- ----- ------- ----- $0.250 - $7.500 1,856,628 7.93 $2.34 741,971 $2.87
The Company applies APB Opinion 25 in accounting for its stock option plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings (loss) per share would have been reduced to the pro forma amounts indicated below.
December 31, ---------------------------------------- 1999 1998 1997 ------------ ----------- ---------- Net Income (Loss) As reported $(11,990,303) $(2,814,397) $ 138,627 Pro forma (12,584,803) (3,164,942) (8,531) Earnings (Loss) Per Share (Basic and Diluted) As reported $ (1.53) $ (0.41) $ 0.02 Pro forma (1.60) (0.46) (0.00)
The weighted average fair value at the date of grant for options granted during the years ended December 31, 1999, 1998, and 1997, was $1.23, $2.91, and $4.83, respectively. The fair value of options at the grant date was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: expected life - 5.0 years; volatility - 74.08%; dividend yield - 0%; interest rate - 6.0%. NOTE 14 -- EARNINGS (LOSS) PER SHARE In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, Earnings Per Share. This statement established standards for computing and presenting earnings per share and applies to entities with publicly traded common stock or potential common stock. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the diluted weighted average number of common and potentially dilutive shares outstanding during the period. The weighted average number of potentially dilutive shares has been determined in accordance with the treasury stock method. View Tech, Inc. Page 34 - -------------------------------------------------------------------------------- The reconciliation of basic and diluted shares outstanding is as follows:
Year Ended December 31, ------------------------------- 1999 1998 1997 --------- --------- --------- Weighted average shares outstanding 7,842,518 6,888,104 6,371,651 Dilutive effect of options and warrants -- -- -- --------- --------- --------- Weighted average shares outstanding 7,842,518 6,888,104 6,371,651 ========= ========= =========
Options and warrants to purchase 3,593,128, 2,334,316, and 2,222,056 shares of common stock were outstanding during the years ended December 31, 1999, 1998, and 1997, respectively, but were not included in the computation of diluted EPS because the options' exercise price was either greater than the average market price of the common stock or the Company reported a net operating loss from continuing operations and their effect would have been antidilutive. NOTE 15 -- PENSION PLAN The Company participates in 401(k) retirement plans for its employees. Employer contributions to the 401(k) plans for the years ended December 31, 1999, 1998, and 1997 were approximately $85,000, $102,000, and $105,000, respectively. NOTE 16 -- PROVISION FOR INCOME TAXES The income tax provisions for the years ended December 31, 1999, 1998, and 1997 are as follows:
Year Ended December 31, ------------------------ 1999 1998 1997 -------- ------ ------ Current: Federal...................... $ -- $ -- $ -- State....................... 6,322 4,233 4,512 -------- ------ ------ 6,322 4,233 4,512 Deferred: Federal..................... 293,766 -- -- State....................... 82,710 -- -- -------- ------ ------ 376,476 -- -- -------- ------ ------ Total......................... $382,798 $4,233 $4,512 ======== ====== ======
Total income tax expense differs from the expected tax expense (computed by multiplying the federal statutory income tax rate of approximately 35, 34 and 34 percent for the periods ended December 31, 1999, 1998, and 1997 to income before income taxes) as a result of the following:
Year Ended December 31, --------------------------------------- 1999 1998 1997 ----------- ----------- --------- Computed "expected" tax benefit $ 2,640,720 $ 1,469,295 $ 649,060 State tax benefit, net of federal benefit 452,995 265,251 117,174 Valuation allowance (3,314,463) (1,602,381) (820,777) Utilization, net operating losses -- -- --
View Tech, Inc. Page 35 - -------------------------------------------------------------------------------- Other, net (162,050) (136,398) 50,031 --------- ---------- -------- Total $(382,798) $ (4,233) $ (4,512) ========= ========== ========
The Company has recorded a valuation allowance against its deferred tax asset. The valuation allowance relates primarily to certain deferred tax assets for which realization is uncertain. The primary components of temporary differences which give rise to deferred taxes are as follows:
Year Ended December 31, ------------------------- 1999 1998 ----------- ----------- Deferred tax asset: Reserves and allowances $ 977,858 $ 259,965 Compensation and benefits 299,062 Net operating loss carry forward 2,622,310 677,551 Goodwill 564,232 587,959 Deferred tax valuation allowance (4,463,462) (1,148,999) ----------- ----------- Total $ -- $ 376,476 =========== ===========
Goodwill represents the benefit attributed to the difference between the Company's book and tax basis of the goodwill impairment charge discussed in Note 4. At December 31, 1999, the Company has net operating loss (NOL) carry- forwards of approximately $7,108,316 and $5,345,152 for federal and state income tax purposes, respectively. The federal NOL has a carryover period of 20 years and is available to offset future taxable income, if any, through 2019, and may be subject to an annual statutory limitation. NOTE 17 -- RELATED PARTY TRANSACTIONS In October 1997, the Company purchased five (5) videoconferencing systems from the former CEO and Director of the Company, for a purchase price of $162,500. The price the Company paid for these units was less than the wholesale price that the Company would otherwise pay for the same units. The units were subsequently sold by the Company at a profit. In March 1999, the Company's Board of Directors approved an investment of $100,000 in an entity named Concept 5, an information technology services company. William Shea, a Board member of the Company, is one of the Board members of Concept 5. This fact was disclosed to the Company's Board at the time of the Board's unanimous vote to invest said sum into Concept 5. The investment is carried at cost and is included in Other Assets on the accompanying balance sheets. NOTE 18 -- VALUATION ACCOUNTS AND RESERVES View Tech, Inc. Page 36 - --------------------------------------------------------------------------------
Additions Balance at Charged to Deductions Balance Beginning of Revenues and Accounts at End of Period Expenses Charged Off Period ------------ ------------ ----------- ---------- Allowance for doubtful accounts: Year ended -- December 31, 1997 $ 35,756 $ 51,480 $ 7,236 $ 80,000 December 31, 1998 80,000 179,000 39,341 219,659 December 31, 1999 219,659 164,307 28,966 355,000 Inventory reserve: Year ended - December 31, 1997 $ -0- $ -0- $ -0- $ -0- December 31, 1998 -0- 163,020 -0- 163,020 December 31, 1999 163,020 1,602,000 -0- 1,765,020
NOTE 19 - SUBSEQUENT EVENT On February 18, 2000, the Company completed the sale of its subsidiaries, UST and NSI, to OC Mergerco 4, Inc. (Note 6) ITEM 9. CHANGE IN ACCOUNTANTS As stated in the Form 8-K the Company filed on February 29, 2000, the Company changed its outside independent auditors from Arthur Andersen, LLP to BDO Seidman, LLP. The purpose of this change in outside independent auditors was due to the impending merger and not for any reason related to disagreements with Arthur Andersen, LLP or to the audit opinions which they issued. View Tech, Inc. Page 37 - -------------------------------------------------------------------------------- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1999, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2000. ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1999, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1999, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1999, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2000. View Tech, Inc. Page 38 - -------------------------------------------------------------------------------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. List of documents filed as part of this Report: 1. Financial Statements included in Item 8: - Reports of Independent Certified Public Accountants - Consolidated Balance Sheets as of December 31, 1999 and 1998 - Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 - Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1999, 1998 and 1997 - Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 - Notes to Consolidated Financial Statements No schedules are included because the required information is inapplicable or is presented in the consolidated financial statements or related notes thereto. 2. Exhibits The exhibits listed on the accompanying Index of Exhibits are filed as part of this Annual Report. B. Reports on Form 8-K - None. View Tech, Inc. Page 39 - -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIEW TECH, INC. Date: March 30, 2000 By: /s/ Christopher Zigmont ----------------------- Christopher Zigmont Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant as of this 30th day of March 2000 in the capacities and on the dates indicated. Signature Title - --------- ----- /s/ Paul C. O'Brien Chairman - -------------------------- Paul C. O'Brien /s/ S. Douglas Hopkins Chief Executive Officer, Director - -------------------------- S. Douglas Hopkins (Principal Executive Officer) /s/Christopher Zigmont CFO - -------------------------- Christopher Zigmont (Principal Financial and Accounting Officer) /s/ Franklin A. Reece, III Director - -------------------------- Franklin A. Reece, III /s/ William J. Shea Director - -------------------------- William J. Shea /s/ Robert F. Leduc Director - -------------------------- Robert F. Leduc /s/ David F. Millet Director - -------------------------- David F. Millet EXHIBIT INDEX Exhibit Number Description - ------ ----------- 2.1 Asset Purchase Agreement, dated as of November 13, 1997, as amended by Amendment No. 1 to the Asset Purchase Agreement, dated as of November 21, 1997, by and among Vermont Network Services Corporation, Vermont Telecommunications Network Services, Inc. and Zoltan B. Keve. (1) 2.2 Amendment No. 1 to Asset Purchase Agreement, dated as of November 21, 1997, by and among Vermont Network Services Corporation, Vermont Telecommunications Network Services, Inc. and Zoltan B. Keve. (1) 3.1 Certificate of Incorporation of the Company, as amended by Agreement and Plan of Merger, dated November 27, 1996. (2) 3.2 Bylaws of the Company. (2) 4.1 Warrant Agreement dated as of June 28, 1995 between the Company and U.S. Stock Transfer Corporation. (3) 4.2 Form of Warrant between the Company and Telcom Holding, LLC. (2) 10.1 Dealer Agreement between the Company and PictureTel Corporation dated as of March 30, 1995. (4) 10.2 Employment Agreement between the Company and Franklin A. Reece, III dated as of November 29, 1996. (2) 10.3 Severance and Consulting Agreement by and between, View Tech, Inc. and John W. Hammon, dated April 22, 1997. (5) 10.4 Tenth Amendment to Revolving Credit, Term Loan and Security Agreement between USTeleCenters, Inc. and The First National Bank of Boston, dated March 31, 1997.