-----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, PI/Se/9MWa0/7PLp8gDg/G2AoCCga79e3dXdCtChLlv2MkNNnBDfQF0PlkGxY9oC T6jGPg7imE1AdVn/e0xJHg== 0000944209-96-000339.txt : 19961001 0000944209-96-000339.hdr.sgml : 19961001 ACCESSION NUMBER: 0000944209-96-000339 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEW TECH INC CENTRAL INDEX KEY: 0000746210 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 770312442 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-91232 FILM NUMBER: 96636735 BUSINESS ADDRESS: STREET 1: 950 FLYNN RD STREET 2: STE F CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8054828277 10-K405 1 ANNUAL REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (MARK ONE) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JUNE 30, 1996 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM _____________ TO _____________ COMMISSION FILE NUMBER: 0-25940 VIEW TECH, INC. (Name of Small Business Issuer In Its Charter) CALIFORNIA 77-0312442 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 950 FLYNN ROAD CAMARILLO, CA 93012 (Address of Principal Executive Offices) (Zip Code) ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 482-8277 SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, $.01 Par Value NASDAQ National Market Common Stock Purchase Warrants NASDAQ National Market SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: NONE Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] The issuer's revenues for the most recent fiscal year were $13,346,103. The aggregate market value of the voting stock of the registrant held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock on the NASDAQ National Market on September 16, 1996 was $14,033,151. The number of shares of the registrant's Common Stock outstanding, as of September 16, 1996 was 2,943,157. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ TABLE OF CONTENTS -----------------
ITEM PAGE - ---- ---- PART I ------ 1. Description of Business............................................. 2 2. Description of Property............................................. 10 3. Legal Proceedings................................................... 10 4. Submission of Matters to a Vote of Security Holders................. 10 PART II ------- 5. Market for Common Equity and Related Stockholder Matters............ 11 6. Management's Discussion and Analysis or Plan of Operations.......... 12 7. Financial Statements................................................ 22 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................ 22 PART III -------- 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act................... 23 10. Executive Compensation.............................................. 26 11. Security Ownership of Certain Beneficial Owners and Management...... 30 12. Certain Relationships and Related Transactions...................... 31 13. Exhibits and Reports on Form 8-K.................................... 32 Signatures.......................................................... 35
i PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL View Tech, Inc. ("View Tech" or the "Company"), which commenced operations in July 1992, markets and installs video communications systems and provides continuing services related to installed systems. Video communications systems, utilizing advanced technology, enable users at separate locations to engage in face-to-face discussions with the relative affordability and convenience of using a telephone. In addition to the use of video conferences as a corporate communications tool, use of video communications systems is expanding into numerous additional applications, including (i) teachers providing lectures to students at multiple locations, (ii) judges conducting criminal arraignment proceedings while the accused remains incarcerated, (iii) physicians engaging in consultations utilizing x-rays and other pictographic material, (iv) coordination of emergency services by public utilities, (v) conducting multi-location staff training programs, and (vi) engineers at separate design facilities coordinating the joint development of products. The Company's high-quality color video communications systems incorporate superior audio and data-sharing capabilities, enabling participants to share and annotate high-resolution images of documents and other objects and present information to each other using a large writing surface. The systems expand users' ability to conduct business in person while substantially reducing or eliminating travel costs, particularly airfare, lodging and meals, and non- productive travel time. They also increase productivity by improving timely communication flow, encouraging well-informed and accelerated decisionmaking, reducing or eliminating travel fatigue, and improving the quality of life of those whose work requires frequent meetings with persons at different locations. The resulting increased productivity can contribute to improved products and customer service, shorter timetables for bringing new products and services to market, and more efficient utilization of limited resources. As of September, 1996 the Company operates from 13 offices located throughout the United States. The Company (i) provides its customers with components produced by PictureTel Corporation ("PictureTel"), one of the largest manufacturers of video communications equipment, and several other manufacturers, (ii) selects and integrates those components into complete systems designed to suit each customer's particular communications requirements, and (iii) provides personnel training and other continuing services designed to insure that its customers fully and efficiently utilize their systems and receive maximum returns on their investments. In August 1995, and in May 1996, the Company and PictureTel agreed to expand the territories in which the Company markets and services the PictureTel products from southern California to include Alabama, Arizona, Arkansas, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Oklahoma, Tennessee, Texas, Utah and Wyoming as well as northern California. The agreement has a term of five (5) years subject to annual reviews and PictureTel's right to terminate without cause upon 60 days written notice. 2 INDUSTRY OVERVIEW Video communication entails the transmission of video and audio signals and computerized data between two or more locations through a digital telecommunication network. Video communications systems were first introduced in the late 1970s in the form of specialized dedicated conference rooms outfitted with expensive electronic equipment and requiring trained operators. Signals were transmitted over dedicated transmission lines established between fixed locations. Market acceptance of early systems was limited because of the low quality of the video output, as well as the high hardware and transmission costs and limited availability of transmission facilities. During the 1980s, a series of technological developments resulted in a dramatic increase in the quality of video communication, as well as a substantial reduction in its cost. The proliferation of switched digital networks, which transmit digital, as opposed to analog signals, eliminated the requirement of dedicated transmission lines. Advances in data compression and decompression technology, and the introduction of devices for separating and distributing digital signals over several channels simultaneously and recombining them after transmission, resulted in products with substantially improved video and audio quality and further reduced hardware costs. Competition among telecommunications carriers during the past decade, together with the expanded use of fiber optic technology, have further contributed to reduced transmission costs. There are currently three U.S. manufacturers of the equipment representing the core technology of conference room or "roll-about" video communications systems - PictureTel Corporation, Compression Labs, Incorporated, and VTEL Corporation. This equipment, together with required peripheral equipment manufactured by others, is currently marketed directly by these three manufacturers, by telecommunications companies such as AT&T and SPRINT, and by independent distributors such as the Company. PictureTel, View Tech's primary supplier, has shown consistent growth in revenues over the past several years. PictureTel reported revenues of $346.8 million for the year ended December 31, 1995, up from $255.2 million and $176.3 million for the years ended December 31, 1994 and 1993, respectively. STRATEGY The Company focuses its marketing efforts upon industries that it believes will achieve significant benefits through utilization of video communications, acquires a thorough understanding of the operations of such industries, and then identifies the particular communications needs of the industry and integrates the system components that will most effectively satisfy those needs. The Company believes that this industry focus, together with an emphasis on providing comprehensive, high-quality service to its customers, enables the Company to market video communications systems more effectively than the video communications equipment manufacturers and telecommunications carriers that are its principal competitors. The Company believes that these other companies concentrate on their core businesses rather than on providing the level of customer service provided by the Company. In addition to its current expansion activities related to the new PictureTel agreement, the Company 3 intends to continue broadening its marketing focus and to expand its activities into additional geographic markets by entering into additional strategic alliances with manufacturers and others, acquiring companies in the video communications and related businesses, and establishing additional sales offices. PRODUCTS The Company offers three types of video communications systems - integrated roll-about systems, custom-built conference rooms, and desktop computer systems. Roll-about systems may be conveniently moved from office to office and placed into operation quickly, while custom-built video conference rooms are permanent installations typically designed for specific applications. Desktop computer systems involve multi-purpose personal computers with video communications capabilities, and are generally used for one-on-one personal communications, or when one person is presenting information to a group. Roll- about systems, custom installations, and desktop systems accounted for approximately 58%, 2% and 5% of the Company's revenues, respectively, for the fiscal year ended June 30, 1996, while sales of certain products integrated into such systems accounted for approximately 20% of the Company's revenues for such period. Apart from peripheral components manufactured by others, the Company only sells systems manufactured by PictureTel. PictureTel is one of the largest manufacturers of video communications equipment (in terms of revenues), and the Company is PictureTel's U.S. Dealer of the Year for 1995 and has been recognized by PictureTel as such for the last three consecutive years. The Company is one of five PictureTel "elite dealers" worldwide that carry the entire PictureTel line of products. Management believes that PictureTel's equipment provides its customers with superior quality audio and video communications capabilities at a reasonable price, and that user interface with PictureTel equipment is more intuitive, requiring less training than that of the equipment produced by its competitors. The prices of the complete systems sold by the Company range from $1,500 for a video communications enhancement kit for a desktop computer, to $60,000 for a roll-about system for a single location, to as much as $200,000 for a custom-built conference room installation. Roll-about and custom-built systems generally contain the following components: Monitor. The monitor is a television set that is used at each participating location for viewing persons and objects involved in the communication. The screen of the monitor generally includes a window, or inset, that may be used to duplicate the image shown by a monitor located at another site, or to view documents or other graphic images related to the discussion. Some systems include dual monitors, providing full-sized simultaneous views of both graphic images and meeting participants. Video Camera. The video camera is similar to a camcorder and is generally located on top of the monitor. The video cameras included in the Company's systems record full-color images and have pan, tilt, and zoom capabilities. Some systems include auxiliary video cameras to provide additional camera angles or to view various locations within a room. 4 Codec. The coding-decoding device, known as the "codec," is the heart of a video communications system. Because video images have high information content, their transmission requires significantly greater bandwidth (capacity) than is required to transmit audio signals or computer data. One codec converts analog signals into digital signals and compresses the digital signals, enabling them to be transmitted over conventional data networks, while a second codec decompresses and reconstitutes the signals into their analog form at the receiving location. The signals transmitted by codecs are bi-directional, enabling each codec simultaneously to send and receive signals. The compression-decompression process is accomplished using algorithms, or mathematical formulae, that are embedded in the codec. Inverse Multiplexer. Because video signals (even after digital compression) require greater bandwidth than is available in most telephone lines, an inverse multiplexer is used to distribute the signals to several lines prior to transmission. The distributed signals are then simultaneously transmitted over the different lines, and a receiving inverse multiplexer recombines them to their original format. Multi-point Control Unit. A multi-point control unit, known a an "MCU" or "bridge," is a device that enables persons at more than two locations to participate simultaneously in video communication. The MCU is required at only one of the participating locations. Document Camera. The document camera may be used to display documents, photographs, and small three-dimensional objects in color. Because the document camera produces "freeze-frame" images, enhanced resolution of the recorded item is possible. Videoscan Converter. The videoscan converter facilitates the transmission of computerized data. Keypad. The keypad, one of which is required at each participating location, is the device used to control the video cameras, monitors, and other aspects of the system. Speakerphone. Each participating site has a speakerphone, which provides near-high-fidelity audio communications. Videocassette Recorder. Videocassette recorders are generally installed at each location in order to provide a permanent record of the communication. Annotations Slate and White Board. An annotations slate allows a participant to draw, annotate, and point to the high-resolution graphics recorded by a document camera, while a white board allows a participant to make a presentation using a large two dimensional writing surface similar to a grease board. The foregoing components included in the Company's systems are purchased by the Company from PictureTel, except the inverse multiplexers, which it purchases from either of two manufacturers, Madge Networks, Inc., (formally Teleos Communications, Inc.) and Ascend 5 Communications, Inc., and the monitors, document cameras, videoscan converters, videocassette recorders and white boards, which it acquires from various sources, depending upon price and quality. Although the Company's desktop-computer systems involve different components, the desktop system has many of the capabilities of the conference- room and roll-about systems. The Company's desktop video communications equipment is also manufactured by PictureTel. The Company intends to continue providing its customers with additional product selections in the future to the extent they compliment and enhance such customers' video communications capabilities. SERVICES The Company believes that the quality and depth of its services are a critical factor in its ability to compete successfully. Because of the technical expertise and experience of its management and employees, the Company is able to offer its customers the convenience of single-vendor sourcing for every aspect of their video communications needs and to develop customized systems designed to provide efficient responses to each customer's unique needs. The Company provides each of its customers with a full complement of video communications services to ensure customer satisfaction and optimal utilization of the system by the customer. Prior to the sale of its systems and services, the Company provides consulting services that include an assessment of its customer's needs and existing communications equipment, and cost- justification and return-on-investment analyses. 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 video communications equipment. When the equipment 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. Additionally, the Company assists its customers in internal "marketing" to ensure that managers throughout the organization are aware that they have access to the system. By means of thorough training, the Company ensures that its customers achieve a significant return on their investment in the systems and services provided by the Company. The Company provides one-year parts and service warranty contracts to each customer, as well as customer support for every aspect of the equipment provided, its integration, and operator error following the sale of the equipment. The Company's suppliers, in turn, provide the Company with parts- replacement warranties ranging from 90 days for PictureTel equipment to between one and three years for other manufacturers' equipment. The Company's customers can call the Company's toll-free technical support hotline 24 hours a day 365 days a year. Customers may also obtain answers to questions or follow-up training through video 6 conferencing, telephone, facsimile, e-mail or through the mail. The Company also provides onsite support and maintenance. Charges for engineering, installation, and training services, and the one-year warranty contract, comprise approximately 10% to 12% of the Company's total charges for newly installed systems. The Company's service personnel maintain periodic contact with customers. Prior to the expiration of the one-year warranty contract, the Company offers to perform an engineering study of each customer's equipment, to recommend the installation of replacement parts or equipment if appropriate, and to provide an additional one-year warranty contract. At this time, the Company also offers training programs for new users, refresher and advanced training programs for experienced users, and consulting services related to new equipment that has recently become available and systems expansion and upgrades. Charges for the engineering study, training programs, consulting services, and additional one- year warranty contract are generally comparable to the cost of services provided to the customer at the time its video communications equipment is installed. Services provided by the Company accounted for approximately 15% of the Company's revenues for the fiscal year ended June 30, 1996. In addition, the Company offers its customers telecommunications carrier services, which it purchases from AT&T and Pacific Bell at high-usage discounts and resells at rates that are more favorable than could be obtained by the Company's customers directly from the carrier. The Company intends to pursue opportunities for providing such services to its customers with additional carriers, as they provide the Company with recurring revenues based upon customer video communications systems use. To date, the revenues attributable to such services have not been material. During 1996, the Company started providing MCU, or bridge, services to its customers. Bridges allow people at more than two locations to communicate on the same videoconference. Since bridges cost between $65,000 and $150,000 per unit, the Company's customers typically do not purchase bridges themselves, but instead contract to utilize such services when more than two locations need to participate simultaneously in video communication. Bridging revenues for the fiscal year ended June 30, 1996 were not material. CUSTOMERS While the Company has installed video communications systems for a diversified customer base, including Southern California Edison, UNOCAL, and Loma Linda University, it has attempted to focus its marketing efforts on specific industries. See "Strategy." Among the industries in which the Company believes it has acquired substantial expertise are health care and distance- education. During 1996, the Company organized its Telemedicine Group to focus directly on the health care industry. The health care market includes HMOs, hospitals, insurers, and other health care providers, whose personnel utilize video communications systems to interview patients, transfer medical records (including x-rays and other pictographic material), and to confer on a variety of professional and administrative matters. The Company has provided systems to customers in the health care industry including Allergan, Blue Cross of California, Catholic Healthcare West, Friendly Hills Hospital Group, and PacifiCare. 