(5) 10.5 Employment Agreement between the Company and William M. McKay, dated as of December 9, 1996. (6) 10.6 1995 Stock Option Plan, as amended. (7) 10.7 Amendment to the Dealer Agreement between the Company and PictureTel Corporation, dated as of August 1, 1995. (3) 10.8 1997 Stock Incentive Plan. (8) 10.9 Promissory Note, dated November 21, 1997, of Vermont Network Services Corporation, payable to Vermont Telecommunications Network Services, Inc. in the amount of $250,000. (1) 10.10 Contingent Note, dated November 21, 1997, of Vermont Network Services Corporation, payable to Vermont Telecommunications Network Services, Inc. in the amount of $250,000. (1) 10.11 Subordination Agreement, dated as of July 26, 1996, by and among the Company, the First National Bank of Boston, BancBoston Leasing, Inc., and USTeleCenters, Inc. (9) 10.12 Sublease Agreement dated as of October 11, 1996, by and between Atlantic Steel Industries, Inc. and the Company, (together with prime Lease Agreement dated as of November 1, 1993 between Atlantic Steel Industries, Inc. and the State of California Public Employees' Retirement System). (2) 1 of 4 10.13 Common Stock and Common Stock Purchase Warrants Agreement, dated as of December 31, 1996, by and between the Company and Telcom Holding, LLC, a Massachusetts limited liability company. (2) 10.14 Letter Agreement, dated as of December 31, 1996, from the Company to Paul C. O'Brien and Mark P. Kiley. (2) 10.15 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of 60,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by Imperial Bank, a California banking corporation, on or before November 21, 2004 at a purchase price of $7.08 per share. (10) 10.16 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of 20,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A., a national banking association, a participating lender, on or before November 21, 2004 at a purchase price of $7.08 per share. (10) 10.17 Revolving Note with City National Bank, dated February 20, 1996. (11) 10.18 Loan Agreements with Power-Data Services, Inc., dated February 15, 1996 and March 22, 1996. (11) 10.19 Credit Agreement, dated as of November 21, 1997, among, USTeleCenters, Inc., a Delaware corporation, View Tech, Inc. a Delaware corporation, and Imperial Bank, a bank organized under the laws of the State of California. (10) 10.20 Security Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, View Tech, Inc., a Delaware corporation, and Imperial Bank, a bank organized under the State of California. (10) 10.21 Amendment No. 2 dated as of May 1, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.22 Amendment No. 3 dated as of August 14, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.23 Amendment No. 4 dated as of October 27, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.24 Amendment No. 1, Exhibit A, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by Imperial Bank. (17) 10.25 Amendment No. 1, Exhibit B, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A. (17) 2 of 4 10.26 Memorandum of Understanding by and between the Company and former Chief Executive Officer, Robert G. Hatfield, effective April 17, 1998. (15) 10.27 Severance and Consulting Agreement by and between, View Tech, Inc. and Robert G. Hatfield, dated April 17, 1998. (16) 10.28 Separation Agreement, effective August 31, 1998, by and between View Tech, Inc. and David A. Kaplan, the former Chief Financial Officer. (17) 10.29 General Release between, David A. Kaplan, former Chief Financial Officer and View Tech, Inc. (17) 10.30 Settlement Agreement, Consulting Agreement & General Release, effective February 28, 1999, by and between View Tech, Inc. and Calvin M. Carrera, former Vice President and General Manager. (12) 10.31 Agreement and Plan of Merger by and between View Tech, Inc. and All Communications Corporation, dated December 27, 1999. (18) 10.32 Amendment No. 1 to Agreement and Plan of Merger, dated February 29, 2000 10.33 Settlement Agreement and Mutual Release by and between View Tech, Inc. and Ali Inanilan, dated March 14, 2000 10.34 Asset Purchase Agreement by and between View Tech, Inc. and OC Mergerco 4, Inc. dated as of December 31, 1999 21.1 Subsidiaries of the Company. (12) 23.1 Consent of Arthur Andersen LLP. (12) 23.2 Consent of BDO Seidman, LLP. (12) 27 Financial Data Schedule. (12) 99.1 View Tech, Inc. Special Non-Officer Stock Option Plan. (13) 99.2 Form of Special Non-Officer Stock Option Agreement. (13) 99.3 Form of Addendum to Stock Option Agreement; Involuntary Termination Following Corporate Transaction. (13) 99.4 Form of Stock Option Agreement. (14) 99.5 Form of Addendum to Stock Option Agreement: Involuntary Termination Following Corporate Transaction. (14) 99.6 Form of Addendum to Stock Option Agreement: Involuntary Termination Following Change in Control. (14) 99.7 1997 Non-Employee Directors Stock Option Plan. (14) 99.8 Form of Automatic Stock Option Agreement. (14) 99.9 Employee Stock Purchase Plan. (14) 99.10 Form of Stock Purchase Agreement under the Employee Stock Purchase Plan. (14) - ---------------------- (1) Filed as an exhibit to the Company's Report on Form 8-K dated December 5, 1997, and incorporated herein by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form SB-2 (Registration No.333-19597) and incorporated herein by reference. 3 of 4 (3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Registration Statement on Form SB-2 (registration No.33-91232), and incorporated herein by reference. (5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference. (6) Filed as an exhibit to the Company's Transitional Report on Form 10-K for the six month period ended December 31, 1997, and incorporated herein by reference. (7) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995, and incorporated herein by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form S-4 (Registration No. 333-13459) and incorporated herein by reference. (9) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and incorporated herein by reference. (10) Filed as an exhibit to the Company's Report on Form 8-K dated February 5, 1998, and incorporated herein by reference. (11) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1996, and incorporated herein by reference. (12) Filed herewith. (13) Filed as an exhibit to the Company's Registration Statement on Form S-8 filed on November 4, 1997, and incorporated herein by reference. (14) Filed as an exhibit to the Company's Registration Statement on Form S-8 filed on June 30, 1997, and incorporated herein by reference. (15) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1998, and incorporated herein by reference. (16) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1998, and incorporated herein by reference. (17) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 1998, and incorporated herein by reference. (18) Filed as an exhibit to the Company's Registration Statement on form S-4 (No. 333-95145) filed on January 21, 2000, and incorporated herein by reference. 4 of 4 EX-10.32 2 AMENDMENT NO.1 TO AGREEMENT AND PLAN OF MERGER EXHIBIT 10.32 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO.1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made and entered into as of February 29, 2000, by and between All Communications Corporation, a New Jersey corporation ("ACC") and View Tech, Inc., a Delaware corporation ("VTI"). W I T N E S S E T H: -------------------- WHEREAS, ACC and VTI have entered into that certain Agreement and Plan of Merger dated as of December 27, 1999 (the "Merger Agreement") providing for the merger of ACC with and into VTI (the "Merger") upon the terms and subject to the conditions set forth therein; and WHEREAS, ACC and VTI have reinstated and reaffirmed that the Merger Agreement is in full force and effect; and WHEREAS, ACC and VTI desire to adjust certain of the terms of the Merger Agreement. NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to, and on the terms and conditions herein set forth, the parties hereto agree as follows: 1. Final Termination Date. The definition of "Final Termination Date" set ---------------------- forth in Article I of the Merger Agreement is amended by deleting the date "February 29, 2000" and substituting therefor the following "April 30, 2000; provided, however, that the Final Termination Date shall be 5:00 PM New York City time on March 6, 2000 if VTI has not received at least $2,000,000 in gross proceeds from the exercise of outstanding warrants to purchase VTI Common Stock on or before March 6, 2000" 2. Extension of Escrow Period. The period during which the Escrow Agent -------------------------- shall hold the Escrow Shares under the Escrow Agreement shall be increased to eighteen months and Section 3.5(b) of the Merger Agreement is amended by deleting the number "twelve" in the third sentence thereof and substituting therefor the number "eighteen." 3. Extension of Closing Date. The Closing or Closing Date referred to in ------------------------- Section 3.8 of the Merger Agreement shall occur no later than April 30, 2000 and Section 3.8 of the Merger Agreement is amended by deleting the date "February 29, 2000" and substituting therefor the following "April 30, 2000; provided, however,that VTI and ACC may, by mutual written consent, extend such date" 4. Removal of Certain Conditions to Obligations of ACC. Section 7.3(g) of --------------------------------------------------- the Merger Agreement relating to a private placement of not less than $4,000,000 of equity securities of the Surviving Corporation as a condition of ACC's obligation to consummate the transactions contemplated under the Merger Agreement is hereby deleted in its entirety. 