7 The distance-education market includes universities, community colleges, and primary and secondary schools. Educators utilize video communications systems to enable teachers to lead classes meeting at multiple locations to obtain presentations by off-site lecturers, to facilitate teaching of hearing- impaired students, and to hold institutional staff meetings. The Company has installed systems at the Cal State University, San Bernardino; Loma Linda University and Cal Tech. No single customer accounted for more than 10% of the Company's revenues for the fiscal year ended June 30, 1996. The Company maintains a small inventory of equipment and spare parts, but orders most of its equipment on a project-by-project basis based upon firm orders by, and for delivery to, its customers. Substantially all of the video communications systems sold to customers named above were integrated roll-about systems. To date, the Company has not experienced difficulty associated with the timely delivery of equipment by its manufacturers. SALES AND MARKETING The Company has a number of programs in place for promoting its 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 more 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. In addition, the Company has an agreement with a telemarketing firm to provide the Company with information regarding organizations that may be interested in purchasing the Company's products and services. Management has worked closely with the firm to develop approaches that it believes will enable the firm effectively to identify individuals within organizations who are likely to be interested in learning of the advantages of video communications. PictureTel and other suppliers also provide the Company with sales leads. The Company also maintains relationships with previous customers and attempts to provide for their continuing hardware and service needs, including, continuing engineering, training, and warranty services. See "Services." For the year ended June 30, 1996, approximately 50% of the Company's total revenues were derived from existing customers. DEPENDENCE ON PICTURETEL CORPORATION Approximately 58% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel. Termination or change of the Company's business relationship with PictureTel or another supplier, disruption in supply, failure of a supplier to remain competitive in quality, function or price, or a determination by one or more of the Company's 8 suppliers to reduce reliance on independent distributors such as the Company could have a material adverse effect on the Company. See "Competition." COMPETITION The video communications industry is highly competitive. The Company competes with manufacturers of video communications equipment and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Telecommunications carriers and other large corporations that have recently entered the video communications market include Apple Computers, Inc. AT&T, MCI Communications Corporation, SPRINT, some of the regional Bell operating companies, IBM, Intel Corporation, Nippon Electric Corporation, MicroSoft, Inc. Mitsubishi Ltd., Fujitsu Ltd., Sony Corporation, Matsushita/Panasonic, Hitachi, and British Telecom. Many of these organizations have substantially greater financial and other resources than 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 those of the Company, will enter the video communications market. A specific manufacturer's network of dealers and distributors typically involves discreet territories that are defined geographically, in terms of vertical market, or by application (e.g., project management or government procurement). The Company's current agreement with PictureTel authorizes the Company to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Oklahoma, Tennessee, Texas, Utah and Wyoming. Because the agreement is non-exclusive, however, the Company is subject to competition within these territories by other PictureTel dealers, whose customers elsewhere may have branch facilities in these territories, and by PictureTel itself, which directly markets its products to certain large national corporate accounts. The agreement expires in August 2000 and can be terminated without cause upon 60 days written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with 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 that its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment that the Company sells, the quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video communications system enable the Company to compete successfully in the industry. 9 EMPLOYEES At September 16, 1996, the Company had 62 full-time employees, and a network of consultants who are available on an as-needed basis to provide technical and marketing support. The Company has 25 full-time employees engaged in marketing and sales; 22 in technical services; and 15 in finance, administration, and operations. None of the Company's employees are represented by a labor union. The Company believes that its relations with its employees are good. ITEM 2. DESCRIPTION OF PROPERTY The Company leases office facilities in Camarillo, Irvine, and San Diego, California; Atlanta, Georgia; Dallas, Texas; Englewood, Colorado; and Nashville Tennessee. Its executive offices are located in Camarillo, California and consist of a total of approximately 6,700 square feet. The Company's other facilities house sales, technical and administrative personnel and consist of aggregate square footage of approximately 13,500 square feet. The leases on those facilities expire at various dates through October 2000. In August and September 1996, the Company entered into two new office leases aggregating approximately 2,700 square feet in Boca Raton, Florida and Phoenix, Arizona with terms of five, and two years, respectively. The Company may require additional space during the next twelve months to house its operations in Camarillo and Irvine, California; and Atlanta, Georgia. The Company believes that it can find suitable additional space on reasonable terms. ITEM 3. LEGAL PROCEEDINGS The Company is not party to any legal proceedings. It is anticipated that from time to time it will be subject to claims that arise in the ordinary course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK MARKET AND OTHER INFORMATION The Company's common stock is traded on the NASDAQ National Market under the symbol "VUTK", and has been so traded since November 18, 1995. Prior to such date, the shares were traded on the NASDAQ SmallCap Market and also the Pacific Stock Exchange under the symbols "VUTK" and "VWK," respectively, since the Company's initial public offering on June 15, 1995. Prior to the offering, there was no public trading market for the Company's equity securities. In addition, warrants to purchase up to 575,000 shares of the Company's common stock are traded on the NASDAQ National Market and prior to November 18, 1995 the warrants traded on the NASDAQ SmallCap Market and the Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively. The terms of the warrants provide that one warrant plus $5.00 are required to purchase one additional share of the Company's common stock. The warrants are redeemable at the Company's option commencing June 15, 1996 upon 30 days notice to the warrantholders at $0.25 per share if the closing price of the common stock has been at least $8.00 for a period of 30 consecutive trading days ending within 10 days of the date the notice of redemption is mailed. The warrants expire June 15, 1998. The following table sets forth the quarterly high and low bids for the Company's common stock for the quarters indicated:
Bids ------------- HIGH LOW ----- ----- FISCAL 1995 Fourth Quarter June 30, 1995 (since June 16) $6.88 $6.50 FISCAL 1996 First Quarter ended September 30, 1995 $8.88 $6.50 Second Quarter ended December 31, 1995 $8.75 $7.00 Third Quarter ended March 31, 1996 $8.00 $6.63 Fourth Quarter ended June 30, 1996 $8.25 $6.25
On September 16, 1996, the last reported bids for the Company's common stock and warrants on the NASDAQ National Market were $8.125 and $2.875, respectively. As of September 16, 1996, there were 45 holders of record of the Company's common stock and five holders of record of the Company's warrants. 11 DIVIDENDS The Company has never paid any cash dividends on its common stock. It presently intends to retain earnings and capital for use in its business and does not expect to pay any dividends within the foreseeable future. Any payment of cash dividends in the future on the common stock will be dependent on the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, restrictions, if any, under debt obligations, as well as other factors that the board of directors deems relevant. TRANSFER AGENT AND REGISTRAR U.S. Stock Transfer Corporation of Glendale, California serves as transfer agent and registrar of the Company's common stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following discussion should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Form 10-KSB. Certain statements contained in this Form 10-KSB that are not related to historical results, including, without limitation, statements regarding View Tech's business strategy and objectives, future financial position, and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and involve risks and uncertainties. Although View Tech believes that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors," "Management's Discussion and Analysis or Plan of Operations" and "Business," as well as those discussed elsewhere in this Form 10-KSB. All forward-looking statements contained in this Form 10-KSB are qualified in their entirety by this cautionary statement. GENERAL The Company markets and installs video communications systems and provides continuing services relating to installed systems. Revenue from the sale of equipment is recognized when title passes to the customer. Revenue from services is derived primarily from engineering, installation, training, and warranty services. Service revenue is recognized at the time of installation, when rendered in connection with sales of new systems, and at the time the majority of such services are rendered, when related to previously installed equipment. The Company establishes reserves for the estimated future costs of the warranty portion of the services. See Note 2 of Notes to Financial Statements. 12 The Company also earns commission income with respect to sales of systems to its domestic customers for delivery at locations outside the United States. Upon completion of its initial public offering of common stock in June 1995, the Company began utilizing the funds raised in the offering, in part, to finance its growth in existing markets and to expand its operations into new geographical regions. In August 1995 and May 1996, the Company amended its sales and service agreement with its primary supplier, PictureTel. The amended agreement has a term of five years and substantially expands the scope of the Company's business and its existing sales territory to include the states of Alabama, Arkansas, Arizona, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Tennessee, Texas, Utah, Wyoming and northern California. Prior to August 1995, the Company operated under a sales and service dealer agreement covering most of southern California. In connection with its new agreement, during fiscal 1996, the Company established full-service offices in Atlanta, Georgia; Denver, Colorado; and Dallas, Texas and established sales offices in Nashville, Tennessee and San Jose, California. In addition, the Company's headcount increased from 22 to 52 employees at June 30, 1995 and 1996, respectively. The Company's 91.7% increase in revenues compared to fiscal 1995 was primarily related to increased marketing efforts, including expansion of the sales force to 16 representatives compared to seven people at June 30, 1995 and the opening of three regional and two sales offices in 1996. In addition, overall operating costs and expenses have increased 174% from $1.895 million in 1995 to $5.198 million in 1996. Income (loss) from operations decreased from income of $740,398 for 1995 to a loss of $(894,954) in 1996. Such operating losses relate primarily to the Company's rapid expansion activities whereby expenses have been incurred in advance of revenues, particularly, in the new expanded territories. In addition, the Company wrote off acquisition expenses of $191,388 relating to the termination of the acquisition of Power-Data Services, Inc. ("PDS"). The Company intends to continue its expansion activities in fiscal 1997. The Company is currently in the process of opening offices in Phoenix, Arizona and Salt Lake City, Utah. In addition, the Company is expanding its operations into the State of Florida and into the northeastern United States in connection with its acquisitions of VistaTel International, Inc. and GroupNet, Inc., respectively. The Company also has signed a definitive agreement to merge with USTeleCenters, Inc. which is headquartered in Boston, Massachusetts. (see Note 18 of Notes to Financial Statements). Although management anticipates that the revenues generated by its existing offices, as well as offices acquired through acquisition or expansion, will exceed such operating costs for the year ending June 30, 1997, there can be no assurance that such results will be achieved. To the extent that such costs exceed such revenues, the Company's operating income will be adversely affected. 13 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from the Company's financial statements expressed as a percentage of the Company's revenues:
Years Ended June 30 --------------------- 1996 1995 ------ ------ Revenues................................ 100.0% 100.0% Cost of revenues........................ 67.8 62.1 ----- ----- Gross profit............................ 32.2 37.9 ----- ----- Operating expenses: Selling expenses...................... 12.8 9.9 General and administrative expenses... 26.2 17.4 ----- ----- Total operating expenses................ 39.0 27.3 ----- ----- Income (loss) from operations........... (6.8) 10.6 Other income (expense).................. (1.1) 0.2 ----- ----- Income (loss) before income taxes....... (7.9) 10.8 Provision for income taxes.............. 2.7 (4.2) ----- ----- Net income.............................. (5.2)% 6.6% ===== =====
Year ended June 30, 1996 Compared to Year Ended June 30, 1995 Revenues for 1996 increased $6.383 million or 91.7% to $13.346 million from $6.963 million in 1995. The increase in revenue was primarily related to increased marketing efforts, including expansion of the sales force to 16 representatives compared to seven people at June 30, 1995 and the opening of three regional and two sales offices in 1996. Gross profit for 1996 increased $1.667 million or 63.3% to $4.303 million from $2.636 million in 1995. Gross profit as a percentage of revenues, or gross margin, decreased to 32.2% in 1996 from 37.9% in 1995. The decrease in gross margin is directly related to a decrease of approximately 3.0% in profit margin on equipment sales, increases in salaries and related expenses of $438,929 for technical services personnel and freight costs of $83,760 for 1996. The decrease in profit margin on equipment sales primarily relates to increased competitive pressures within the industry and to sales to various state-funded organizations, resulting in lower selling prices. The technical services and training staff increased from eight at June 30, 1995 to 17 at June 30, 1996. In addition, technical service costs increased at a greater rate than technical service revenues during the period. Service and other revenues, as a percentage of total revenues, decreased from 17.0% in 1995 to 15.6% in 1996. Selling expenses increased $1.021 million or 149% to $1.707 million in 1996 from $685,428 in 1995. Selling expenses as a percentage of revenues increased from 9.9% in 1995 to 12.8% in 1996. The dollar increase in selling expenses is primarily due to the increase in the number of sales personnel from seven at June 30, 1995 to 16 at June 30, 1996, resulting in increased salaries and commission expenses associated with higher levels of sales. The increase 14 in selling expenses as a percentage of revenues is due to the fact that selling expenses grew at a greater rate than the Company's revenues. General and administrative expenses increased $2.282 million or 188.6% to $3.492 million in 1996 from $1.210 million in 1995. General and administrative expenses as a percentage of total revenues increased to 26.2% in 1996 from 17.4% in 1995. The dollar increase in general and administrative expenses was primarily attributable to increases in administrative salaries and related costs of $574,965, office and equipment rents of $326,280, telephone and electronic communications costs of $258,629, professional fees of $210,131, and an overall increase in other general office expenses, primarily related to the Company's expansion program and to higher sales volume. These expenses increased as a percentage of revenues because the rate of increase in such expenses was greater than the rate of increase in revenues primarily as a result of the Company's expansion program discussed above. Income (loss) from operations decreased $1.635 million to a loss of $(894,954) in 1996 compared to operating income of $740,398 in 1995. Income (loss) from operations as a percentage of revenues decreased to (6.7)% for 1996 compared to 10.6% for 1995. The overall decrease in income from operations for 1996 is primarily attributable to the increase in expenses related to the Company's expansion program and the write-off of acquisition expenses as discussed above. Other income (expense) decreased $165,797 to $(153,222) in 1996 from $12,575 in 1995. The decrease was primarily due to the write-off of a note receivable from PDS of $265,000 in connection with the termination of the PDS acquisition in May 1996, offset by an increase in net interest income of $136,571 related to investments in short-term securities during 1996. Provision for income tax expense decreased $646,199 to a tax benefit of $352,116 in 1996 from a tax expense of $(294,083) for 1995. The decrease in income tax expense relates to the pre-tax loss of $1.048 million for 1996. The Company has reduced the loss for fiscal 1996 to a loss of $(696,060) because it expects to fully realize the $352,116 tax benefit in future periods. The Company will utilize approximately 51% of such benefit through carryback of the current years net operating loss. Net income (loss) decreased $1.155 million to a loss of $(696,060) in 1996 from net income of $458,890 for 1995. Net income as a percentage of revenues decreased to (5.2)% for 1996 compared to net income of 6.6% for 1995. Net income (loss) per share decreased to $(0.24) for 1996 compared to net income per share of $0.26 for 1995. The weighted average number of shares outstanding increased to 2,870,242 for 1996 from 1,761,550 in 1995. 