5. VTI Indemnification Obligations. VTI's indemnification obligations ------------------------------- under Section 9.2(a) of the Merger Agreement shall be extended to cover certain risks in connection with VTI's sale of USTelecenters, Inc. and Vermont Network Services Corporation to OC Mergerco 4, Inc. on February 18, 2000 and Section 9.2(a) is hereby amended to read in its entirety as follows: "(a) VTI hereby agrees to indemnify ACC, its successors and assigns, and the officers, directors, affiliates, employees, controlling persons and agents of the foregoing (collectively, the "ACC Indemnified Persons"), and hold each of them harmless against and in respect of any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), monetary damages, fines, fees, penalties, interest obligations, deficiencies, losses and expenses (including without limitation amounts paid in settlement, interest, court costs, costs of investigators, fees and expenses of attorneys, accountants, financial advisors and other experts, and other expenses of litigation) (collectively, "Damages") incurred or suffered by any of them by reason of (i) a breach of any of the representations or warranties made by VTI in this Agreement; (ii) the nonperformance (whether partial or total) of any covenants or agreements made by VTI in this Agreement; (iii) the value of the Pentastar Communications, Inc. stock received by VTI in connection with the sale of USTelecenters, Inc. ("UST") and Vermont Network Services Corporation ("VNSC") to OC Mergerco 4, Inc. ("OCM") under that certain Asset Purchase Agreement dated as of December 31, 1999 among UST, VNSC, OCM and VTI (the "UST/VNSC Purchase Agreement") being less than One Hundred Fifty Thousand Dollars ($150,000.00) at the Termination Date (as defined in the Escrow Agreement (based upon the trading price for the five day period ending on the Termination Date); and (iv) any payments by VTI (or Wire One upon closing of the Merger Agreement) with respect to any of the Excluded Liabilities (as set forth under Section 2.3 of the UST/VNSC Purchase Agreement; provided, however, that VTI shall not have any -------- ------- liability under any of the foregoing clauses (i) and (ii) unless the aggregate of all Damages relating thereto for which VTI would, but for this proviso, be liable exceeds on a cumulative basis an amount equal to $50,000; and provided, -------- further, that for purposes of determining the amount of Damages under said - ------- clauses for the breach of any representation, warranty or covenant in this Agreement that contains a materiality qualifier, such representation, warranty or covenant shall be deemed breached where the Damages relating thereto, individually or in the aggregate, are in excess of $20,000 (which Damages, once such $20,000 threshold has been surpassed, shall be included in full in determining whether the aggregate amount of Damages exceeds the $50,000 amount set forth in the next preceding proviso)." 6. Miscellaneous. Capitalized terms not defined herein shall have the ------------- meanings given to such terms in the Merger Agreement. Except as expressly modified hereby, the Merger Agreement and the other agreements entered into thereunder or contemplated thereby shall continue in full force and effect. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties. -2- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. ALL COMMUNICATIONS CORPORATION By:___________________________ Name: Title: VIEW TECH, INC. By:___________________________ Name: Title: -3- EX-10.33 3 SETTLEMENT AGREEMENT AND MUTUAL RELEASE EXHIBIT 10.33 SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release is entered into as of March 14, 2000 by and among the following parties: ALI INANILAN, an individual, and VIEW TECH, INC., a Corporation ("Company"). RECITALS WHEREAS, ALI INANILAN has asserted the following claims against VIEW TECH, INC.: (a) For reimbursement for losses associated with the sale of his Massachusetts home; and (b) For the right to currently exercise his stock options granted to him pursuant to the Company's 1997 Stock Incentive Plan and to immediately sell the shares of the Company's common stock acquired upon exercise of said stock options without violation of the registration requirements of the Securities Act of 1993. WHEREAS, VIEW TECH, INC. has asserted a claim for reimbursement pursuant to Section 16(b) of the Securities Exchange Act of 1934 against ALI INANILAN; and WHEREAS, the parties desire to settle and release those claims, and all other claims, known or unknown, which they may have against one another on the terms set forth herein below: AGREEMENTS AND REPRESENTATIONS NOW THEREFORE, for and in consideration of the recitals, the agreements and other terms contained herein, and other good and valuable considerations the receipt and sufficiency of, which are hereby acknowledged, the parties agree and represent as follows: 1) In settlement of the Company's 16(b) claims, ALI INANILAN shall pay the sum of Fifty-Eight Thousand, Five Hundred, Fifteen Dollars and Five Cents ($58,515.05) to VIEW TECH, INC. within 30 calendar days of the execution of this Agreement. 2) VIEW TECH, INC. shall pay the sum of Fifty-Eight Thousand, Five Hundred, Fifteen Dollars and Five Cents ($58,515.05) to ALI INANILAN within 30 calendar days of the execution of this Agreement in settlement of ALI INANILAN'S claim for reimbursement for losses associated with the sale of his Massachusetts home. 3) VIEW TECH, INC. acknowledges and agrees that ALI INANILAN is currently entitled to exercise his stock options for the purchase of 100,000 shares of the Company's common stock at an exercise price of $1.75 per share, pursuant to the terms of the 1997 Stock Incentive Plan. Page 1 of 3 4) VIEW TECH, INC. represents and acknowledges that said stock options were granted pursuant to the terms of the 1997 Stock Incentive Plan and that said shares of the company's common stock acquired upon exercise of said stock options are covered by a currently effective S-8 Registration Statement filed with the Securities and Exchange Commission. 5) ALI INANILAN shall have 30 calendar days from the date of execution of this Agreement, to exercise his stock option shares for the purchase of the company's stock options at $1.75 per share. 6) Except and save for the obligations created by this Settlement Agreement and Mutual Release, ALI INANILAN does hereby release, cancel, forgive and forever discharge VIEW TECH, INC. and its respective predecessors, heirs, successors and assigns, and all of their current and former officers, directors, partners and employees acting within the course and scope of their employment, from any and all actions, claims, demands, damages, obligations, and liabilities of any kind or nature whatsoever, including but not limited to claims of breach of contract, breach of fiduciary duty, fraud or negligence, whether known or unknown, whether suspected or not, which have arisen, or may have arisen or shall arise in the future by any reason as a result of any past activity, and ALI INANILAN does specifically waive any claim or right to assert any cause of action or alleged cause of action or claim or demand which has been released hereby in any Court, arbitral body or other forum. 7) Except and save for the obligations created by this Settlement Agreement and Mutual Release. VIEW TECH, INC. does hereby release, cancel, forgive and forever discharge ALI INANILAN from any and all actions, claims, demands, damages, obligations, and liabilities of any kind or nature whatsoever, including but not limited to claims of breach of contract, breach of fiduciary duty, fraud, or negligence, whether known or unknown, whether suspected or not, which have arisen, or may have arisen or shall arise in the future by any reason as a result of any past activity, and VIEW TECH, INC. does specifically waive any claim or right to assert any cause of action or alleged cause of action or claim or demand which has been released hereby in any Court, arbitral body or other forum. 8) Each of the parties understands, acknowledges and agrees that this is a full and final settlement and release applying to unknown or unanticipated claims, and waives the provision Section 1542 of the California Civil Code which --------------------- states: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Page 2 of 3 9) Additional Terms: a) This Settlement Agreement and Mutual Release is entered into by each of the parties in the State of California and shall be construed, governed and enforced in accordance with California law. b) Each party understands, acknowledges and agrees that this Settlement Agreement and Mutual Release is in compromise of a disputed claim, and therefore is not intended, nor shall it be used or construed, as an admission of liability on the part of any party hereto. c) Each party represents that they have not transferred or assigned to anyone else any of the claims being settled or released hereby, and agrees to idemnify and hold harmless any party damaged as a result of this representation not being true. d) Each person signing this Settlement Agreement and Mutual Release in a representative capacity, represents that he or she has the authority to execute this Settlement Agreement and Mutual Release and bind the represented party thereto on its behalf. e) Each party shall take such further action as shall be reasonably necessary and shall be requested by another party in writing to carry out the terms of this Settlement Agreement and Mutual Release. f) This Settlement Agreement and Mutual Release may be entered into in counterparts, each of which shall be deemed an original. EACH OF THE PARTIES AND SIGNATORIES ACKNOWLEDGE, AGREE AND REPRESENT THAT THEY HAVE READ THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE, UNDERSTAND EACH AND EVERY TERM IN THIS AGREEMENT AND ITS CONSEQUENCES, HAS CONSULTED WITH THEIR ATTORNEYS WITH RESPECT TO THE MEANING AND CONSEQUENCES OF ENTERING INTO THIS AGREEMENT, AND HAS HAD AN ADEQUATE OPPORTUNITY TO INVESTIGATE THE CLAIMS BEING RELEASED. Dated: March __, 2000 ------------------------------ ALI INANILAN VIEW TECH, INC. Dated: March 14, 2000 By: /s/ S. Douglas Hopkins ------------------------- Its: President & CEO ------------------------ Page 3 of 3 EX-10.34 4 ASSET PURCHASE AGREEMENT EXHIBIT 10.34 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement"), is dated as of December 31, 1999, and is among OC Mergerco 4, Inc. ("Purchaser"), USTeleCenters, Inc., and Vermont Network Services Corporation (collectively, "Sellers") and View Tech, Inc., owner, whether directly or indirectly, of all of the outstanding capital stock of each Seller ("Parent"). W I T N E S S E T H : WHEREAS, Sellers desire to sell, and Purchaser desires to purchase, substantially all of the assets of Sellers; NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and on the terms and subject to the conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "Assets" shall mean, with respect to Sellers