15 Year Ended June 30, 1995 Compared to the Year Ended June 30, 1994 Revenues for 1995 increased $2.865 million or 69.9% to $6.963 million from $4.098 million in 1994. The increase in revenue was primarily related to increased marketing efforts, including expansion of the sales force to seven representatives compared to three at June 30, 1995 and the opening of an additional sales office. Gross profit for 1995 increased $1.227 million or 87.1% to $2.636 million from $1.409 million in 1994. Gross profit as a percentage of revenues, or gross margin, increased to 37.9% in 1995 from 34.4% in 1994. Gross margin increased as a result of an increase in the margin on equipment sales due to volume discounts and correspondingly lower units costs, as well as an increase in service revenues as a percentage of total revenues. Service revenues, which increased from 15% to 17% of total revenues, generally provide a higher profit margin than equipment revenues. Selling expenses increased $207,077 or 43.3% to $685,428 in 1995 from $478,351 in 1994. Selling expenses as a percentage of revenues declined to 9.9% in 1995 from 11.7% in 1994. The dollar increase in selling expenses is primarily due to the increase in the number of sales personnel, resulting in increased salary expense, and to commission expense associated with higher levels of sales. The decrease in selling expenses as a percentage of revenues is due to the fact that revenues grew at a greater rate than selling expenses. General and administrative expenses increased $291,741 or 31.8% to $1.210 million in 1995 from $918,241 in 1994. General and administrative expenses as a percentage of total revenues declined to 17.4% for 1995 compared to 22.4% for 1994. The dollar increase in general and administrative expenses was primarily attributable to increases in salaries for administrative personnel and increases in office expenses to support the Company's sales growth. These expenses declined as a percentage of revenues because the rate of increase in revenues was greater than the rate of increase in these expenses. Income from operations increased $728,429 to $740,398 in 1995 compared to $11,969 in 1994. Income from operations as a percentage of revenues increased to 10.6% for 1995 compared to 0.3% for 1994. The overall improvement in income from operations for 1995 is attributable to the increase in revenues discussed above. Other income (expense) increased $32,998 to $12,575 in 1995 from $(20,423) in 1994. The increase was primarily due to an increase in equipment rental income of approximately $55,000 during 1995. Provision for income tax expense increased $337,965 to $(294,083) in 1995 from a tax benefit of $43,882 for 1994. The increase in income tax expense relates to an increase in pre-tax income of $761,427 during 1995 and to the fact that the Company had greater net operating loss carryforwards available in 1994 than in 1995. 16 Net income increased $423,462 to $458,890 in 1995 from $35,428 for 1994. Net income as a percentage of revenues increased to 6.6% for 1995 compared to 0.9% for 1994. Net income per share increased to $0.26 for 1995 compared to $0.02 for 1994. The weighted average number of shares outstanding increased to 1,761,550 in 1995 from 1,714,960 for 1994. ACQUISITIONS VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, the Company acquired the net assets of VistaTel International, Inc. ("VistaTel"), a private company based in Boca Raton, Florida, which is a primary supplier of video conferencing products and services within the State of Florida and one of PictureTel's national re-sellers. View Tech issued 52,857 shares of common stock, valued at $7.00 per share, to the sole shareholders of VistaTel. The excess of the acquisition price over the net assets acquired of approximately $339,000 will be accounted for a goodwill and amortized over 15 years. VistaTel sells and services video conferencing systems and provides network bridging services to businesses to use worldwide. GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, the Company acquired GroupNet, Inc. ("GroupNet") for cash and View Tech common stock valued at $1,380,000. The purchase price consisted of 150,000 shares of common stock valued at $7.00 per share or $1,050,000 in the aggregate and $330,000 in cash, of which, $110,000 was paid on August 30, 1996 upon the execution of the agreement, and $220,000 is payable in equal installments of $110,000 due on October 15, 1996 and December 16, 1996, respectively. The excess of the acquisition price over the net assets acquired of approximately $1,330,000 will be accounted for as goodwill and amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel Select Dealer in video communication product distribution in the northeastern United States. The Company will continue to operate GroupNet's former business in Boston and New York. With the addition of GroupNet, View Tech has added the northeastern United States to its marketing territory. USTELECENTERS, INC. - ------------------- On September 5, 1996, the Company announced a definitive agreement of merger with USTeleCenters, Inc. ("USTeleCenters"), one of the oldest and largest authorized sales agents for a few of the regional bell operating companies. The merger is valued at approximately $18.5 million and is subject to the approval by View Tech's and USTeleCenters' shareholders as well as satisfactory completion of due diligence and certain conditions precedent. USTeleCenters currently owes its primary lender (and such lender's affiliate) approximately $3.0 million which is to be paid in full or appropriately refinanced at the close of such merger. The transaction will be accounted for as a pooling of interests in which USTeleCenters' shareholders will exchange all of their outstanding USTeleCenters shares and options for View Tech common stock and options, respectively. The transaction is expected to be completed on or about November 30, 17 1996. It is anticipated that USTeleCenters shareholders and optionholders (upon exercise of their options) will receive approximately 2.5 million shares of View Tech common stock. The Company has advanced USTeleCenters $1 million evidenced by a promissory note secured by all assets of USTeleCenters. The Company's security interest in USTeleCenters assets is subordinated to the debt obligations owed by USTeleCenters to its primary lender (and such lender's affiliate). Interest accrues at 10% on the unpaid principal balance. Quarterly interest payments commence on September 30, 1996 and the entire unpaid balance of principal and accrued interest is due June 15, 1997. The Company executed an agreement with the USTeleCenters' primary lender which restricts the Company's ability to bring an action to collect the $1 million promissory note if USTeleCenters defaults. Presently, without additional financing, USTeleCenters does not have sufficient financing available to repay the note in full when due. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations and expansion activities during fiscal 1996 with the proceeds from its initial public offering in June 1995 and vendor credit arrangements. Net cash used for operating activities in 1996 and 1995 was $2,356,610 and $327,912, respectively. The primary uses of cash in 1996 were increases in accounts receivable, inventories, and prepaids and other assets of $2,399,474, $612,479, and $647,979, respectively, and a decrease in accrued liabilities of $106,912. The uses of cash reflect the Company's higher sales volume and funds used to expand the Company's operations during 1996 compared to 1995. Sources of cash from operating activities were related to an increase in accounts payable of $1,646,739. Net cash used for investing activities in 1996 was $719,215, relating to the purchase of office furniture and computer equipment for $457,695 and a short-term working capital loan of $265,000 to PDS which was written off by the Company in connection with the termination of the acquisition of PDS in May 1996. The Company presently anticipates that its capital expenditures for fiscal 1997 range from $700,000 to $900,000, principally for demonstration equipment and office furniture and equipment. Net cash used for financing activities in 1996 was $448,915, primarily representing the repayment of debt and capital lease obligations of $416,997 and the payment of additional costs of $43,430 related to the Company's initial public offering in June 1995. The Company maintains a $500,000 credit facility (the "Note") to assist in meeting its working capital needs, if required. The Note expires on November 1, 1996 and provides for interest at the prime rate plus one and one-half percent per year. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at June 30, 1996, although the Company has as of June 30, 1996, five outstanding standby letters of credits aggregating $300,000. Four of such standby letters of credit were issued in favor of one leasing company in connection with certain 18 capital lease transactions relating to the purchase of computer equipment and furniture and one is issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $200,000. As of June 30, 1996, the Company was in technical default on two of its loan covenants for which it has received a waiver of default from the lender. The Company's primary supplier, PictureTel, provides the Company with a purchasing line of credit and requires the Company to maintain a letter of credit for $250,000 in favor of PictureTel in connection with this arrangement. The $250,000 letter of credit is collateralized by cash deposits of $150,000 and the assets of the Company. During July and August 1996, the Company advanced an aggregate of $1 million to USTeleCenters for working capital purposes and in order for USTeleCenters to repay certain bank debt due on September 1, 1996. The $1 million advanced is evidenced by a note which is subordinated to USTeleCenters' debt obligations to its primary lender (and such lender's affiliate). The promissory note evidencing USTeleCenters' indebtedness provides for interest at 10%, payable quarterly commencing on September 30, 1996. The principal and accrued interest are due on June 15, 1997. Subsequent to June 30, 1996, the Company received subscriptions for equity capital of approximately $1.5 million through the private placement of approximately 300,000 shares of the Company's common stock. Upon closing of the private placement, the Company will realize net proceeds of approximately $1.380 million. The Company will use the net proceeds for general working capital purposes and for working capital loans made to USTeleCenters in connection with the proposed merger. The Company is currently seeking bank financing, private debt and /or equity financing for purposes of meeting anticipated cash needs related to the merger with USTeleCenters. The Company is required to either refinance or repay certain debt and lease obligations of aggregating approximately $3.0 million to USTeleCenters' primary lender (and such lender's affiliate) and is required to pay certain merger costs of approximately $1.8 million, primarily consisting of advisory fees and legal and accounting costs. In addition, the Company will require additional working capital to efficiently operate the combined companies during the months following the business combination. Exclusive of the cash required in connection with the merger with USTeleCenters, the Company believes that its existing cash balances, combined with the proceeds from its private placement of common stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. Inability to obtain required additional financing could limit the Company's ability to complete its business combination with USTeleCenters and/or to efficiently operate the combined companies. 19 RISK FACTORS LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS; FUTURE RESULTS OF OPERATIONS UNCERTAIN. The Company has operated since July 1992 and has incurred net losses for the fiscal year ended June 30, 1993 and the nine months ended March 31, 1994, respectively. Although it achieved revenue growth and profitability during fiscal 1994 and reported net income for fiscal 1995, it reported a net loss of $(696,060) for the fiscal year ended June 30, 1996. In the future, View Tech may experience significant fluctuations in its operating results as a result of a number of factors, including seasonality in product sales, delays in product enhancements and new product introductions by its suppliers, market acceptance of new products and services, and reduction in demand for existing products and services as a result of introductions of new products and services by its competitors or by competitors of its suppliers. In addition, View Tech's gross profit percentage may vary significantly depending on the mix of products and services contributing to revenues in any period. There can be no assurance that the Company will achieve revenue growth or will be profitable on a quarterly or annual basis. FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING. It is likely that additional financing will be required to fund further growth in the Company's business beyond the next twelve months. The Company's actual capital requirements will depend upon many factors, including the needs of the entities that the Company is acquiring, the Company's internal expansion into new territories, and capital requirements related to the Company's acquisition of certain entities. See "--Unascertainable Risks Due to Current and Future Acquisitions." To the extent that the Company raises additional capital by issuing equity securities, ownership dilution to stockholders will result. There can be no assurance that sources of such financing will be available, or will be available on terms acceptable to the View Tech. Inability to obtain additional financing could limit View Tech's marketing ability or its ability to operate efficiently or expand its operations, any of which could have a material adverse effect on the Company. In the event that adequate funds are not available, the Company's business, results of operations or financial condition could be adversely affected. RAPID EXPANSION. View Tech began its operations in July 1992 and has grown from two employees in one location to 62 employees in thirteen locations at September 16, 1996. View Tech's acquisition strategy is to hire key personnel in strategic geographic regions and to acquire businesses that compliment the Company's operations. Within the past 18 months, the Company has acquired two businesses in addition to the contemplated merger with USTeleCenters and has hired 21 personnel to startup four new regions. View Tech is subject to the uncertainties and risks associated with any expanding business. View Tech's growth has placed significant demands on View Tech's financial resources and management. If the merger with USTeleCenters is consummated, View Tech will have over 150 new employees, which represents a substantial increase in the magnitude of View Tech's operations and will place further demands on its financial and management resources. 20 UNASCERTAINABLE RISKS DUE TO CURRENT AND FUTURE ACQUISITIONS. The Company plans to grow not only through additional territories but also through acquisitions of other entities. Since June 30, 1996, the Company has completed the acquisition of all of the assets of a small company in Florida and all of the shares of a small company in Massachusetts. The Company also has entered a merger agreement to merge with USTeleCenters, which the Company valued at $18.5 million (the "Merger"). The Merger involves the issuance of approximately 2.5 million shares of the Company's common stock (subject to certain adjustments) for the equity of USTeleCenters. Additionally, the agreement with USTeleCenters provides that the Company is obligated to either repay or refinance approximately $3.0 million in bank indebtedness to USTeleCenters' primary lender, as a condition of this transaction. The Merger is still subject to shareholder approval and will not be consummated until shareholder approval is obtained, which is anticipated to be in late November 1996. The Company has loaned USTeleCenters $1 million since it entered into the letter of intent to merge with USTeleCenters on July 23, 1996. If the Merger is completed, in addition to the $3.0 million that the Company may have to pay to USTeleCenters primary lender, the Company will also have to pay an aggregate of approximately $1.8 million in acquisition costs, consisting of approximately $750,000 to its financial advisors in connection with financial advisory services related to the Merger, approximately $550,000 to USTeleCenters' investment banker, and approximately $500,000 to USTeleCenters' and the Company's attorneys and accountants. The Company executed an agreement with USTeleCenters primary lender which restricts the Company's ability to bring an action to collect the $1 million promissory note if USTeleCenters defaults. By virtue of rapid growth through acquisitions, the Company will be subject to the uncertainties and risks associated with any expanding business. Some of these acquisitions may have the effect of substantially increasing the size of the Company and diversifying the products and services it offers. In light of the potential significance of these changes, and the absence of a history of combined operations of the Company with another entity, it is possible that the Company will encounter difficulties that cannot presently be ascertained. There can be no assurance that any of the proposed or future acquisitions will not have a material adverse effect upon the Company's business, results of operations or financial condition, particularly in quarters immediately following the consummation of such transactions due to operational disruptions, unexpected expenses and accounting charges which may be associated with the integration of such acquisitions. In addition, there can be no assurance that the Company will achieve the anticipated benefits of such acquisitions, and it is possible that such acquisitions will place significant demands on the Company's financial resources and management and cause disruption of the Company's operations due to the need for the management of View Tech and such other entities to devote significant time and attention to integrating the operations of the different companies. 21 DEPENDENCE ON SUPPLIERS. Approximately 58% of View Tech's revenues for the 1996 fiscal year was attributable to the sale of equipment manufactured by PictureTel. Termination or change of View Tech's business relationship with PictureTel or another supplier, disruption in supply, failure of a supplier to remain competitive in quality, function or price, or a determination by one or more of View Tech's suppliers to reduce reliance on independent providers such as View Tech could have a material adverse effect on View Tech. The Company is a party to agreements with PictureTel authorizing it to serve as PictureTel's non-exclusive dealer in certain geographic territories. These agreements expire in August 2000, and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreements will not be terminated, or that they will be renewed on terms acceptable to View Tech, by PictureTel, which has no other affiliation with View Tech and is a competitor of View Tech. While there are other suppliers of the video communications equipment that View Tech purchases from PictureTel, termination of the relationship with PictureTel could have a material adverse effect on View Tech. RAPIDLY CHANGING TECHNOLOGY AND OBSOLESCENCE. The market for communications products and services is characterized by rapidly changing technology, evolving industry standards, and the frequent introduction of new products and services. The Company's future performance will depend in significant part upon its ability to respond effectively to these developments. New products and services are generally characterized by improved quality and function and are frequently offered at lower prices than the products and services they are intended to replace. The introduction of products embodying new technologies and the emergence of new industry standards can render the Company's existing products obsolete, unmarketable or noncompetitive. View Tech's ability to grow and to remain competitive will depend upon its ability successfully to maintain and develop relationships with manufacturers of new and enhanced products that include new technology and achieve levels of quality, functionality, and price acceptable to the market, and to maintain a high level of expertise relating to new products and the latest in communications systems technology. ITEM 7. FINANCIAL STATEMENTS The Financial Statements of the Company are submitted as a separate section of this Form 10-KSB on pages F-1 through F-17. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS Directors Robert G. Hatfield, age 50, co-founded the Company in 1992 and has since served as its chairman and chief executive officer. From 1977 to December 1991, Mr. Hatfield was executive vice president of Delphi Information Systems, Inc., a provider of data processing systems for the distribution portion of the property and casualty insurance industry. During Mr. Hatfield's 14 years with Delphi, the firm grew from $100,000 in annual revenues and six employees, to $50,000,000 in annual revenues and 350 employees. Mr. Hatfield's education includes a B.B.A. from California Western University and an M.B.A. from Thunderbird: American Institute for Foreign Trade. John W. (Bill) Hammon, age 44, who is Mr. Hatfield's brother, co-founded the Company in 1992 and has since served as a director, chief operating officer and president. He also served as secretary of the Company until May 1, 1995. Mr. Hammon has over 14 years of experience in the computer industry, including the marketing of advanced software and hardware products. From 1987 to December 1991, he was Western Regional Director of PictureTel Corporation. Prior to joining PictureTel, he held positions in field sales, customer service, and regional sales management with ADP, EDS, and Tandem Computers. Mr. Hammon's educational background includes a B.S. in Finance from California State University - Los Angeles. Calvin A. Carrera, age 50, has been a director of the Company since September 1994. Mr. Carrera is Director of Advanced Programs for Engineering Management Concepts (EMC), a firm which specializes in professional engineering and management services for government and industry clients. He is responsible for advanced program development and execution and has been with EMC since April 1995. From July 1994 to April 1995, he was Director of Western Operations for APEX Technologies, Inc., a privately held company which provides engineering and training services for the federal and state governments. Prior to joining APEX, Mr. Carrera served 15 years as General Manager of Veda Incorporated, a privately held firm which provides professional engineering services for a diverse client base. Since 1991, he has served as president of the Defense Services Industry Executive Association, a non-profit corporation with 43 member companies dedicated to improving communications within the defense services industry and between the industry and government. Mr. Carrera holds a B.S. in Electrical Engineering from the University of Utah and an M.S. in Electrical Engineering from the University of Southern California, where he has also completed classroom work for a doctoral degree. 23 Robert F. Leduc, age 50, has been a director of the Company since September 1994. From January 1992 to the present, he has been president and chief executive officer of EconomicsAmerica of California, a California-based not- for-profit funding organization that promotes education in economics. From January 1990 to January 1992, he was president of Foundation Group, another non- profit organization. Mr. Leduc also has been a visiting professor at the L.B.J. School of Public Affairs at the University of Texas at Austin since 1990 and was previously a visiting professor or lecturer at the Kennedy School of Public Administration at Harvard University, the University of Alberta, and Rutgers University. Mr. Leduc has specialized in providing consulting services to not- for-profit organizations since 1972, and served as executive director of a charitable foundation from 1982 to 1985 and a trade association from 1985 to 1988. Mr. Leduc has an M.B.A. from Wayne State University and is currently completing the requirements for a Ph.D. in Public Administration from the University of Colorado. Other Executive Officers Tom Bailey, age 37, has been senior vice president - technical services since August 1996 and was vice president -technical services since January 1993. Prior to joining the Company, Mr. Bailey was a product manager, service executive, and lead software engineer for Delphi Information Systems, where he was employed from 1988 to January 1993. During his six years with Delphi, Mr. Bailey was responsible for coordination of more than 200 installations of minicomputer and LAN-based information systems, as well as support, service, and technical research. Mr. Bailey's education includes a B.A. in mathematics and computer science from California Lutheran University, as well as training in TCP/IP, Unix, Novell, and switched digital network designations. William M. McKay, age 41, has been chief financial officer and secretary of the Company since May 1, 1995. From October 1992 through April 1995, he was an independent consultant and principal of MK Associates, a firm that provides financial and operational consulting services to businesses. From January 1991 to October 1992, Mr. McKay was senior vice president and chief financial officer of Kennedy-Wilson, Inc., a real estate brokerage concern. Prior to his service with Kennedy-Wilson, Mr. McKay was vice president and controller of HSM Group, a real estate investment company that is affiliated with Kennedy-Wilson with interests in partnerships owning residential and commercial properties. Mr. McKay also has ten years of public accounting experience with Deloitte & Touche, most recently as a senior manager in its audit department. Mr. McKay is a member of the American Institute of Certified Public Accountants, and has a B.S. in business administration with an emphasis in accounting from the University of Southern California - Los Angeles. 24 COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's executive officers and directors, and persons who beneficially own more than 10% of a registered class of the Company's common stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission ("Commission"). Such officers, directors, and shareholders are required by Commission regulations to furnish the Company with copies of all such reports that they file. Based solely upon a review of copies of such reports furnished to the Company during and with respect to its fiscal year ended June 30, 1996, and based on written representations received by the Company from directors, officers, and beneficial owners of more than 10% of the Company's common stock ("reporting persons") that no other reports were required, the Company believes that, during the Company's 1996 fiscal year, all Section 16(a) filing requirements applicable to the Company's reporting persons were complied with. 25 ITEM 10. EXECUTIVE COMPENSATION The following table sets forth the compensation for the chief executive officer and each of the most highly compensated executive officers whose individual remuneration exceeded $100,000 for the fiscal year ended June 30, 1996 (the "Named Executives"): SUMMARY COMPENSATION TABLE
Annual Long-Term Compensation Compensation ------------ ------------- All Other Name and Principal Position Year Salary Options (1) Compensation (2) - --------------------------- ---- ------ ----------- ---------------- Robert G. Hatfield 1996 $168,000 50,000 $28,175 Chairman and Chief 1995 $160,000 50,000 $41,986 Executive Officer 1994 $126,000 $29,053 John W. Hammon 1996 $168,000 50,000 $19,642 President and Chief 1995 $160,000 50,000 $17,989 Operating Officer 1994 $126,000 $20,269 William M. McKay 1996 $118,216 25,000 $ 6,000 Secretary and Chief 1995 $ 17,914 72,800 $ 1,000 Financial Officer
(1) All stock options were granted under the Company's 1995 Stock Option Plan. (2) For fiscal 1996, the amount listed includes: For Mr. Hatfield (a) country club dues and expenses of $13,698, (b) automobile expenses of $12,812, and (c) 401(k) Retirement Savings Plan contributions of $1,665; for Mr. Hammon (a) country club dues and expenses of $2,577, (b) automobile expenses of $15,400, and (c) 401(k) Retirement Savings Plan contributions of $1,665; and for Mr. McKay, an automobile allowance of $500 per month. Itemized disclosure of other compensation in 1995 and 1994, are not required. OPTION GRANTS The following table sets forth information regarding stock option grants to each of the Named Executives during the fiscal year ended June 30, 1996: 26 OPTION GRANTS IN 1996 FISCAL YEAR
Percent of Total Number of Options Shares Underlying Granted to Options Employees in Exercise Price Name Granted Fiscal Year ($/Share) Expiration Date ---- ------- ---------- --------- --------------- Robert G. Hatfield 50,000(1) 10.0% $6.375 6/12/06 50,000(2) 10.0% $6.625 7/17/05 John W. Hammon 50,000(1) 10.0% $6.375 6/12/06 50,000(2) 10.0% $6.625 7/17/05 William M. McKay 25,000(3) 5.0% $6.375 6/12/06
(1) 12,500 vest on June 12, 1997, 1998, 1999, and 2000, respectively. (2) 12,500 vest on July 17, 1996, 1997, 1998, and 1999, respectively. (3) 6,250 vest on June 12, 1997, 1998, 1999, and 2,000, respectively. YEAR END OPTION TABLE The following table sets forth information regarding unexercised options held by the Named Executives. AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR AND VALUE OF OPTIONS AT FISCAL 1996 YEAR END
Number of Securities Underlying Unexercised Value of Unexercised Options In-the Money Shares at Fiscal Year End Options at Fiscal Year End Acquired Value ------------------ -------------------------- Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable ---- ----------- -------- ------------------------- ------------------------- Robert G. Hatfield n/a n/a 12,500/137,500 $87,500/$350,000 John W. Hammon n/a n/a 12,500/137,500 $87,500/$350,000 William M. McKay 12,500 $82,737 5,700/79,600 $13,538/$328,113
27 COMPENSATION OF DIRECTORS Outside directors receive $500 per day for each board meeting attended. Directors receive no compensation for telephone meetings. Outside directors that are members of either the stock option and compensation committee or the audit committee receive $500 per day per meeting attended as well. However, if the committee meets on the same day that the board is meeting, the outside director will only receive a single payment of $500 for all meetings attended on the same day. Outside directors are also reimbursed for their travel expenses. In addition to the per diem, outside directors receive options to acquire 10,000 shares of the Company's common stock on the day they are appointed to the board of directors. Additionally, outside directors that have served on the board for a full year receive options to acquire an additional 2,000 shares of common stock on the fifth business day following the annual meeting of shareholders. The exercise price of the stock options is equal to the last reported bid of the common stock on the NASDAQ National Market. Board members that are also employees of the Company do not receive any additional compensation for service on the board. No board member received any other compensation for his services as a director. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of the Named Executives. The agreements, which have one-year terms and may be renewed for one additional year at the option of the Company, provide for annual base salaries during the initial and renewal periods in the following amounts: Mr. Hatfield, $168,000; Mr. Hammon, $168,000; and Mr. McKay, $115,000. The agreements also provide for bonuses at the discretion of the board of directors, as well as customary benefits. Other than the agreement with Mr. McKay, which commenced May 1, 1995, the terms of each of the agreements commenced March 30, 1995. The agreements with Messrs. Hatfield and Hammon are now in their respective renewal terms and expire on March 30, 1997, and May 1, 1997 for Mr. McKay. Effective July 1, 1996, Messrs. Hatfield's and Hammon's salaries were each increased to $220,000 per year. Effective May 1, 1996, Mr. McKay's salary was increased to $136,000 per year. In addition to the employment agreements, each of the Named Executives received options under the Company's 1995 Stock Option Plan (the "Plan"). The Plan provides for four (4) year vesting from the date of issuance. However, if there is a "change of control," the options vest immediately. The Plan provides that: "A 'Change of Control' shall be deemed to have taken place if (i) any Person (including any individual, firm, corporation, partnership or other entity except the Company or any employee benefit plan of the Company or of any Affiliate or Associate, both as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, any Person or any entity organized, appointed or established by the Company for or pursuant to the terms of any such employee benefit plan), together with 28 all Affiliates and Associates of such Person, shall become the beneficial owner in the aggregate of 30% or more of the common stock of the Company then outstanding; provided, however, that no "Change of Control" shall be deemed to occur during any period in which any such Person, and its Affiliates and Associates, are bound by the terms of a standstill agreement under which such parties have agreed not to acquire more than 30% of the common stock of the Company then outstanding or to solicit proxies, or (ii) on the first date within any period of 24 consecutive months or less on which there is effected a change in the composition of the Board by reason of a contested election such that a majority of the Board members (rounded up to the next whole number) cease to be comprised of individuals who either (1) have been members of the Board continuously since the beginning of such period or (2) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (1) who were still in office at the time such election or nomination was approved by the Board." The Agreement and Plan of Merger among the Company, its wholly-owned subsidiary, View Tech Acquisition, Inc., and USTeleCenters, provides that the Company will issue approximately 42.4% of its outstanding shares to the shareholders of UST in exchange for all of the shares of UST. If the merger is consummated, all of the outstanding stock options will immediately vest. See "Item 6. Management's Discussion and Analysis or Plan of Operation" and footnote 18 of the notes to financial statements for a discussion of the merger. 29 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to (i) each director of the Company, (ii) the Named Executives, (iii) all directors and executive officers of the Company as a group at September 16, 1996, including the number of shares of common stock beneficially owned by each of them, and (iv) each person known by the Company to own beneficially more than 5% of the outstanding shares of the Company's common stock. Unless otherwise indicated below, the business address of each individual is the same as the address of the Company's principal executive offices.
Amount and Nature Percent of of Beneficial Class of Ownership of Common Name of Beneficial Owner Common Stock(1) Stock - ------------------------ ----------------- ---------- Robert G. Hatfield(2) 595,000 20.1% John W. Hammon(3) 475,000 16.0% Calvin Carrera(4) 22,000 * Robert F. Leduc(5) 12,000 * William M. McKay(6) 18,200 * All Directors and Executive 1,261,200 41.5% Officers of the Company as a Group (6 persons)
* Less than one percent ______________________________ (1) Includes shares issuable upon the exercise of options or warrants that are exercisable within 60 days of the date of this Form 10-KSB. The shares underlying such options or warrants are deemed to be outstanding for the purpose of computing the percentage of outstanding stock owned by such persons individually and by each group of which they are a member, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) Chief Executive Officer and Chairman of the Company. Includes 25,000 shares issuable upon exercise of options and 120,000 shares held in an irrevocable trust for the benefit of Mr. Hammon's minor children, of which Mr. Hatfield is trustee. Mr. Hatfield has sole investment and voting power with respect to such shares. (3) President and Chief Operating Officer of the Company. Includes 25,000 shares issuable upon exercise of options. Mr. Hammon's address is 101 Pacifica, Suite 100, Irvine, California 92718. (4) Includes 12,000 shares issuable upon exercise of options. Mr. Carrera's address is 10550 Summer View Circle, Camarillo, California 93012. (5) Consists of 12,000 shares issuable upon exercise of options. Mr. Leduc's address is 26 Thorn Oak, Trabuco Canyon, California 92679. (6) Consists of 18,200 shares issuable upon exercise of options. 30 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH THE COMPANY'S FOUNDERS In connection with the Company's organization in 1992, the Company sold 738,000 shares of its common stock to each of its founders, Messrs. Hatfield and Hammon, for approximately $.007 per share. On October 3, 1994, July 17, 1995, and June 12, 1996, the Company granted options to purchase an aggregate of 150,000 shares (50,000 shares each grant) of common stock to each of Messrs. Hatfield and Hammon. The options, which have exercise prices of $.375, $6.625, and $6.375 per share, respectively, vest in equal amounts annually over four- year periods from the respective date of grant. Messrs. Hatfield and Hammon had guaranteed the repayment of $638,000 of the Company's indebtedness, all of which was repaid with a portion of the proceeds from the Company's initial public offering in June 1995. TRANSACTIONS WITH WINDERMERE HOLDINGS, INCORPORATED The Company entered into a management services agreement with Windermere Holdings, Incorporated ("Windermere") effective as of September 1, 1994 (the "Windermere Agreement"). The Windermere Agreement provided that Windermere would assist the Company with respect to the Company's management requirements, strategic initiatives, marketing strategies, contract negotiation, investor relations, organizational structure, retention of public relations advisors, board structure and committees, and executive compensation. The Windermere Agreement expired September 30, 1995. Pursuant to the terms of the Windermere Agreement, the Company paid Windermere $25,000 in July 1995 and a monthly retainer of $2,500, and reimbursed Windermere's reasonable expenses. Pursuant to the Windermere Agreement, the Company also agreed to issue to Windermere options to purchase 150,000 shares of common stock on October 1, 1995, if the agreement was then in effect, which options would be exercisable immediately and would have an exercise price equal to the fair market value of the Company's common stock on that date. The Windermere Agreement also provided for certain registration rights with respect to the common stock issuable upon the exercise of such options. On September 13, 1995, the Windermere Agreement was amended so that (i) the 75,000 options were issued to each of Rolf N. Hufnagel, a former director of the Company and chief operating officer of Windermere, and Robert E. Yaw II, the chief executive officer of Windermere, with an exercise price equal to $7.375, which was the closing price of the common stock on the NASDAQ SmallCap Market on September 13, 1995; and (ii) the Company was no longer obligated to pay Windermere a monthly retainer. On November 1, 1995, the Company entered into a subsequent agreement with Windermere which provided for a payment of $5,000 per month through June 30, 1996. The Company also made a short-term loan to Mr. Hufnagel of approximately $22,000 at a 10% interest rate in April 1996. The loan was repaid in June 1996 with interest. Subsequent to Mr. Hufnagel's resignation, the Company entered into a new agreement with Windermere that provided for (i) a monthly retainer of $5,000 from July to September 1996; (ii) the issuance of 55,000 options to purchase common stock to one of Windermere's principals, issued on June 27, 1996 and (iii) the issuance of 55,000 options to purchase common stock to Mr. Hufnagel, issued on August 18, 1996. The agreement provides that such options be issued at the market price as of the date of issuance. 31 During fiscal 1996, the Company made total payments of $72,500 to Windermere, excluding payments made for reimbursement of expenses. Effective June 24, 1996, Mr. Hufnagel resigned as a director of the Company. TRANSACTIONS WITH COFFIN . KCSA The Company entered into a consulting agreement with Coffin . KCSA ("Coffin") under which Coffin provided assistance to the Company with respect to the Company's investor relations, board structure and committees, and executive compensation. The agreement, effective December 1, 1994, was for an indefinite term and could be terminated by either party upon 30 days written notice. The Company paid Coffin $25,000 in July 1995 and paid Coffin a monthly retainer and reimbursed Coffin's reasonable expenses. The monthly retainer was originally $2,500 and was raised to $4,000 per month following the Company's initial public offering in June 1995. William F. Coffin, a former director of the Company, is a partner in Coffin . KCSA. During fiscal 1996, the Company paid Coffin . KCSA fees of $65,000, excluding payments made for reimbursement of expenses. Effective June 12, 1996, Mr. Coffin resigned as a director of the Company. TRANSACTIONS WITH ECONOMICSAMERICA OF CALIFORNIA In December 1994, the Company sold videoconferencing equipment to EconomicsAmerica of California for $175,578, at prices and on terms generally available to the Company's customers. Robert F. Leduc, chief executive officer and a director of EconomicsAmerica, is also a director of the Company. William F. Coffin, a director of EconomicsAmerica, is a former director of the Company. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS --------