as of the Effective Date, all of the business, properties and assets (real and personal, tangible and intangible) of Sellers of every kind and wherever situated that are owned by Sellers or in which either of them has any right or interest, including without limitation and to the extent owned, its business as a going concern, its goodwill and franchises; its trade-names (including "USTeleCenters", "Vermont Network Services" and all derivatives thereof), trade-marks, trade-mark registrations and trade-mark applications, service marks, service mark registrations and service mark applications, copyrights, copyright registrations and copyright applications, patents, patent registrations and patent applications, processes, formulae, proprietary and technical information, computer software, web sites, URLs, know-how, permits, licenses, trade secrets, inventions and royalties (including all rights to sue for past infringement of any of the foregoing); mailing permits; its leaseholds and other interests in land; its inventory of finished goods, work-in-process and raw materials, equipment and supplies; its subscription and other mailing lists; its cash, money on deposit with banks and others, certificates of deposit, commercial paper, stocks, bonds and other investments; its accounts receivable; rights under its insurance policies and warranties; its causes of action, judgments, claims and demands of whatever nature; its deferred charges, advance payments, prepaid items, claims for refunds, rights of offset and credits of all kinds; all credit balances of or inuring to Sellers under any state unemployment compensation plan or fund; its rights under restrictive covenants and obligations of present and former officers and employees and of individuals and corporations; its rights under partnership or joint venture agreements or arrangements; its rights under all agreements assumed by Purchaser; and its files, papers and records relating to the aforesaid business, properties and assets; other than the Excluded Assets. To the extent that any stockholder of either Seller owns any assets used in the business of such Seller, such Seller shall arrange to have such assets transferred to such Sellers, at no cost, immediately prior to the Closing, and the same shall be included in the Assets. (b) "Assigned Commitments" shall mean those Commitments listed in the Disclosure Schedule pursuant to Section 3.9 that are denoted as Commitments the rights and obligations under which are to be assigned to, and assumed by, Purchaser. The parties agree that "Assigned Commitments" shall include (but is not limited to) Sellers' settlement agreement with Zoltan Keve dated December 23, 1999 and the payment of $180,000.00 due to Mr. Keve in connection therewith. (c) "Assumed Liabilities" shall mean those fixed and determinable liabilities of Sellers listed on Exhibit A hereto, plus all obligations assumed by Purchaser as Assigned Commitments. (d) Intentionally omitted. (e) "Cash Consideration" shall have the meaning set forth in Section 2.4. (f) "Closing" shall mean the closing of the transactions contemplated by this Agreement, which shall occur at 5:00 p.m., Eastern time, on the Closing Date at such place as the parties shall agree, or at such other time and place as shall be mutually agreed in writing by the parties hereto. (g) "Closing Date" shall mean February 18, 2000, or such other date as the parties shall mutually agree to in writing. (h) "Commitments" shall have the meaning set forth in Section 3.9. (i) "Damages" shall have the meaning set forth in Section 8.1. (j) "Disclosure Schedule" means the disclosure schedule attached to this Agreement. (j) "Effective Date" shall mean 12:01 a.m., January 1, 2000. (k) "Environmental Laws" shall have the meaning set forth in Section 3.19(a). (l) "Excluded Assets" shall mean the following assets and properties: -2- (i) The consideration delivered to Sellers pursuant to this Agreement for the Assets sold, transferred, assigned, conveyed and delivered pursuant hereto; (ii) Sellers' right to enforce Purchaser's representations, warranties and covenants hereunder and the obligations of Purchaser to pay, perform or discharge the liabilities of Sellers assumed by Purchaser pursuant to this Agreement and all other rights, including rights of indemnification, of Sellers under this Agreement or any instrument executed pursuant hereto; (iii) Sellers' charter documents and all amendments thereto, Bylaws, corporate seal, minute books, stock books and other corporate records having exclusively to do with the corporate organization and capitalization of Sellers; (iv) any assets acquired or business conducted by Sellers after the Closing Date; (v) Sellers' books of account, but Sellers agree that Purchaser shall have the right at Purchaser's request to inspect such books and make copies thereof, subject to Seller's reasonable scheduling requirements. (m) "Financial Statements" shall have the meaning set forth in Section 3.5. (n) "Material Adverse Effect" shall mean an event or series of events the occurrence or non-occurrence of which results in damages, losses, liabilities, or obligations, either singularly or in the aggregate within one year, of $20,000 with respect to either the Sellers' financial condition or results of operations or with respect to the Assets. (o) "ordinary course of business" means the usual and customary way in which Sellers has conducted its business in the past. (p) "Proprietary Rights" shall have the meaning set forth in Section 3.10(a). (q) "Purchase Price" shall have the meaning set forth in Section 2.2(a). (r) Intentionally omitted. (s) "System" shall have the meaning set forth in Section 3.20. -3- ARTICLE II Purchase and Sale Section 2.1. Purchase and Sale of Assets. Subject to and upon the terms and conditions contained herein, at the Closing, Sellers shall sell, transfer, assign, convey and deliver to Purchaser, free and clear of all security interests, liens, claims and encumbrances (other than the Assumed Liabilities) and Purchaser shall purchase, accept and acquire from Sellers, the Assets. Section 2.2. Purchase Price. (a) Total Purchase Price. The total purchase price for the Assets (the "Purchase Price") shall be One Hundred Eighty-Two Thousand One Hundred Forty-Seven and 09/100 Dollars ($182,147.09) ("Cash Consideration"), shares of Common Stock of Purchaser's parent company, Pentastar Communications, Inc., having a value of One Hundred Thousand Dollars ($100,000.00) (based upon the trading price for the five day period ending on the Closing Date) ("Stock Consideration"), and the assumption of Assumed Liabilities. (b) Allocation of Purchase Price. The Purchase Price shall be allocated among the Assets as set forth in a schedule to be prepared by Purchaser, after consultation with Sellers, as soon as practicable following Closing, such allocation to be made as provided in Section 1060 of the Internal Revenue Code of 1986 (the "Code"). Purchaser and Sellers shall each file Form 8594 (Asset Acquisition Statement Under Section 1060) on a timely basis reporting the allocation of the Purchase Price consistent with the allocation in such schedule. Purchaser and Sellers shall file on a timely basis any amendments required to such Form 8594 as a result of a subsequent increase or decrease of the Purchase Price. Purchaser and Sellers shall not take any position on their respective income tax returns that is inconsistent with the allocation of the Purchase Price set forth in such schedule. Purchaser and Sellers shall each indemnify, defend and hold harmless the other party from and against any and all claims, losses, liabilities, damages, costs and expenses that may be incurred as a result of the failure to file Form 8594, the failure to file such Form 8594 on a timely basis or the failure to file its income tax return on a basis as required by this Section 7.4. This Section shall survive termination of this Agreement. (c) Division of Purchase Price. The Purchase Price shall be divided between Sellers based upon the allocation set forth in Section 2.2(b). Section 2.3. Excluded Liabilities. Except for the Assumed Liabilities, Purchaser shall not assume or agree to pay, perform or discharge any liabilities or obligations of Sellers, whether accrued, absolute, contingent or otherwise, including without limitation liabilities based on or arising out of or in connection with (a) any defects in products manufactured, rented or sold by -4- Sellers prior to the Effective Date, (b) any implied or express warranties relating to such products, (c) any pension or other benefit liability relating to Sellers' employees, (d) any federal, state, local or foreign income, sales, real or personal property or other taxes, assessments, fees, levies, imposts, duties, deductions or other charges of any nature whatsoever (including without limitation interest and penalties) imposed by any law, rule or regulation that are attributable or relating to the assets of the business of Sellers for any periods ending on or before the Effective Date, or that may be applicable because of Sellers' sale of their business or any of the Assets to Purchaser, (e) any claims by any of Sellers' directors, officers, employees or stockholders relating to this Agreement or its performance or consummation, or any claims by any of them relating to or arising out of (i) their employment (including without limitation any modification or termination thereof) by Sellers, (ii) any employment contract with either Seller or (iii) any pension or other benefit liabilities of Sellers, (f) any claims or conditions arising under or relating to Environmental Laws or similar legal requirements attributable or relating to the Assets (including, without limitation, the operation thereof) or the business of Sellers prior to the Effective Date, (g) any unlicensed or other unauthorized use by Sellers of any patented or unpatented invention, trade secret, copyright, trademark or other intellectual property right, (h) any dividend or other distribution declared or otherwise payable by Sellers, (i) any note, account payable or other obligation of Sellers to any affiliate, or (j) any fees payable to Concord Partners Ltd. Section 2.4. Intentionally omitted. Section 2.5. Intentionally omitted. ARTICLE III Representations and Warranties of Sellers and Parent Sellers and Parent, jointly and severally, hereby represent and warrant that the following are true and correct as of the date hereof and will be true and correct as of the Closing Date. Section 3.1. Organization and Good Standing; Qualification. Each Seller