Exhibit Number Description - ------- ----------- 2.1 Sale Agreement between the Company and VistaTel International, Inc. dated July 10, 1996(1) 2.2 Agreement and Plan of Merger by and among the Company, GroupNet, Inc., and Andrew W. Jamison dated August 30, 1996(2) 3.1 Restated Articles of Incorporation(3) 3.2 Bylaws(3) 4.1 Specimen Stock and Warrant Certificates(3)
32
Exhibit Number Description - ------- ----------- 4.2 Warrant Agreement dated as of June 28, 1995 between the Company and U.S. Stock Transfer Corporation of America(4) 10.1 Dealer Agreement between the Company and PictureTel Corporation dated as of March 30, 1995(3) 10.2 Loan Agreement between the Company and Los Robles Bank dated as of March 24, 1995, including Guaranty Agreements of Robert G. Hatfield and John W. Hammon(3) 10.3 Loan Agreement among the Company, Los Robles Bank, and the Small Business Administration dated as of December as of December 16, 1992, including Guaranty Agreements of Robert G. Hatfield and John W. Hammon(3) 10.4 Employment Agreement between the Company and Robert G. Hatfield, dated as of March 30, 1995(3) 10.5 Employment Agreement between the Company and John W. Hammon, dated as of March 30, 1995(3) 10.6 Employment Agreement between the Company and William M. McKay, dated as of March 30, 1995(3) 10.7 Employment Agreement between the Company and Richard C. Bosworth, dated as of March 30, 1995(3) 10.8 Employment Agreement between the Company and Tom Bailey, dated as of March 30, 1995(3) 10.9 Management Services Agreement between the Company and Windermere Holdings, Incorporated ("Windermere") dated as of September 1, 1994(3) 10.10 1995 Stock Option Plan, as amended (5) 10.11 Consulting Agreement between the Company and William F. Coffin Corporation dated as of December 1, 1994(4) 10.12 Amendment to Dealer Agreement between the Company and PictureTel Corporation dated August 1, 1995(4) 10.13 Revolving Note with City National Bank, dated February 20, 1996(6) 10.14 Loan Agreements with Power-Data Services, Inc. dated February 15, 1996 and March 22, 1996(6) 10.15 Consulting Agreement between the Company and Windermere dated as of November 1, 1995(1) 10.16 Loan and Security Agreement between the Company and USTeleCenters and Promissory Note from USTeleCenters dated July 26, 1996(1) 10.17 Subordination Agreement among the Company, The First National Bank of Boston, and USTeleCenters dated July 26, 1996(1)
33
Exhibit Number Description - ------- ----------- 10.18 Promissory Note, dated August 30, 1996, of View Tech, Inc. payable to Andrew W. Jamison (2) 10.19 Registration Rights Agreement, dated August 30, 1996, between View Tech, Inc. and Andrew W. Jamison (2) 10.20 Consulting Agreement between the Company and Windermere, dated June 27, 1996 (1) 10.21 Option Agreement, dated August 22, 1996, between Rolf Hufnagel and the Company (1) 23.1 Consent of Independent Accountants(1) 24.1 Power of Attorney(1) 24.2 Certified Copy of Board of Directors' Resolution regarding Power of Attorney(1) 27.1 Financial Data Schedule(1)
- --------------- (1) Filed herewith. (2) Filed as an exhibit to the Company's Report on Form 8-K dated September 24, 1996 relating to the completion of the acquisition of GroupNet, Inc. (3) Filed as an exhibit of the same number to the Company's Registration Statement on Form SB-2 (Registration No. 33-91232) and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Form 10-KSB for the fiscal year ended June 30, 1995. (5) Filed as an Exhibit to the Company's Form 10-QSB for the fiscal quarter ended September 30, 1995. (6) Filed as an Exhibit to the Company's Form 10-QSB for the fiscal quarter ended March 31, 1996. (b) REPORTS ON FORM 8-K ------------------- No reports on Form 8-K were filed during the last quarter of the fiscal year ended June 30, 1996. 34 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. ------------------------------------------------ (Registrant) Date: September 27, 1996 By: * ------------------- ---------------------------------------- William M. McKay 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 and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- * Chairman and September 27, 1996 - ------------------------ Chief Executive Officer -------------------- Robert G. Hatfield (Principal Executive Officer) * President and Director September 27, 1996 - ------------------------ -------------------- John W. Hammon * Chief Financial Officer September 27, 1996 - ------------------------ (Principal Financial and -------------------- William M. McKay Accounting Officer) * Director September 27, 1996 - ------------------------ -------------------- Calvin Carrera * Director September 27, 1996 - ------------------------ -------------------- Robert F. Leduc *By /s/ William M. McKay ------------------------- William M. McKay Attorney-in-Fact 35 VIEW TECH, INC. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report F-2 Balance Sheets as of June 30, 1996 and 1995.................................... F-3 Statements of Operations for the years ended June 30, 1996 and 1995............ F-4 Statement of Stockholders' Equity for the years ended June 30, 1996 and 1995... F-5 Statements of Cash Flows for the years ended June 30, 1996 and 1995............ F-6 Notes to Financial Statements as of June 30, 1996 and 1995..................... F-7
F-1 INDEPENDENT AUDITORS' REPORT To Board of Directors and Shareholders of VIEW TECH, INC. We have audited the accompanying balance sheets of View Tech, Inc. as of June 30, 1996 and 1995 and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of View Tech, Inc., as of June 30, 1996 and 1995, and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. CARPENTER KUHEN & SPRAYBERRY Oxnard, California September 24, 1996 F-2 VIEW TECH, INC. BALANCE SHEETS JUNE 30, 1996 AND 1995
ASSETS June 30, ------------------------ 1996 1995 ---------- ---------- Current Assets: Cash $1,463,199 $4,987,939 Accounts receivable (net allowance for doubtful accounts of $23,756 and $0, respectively) 4,720,262 2,344,544 Inventory 1,104,577 492,098 Other current assets 709,671 74,210 ---------- ---------- Total Current Assets 7,997,709 7,898,791 Property and equipment, net 820,411 141,556 Other assets 31,001 18,483 ---------- ---------- $8,849,121 $8,058,830 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $3,254,527 $1,607,788 Income tax payable -- 252,924 Note payable -- 331,466 Other current liabilities 501,406 283,413 ---------- ---------- Total Current Liabilities 3,755,933 2,475,591 ---------- ---------- Long term capital lease obligations 242,283 4,356 ---------- ---------- Commitments and Contingencies -- -- Stockholders' Equity: Preferred stock, par value $.01, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.01, authorized 10,000,000 shares, issued and outstanding 2,890,200 and 2,856,000 shares at June 30, 1996 and 1995, respectively 28,902 28,560 Paid-in capital 5,253,234 5,285,494 Retained earnings (deficit) (431,231) 264,829 ---------- ---------- 4,850,905 5,578,883 ---------- ---------- $8,849,121 $8,058,830 ========== ==========
The accompanying notes are an integral part of these financial statements. F-3 VIEW TECH, INC. STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1996 AND 1995
Years Ended June 30, ------------------------- 1996 1995 ------------ ----------- Revenues $13,346,103 $6,963,487 Cost of Revenues 9,042,922 4,327,679 ----------- ---------- Gross Profit 4,303,181 2,635,808 ----------- ---------- Operating Expenses: Selling expenses 1,706,626 685,428 General and administrative expenses 3,491,509 1,209,982 ----------- ---------- 5,198,135 1,895,410 ----------- ---------- Income (Loss) from Operations (894,954) 740,398 Other Income (Expense) (153,222) 12,575 ----------- ---------- Income (loss) before income taxes (1,048,176) 752,973 Provision for Income Taxes 352,116 (294,083) ----------- ---------- Net Income (Loss) $ (696,060) $ 458,890 =========== ========== Earnings (Loss) Per Share $ (.24) $ .26 =========== ========== Weighted Average Shares Outstanding 2,870,242 1,761,550 =========== ==========
The accompanying notes are an integral part of these financial statements. F-4 VIEW TECH, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996 AND 1995
Common stock Additional Retained Total ------------------ Paid-In Earnings Stockholders' Shares Amount Capital (Deficit) Equity -------- ------- ----------- ----------- -------------- Balance, June 30, 1994 1,476,000 $14,760 $ 15,080 $(194,061) $ (164,221) Common stock issued 1,380,000 13,800 5,270,414 -- 5,284,214 Net Income for year ended June 30, 1995 -- -- -- 458,890 458,890 --------- ------- ---------- --------- ---------- Balance, June 30, 1995 2,856,000 28,560 5,285,494 264,829 5,578,883 Shares issued under stock option plan 34,200 342 11,170 -- 11,512 Additional costs of initial public offering of common stock (43,430) (43,430) Net loss for year ended June 30, 1996 -- (696,060) (696,060) --------- ------- ---------- --------- ---------- Balance, June 30, 1996 2,890,200 $28,902 $5,253,234 $(431,231) $4,850,905 ========= ======= ========== ========= ==========
The accompanying notes are an integral part of these financial statements. F-5 VIEW TECH, INC. STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996 AND 1995
Years Ended June 30, ------------------------- 1996 1995 -------- --------- Cash flows from operating activities: Net income (loss) $ (696,060) $ 458,890 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 168,792 54,479 Provision for bad debts 23,756 -- Loss on sale of fixed assets 2,007 -- Reserve on term loan to PDS 265,000 -- Changes in assets and liabilities: Accounts receivable (2,399,474) (1,459,665) Inventory (612,479) (298,330) Prepaids and other assets (647,979) 22,406 Accounts payable 1,646,739 456,156 Other accrued liabilities (106,912) 438,152 ----------- ----------- Net cash used by operating activities (2,356,610) (327,912) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (457,695) (66,983) Term loan to PDS (265,000) -- Proceeds from sale of assets 3,480 -- ----------- ----------- Net cash used by investing activities (719,215) (66,983) ----------- ----------- Cash flows from financing activities: Lease payable reduction (85,531) (60,858) Long-term debt reduction (331,466) (27,790) Draw on line of credit -- 299,970 Line of credit reduction -- (299,970) Issuance of common stock, net 11,512 5,284,214 Additional costs for initial public offering of common stock (43,430) -- ----------- ----------- Net cash provided (used) by financing activities (448,915) 5,195,566 ----------- ----------- Net increase (decrease) in cash (3,524,740) 4,800,671 Cash, beginning of period 4,987,939 187,268 ----------- ----------- Cash, end of period $ 1,463,199 $ 4,987,939 =========== =========== Supplemental disclosures: Operating activities reflect: Interest paid $ 40,281 $ 62,690 =========== =========== Income taxes paid $ 374,680 $ 800 =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 NOTE 1 - THE BUSINESS - --------------------- View Tech, Inc. markets and installs video communications systems and provides continuing services related to installed systems to customers in Alabama, Arizona, Arkansas, California, Colorado, Georgia, Louisiana, Mississippi, Montana, New Mexico, Oklahoma, Tennessee, Texas, Utah and Wyoming. The Company was incorporated under the laws of California in 1992 and commenced operations in July 1992. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Revenue Recognition. The Company sells both products and services. Product -------------------- revenue consists of revenue from the sale of video communications equipment and is recognized at the time title to the equipment passes to the customer. Service revenue is derived from services rendered in connection with the sale of new systems and from services rendered with respect to previously installed systems. Services rendered in connection with the sale of new systems are billed as a single charge and consist of engineering services related to system integration, installation, technical training, user training, and one-year parts-and-service warranty. The majority of these services are rendered at or prior to installation, and all of the revenue is recognized at the time of installation, with a reserve established for the estimated future costs of warranty services. Services rendered with respect to previously installed systems are also billed as a single charge and consist of engineering services related to evaluation and enhancement of equipment, additional technical and user training, and extended warranty services. The related revenue is also recognized at the time the majority of the services are rendered, with a similar reserve established for the estimated costs of the warranty services included in the charge. Use of Estimates. The preparation of financial statements in conformity with ----------------- generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Net Income (Loss) Per Share. Net income per share is computed on the basis ---------------------------- of the weighted average number of shares of common stock outstanding during the period after consideration of the dilutive effect, if more than 3%, of stock options. All options granted by the Company at a price less than the initial public offering price during the 12 months preceding the initial public offering (using the treasury stock method until shares are issued) have been included in the calculation of common and common equivalent shares outstanding for the periods presented if dilutive. F-7 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Cash and Cash Equivalents. The Company considers all highly liquid -------------------------- investments with a maturity not exceeding three months at the date of purchase to be cash equivalents. Short-term investments are stated at lower of cost or market and are insured up to $100,000 by the FDIC. Inventories. Inventories are accounted for on the basis of the lower of cost ------------ or market. Cost is determined on a FIFO (first-in, first-out) basis. Included in inventory is demonstration equipment held for resale in the ordinary course of business. The Company sells its demonstration equipment after the six month holding period required by its primary supplier. Property and Equipment. Property and equipment are recorded at cost and ----------------------- include improvements that significantly add to utility or extend useful lives. Depreciation and amortization of property and equipment is provided using the straight-line and MACRS methods over estimated useful lives ranging from one to seven years. Expenditures for maintenance and repairs are charged to expense as incurred. Income Taxes. The Company accounts for income taxes using SFAS No. 109, ------------- "Accounting for Income Taxes," which requires a liability approach to financial accounting and reporting for income taxes. Concentration of Risk. Items that potentially subject the Company to ---------------------- concentrations of credit risk consist primarily of investments in excess of FDIC limits and accounts receivable. Credit losses have not been material to the Company's operations. Approximately 58% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel. Termination or change of the Company's business relationship with PictureTel, disruption in supply, failure of this supplier to remain competitive in quality, function or price, or a determination by this supplier to reduce reliance on independent distributors such as the Company could have a material adverse effect on the Company. Reclassifications. The Company has reclassified certain items including ------------------ travel expenses relating to technical services of $51,442 to cost of revenue from general and administrative expense for the year ended June 30, 1995 to conform to the current years presentation. F-8 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 3 - CASH - ------------- Cash is summarized as follows:
June 30, ------------------------ 1996 1995 ---------- ---------- Cash in money market....... $1,014,356 $4,602,035 Cash in other accounts..... 448,843 385,904 ---------- ---------- $1,463,199 $4,987,939 ========== ==========
As of June 30, 1996, cash deposits of $150,000 are restricted for use as collateral in connection with an outstanding letter of credit of $250,000 to PictureTel. NOTE 4 - ACCOUNTS RECEIVABLE - ---------------------------- The Company operates in a single business segment. Accounts receivable consist of amounts due from trade customers for direct sales of products and services. NOTE 5 - INVENTORY - ------------------ Inventories are summarized as follows:
June 30, ---------------------- 1996 1995 ---------- -------- Finished goods........................... $ 343,774 $228,916 Demonstration equipment.................. 488,148 155,142 Spare Parts.............................. 272,655 108,040 ---------- -------- $1,104,577 $492,098 ========== ========
NOTE 6 - OTHER CURRENT ASSETS - ----------------------------- Included in other current assets at June 30, 1996 are deferred and prepaid state and federal income taxes of $309,030. Also included are advances to employees, officers and stockholders of $52,790 and $20,787, at June 30, 1996 and 1995, respectively. F-9 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 7 - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment are summarized as follows:
June 30, ------------------- 1996 1995 -------- -------- Computer equipment and software.......... $253,565 $ 37,761 Equipment................................ 180,950 47,231 Furniture and fixtures................... 100,663 51,392 Leasehold improvements................... 103,247 25,557 Autos.................................... 18,931 2,793 -------- -------- 657,356 164,734 Less accumulated depreciation............ 172,656 58,186 -------- -------- 484,700 106,548 Leased equipment under capital leases, net of accumulated amortization......... 355,711 35,008 -------- -------- $820,411 $141,556 ======== ========
NOTE 8 - NOTE PAYABLE - --------------------- Note payable at June 30, 1995 represents a note, guaranteed by the Small Business Administration. The note was repaid in July 1995 with proceeds from the Company's initial public offering which closed on June 15, 1995. NOTE 9 - LONG TERM CAPITAL LEASE OBLIGATIONS - -------------------------------------------- The Company leases a portion of its machinery and equipment under certain capital lease agreements. The following is an analysis of the leased equipment and inventory:
June 30, -------------------- 1996 1995 --------- -------- Equipment....................... $426,570 $84,516 Less accumulated amortization... 90,859 49,508 -------- ------- $335,711 $35,008 ======== =======
F-10 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) The following is a schedule of future minimum lease payments required under capital leases, together with their present value as of June 30, 1996:
Year Ending June 30, -------------------- 1997.......................................... $ 91,986 1998.......................................... 63,900 1999.......................................... 71,900 2000.......................................... 79,028 2001 and thereafter........................... 27,455 -------- $334,269 ======== Net minimum lease payments.................... $412,808 Less amount representing interest............. 78,539 -------- Present value of net minimum lease payments... $334,269 ========