is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation, with all requisite corporate power and authority to carry on the business in which it is engaged, to own the properties it owns, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. Each Seller is duly qualified and licensed to do business and is in good standing in each state where the conduct of its business requires it to be so qualified, except to the extent that the failure to so qualify would not have a Material Adverse Effect. Sellers do not own, directly or indirectly, any of the capital stock of any other corporation or any equity, profit sharing, participation or other interest in any corporation, partnership, joint venture or other entity. -5- Section 3.2. Authorization and Validity. The execution, delivery and performance by Sellers and Parent of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by Sellers and Parent. This Agreement and each other agreement contemplated hereby have been duly executed and delivered by Sellers and Parent and constitute legal, valid and binding obligations of Sellers and Parent, enforceable against Sellers and Parent in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. Section 3.3. No Violation. Neither the execution, delivery or performance of this Agreement or the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, or result in a violation or breach of the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation or Bylaws of Sellers or Parent or any agreement, indenture or other instrument under which Sellers or Parent is bound or to which any of the Assets are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon any of the Assets or (ii) violate or conflict with any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over Sellers, Parent or the Assets. Section 3.4. Consents. Except as set forth in the Disclosure Schedule, as of the Closing Date no consent, authorization, approval, permit or license of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements contemplated hereby on the part of Sellers or Parent. Section 3.5. Financial Statements. Each Seller has furnished or will furnish to Purchaser the financial statements listed on Schedule 3.5 hereto (collectively, the "Financial Statements") and the Pro Forma Balance Sheet. The Financial Statements and the Pro Forma Balance Sheet are materially true, correct and complete in all respects, have been prepared from the books and records of the appropriate Seller maintained in the ordinary course of business in accordance with sound accounting practice, fairly present the financial condition and results of operations of such Seller as of the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis with prior periods, subject, in the case of the Financial Statements dated December 31, 1999, to normal recurring year end adjustments, the effect of which will not, individually or in the aggregate, be materially adverse. The Financial Statements can be reconciled with the financial statements and financial records maintained, and the accounting methods applied, by the Company for federal income tax purposes. Neither Sellers nor Parent makes any representation or warrants regarding the future profitability of the business represented by the Assets. Section 3.6. Liabilities and Obligations. Sellers have no liabilities other than: -6- (i) those set forth or reserved against in the Financial Statements, (ii) those incurred since December 31, 1999 in the ordinary course of business; and (iii) those set forth in the Disclosure Schedule. Except as set forth in the Financial Statements and the Disclosure Schedule, no Seller is liable upon or with respect to, or obligated in any other way to provide funds in respect of or to guarantee or assume in any manner, any debt, obligation or dividend of any person, corporation, association, partnership, joint venture, trust or other entity, and Sellers know of no basis for the assertion of any other claims or liabilities of any nature or in any amount. Section 3.7. Absence of Certain Changes. Except as set forth in the Disclosure Schedule and as set forth in the Financial Statements, since November 30, 1999, Sellers have not (a) suffered any Material Adverse Effect; (b) contracted for the purchase of any capital assets having a cost in excess of $10,000 or paid any capital expenditures in excess of $10,000; (c) incurred any indebtedness for borrowed money or issued or sold any debt securities other than in the ordinary course of business; (d) incurred or discharged any liabilities or obligations except in the ordinary course of business; (e) paid any amount on any indebtedness prior to the due date, forgiven or canceled any debts or claims or released or waived any rights or claims other than in the ordinary course of business; (f) mortgaged, pledged or subjected to any security interest, lien, lease or other charge or encumbrance any of its properties or assets other than in the ordinary course of business; (g) acquired or disposed of any assets except in the ordinary course of business; (h) entered into any other commitment or transaction or experienced any other event that is material to this Agreement or to any of the other agreements and documents -7- executed or to be executed pursuant to this Agreement or to the transactions contemplated hereby or thereby, or that could have a Material Adverse Effect; or (i) incurred or discharged any liabilities or obligation on behalf of Parent, including, but not limited to, any expense allocated by Parent to either Seller and any interest expense associated with any credit facility of Parent or Sellers. Section 3.8. Title; Leased Assets. (a) Real Property. Sellers do not own any real property. (b) Personal Property. Sellers have good, valid and marketable title to all tangible and intangible personal property owned by Sellers, the location and general description of which is listed on the Disclosure Schedule, and which as of the Closing Date will be free and clear of all security interests, liens, claims and encumbrances other than the Assumed Liabilities. (c) Leases. Set forth in the Disclosure Schedule is a list of copies of all leases of real and personal property to which Sellers are a party, either as lessor or lessee. All leased personal property is listed on the Disclosure Schedule, as a leased asset. All such leases are valid and enforceable in accordance with their respective terms except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. (d) Right to Use Assets. All tangible assets used in the conduct of Sellers' business are reflected in the Financial Statements in a manner that is in conformity with generally accepted accounting principles applied on a consistent basis with prior periods. Sellers own, lease or otherwise possess a transferable right to use all material assets used in the conduct of their business, and except for the Excluded Assets, will transfer all of such rights to Purchaser at Closing. -8- Section 3.9. Commitments. Except as set forth in the Disclosure Schedule, Sellers have not entered into, nor are the Assets or the business of Sellers bound by, whether or not in writing, any contract or arrangement that involves either an unperformed commitment in excess of $10,000 or that terminates more than 30 days after the date hereof; or any other agreement or commitment not made in the ordinary course of business or that is material to the business or financial condition of the Company. All of the agreements listed in the Disclosure Schedule are hereinafter collectively referred to as the "Commitments." Except as set forth in the Disclosure Schedule, there are no existing defaults, events of default or events, occurrences, acts or omissions that, with the giving of notice or lapse of time or both, would constitute defaults by Sellers, and no penalties have been incurred nor are amendments pending, with respect to the Commitments. Except as set forth in the Disclosure Schedule, the Commitments are in full force and effect and are valid and enforceable obligations of the parties thereto in accordance with their respective terms, and no defenses, off-sets or counterclaims have been asserted or, may be made by any party thereto, nor have Sellers waived any rights thereunder. Except as set forth in the Disclosure Schedule, Sellers have not received notice of any default with respect to any Commitment. Section 3.10. Patents, Trade-marks, Service Marks and Copyrights. (a) Ownership. Sellers own all patents, trade-marks, service marks and copyrights, if any, necessary to conduct its business, or possesses adequate licenses or other rights, if any, therefor, without conflict with the rights of others. Set forth in the Disclosure Schedule is a true and correct description of the following ("Proprietary Rights"): (i) all trade-marks, trade-names, service marks and other trade designations, including common law rights, registrations and applications therefor, and all patents, copyrights and applications currently owned, in whole or in part, by Sellers with respect to the Assets and Sellers' business, and all licenses, royalties, assignments and other similar agreements relating to the foregoing to which either Seller is a party (including expiration date if applicable); and (ii) all agreements relating to technology, know-how or processes that Sellers are licensed or authorized to use by others, or which either of them licenses or authorizes others to use. (b) Conflicting Rights of Third Parties. Sellers have the sole and exclusive right (except with respect to certain licensed Proprietary Rights) to use the Proprietary Rights without infringing or violating the rights of any third parties. No consent of third parties will be required for the transfer thereof to Purchaser or the use thereof by Purchaser upon consummation of the transactions contemplated hereby and the Proprietary Rights are freely transferable. No claim has been asserted by any person to the ownership of or right to use any Proprietary Right or challenging or questioning the validity or effectiveness of any license or agreement -9- constituting a part of any Proprietary Right, and Sellers know of no valid basis for any such claim. Each of the Proprietary Rights is valid and subsisting, has not been canceled, abandoned or otherwise terminated and, if applicable, has been duly issued or filed. (c) Claims of Other Persons. Sellers have no knowledge of any claim that, or inquiry as to whether, any product, activity or operation of Sellers infringes upon or involves, or has resulted in the infringement of, any proprietary right of any other person, corporation or other entity; and no proceedings have been instituted, are pending or are threatened that challenge the rights of Sellers with respect thereto. Sellers have not given and are not bound by any agreement of indemnification for any Proprietary Right as to any property manufactured, used or sold by Sellers. Section 3.11. Trade Secrets and Customer and Mailing Lists. Sellers have the right to use, free and clear of any claims or rights of others except claims or rights specifically set forth in the Disclosure Schedule, all trade secrets, customer, subscriber and mailing lists and proprietary information required for the marketing of all merchandise and services formerly or presently sold or marketed by Sellers. Sellers are not using or in any way making use of any confidential information or trade secrets of any third party without their consent, including without limitation any past or present employee of either Seller. Section 3.12. Taxes. (a) Filing of Tax Returns. Sellers have duly and timely filed, including with extensions, if applicable, with the appropriate governmental agencies all income, excise, corporate, franchise, property, sales, use, payroll, withholding and other tax returns (including information returns) and reports required to be filed by the United States or any state or any political subdivision thereof or any foreign jurisdiction. All such tax returns or reports as of the time of their filing were complete and accurate and properly reflected the taxes of Sellers for the periods covered thereby. (b) Payment of Taxes. Sellers have paid or accrued all taxes, penalties and interest that have become due with respect to any returns that it has filed and any assessments of which it is aware, subject to any extensions that may have been granted. Sellers are not delinquent in the payment of any tax, assessment or governmental charge. (c) No Pending Deficiencies, Delinquencies, Assessments or Audits. No tax deficiency or delinquency has been asserted against either Seller. There is no unpaid assessment, proposal for additional taxes, deficiency or delinquency in the payment of any of the taxes of either Seller that could be asserted by any taxing authority. There is no taxing authority audit of either Seller pending or threatened, and the results of any completed audits are properly reflected in the Financial Statements. Sellers have not violated in any material respect any federal, state, local or foreign tax law. -10- Section 3.13. Compliance with Laws. Sellers have complied with all laws, regulations and licensing requirements and has filed with the proper authorities all necessary statements and reports. There are no existing material violations by Sellers of any federal, state or local law or regulation that could affect the property or business of Sellers. Sellers possess all material licenses, franchises, permits and governmental authorizations to conduct its business as now conducted. Section 3.14. Finder's Fee. Except as set forth in the Disclosure Schedule, Sellers have not incurred any obligation for any finder's, broker's or agent's fee in connection with the transactions contemplated hereby. Section 3.15. Litigation. Except as disclosed in the Disclosure Schedule, there are no legal actions or administrative proceedings or investigations instituted, or to the best knowledge of Sellers threatened, against or affecting, or that could affect, Sellers, any of the Assets, or the business of Sellers. Sellers are not (i) subject to any continuing court or administrative order, writ, injunction or decree applicable specifically to Sellers or to their business, assets, operations or employees or (ii) in default with respect to any such order, writ, injunction or decree. Sellers do not know of any basis for any such action, proceeding or investigation. Section 3.16. Accuracy of Information Furnished. All information furnished to Purchaser by Sellers hereby or in connection with the transactions contemplated hereby is true, correct and complete in all material respects. Such information states all facts required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements are made, materially true, correct and complete. Except as disclosed on the Disclosure Schedule, Sellers are not aware of any fact or circumstance that could have a Material Adverse Effect on the business of Sellers or the Assets being acquired by Purchaser. Section 3.17. Books of Account. The books of account of Sellers have been kept accurately in all material respects in the ordinary course of business, the transactions entered therein represent bona fide transactions and the revenues, expenses, assets and liabilities of Sellers have been properly recorded in all material respects in such books. Section 3.18. Name. There are no actions, suits or proceedings pending or threatened against or affecting Sellers that could result in any impairment of the right to use the names "USTeleCenters" or "Vermont Network Services." The use of the names "USTeleCenters" and "Vermont Network Services" does not infringe the rights of any third party nor is it confusingly similar with the corporate name of any third party. After the Closing Date, no person or business entity other than Purchaser will be authorized, directly or indirectly, by Sellers or Parent to use the names "USTeleCenters" or "Vermont Network Services" or any name confusingly similar to either. -11- Section 3.19. Environmental Matters. (a) Environmental Laws. Neither Sellers nor any of the Assets are currently in material violation of, or subject to any existing, pending or threatened investigation or inquiry by any governmental authority or to any remedial obligations under, any laws or regulations pertaining to health or the environment (hereinafter sometimes collectively called "Environmental Laws"). This representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Assets. (b) Use of Assets. The Assets have never been used in a manner that would be in violation of the Environmental Laws. Section 3.20. Year 2000; Computer Systems. Each item of hardware, software, information technology, embedded, electromechanical or processor based system and/or any combination thereof, used, developed, manufactured, distributed, licensed, transferred or delivered by Sellers on or before the Closing Date (each a "System"), shall be able to correctly function, operate, process data or perform date related calculations, including, but not limited to, (i) calculate, compare and sequence, from, into and between the years 1999 and 2000, (ii) accurately process, provide and/or receive date data, including leap year calculations, into and between the years 1999, 2000 and beyond, (iii) shall otherwise function according to the specifications thereof both before, during and following January 1, 2000, and (iv) that neither performance nor functionality thereof shall be affected by dates prior to, during and after January 1, 2000. The Disclosure Schedule contains a list of all Systems of Sellers, together with a description of the Year 2000 compliance status of such System; provided, in all of the foregoing, that all non-Seller systems and products (e.g., hardware, software and firmware) material to the conduct of Sellers' Systems and used in or in combination with Sellers' Systems exchange data with Sellers' Systems in the same manner on dates in both the Twentieth and Twenty-First centuries. Section 3.21. Parent Merger. Parent has entered into an Agreement and Plan of Merger dated as of December 27, 1999, pursuant to which Parent will merge with All Communications Corporation in a stock for stock transaction. ARTICLE IV Representations and Warranties of Purchaser Purchaser represents and warrants that the following are true and correct as of the date hereof and will be true and correct through the Closing Date as if made on that date: -12- Section 4.1. Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with all requisite power and authority to carry on the business in which it is engaged, to own the properties it owns, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. Purchaser is duly qualified and licensed to do business and is in good standing in each state where the conduct of its business requires it to be so qualified, except to the extent that the failure to so qualify would not have a Material Adverse Effect. Purchaser conducts business under the name "OC Mergerco 4" and has made all assumed name and similar filings that it is required to make except to the extent that the failure to so file would not have a Material Adverse Effect. Section 4.2. Authorization and Validity. The execution, delivery and performance by Purchaser of this Agreement, and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by Purchaser. This Agreement and each other agreement contemplated hereby have been or will be as of the Closing Date duly executed and delivered by Purchaser and constitute or will constitute legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. Section 4.3. No Violation. Neither the execution, delivery or performance of this Agreement or the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, or result in a violation or breach of the terms, conditions and provisions of, or constitute a default under, the charter documents of Purchaser or any agreement, indenture or other instrument under which Purchaser is bound or (ii) violate or conflict with any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over Purchaser or the properties or assets of Purchaser. Section 4.4. Finder's Fee. Purchaser has not incurred any obligation for any finder's, broker's or agent's fee in connection with the transactions contemplated hereby. ARTICLE V Preclosing Matters Section 5.1. Conduct Prior to Closing. Prior to the Closing, each Seller shall conduct its business only in the ordinary course, consistent with past practice and Sellers shall not take any actions that would cause the representations and warranties set forth in Article III hereof to be incorrect. Without limitation of the foregoing, prior to the Closing each Seller -13- agrees that it shall not, (a) declare, pay or make any dividends or distributions on its capital stock; (b) enter into any agreement (oral or written) with its directors, officers or salaried employees; (c) increase the compensation of its directors, officers or employees; (d) make capital expenditures (or enter into commitments to make capital expenditures); (e) issue any capital stock or grant options to purchase its capital stock; or (f) incur indebtedness or other liabilities other than in the ordinary course of business and consistent with past practices. Purchaser expressly acknowledges that the