The current portion due under capital lease obligations at June 30, 1996 was $91,986. NOTE 10 - LINE OF CREDIT - ------------------------ The Company maintains a $500,000 credit facility (the "Note") to meet its working capital needs, if required. The Note expires on November 1, 1996 and provides for interest at the prime rate plus one and one-half percent per year. Funds available under the Note are reduced by certain outstanding standby letters of credit issued on behalf of the Company. No amounts were outstanding under the Note at June 30, 1996, although the Company has as of June 30, 1996, five outstanding standby letters of credits aggregating $300,000 of which four were issued in favor of one leasing company in connection with certain capital lease transactions relating to the purchase of computer equipment and furniture and one was issued to a surety company in connection with its issuance of a performance bond on behalf of the Company. The letter of credit holders may draw against the letters of credit if the Company fails to make timely payments or meet certain other conditions. As a result of issuing the five standby letters of credit, the balance available under the Note has been reduced to $200,000. As of June 30, 1996, the Company was in technical default on two of its loan covenants for which it has received a waiver of default from the lender. NOTE 11 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- The Company leases its facilities in California, Colorado, Texas, Tennessee and Georgia, under operating leases, expiring through September 1998. The Company also leases certain equipment. Lease payments for the year ended June 30, 1996 and 1995 were $404,960 and $85,211 respectively. F-11 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Minimum future rental commitments under noncancelable operating leases are as follows:
Year Ending June 30, -------------------- 1997.................. $267,798 1998.................. 198,576 1999.................. 90,422 2000.................. 52,013 2001 and thereafter... 15,679 -------- $624,488 ========
Letter of Credit. The Company's primary supplier, PictureTel Corporation, ----------------- provides the Company with a purchasing line of credit and requires the Company to maintain a letter of credit for $250,000 in favor of PictureTel in connection with this arrangement. The $250,000 letter of credit is collateralized by cash deposits of $150,000 and the assets of the Company. NOTE 12 - COMMON AND PREFERRED STOCK - ------------------------------------ Common stock. On March 20, 1995, the Company effected a 100-for-1 stock ------------- split, increasing the number of outstanding shares to 1,476,000. All share and per-share data have been adjusted to reflect these adjustments to capital stock. Public Stock Offering. On June 15, 1995 the Company completed an initial ---------------------- public stock offering (the "IPO") for the sale of 1,200,000 shares of its common stock at $5.00 per share, less offering expenses. On June 25, 1996 the Company transferred and closed the sale of an additional 180,000 shares of its common stock to a representative of the underwriters on the same terms, solely to cover over-allotments. With the over-allotment option exercised in full, the total price to the public, total underwriting discounts and expenses, other expenses and net proceeds to the Company were $6,971,875, $978,343, $709,318, and $5,284,214, respectively. Warrants. Included in the public stock offering in June 1995, was the sale --------- of 575,000 warrants to the public. All warrants are exercisable at $5.00 per share for a period of two years commencing one year after the effective date of the registration statement. Upon consummation of the public offering, the Company issued the underwriter 120,000 warrants to purchase common stock of the Company at an exercise price of $6.75 or 135% of the public offering price per share. Such warrants may be exercised at any time during the period of five years commencing June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants at an exercise price of $.1675 per warrant or 135 % of the public offering price. Each warrant is exercisable into one share of common stock at a price of $6.75 per share for a three year period commencing on June 15, 1995. F-12 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Preferred Stock. On February 1, 1995, the shareholders approved an ---------------- amendment to the Articles of Incorporation to authorize the issuance of 5,000,000 shares of $.01 par value Preferred Stock. The Preferred Stock may be issued in one or more series with such rights and preferences as may be determined by the Board of Directors. No Shares of Preferred Stock have been issued. Stock Option Plan. In July 1994, the Company began granting stock options ------------------ to key employees and certain non-employee directors and consultants to the Company. The options are intended to provide incentive for such persons' service and future services to the Company thereby promoting the interest of the Company and its shareholders. The stock option plan generally requires the exercise price of options to be not less than the estimated fair market value of the stock at the date of grant. Options vest over a maximum period of four years and may be exercised in varying amounts over their respective terms. In accordance with the Plan, all outstanding options shall become immediately exercisable upon a greater than 30% change in control of the Company. Activity with respect to the Stock Option Plan has been as follows:
Exercise Shares Price -------- -------------- Options outstanding, June 30, 1995... 376,600 $ .250 - 5.000 Granted............................ 498,500 6.375 - 7.750 Exercised.......................... (34,300) .250 - .375 Canceled........................... (16,700) .250 - 6.625 ------- Options outstanding, June 30, 1996 824,100 =======
In addition, as of June 30, 1996, the Company had outstanding an aggregate of 346,000 options primarily to consultants and advisors to the Company. Approximately 6,000 options were issued at a market price of $5.00, the remainder of such options were issued at market prices ranging from $6.375 to $7.375 and are fully vested. NOTE 13 - PENSION AND PROFIT SHARING PLAN - ----------------------------------------- The Company has adopted a 401(k) retirement plan. Employees may contribute up to 15% of their compensation per year, with the Company matching 25% of the employees' contributions not to exceed 5% of the compensation. All employees with six months of continuous service are eligible to participate in the plan. F-13 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Company contributions vest based on the following schedule:
Years of Service Vested Percent ---------------- -------------- Less than 2........................ 0% 2........................ 20% 3........................ 40% 4........................ 60% 5........................ 80% 6 or more................ 100%
Employer contributions to the 401(k) plan for the years ended June 30, 1996 and 1995 were $23,757 and $13,636, respectively. NOTE 14 - OTHER INCOME (EXPENSE) - -------------------------------- Included in other income (expense) at June 30, 1996, is a $265,000 expense incurred in connection with the write-off of the Company's note receivable from Power-Data Services, Inc. ("PDS") which was due on May 31, 1996. The note and interest were not paid when due, therefore, the Company has deemed this note to be uncollectible. NOTE 15 - PROVISION FOR INCOME TAXES - ------------------------------------ Provision for income taxes is as follows:
Years Ended June 30, ------------------------ 1996 1995 ---------- ----------- Current: Federal......................... $178,150 $(185,040) State........................... (800) (68,684) Deferred: Federal......................... 128,309 (34,031) State........................... 46,457 (6,328) -------- --------- $352,116 $(294,083) ======== =========
The current portion of the Federal income tax benefit is comprised of an income tax refund created by the carryback of a net operating loss. The primary components of temporary differences which give rise to deferred taxes at June 30, 1996 are as follows: Deferred tax asset: Reserves and allowances........... $ 22,677 Net operating loss carryforward... 165,007 -------- $187,684 ========
F-14 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) The tax effect of temporary differences that give rise to deferred tax liabilities at June 30, 1996 was not material. Management has determined that the Company will be able to realize the tax benefits of the net deferred tax assets based on the future reversal of the taxable temporary differences. At June 30, 1996, the Company had available net operating loss (NOL) carryforwards of approximately $580,000 for federal income and state tax purposes, respectively. The federal NOL has a carryover period of 15 years and is available to offset future taxable income, if any, through 2011, and may be subject to an annual statutory limitation. NOTE 16 - SUPPLEMENTAL DISCLOSURES - CASH FLOW INFORMATION - ----------------------------------------------------------
Years Ended June 30, --------------------- 1996 1995 ---------- -------- Schedule of noncash transactions: Noncash investing and financing transactions: Cost of fixed assets purchased................ $ 853,134 $66,983 Less lease financing.......................... (395,439) -- --------- ------- Cash paid for fixed assets.................... $ 457,695 $66,983 ========= =======
NOTE 17 - RELATED PARTY TRANSACTIONS - ------------------------------------ The Company had obtained a $100,000 letter of credit used to guarantee payment to a major supplier. The letter of credit matured July 1, 1995, and was secured by a certificate of deposit owned by the Company's President. This certificate of deposit was redeemed and returned to the Company's President. A new letter of credit was obtained at the Company's primary banking institution. One individual who served as a director of the Company through June 24, 1996 is also an executive officer of Windermere Holdings, Incorporated ("Windermere"), who serves as an advisor to the Company. The Company has entered into a management services agreement with Windermere under which Windermere is obligated to assist the Company with a variety of management matters, including strategic initiatives, marketing strategies and contract negotiations. The initial agreement expired on September 30, 1995 and was subsequently renewed by the Company on November 1, 1995 for a period of eight months. In connection with Windermere's services, the Company paid fees and expenses of $72,500 and $32,642, respectively, for the year ended June 30, 1996. One of the Company's directors who served as a director of the Company through June 12, 1996, also serves as an executive officer of Coffin . KCSA, the Company's public relations firm and advisor. In connection with Coffin . KCSA's services, the Company paid fees and expenses of $65,000 and $13,173, respectively for the year ended June 30, 1996 and 1995. F-15 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) NOTE 18 - SUBSEQUENT EVENTS (UNAUDITED) - --------------------------------------- ACQUISITIONS VISTATEL INTERNATIONAL, INC. - ---------------------------- Effective July 1, 1996, the Company acquired the net assets of VistaTel International, Inc., ("VistaTel") a private company, based in Boca Raton, Florida, which is a supplier of video conferencing products and services within the state of Florida and is one of PictureTel's national re-sellers. View Tech issued 52,857 shares of common stock, valued at $7.00 per share, to the sole shareholders of VistaTel. The excess of the acquisition price over the net assets acquired of approximately $339,000 will be accounted for as goodwill and amortized over 15 years. GROUPNET, INC. - -------------- Pursuant to a merger agreement dated August 30, 1996, View Tech acquired GroupNet, Inc. ("GroupNet") for cash and View Tech common stock valued at $1,380,000. The purchase price consisted of 150,000 shares of common stock valued at $7.00 per share and $330,000 in cash, of which, $110,000 was paid on August 30, 1996 in connection with the execution of the agreement, and $220,000 is payable in equal installments of $110,000 due on October 15, 1996 and December 16, 1996, respectively. The excess of the acquisition price over the net assets acquired of approximately $1,330,000 will be accounted for as goodwill and amortized over 15 years. GroupNet, based in Boston, Massachusetts, was an authorized PictureTel dealer in the northeastern United States. GroupNet merged into View Tech, which will continue to operate the business of GroupNet. USTELECENTERS, INC. - ------------------- On September 5, 1996, View Tech announced that it entered into a definitive agreement of merger with USTeleCenters, Inc. ("USTeleCenters"), who is an authorized sales agent for several of the regional bell operating companies. The merger is valued at approximately $18.5 million and is subject to the approval by View Tech's and USTeleCenters' shareholders as well as satisfactory completion of due diligence and certain conditions precedent. USTeleCenters currently owes its primary lender (and such lender's affiliate) approximately $3.0 million which is to be paid in full or appropriately refinanced at the close of such merger. The transaction will be accounted for as a pooling of interests in which USTeleCenters' shareholders will exchange all of their outstanding USTeleCenters shares and options for View Tech common stock and options, respectively. The transaction is expected to be completed on or about November 30, 1996. It is anticipated that USTeleCenters' shareholders and optionholders (upon exercise of their options) will receive up to 2.5 million shares of View Tech common stock. F-16 VIEW TECH, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) During July and August 1996, the Company advanced an aggregate of $1 million to USTeleCenters for working capital purposes and in order for USTeleCenters to repay certain bank debt due on September 1, 1996. The $1 million advanced is evidenced by a note which is subordinated to USTeleCenters' debt obligations to its primary lender (and such lender's affiliates). The promissory note evidencing USTeleCenters' indebtedness provides for interest at 10%, payable quarterly commencing on September 30, 1996. The principal and accrued interest are due on June 15, 1997. The Company is currently seeking bank financing, private debt and/or equity financing for purposes of meeting anticipated cash needs related to the merger with USTeleCenters. The Company is required to either refinance or repay certain debt and lease obligations of aggregating approximately $3.0 million to USTeleCenters' primary lender (and such lender's affiliate) and is required to pay certain merger costs of approximately $1.8 million, primarily consisting of advisory fees and legal and accounting costs. In addition, the Company will require additional working capital to efficiently operate the combined companies during the months following the business combination. Exclusive of the cash required in connection with the merger with USTeleCenters, the Company believes that its existing cash balances, combined with the proceeds from its private placement of common stock, anticipated operating cash flow and borrowings under existing and anticipated credit facilities will be adequate to meet the Company's on-going cash needs for the next twelve months. There can be no assurance that the Company will be able to raise additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. Inability to obtain required additional financing could limit the Company's ability to complete its business combination with USTeleCenters and/or to efficiently operate the combined companies. PRIVATE PLACEMENT - ----------------- Subsequent to June 30, 1996, the Company received subscriptions for equity capital of approximately $1.5 million through the private placement of approximately 300,000 shares of common stock. Upon closing of the private placement, the Company will realize net proceeds of approximately $1.380 million. The Company will use the net proceeds for general working capital purposes and for working capital loans made to USTeleCenters in connection with the proposed merger. F-17 EX-2.1 2 SALE AGREEMENT DATED JULY 10, 1996 EXHIBIT 2.1 SALE AGREEMENT DATE: July 10, 1996 PARTIES: VistaTel International, Inc., a Florida corporation (Seller) View Tech, Inc., a California corporation (Purchaser) RECITALS: A. The Seller is engaged in the business of marketing and servicing video, audio, and data conferencing systems and providing mediaconferencing network services to businesses worldwide (Business). B. The Seller has four (4) offices located in the State of Florida (Offices). C. The Seller wishes to sell, and the Purchaser wishes to buy, substantially all of the assets of the Seller's business in accordance with the provisions of this agreement. AGREEMENTS: SECTION 1. SALE AND PURCHASE OF ASSETS Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties, and agreements of the Seller contained herein, the Purchaser will purchase and acquire from Seller at the Closing, and Seller will sell, assign, transfer, convey, and deliver to the Purchaser at the Closing, the following assets and properties: 1.1 Equipment. All of the equipment, rolling stock, tools, furniture, and fixtures listed on the attached Exhibit A, together with all other tangible personal property owned by the Seller and located at the Offices at the date of the closing of this sale. 1.2 Inventory. All of the inventory, supplies, and marketing materials of Seller produced or used in the operation of the Business. 1.3 Leasehold Interests. All of the interest of the Seller, as tenant, under the real property leases listed on Exhibit B relating to the Offices (Real Property Leases); all interest of the Seller in leasehold improvements on the Offices made pursuant to the Leases; and all of the interest of the Seller, as lessee, in the personal property leases listed on the attached Exhibit B. 1.4 Intangible Assets. All of the goodwill and other intangible assets relating to the Business, including but not limited to customer lists and files and all of Seller's right, title, and interest in and to the business name "VistaTel International," and all goodwill of the Seller's business operated under that name. 1.5 Contracts. All of Seller's right, title, and interest in and to the contracts listed on the attached Exhibit C (Contracts). 1.6 Accounts Receivable. The accounts receivable to be purchased under this agreement are those accounts receivable of customers and employees listed on Seller's Balance Sheet dated June 30, 1996 attached hereto as Exhibit D (Balance Sheet). 1.7 Cash. All of the cash listed on the Balance Sheet. SECTION 2. ASSUMPTION OF LIABILITIES Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties, and agreements of the Seller contained herein, the Purchaser agrees to assume and become responsible for at the Closing all of Assumed Liabilities described in Exhibit E. The Purchaser will not assume or have any responsibility, however, with respect to any other obligation or liability of the Seller not included within the definition provided in Exhibit E. SECTION 3. PURCHASE PRICE The Purchaser agrees to pay to the Seller at the Closing $370,000 (Purchase Price) by delivery of 52,857 shares of common stock in the Purchaser. For purposes of this Agreement, the Purchaser's common stock shall be valued at $7.00 per share. SECTION 4. PROCEDURE FOR PAYMENT At the Closing, the Purchaser will furnish to U.S. Stock Transfer Corporation (the "Exchange Agent") instructions as to the new View Tech stock certificates to be issued to Seller pursuant to the terms of this Agreement. SECTION 5. CLOSING This sale shall be closed at the office of Seller, 2255 Glades Road, Suite 324A, Boca Raton, Florida 3343 on July 17, 1996, or at such other place or at such other time as the parties may agree upon in writing. SECTION 6. SELLER'S CLOSING DOCUMENTS Upon closing of this sale, the Seller shall execute and deliver to the Purchaser the following documents: 6.1 Bill of Sale. A Bill of Sale conveying the equipment, inventory, and other tangible personal property being purchased in accordance with the form attached hereto as Exhibit F. 6.2 Lien Search. A current lien search covering the equipment, inventory, and other tangible personal property being purchased in a form subject to the reasonable satisfaction of counsel for the Purchaser; and termination statements, satisfactions, or partial releases of the property being purchased from any lien or encumbrance shown upon such lien search. 6.3 Assignments of Leasehold Interests. An assignment, in the form attached as Exhibit G, of the Seller's interests in the Leases, together with such consent or consents thereto as may be reasonably required by counsel for the Purchaser, and assignments, in the form attached as Exhibit H, of the Seller's interests in each of the personal property leases listed on Exhibit B, together with such consent or consents thereto as may be reasonably required by counsel for the Purchaser. 6.4 Assignment of Contracts. An assignment, in the form attached as Exhibit I, of the Seller's interests in each of the contracts listed on Exhibit C, together with such consent or consents thereto as may be reasonably required by counsel for the Purchaser. 6.5 Assignment of Business Name. An assignment of the Seller's interest in the business name "VistaTel International" in accordance with the form attached hereto as Exhibit J. 6.6 Certified Resolution. A resolution of the board of directors and shareholders of the Seller, certified to be true and correct and in full force by the Secretary of the Seller, authorizing the execution and delivery of this agreement on behalf of the Seller, authorizing the execution and delivery of the closing documents to be furnished by the Seller, and authorizing performance by the Seller pursuant to this agreement and the documents delivered by the Seller at the time of closing. 6.7 Certificate Regarding Representations and Warranties. A certificate of the Seller that all of the representations and warranties of the Seller contained in this agreement continue to be accurate and in full force and effect to the time of the closing of this sale. 6.8 Noncompetition Agreement. A noncompetition agreement in the form attached as Exhibit K executed by the Seller's shareholders listed on Exhibit L (Shareholders). 6.9 Assignment of Accounts Receivable. An assignment, in the form attached as Exhibit M, of the Seller's rights, title, and interest to collect each of the accounts receivable listed on Exhibit D, together with such consent or consents thereto as may be reasonably required by counsel for the Purchaser. SECTION 7. PURCHASER'S CLOSING DOCUMENTS Upon the closing of this sale, the Purchaser shall execute and deliver to the Seller the following documents: 7.1 Assignment of Leasehold Interests. An assignment, in the form attached as Exhibit G, of the Seller's interest in the Leases, and assignments, in the form attached as Exhibit H, of the Seller's interest in the personal property leases listed on Exhibit B, evidencing the Purchaser's assumption of such leases. 7.2 Certified Resolution. A resolution of the board of directors of the Purchaser, certified to be true and correct and in full force by the Secretary of the Purchaser, authorizing the execution and delivery of this agreement on behalf of the Purchaser, authorizing the execution and delivery of the closing documents to be furnished by the Purchaser, and authorizing performance by the Purchaser pursuant to this agreement and the documents delivered by the Purchaser at the time of closing. 7.3 Certificate Regarding Representations and Warranties. A certificate of the Purchaser that all of the representations and warranties of the Purchaser contained in this agreement continue to be accurate and in full force and effect at the time of the closing of this sale. SECTION 8. WARRANTIES AND REPRESENTATIONS OF SELLER The Seller warrants and represents to the Purchaser that: 8.1 Organization. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida, with all corporate powers necessary to own its assets and property and to carry on its business as so owned and conducted. 8.2 Authority. The Seller has full corporate power and authority to execute and deliver this agreement, to perform the Seller's obligations under this agreement, and to enter into the transactions contemplated by this agreement, and execution and delivery of this agreement has been duly authorized and approved by the Seller's board of directors and shareholders. 8.3 Property. The Seller is in possession of all of the property listed on Exhibit A and its inventory; has good title to all such property, free and clear of any lien, claim, encumbrance, charge, or equity whatsoever; does not hold or possess any such property under any lease, security agreement, conditional sales contract or other title retention or security arrangement; and has not received any notice of any claim by any third person with regard to any such property. 8.4 Financial Statements. The Seller's financial statements for the fiscal year ended December 31, 1995, and the interim financial statements for the period ending June 30, 1996, which have been delivered to the Purchaser, are true, correct, and complete; fairly present the financial condition of the Seller and the results of the Seller's operations; and have been prepared in accordance with generally accepted accounting principles consistently applied. There has been no material adverse change in the financial condition of the Seller since the date of the interim financial statements referred to in this subsection. 8.5 Litigation. There are no actions, suits, claims, or proceedings pending or threatened, by or against the Seller, at law or in equity, before or within the jurisdiction of any federal, state, municipal, or other governmental court, department, commission, board, bureau, agency, or instrumentality. 8.6 Agreement Will Not Cause Breach or Violation. The consummation of the transactions contemplated by this agreement will not result in or constitute a default or an event that, with notice or lapse of time or both, would be a default, breach, or violation of the articles of incorporation or bylaws of the Seller, or any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument, or arrangement to which the Seller is a party or by which the Seller, or any of the property referred to in this agreement is bound, or the creation or imposition of any lien, charge, or encumbrance on any of such property. 8.7 Brokers. The Seller has not employed a broker or brokers in connection with the transactions contemplated by this agreement, nor incurred any finder's fee payable to any person, firm, or corporation as a result of such transactions. 8.8 Adverse Factors. To the best knowledge and belief of the Seller, there are no material adverse factors affecting the assets to be sold under the terms of this agreement nor the business of the Seller in which such assets are used. SECTION 9. WARRANTIES AND REPRESENTATIONS OF PURCHASER The Purchaser warrants and represents to the Seller that: SECTION 13. LICENSES AND PERMITS The Purchaser shall be responsible for obtaining all necessary licenses, permits, or governmental approvals for the operation of the business presently conducted by the Seller. The Seller shall cooperate with the Purchaser in obtaining such licenses, permits, or approvals. However, the obtaining of any license, permit, or approval shall not be a condition of the closing of this sale. SECTION 14. RISK OF LOSS All risk of loss to the property being purchased under this agreement shall remain with the Seller to the date of the closing of this sale and shall pass to the Purchaser upon the closing of this sale. SECTION 15. BOOKS AND RECORDS During the period from the date of this agreement to the date of the closing of this sale, the Purchaser and its representatives shall be permitted access to the business premises of the Seller and access to all books, records, files, and documents relating to the conduct of the business of the Seller. In addition, the Purchaser shall be permitted to contact and discuss with the Seller's officers, employees, attorneys, accountants, suppliers, and other persons who are furnishing, or have furnished, services to the Seller in connection with the business of the Seller all aspects of the conduct of such business, and the Seller shall furnish authorization, in such form as may be requested by one or more of such persons, for any such person to engage in such discussion. The Purchaser shall not disclose any information obtained by the examination or discussion provided in this paragraph to any person except agents and employees of the Purchaser and other persons furnishing advice to the Purchaser in connection with the purchase under this agreement. The inspection and discussion under the provisions of this paragraph, or the opportunity for such inspection and discussion, shall not be deemed a waiver or modification of any representation or warranty of the Seller, except as otherwise specifically provided in this agreement. SECTION 16. NONCOMPETITION AGREEMENT The Shareholders agree to execute and deliver to the Purchaser upon the closing of this sale a Noncompetition Agreement in the form attached as Exhibit K. SECTION 17. TRANSFERABILITY Prior to the closing of this sale, the Purchaser shall not assign or transfer any interest of the Purchaser under this agreement. SECTION 18. MISCELLANEOUS PROVISIONS 18.1 Binding Effect. The provisions of this agreement shall be binding upon and inure to the benefit of the heirs, personal representatives, successors, and assigns of the parties. 18.2 Notice. Any notice or other communication required or permitted to be given under this agreement shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, addressed to the parties at the following addresses: If to the Seller: VistaTel International, Inc. 2255 Glades Road, Suite 324A Boca Raton, FL 33431 Attention: James Bell If to the Purchaser: View Tech, Inc. 950 Flynn Road Camarillo, CA 93012 Attention: Robert G. Hatfield All notices and other communications shall be deemed to be given at the expiration of three days after the date of mailing. The address of a party to which notices or other communications shall be mailed may be changed from time to time by giving written notice to the other parties. 18.3 Litigation Expense. In the event of a default under this agreement, the defaulting party shall reimburse the nondefaulting party or parties for all costs and expenses reasonably incurred by the nondefaulting party or parties in connection with the default, including without limitation attorney's fees. Additionally, in the event a suit or action is filed to enforce this agreement or with respect to this agreement, the prevailing party or parties shall be reimbursed by the other party for all costs and expenses incurred in connection with the suit or action, including without limitation reasonable attorney's fees at the trial level and on appeal. 18.4 Waiver. No waiver of any provision of this agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 18.5 Applicable Law. This agreement shall be governed by and shall be construed in accordance with the laws of the State of Florida. 18.6 Counterparts. This agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 18.7 No Third Party Beneficiaries. This agreement shall not confer any rights or remedies upon any other person or entity other than the parties hereto and their respective successors and permitted assigns. 18.8 Severability. Any term or provision of this agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 18.9 Entire Agreement. This agreement constitutes the entire agreement between the parties pertaining to its subject matter, and it supersedes all prior contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this agreement shall be binding unless executed in writing by all parties. IN WITNESS WHEREOF, the undersigned have executed this agreement effective as of July 10, 1996. VistaTel International, Inc. By: /s/ Mark McLain -------------------------- Title: President ----------------------- View Tech, Inc. By: /s/ Robert G. Hatfield ---------------------------- Title: Chief Executive Officer ---------------------------- EX-10.15 3 CONSULTING AGREEMENT DATED AS OF NOVEMBER 1, 1995 EXHIBIT 10.15 November 1, 1995 Mr. Robert E. Yaw II Windermere Holdings, Incorporated The Oaks 227 St. James Park Osprey, Florida 34229 Re: Consulting Agreement --------------------- Dear Mr. Yaw: This letter confirms View Tech, Inc.'s (the "Company") agreement (this "Consulting Agreement") to retain Windermere Holdings, Incorporated and its employees (collectively "WHI") to position management and the Company so as to increase the Company's visibility in its industry and position it for growth in the future. Attached hereto is a summary of the major activities that WHI will perform in connection with this Consulting Agreement. This summary is incorporated into the terms of this Consulting Agreement between WHI and the Company. Below are additional agreements between the parties with respect to this Consulting Agreement: 1. Term. Commencing November 1, 1995, the Company hereby appoints WHI to ---- perform the duties and render the services described in the attached Summary of Services on a month to month basis subject to termination upon 30 days written notice from either party. 2. Non-Exclusive Services. WHI will devote part of the time and efforts ---------------------- of its employees to the Company during the term of this Consulting Agreement. 3. Board Approval. This Consulting Agreement has not been approved by the -------------- Company's board of directors and is only binding upon the Company if and when such approval is obtained. 4. Compensation. In consideration of WHI's services, the Company shall ------------ pay WHI a cash retainer of $5,000 per month due on the first day of each month through June 30, 1996, for a total of $40,000, plus reimbursement of reasonable out-of-pocket expenses. Such reasonable out-of-pocket expenses incurred in the performance of its services hereunder shall be documented by WHI in a writing submitted to the Company at least 30 days prior to the date payment is to be made hereunder. 5. Non-Competition. WHI from time to time may represent entities in --------------- competition with the Company, and the Company acknowledges that such representation is not a breach of this Consulting Agreement. Nevertheless, WHI (i) shall not divulge trade secrets or confidential information of any sort with respect to the Company; and (ii) shall advise the Company of any such business relationship. Robert E. Yaw II November 1, 1995 Page 2 6. Non-Assignability. This Consulting Agreement shall inure to the ----------------- benefit of and shall be binding upon the successors and the assigns of the Company. Since this Consulting Agreement is based upon the unique abilities and personal confidence in WHI and its employees, WHI shall have no right to assign this Consulting Agreement or any of the rights hereunder written without the written consent of the Company. 7. Notices. Any change of address must be sent to the other party via ------- such procedure to be valid against such other party. 8. Severability. If any provision of this Consulting Agreement shall be ------------ found invalid by any court of competent jurisdiction, such findings shall not effect the validity of the other provisions hereto. Any notice required or permitted to be given hereunder shall be sufficient if in writing and if sent by certified mail or facsimile to the parties at their present principal business addresses. If any provision of this consulting agreement should be found invalid by any court of competent jurisdiction, such findings shall not effect the validity of the other provisions hereof and the invalid provisions shall be deemed to have been severed herefrom. 9. Entire Agreement. This Consulting Agreement constitutes the entire ---------------- agreement between the parties pertaining to its subject matter, and it supersedes all prior contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Consulting Agreement shall be binding unless executed in writing by all parties. 10. Attorneys's Fees. If any action is brought to enforce the terms of ---------------- this Consulting Agreement, the prevailing party shall be entitled to its costs and reasonable attorneys' fees. 11. Arbitration. Any dispute concerning this Consulting Agreement shall ----------- be settled by binding Arbitration in accordance with the Rules of the American Arbitration Association in the County of Ventura, State of California. If the terms hereof meet with your approval, please indicate by signing below. Sincerely, By: /s/ Robert G. Hatfield --------------------------------------------- Robert G. Hatfield, Chief Executive Officer Agreed and accepted as of the date first above stated: Windermere Holdings, Incorporated By: /s/ Robert E. Yaw II --------------------------------------------- Robert E. Yaw II, its Chairman SUMMARY OF SERVICES RESEARCH REPORT - ---------------- WHI will assist the Company in locating a securities firm capable of providing analyst coverage of the Company, its products, and the industries in which it competes. BOARD OF DIRECTORS AND ADVISORY BOARD - -------------------------------------- WHI will continue to assist the Company in maintaining a quality board of directors and introducing the Company to other people that can provide their respective expertise as board members or advisors to the board of directors. FINANCING OPTIONS/ACQUISITION CANDIDATES - ----------------------------------------- WHI will assist the Company in reviewing different financing options/acquisition candidates that will enable the Company to continue to grow and take advantage of marketing opportunities. PUBLIC RELATIONS - ---------------- WHI will assist the Company with any and all appropriate press releases, designed not only for the trade community but also the investment community. The public relations will: serve to create a higher degree of visibility for the Company within its trade; be used for marketing purposes among present and future clients; and develop a level of awareness among potential investors. EX-10.16 4 LOAN AND SECURITY AGREEMENT DATED JULY 26, 1996 EXHIBIT 10.16 LOAN AND SECURITY AGREEMENT This Loan and Security Agreement ("Agreement") is made this 26th day of July, 1996, between View Tech, Inc., a California corporation ("Lender"), with its principal office address located at 950 Flynn Road, Camarillo, California, and USTeleCenters, a Massachusetts corporation ("Borrower"), with its principal office address located at 745 Atlantic Avenue, Boston, MA. In consideration of the loan agreed to be made, the security interest granted, and the other covenants and agreements made by this Agreement, and for other good and valuable consideration, the receipt and sufficiency of all of which are acknowledged, the parties agree as follows: 1. Purpose of Agreement. The purpose of this Agreement is to establish the terms upon which Lender will make a loan to Borrower subject to the terms of the Subordination Agreement between Lender, Borrower, and the Bank of Boston of even date herewith. 2. Definitions. The following terms shall have the following meanings: (a) "Obligations" shall mean (1) all sums due and payable by Borrower (i) to Lender with respect to the Loan (together with all other sums due under the Loan Documents) or (ii) to Lender, or its affiliates and subsidiaries pursuant to any Related Documents; and (2) all other Indebtedness, obligations, and liabilities of the Borrower to Lender now existing or hereafter incurred or created. (b) "Collateral" shall mean the property of Borrower set forth on attached Exhibit A, and all additions, attachments and successions to it, all replacements of it, all substitutions for it and all cash and non-cash proceeds of such property. (c) "Loan Documents" shall mean this Agreement, all exhibits to it, and all notes, financing statements and other documents executed pursuant to this Agreement or contemplated by it or executed to provide further assurance to Lender with respect to collection of sums under this Agreement or under the Note. (d) "Note" shall mean the Promissory Note executed and delivered by Borrower pursuant to Section 3 of this Agreement. (e) "Related Documents" shall mean any accounts, leases, agreements, undertakings or other arrangements other than the Loan Documents, to which Borrower is a party or by which it is bound and to which Lender and its affiliates and its subsidiaries are also a party. (f) "Indebtedness" shall, with respect to any person or entity, mean: (1) all obligations of such person or entity for borrowed money; (2) all obligations of such person or entity evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of such person or entity in respect of letters of credit, letter of credit guaranties, 1 bankers acceptances, interest rate swaps, controlled disbursement accounts, or other financial products; (3) all obligations under capital leases; (4) all obligations or liabilities of others secured by a lien or security interest on any property or asset of such person or entity, irrespective of whether such obligation or liability is assumed; and (5) any obligation of such person or entity guaranteeing or intended to guarantee (whether guaranteed, endorsed, co- made, discounted, or sold with recourse to such person or entity) and any indebtedness, lease, dividend, letter of credit, or other obligation of any other person or entity. 