provisions of this Section apply to Sellers and the Assets only and do not apply to Parent. Purchaser further expressly acknowledges that from the date of the Effective Date to the Closing Date, Purchaser and Sellers are cooperating fully in the operation of the business of Sellers and, therefore, any action taken or not taken at the direction of or with the consent of Purchaser will not constitute a breach of this Section 5.1. Section 5.2. Conditions to Purchaser's Obligation to Close. The following shall be conditions to Purchaser's obligation to close the transactions set forth herein: (a) all of the representations and warranties of Sellers and Parent shall be true and correct as of the Closing Date; (b) intentionally omitted; (c) No investigation, action, suit or proceeding shall be pending or, to Sellers' knowledge, threatened before any court or governmental body which seeks to restrain, prohibit or otherwise challenge or interfere with the consummation of the transactions contemplated herein; (d) Franklin Reece shall have entered into a non-competition agreement and a consulting agreement, both on terms satisfactory to Purchaser; and (e) an opinion of Sellers' counsel that no shareholder approval is required to effect the transaction set forth in this Agreement. ARTICLE VI Closing Deliveries Section 6.1. Deliveries of Sellers. At the Closing, Sellers shall deliver or cause to be delivered to Purchaser the following, all of which are in a form satisfactory to counsel to Purchaser: (a) a Bill of Sale conveying all personal property to Purchaser; -14- (b) assignments for all Proprietary Rights in form appropriate for filing in the U.S. Patents and Trademarks Office; (c) an Assignment and Assumption Agreement with respect to the Assigned Commitments and the Assumed Liabilities; (d) intentionally omitted; (e) evidence (including Form UCC-3 releases) of release of all liens and other encumbrances on the Assets; (f) such other instrument or instruments of transfer as shall be necessary or appropriate, as Purchaser or its counsel shall reasonably request, to vest in Purchaser good and marketable title to the Assets that are personal property and good and indefeasible title to the Assets that are real property; (g) a non-competition agreement and a consulting agreement with Franklin Reece; and (h) an officer's certificate that, for the period from December 31, 1999 through the Closing Date, the net cash flow from Sellers to the Parent has been negative and that payroll on February 17, 2000 was $182,147.09. Section 6.2. Deliveries of Purchaser. At the Closing, Purchaser shall deliver to Sellers: (a) Cash Consideration in immediately available funds; (b) Stock Consideration, subject to a Lock-Up Agreement in the form attached hereto; (c) a statement that Parent and the Sellers have complied with the requirements of Section 5.1; and (d) an executed Assignment and Assumption Agreement in the form attached hereto with respect to the Assumed Liabilities and the Assigned Commitments. -15- ARTICLE VII Post Closing Matters Section 7.1. Further Instruments of Transfer. Following the Closing, at the request of either party such other party shall deliver any further instruments of transfer and take all reasonable action as may be necessary or appropriate to (i) vest in Purchaser good and marketable title to Assets that are personal property and good and indefeasible title to Assets that are real property and (ii) transfer to Purchaser all licenses and permits necessary for the operation of the Assets. Section 7.2. Employee Benefit Plan Claims Incurred. After the Closing Date, each Seller shall remain liable under its medical and dental plans and commitments for any claims incurred by its employees or their spouses and dependents prior to the Closing Date. A claim shall be deemed to have been incurred upon the date of the initial occurrence of an injury or the initial diagnosis of an illness. An incurred claim shall include any claim or series of claims related to a claim incurred prior to the Closing Date. Sellers shall retain all liability for continuation coverage under Section 162(k) of the Code. Section 7.3. Sales Taxes Applicable to Sales Prior to or On the Closing Date. Sellers shall timely file all sales tax returns with respect to sales occurring in connection with Sellers' business prior to or on the Closing Date. Section 7.4. Sales and Transfer Taxes. Sellers shall timely pay all sales taxes applicable to the sales reported on the tax returns referred to in Section 7.3. Sellers and Parent shall be liable for and shall indemnify Purchaser against all sales, transfer, use, excise, registration or other taxes assessed or payable in connection with the transfer of the Assets from Sellers to Purchaser. Sellers and Purchaser shall sign, and otherwise shall cooperate in the preparation and filing with the appropriate governmental agencies of, any affidavits or other transfer documents that are required in connection with the transfer of vehicles or trailers that constitute part of the Assets. Section 7.5. Non-Solicitation. For a period of two years following the Closing Date, neither Sellers nor Parent shall, directly or indirectly, whether through its employees, affiliates, successors and assigns or otherwise, hire or solicit to hire any former, current or future employee of Purchaser, including, without limitation any persons who were employees of Sellers as of the Closing Date and any person who was an employee of Sellers at any time during the two year period prior to the Closing Date. Section 7.7. Change of Name. USTeleCenters, Inc. and Vermont Network Services Corporation each shall take all steps as shall be necessary to change its corporate name from -16- USTeleCenters, Inc. and Vermont Network Services Corporation, as applicable, to a name that is significantly dissimilar to such name. ARTICLE VIII Remedies Section 8.1. Indemnification by Sellers and Parent. Subject to the terms and conditions of this Article, Sellers and Parent, jointly and severally, agree to indemnify, defend and hold Purchaser and its directors, officers, agents, attorneys and affiliates harmless from and against all losses, claims, obligations, demands, assessments, penalties, liabilities (other than Assumed Liabilities), costs, damages, attorneys' fees and expenses (collectively, "Damages"), asserted against or incurred by such indemnitees by reason of or resulting from: (a) a breach of any of the representations or warranties contained in Sections 3.1, 3.2, 3.3, 3.7 (b-i), 3.12 or 3.21; or (b) any liability related to Sellers that has not been expressly assumed by Purchaser. Section 8.2. Indemnification by Purchaser. Subject to the terms and conditions of this Article, Purchaser hereby agrees to indemnify, defend and hold Sellers and Parent and their respective directors, officers, agents, attorneys and affiliates harmless from and against all Damages asserted against or incurred by any of such indemnitees by reason of or resulting from a breach by Purchaser of any representation or warranty contained in Section 4. Section 8.3. Conditions of Indemnification. The respective obligations and liabilities of Sellers and Purchaser (the "indemnifying party") to the other (the "party to be indemnified") under Sections 8.1 and 8.2 with respect to claims resulting from the assertion of liability by third parties shall be subject to the following terms and conditions: (a) Within 20 days (or such earlier time as might be required to avoid prejudicing the indemnifying party's position) after receipt of notice of commencement of any action evidenced by service of process or other legal pleading, the party to be indemnified shall give the indemnifying party written notice thereof together with a copy of such claim, process or other legal pleading, and the indemnifying party shall have the right to undertake the defense thereof by representatives of its own choosing and at its own expense; provided that the party to be indemnified may participate in the defense with counsel of its own choice, the fees and expenses of which counsel shall be paid by the party to be indemnified unless (i) the indemnifying party has agreed to pay such fees and expenses, (ii) the indemnifying party has failed to assume the defense of such action or (ii) the named parties to any such action -17- (including any impleaded parties) include both the indemnifying party and the party to be indemnified and the party to be indemnified has been advised by counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the indemnifying party (in which case, if the party to be indemnified informs the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of the party to be indemnified, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for the party to be indemnified, which firm shall be designated in writing by the party to be indemnified). (b) In the event that the indemnifying party, by the 30th day after receipt of notice of any such claim (or, if earlier, by the 10th day preceding the day on which an answer or other pleading must be served in order to prevent judgment by default in favor of the person asserting such claim), does not elect to defend against such claim, the party to be indemnified will (upon further notice to the indemnifying party) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying party and at the indemnifying party's expense, subject to the right of the indemnifying party to assume the defense of such claims at any time prior to settlement, compromise or final determination thereof. (c) Notwithstanding the foregoing, the indemnifying party shall not settle any claim without the consent of the party to be indemnified unless such settlement involves only the payment of money and the claimant provides to the party to be indemnified a release from all liability in respect of such claim. If the settlement of the claim involves more than the payment of money, the indemnifying party shall not settle the claim without the prior consent of the party to be indemnified. (d) The party to be indemnified and the indemnifying party will each cooperate with all reasonable requests of the other. Section 8.4. Waiver. No waiver by any party of any default or breach by another party of any representation, warranty, covenant or condition contained in this Agreement, any exhibit or any document, instrument or certificate contemplated hereby shall be deemed to be a waiver of any subsequent default or breach by such party of the same or any other representation, warranty, covenant or condition. No act, delay, omission or course of dealing on the part of any party in exercising any right, power or remedy under this Agreement or at law or in equity shall operate as a waiver thereof or otherwise prejudice any of such party's rights, powers and remedies. All remedies, whether at law or in equity, shall be cumulative and the election of any one or more shall not constitute a waiver of the right to pursue other available remedies. -18- Section 8.5. Remedies Not Exclusive. The remedies provided in this Article shall not be exclusive of any other rights or remedies available to one party against the other, either at law or in equity. Section 8.6. Costs, Expenses and Legal Fees. Subject to the provisions of Sections 8.1 and 8.2, whether or not the transactions contemplated hereby are consummated, each party hereto shall bear its own costs and expenses (including attorneys' fees), except that each party hereto agrees to pay the costs and expenses (including reasonable attorneys' fees and expenses) incurred by the other parties in successfully (i) enforcing any of the terms of this Agreement or (ii) proving that another party breached any of the terms of this Agreement. ARTICLE IX Miscellaneous Section 9.1. Amendment. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Section 9.2. Assignment. Neither this Agreement nor any right created hereby or in any agreement entered into in connection with the transactions contemplated hereby shall be assignable by any party hereto; provided, however, that Purchaser may assign the right to take title to all or a portion of the Assets and the obligation to assume all or a portion of the Assumed Liabilities and Assigned Commitments hereunder to a subsidiary of Purchaser without the consent of Sellers or Parent. Section 9.3. Parties In Interest; No Third Party Beneficiaries. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective legal representatives, successors and assigns of the parties hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder. Section 9.4. Entire Agreement. This Agreement, the Disclosure Schedule and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. Section 9.5. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining -19- provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. Section 9.6. Survival of Representations, Warranties and Covenants. The representations, warranties and the covenants contained herein, including the indemnification obligations contained in Article VIII hereof, shall survive the Closing and all statements contained in any certificate, exhibit or other instrument delivered by or on behalf of Sellers or Purchaser pursuant to this Agreement shall be deemed to have been representations and warranties by Sellers or Purchaser, as the case may be, and, notwithstanding any provision in this Agreement to the contrary, shall survive the Closing for a period of two years, except for representations and warranties with respect to any tax or tax-related matters, which shall survive the Closing until the running of any applicable statutes of limitation. Section 9.7. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE STATE OF DELAWARE. Section 9.8. Captions. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof. Section 9.9. Gender and Number. When the context requires, the gender of all words used herein shall include the masculine, feminine and neuter and the number of all words shall include the singular and plural. Section 9.10. Reference to Agreement. Use of the words "herein", "hereof", "hereto" and the like in this Agreement shall be construed as references to this Agreement as a whole and not to any particular Article, Section or provision of this Agreement, unless otherwise noted. Section 9.11. Confidentiality; Publicity and Disclosures. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior knowledge and consent of the other parties hereto; provided that the foregoing shall not prohibit any disclosure (i) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement and (ii) by Purchaser in connection with obtaining financing for the transactions contemplated by this Agreement and conducting an examination of the operations and assets of Sellers. In the event that the transactions contemplated hereby are not consummated for any reason whatsoever, the -20- parties hereto agree not to disclose any confidential information they may have concerning the affairs of the other parties, except for information that is required by law to be disclosed. Confidential information includes, but is not limited to: financial records, surveys, reports, plans, proposals, financial information, information relating to personnel, contracts, stock ownership, liabilities and litigation; provided that should the transactions contemplated hereby not be consummated, nothing contained in this Section shall be construed to prohibit the parties hereto from operating businesses in competition with each other. Confidential information does not include information that: (x) at the time of disclosure or thereafter is generally available to and known by the public (other than through a breach by a party of its obligations hereunder); (y) was available to a party on a non-confidential basis from a third party, provided that such third party is not and was not bound by a confidentiality agreement; and (z) has been independently acquired or developed by a party without violating any obligations hereunder or that was known to such party prior to entering into this Agreement. Section 9.12. Notice. All notices, claims, or demands required or permitted to be given hereunder shall be in writing and shall be delivered by hand, delivered by telefax or mailed to the other party, properly addressed, certified or registered mail, postage prepaid, return receipt requested, addressed as follows: (i) If to Sellers or Parent: View Tech, Inc. 3760 Calle Tecate, Suite A Camarillo, CA 93102-5041 Attn: President with a copy to: Burns & Levinson LLP 125 Summer Street Boston, Massachusetts 02110 ATTN: Robert C. Rives, Esq. (ii) If to Purchaser: Pentastar Communications, Inc. 1522 Blake Street Denver, CO 80202 Attn: Chief Executive Officer -21- and Sherman & Howard L.L.C. 633 Seventeenth Street, Suite 3000 Denver, CO 80202 Attn: B. Scott Pullara, Esq. Hand delivered and telefaxed (if confirmed) notices shall be deemed delivered on the date the same are delivered by hand or telefaxed, and mailed notices shall be deemed delivered three days following the date mailed, in accordance with the foregoing provisions of this Section 9.12. A party may change the address for notices to be sent to it by written notice delivered pursuant to the terms of this Section 9.12. Section 9.13. Service of Process. Service of any and all process that may be served on any party hereto in any suit, action or proceeding arising out of this Agreement may be made in the manner and to the address set forth in Section 9.12 and service thus made shall be taken and held to be valid personal service upon such party by any party hereto on whose behalf such service is made. Section 9.14. Intentionally omitted. Section 9.15. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Section 9.16. Termination. This Agreement shall terminate if the Closing shall not have occurred by 5:00 p.m., February 18, 2000 unless the parties mutually agree in writing to extend. [Remainder of page intentionally left blank.] -22- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. PURCHASER OC Mergerco 4, Inc. By:_______________________________ Its: SELLERS USTeleCenters, Inc. By:______________________________ Its: Vermont Network Services Corporation By:______________________________ Its: PARENT View Tech, Inc. By:______________________________ Its: -23- SCHEDULE 3.5 1) Financial statements - USTelecenters a) 1998 balance sheet; annual income statement b) 1999 balance sheet; quarterly and year-to-date income statements c) 1999 monthly revenue production per representative d) 1999 payroll records; compensation plans e) 11/30/99 balance sheet f) Accounts receivable (detailed list of A/R's) with aging as of 11/30/99 g) Accounts receivable (detailed list of A/R's) with aging as of the Closing h) Inventory (based on physical inventory) (standard representation language) i) Pre-paid expenses j) Fixed assets - owned vs. leased by location/facility k) Accounts payable (detailed list of assumed A/P's) with aging as of 11/30/99 l) 1999 year end balance sheet; annual income statement 2) Financial statements - Vermont Network Services Corporation a) 1998 balance sheet; annual income statement b) 1999 balance sheet; quarterly and year-to-date income statements c) 1999 monthly revenue production per representative d) 1999 payroll records; compensation plans e) 11/30/99 balance sheet f) Accounts receivable (detailed list of A/R's) with aging as of 11/30/99 g) Accounts receivable (detailed list of A/R's) with aging as of the Closing h) Inventory (based on physical inventory) (standard representation language) i) Pre-paid expenses j) Fixed assets - owned vs. leased by location/facility k) Accounts payable (detailed list of assumed A/P's) with aging as of 11/30/99 l) 1999 year end balance sheet; annual income statement -24- EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports dated January 21, 1999 included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-95145. It should be noted that we have performed no audit procedures subsequent to January 21, 1999, the date of our report. Furthermore, we have not audited any financial statements of View Tech, Inc. as of any date or for any period subsequent to December 31, 1998. /s/ Arthur Andersen LLP Boston, MA March 29, 2000 EX-23.2 6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS ExhibiT 23.2 Consent of Independent Certified Public Accountants View Tech, Inc. 3760 Calle Tecate, Suite A Camarillo, California 93012 We hereby consent to the incorporation by reference in the registration statement of View Tech, Inc. on Form S-3 (File No. 333-56229) and on Form S-8 (File Nos. 333-96321, 333-62135, 333-39501, 333-30389, and 333-20617) of our report dated March 10, 2000 on our audit of the consolidated financial statements of View Tech, Inc. as of December 31, 1999 and for the year then ended, which report is included in this Annual Report on Form 10-K. /s/ BDO Seidman, LLP Los Angeles, California March 29, 2000 EX-27 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 69,493 0 9,556,821 355,000 2,824,578 13,863,252 4,058,001 1,834,496 16,497,094 20,035,257 0 0 0 792 (3,574,585) (3,573,793) 35,479,607 35,479,607 25,292,064 42,337,441 0 0 687,083 0 382,798 (7,927,715) (4,062,588) 0 0 (11,990,303) (1.53) (1.53)
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