3. Loan. (a) Lender agrees to loan to Borrower $1,000,000 (the "Loan") to be loaned in two $500,000 advances, the first on July 26, 1996, and the second on August 15, 1996, subject to the terms hereof and of the Note of even date. (b) Lender's obligation to make the Loan or any advance hereunder is subject to the following conditions: (i) The Loan shall be evidenced by a Promissory Note in the form of the annexed Exhibit B, which Promissory Note shall be executed and delivered by Borrower to Lender contemporaneously with the making of such Loan; (ii) The proceeds of the Loan shall be used solely to fund the ordinary working capital needs of the Borrower; (iii) The aggregate principal amount of the Loan shall not exceed $1,000,000; and (iv) Borrower is not then in default under any Obligations or in payment or acceleration of the maturity of any other Indebtedness of Borrower owing to any person. (c) Notwithstanding the provisions of Section 3(b) above, Lender shall not have any obligations to advance the final $500,000 hereunder if Borrower is in default under any of the terms provided herein or in the Note. 4. Representations. To induce Lender to enter into this Agreement, Borrower makes the following representations and warranties on which it agrees Lender is entitled to rely: (a) Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation and is duly qualified and in good standing under the laws of those states in which the present conduct of its business requires that it be qualified to do business. (b) The execution, delivery and performance of this Agreement and all other Loan Documents are within the Borrower's corporate powers, have been duly authorized, are not in contravention of law or the terms of Borrower's charter, bylaws or other corporate records, or of any indenture, agreement or undertaking to which the Borrower is a party or by which it is bound. 2 (c) Except for the security interest granted by Borrower and any prior liens, security interests or encumbrances of which Borrower has notice, if any, set forth on Exhibit C, Borrower is the owner of the Collateral free of any lien, security interest or other encumbrance. (d) This Agreement and the related documents which are exhibits to it have been properly executed on behalf of Borrower and, upon execution by Lender, this Agreement and the Related Documents and the transactions contemplated by them, will be the valid and binding obligation of Borrower, fully enforceable against Borrower in accordance with their respective terms, except as may be limited by bankruptcy and the laws of creditors' rights generally. (e) Borrower is not in default with respect to any of its existing indebtedness or under the terms of any other undertaking, agreement or document to which it is a party or by which it is bound, and the execution by Borrower of this Agreement and the other Loan Documents will not cause a default or acceleration of any Indebtedness or other obligation contained in any other undertaking, agreement or document to which the Borrower is a party or by which it is bound, either immediately, or after notice and/or the passage of time. No action, event or condition has occurred and is continuing to occur which, with notice or the passage of time or both, would constitute a default under any provision of this Agreement or any other agreement, undertaking or document to which Borrower is a party or by which Borrower is bound. (f) There are no suits or proceedings pending, or to the knowledge of Borrower, threatened against or affecting Borrower, which, if adversely determined, would have a material adverse effect on the financial condition, business, operations, assets, properties, or prospects of Borrower subsequent to Borrower's June 30, 1996 Balance Sheet, and there are no proceedings by or before any governmental commission, board, bureau, or other administrative agency pending, or to the knowledge of Borrower, threatened against Borrower. (g) Borrower has obtained all consents, approvals or authorizations and given all notices that Borrower is required to give with respect to the execution and delivery of this Agreement and the other Loan Documents of the undertaking or performance of any obligation under this Agreement or under any of the other Loan Documents. (h) Except as may be set forth on Exhibit A, all of the Collateral is located at the Borrower's principal place of business stated above and at Borrower's other offices located at the addresses provided on Exhibit E. (i) The financial statements and information of Borrower delivered to Lender in connection with the Loan, are complete and correct and fairly present the financial position of Borrower and have been prepared in accordance with generally accepted accounting principles on a consistent basis throughout the periods involved. Since the date of the latest of such statements, there has been no material adverse change in the financial condition, business, operations, assets, properties, or prospects of Borrower from that set forth in Borrower's June 30, 1996 financial statements, which are attached hereto as Exhibit D. 3 (j) There are no facts known to Borrower which have not been disclosed in writing to Lender which could result in a material adverse change in the financial condition, business, operations, assets, properties, or prospects of Borrower subsequent to Borrower's June 30, 1996 Balance Sheet. 5. Covenants of Borrower. While this Agreement continues in effect, and while any sum payable under the terms of the Loan Documents is outstanding, Borrower covenants and warrants to Lender that it will, unless the prior written consent of the Lender to do otherwise is obtained: (a) Continue its existence in good standing in all states in which the conduct of its business requires Borrower to be qualified to do business and in good standing. (b) Except for the liens disclosed in Exhibit C, keep the Collateral free of any lien, security interest or other encumbrance and defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest adverse to Lender. (c) Give Lender written notice of each location at which the Collateral is or will be kept other than for temporary processing, storage or similar purposes and, except to the extent such notice is given, all Collateral shall be kept at Borrower's addresses as it appears at the beginning of this Agreement. (d) Give Lender immediate notice of any alleged or actual default by Borrower under any indenture, agreement, document or undertaking to which Borrower is a party or by which it is bound (including but not limited to the Related Documents), or of any threatened claim or litigation or proceeding commenced in which a decision adverse to Borrower would require payment by Borrower of $50,000 or more or otherwise have a material adverse effect on Borrower's financial condition, business, operations, assets, properties, or prospects of Borrower subsequent to Borrower's June 30, 1996 Balance Sheet. (e) Furnish to Lender (i) a monthly balance sheet and profit and loss statement of Borrower in the format prescribed by Lender on or before the 15th day of each month for the preceding month, and (ii) a statement of financial condition and statement of income and expense of Borrower in the format prescribed by Lender on or before the 90th day after the end of each fiscal year of Borrower, which statements shall be certified by an officer of Borrower. (f) As evidenced by Debtor's quarterly financial statements, maintain a debt to equity ratio not greater than the ratio computed based on the Borrower's June 30, 1996 Balance Sheet including the proceeds of the Loan made hereunder (for purposes of this provision "debt" shall mean all liabilities of Borrower and "equity" shall mean the sum of all amounts attributable to stock and capital contributed in excess of par value (but shall not include retained earnings)). (g) As evidenced by Debtor's quarterly financial statements, maintain a minimum net worth not less than the net worth shown on Borrower's June 30, 1996 Balance Sheet including the proceeds of the Loan made hereunder (for purposes of this provision "net worth" shall mean 4 the amount of shareholders equity less the sum of all intangible assets other than amounts paid as area or franchise fees). (h) Furnish to Lender from time to time such further information regarding the financial condition, business, operations, assets, properties, or prospects of Borrower as Lender may reasonably request. (i) Duly pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower or upon any properties belonging to Borrower, prior to the date on which penalties attach, and all lawful claims which if unpaid, might become a lien or charge upon Borrower's properties, provided that Borrower shall not be required to pay such tax, assessment, charge, levy or claim which is being contested by Borrower in good faith and by proper proceedings and for which a reserve has been established, in case of an adverse final decision. (j) Comply with the requirements of all applicable laws, rules, regulations, rulings and orders of any governmental or judicial authority, noncompliance with which would have a material adverse affect upon Borrower's financial condition, business, operations, assets, properties, or prospects of Borrower. (k) Maintain and preserve all of Borrower's properties necessary or useful in the proper conduct of Borrower's business in good working order and condition, ordinary wear and tear excepted. (l) Not sell, transfer, lease or otherwise dispose of all or any material part of its assets, except in the ordinary course of its business. (m) Not incur, create, assume or permit to exist any Indebtedness that equals or exceeds $100,000 except the Loan and existing Indebtedness disclosed to Lender on Exhibit D (Borrower's June 30, 1996 Balance Sheet) except for unsecured trade indebtedness incurred in the ordinary course of business. (n) Except for distributions necessary to pay taxes incident to Borrower's Sub-S status, not declare or pay any dividends upon its outstanding shares; make any loans to directors, officers, stockholders or employees; make or enter into any agreement under which Borrower would be bound to make, any purchase, redemption, retirement or other acquisition for value of any of its outstanding shares. (o) Except for distributions necessary to pay taxes incident to Borrower's Sub-S status, not make any distributions to stockholders or pay any principal or interest of any stockholder loans. (p) Shall make good faith efforts to negotiate and execute with Lender a definitive merger agreement relating to the merger between Lender and Borrower by August 16, 1996. 5 (q) Not permit anything to be done to the Collateral which could materially impair its value. (r) Apply the proceeds of the Loan to fund Borrower's ordinary working capital needs. 6. Insurance. (a) Borrower will insure the Collateral against all insurable casualties and risks. Within 15 days of the date hereof, Borrower will add Lender as an additional insured or loss payee under all its existing property and general liability insurance policies, and copies of all policies or certificates of insurance shall be furnished to Lender. Borrower will pay all premiums due or to become due for such insurance. (b) Borrower, its president, and its chief financial officer shall provide Lender and its agents with all information, execute any documents, and take any actions, including but not limited to, taking physical examinations, that Lender and its agents may reasonably request in connection with attempting to obtain life insurance on the lives of the president and/or the chief financial officer of Borrower, naming Lender as beneficiary, and Lender may, at its option, maintain such insurance as long as any amounts are outstanding under the Loan Documents in an amount equal to or in excess of all amounts due Lender under the Loan Documents. 7. Grant of Security Interests. (a) As security for the payment and satisfaction of all Obligations, Borrower grants to Lender a security interest in the Collateral, wherever located, whenever acquired by Borrower, together with all substitutions and replacements and renewals. (b) The security interest granted by Borrower to Lender pursuant to this Agreement upon perfection shall be an indefeasible lien and security interest with respect to the Collateral prior to any other liens or encumbrances on the Collateral except such liens, security interests or encumbrances set forth on Exhibit C. (c) Lender shall, in addition to all other rights granted in this Agreement, have all the rights and benefits available to a secured party under the terms of the Uniform Commercial Code in effect in the state in which Borrower's principal place of business (set forth above) is located. (d) Borrower agrees to execute all financing statements which Lender may request Borrower to execute to further evidence and to perfect Lender's security interest in the Collateral and to do all other acts or things and execute all other documents which may be required to further perfect and protect Lender's security interest in the Collateral. (e) At such time as all of the Obligations arising in connection with the Loan are repaid, Lender will, at Borrower's expense, execute releases of financing statements and return any of the Collateral then in Lender's possession and do all such other acts and things and execute all such documents as may be necessary to release the security interest granted to Lender. 6 8. Collection of Accounts Receivable and Other Assets. (a) Until Lender requires that debtors owing accounts to Borrower be notified of Lender's security interest, Borrower shall continue to collect all accounts and shall either hold the proceeds received in trust for Lender until paid to Lender or shall reinvest such proceeds in additional inventory or equipment or use such proceeds for then current working capital needs. Lender agrees that it will not execute its rights under this Paragraph 8(a) unless there is an Event of Default as defined in Paragraph 9 below. (b) Borrower irrevocably appoints Lender its true and lawful attorney, with power of substitution, in the name of Borrower or in the name of Lender or otherwise for the use and benefit of Lender, but at the cost and expense of Borrower, without notice to Borrower or any of its representatives or successors, to repair, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any account debtor from which any Collateral has arisen; to demand, collect, receipt for and give renewals, extensions, discharges and releases of any Collateral, to institute and to prosecute legal and equitable proceedings to realize upon the Collateral, to settle, compromise, compound or adjust claims in respect to any Collateral or any legal proceedings brought in respect of it; and generally to sell in whole or in part for cash, credit or property to others or to itself at any public or private sale, assign, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner for all purposes. Lender agrees that it will not execute its rights under this Paragraph 8(b) unless there is an Event of Default as defined in Paragraph 9 below. (c) Borrower also irrevocably appoints Lender its true and lawful attorney, with power of substitution, in the name of Borrower or in the name of Lender or otherwise for the use and benefit of Lender, but at the cost and expense of Borrower, without notice to Borrower or any of its representatives or successors, to take control in any manner of cash or non-cash items of payment or proceeds; to endorse the name of Borrower upon any notes, acceptances, checks, drafts, money orders, bills of lading, freight bills, chattel paper or other evidences of payment or Collateral that may come into Lender's possession; to sign Borrower's name on any invoices relating to any accounts, on drafts against account debtors and notices to account debtors; to sign Borrower's name on any proof of claim in bankruptcy against any account debtor; to sign Borrower's name on any notice of lien, claim of mechanics lien or assignment or satisfaction of mechanics lien; to notify all account debtors to make payment of all accounts to Lender; to apply any funds collected by Lender as a result of the acts Lender is permitted to perform against sums due under the Loan Documents, and to do all acts and things necessary in Lender's sole judgment, to carry out this Agreement. Lender agrees that it will not execute its rights under this Paragraph 8(c) unless there is an Event of Default as defined in Paragraph 9 below. 9. Events of Default, Acceleration. The following shall constitute Events of Default and shall entitle Lender to exercise Lender's rights and remedies under this Agreement, including but not limited to those specified in Section 10. 7 (a) Subject to Paragraph 9(c) below with respect to the amounts due hereunder, the failure of Borrower to pay or perform any of the Obligations in excess of $50,000 (whether such Obligations are pursuant to the Loan Documents or the Related Documents) as and when due and payable. (b) The determination that any material representation or warranty of Borrower contained in this Agreement or any other Loan Document or any other published materials provided to Lender is not true, accurate and complete and is materially misleading. (c) The failure of Borrower to perform, observe or comply with any of the provisions of the Loan Documents or the Related Documents within 30 days of the date of written notice of such failure. (d) The filing of any petition for relief under the Bankruptcy Code or any similar federal or state statute by or against Borrower or the failure by Borrower to generally pay its debts as they become due. (e) An application for the appointment of a receiver for the making of a general assignment for the benefit of creditors by, or the insolvency of, Borrower. (f) The dissolution, merger, consolidation or reorganization of Borrower, other than a merger, consolidation or reorganization with the Lender. (g) If there is any change of control of Borrower, whether voluntary or involuntary, by sale, merger, consolidation, reorganization or otherwise, other than a merger, consolidation or reorganization with the Lender. (h) If any creditor of Borrower proceeds, threatens to proceed or notifies Borrower of its intention to proceed to enforce its rights under the provisions of any instrument creating an interest in the assets of Borrower or if any creditor of Borrower seeks, threatens or notifies Borrower of its intention to accelerate the payment of any Indebtedness owing to it by Borrower, or if Borrower is otherwise in default under the terms of any agreement creating an interest in the assets of Borrower. (i) If Lender in its sole discretion determines in good faith that a material adverse change has occurred in the financial condition, business, operations, assets, properties, or prospects set forth in Borrower's June 30, 1996 Balance Sheet attached hereto as Exhibit D or from the financial condition, business, operations, assets, properties, or prospects of Borrower most recently disclosed to Lender in any manner. 10. Remedies. Upon the occurrence of an Event of Default, Lender may, at its option, and except as otherwise set forth herein without notice to Borrower, declare the unpaid balance of the Note to be immediately due and payable. In this event (and in addition to all of its rights, powers and remedies under this Agreement), Lender shall have all of the rights and remedies of a secured party under applicable provisions of the Uniform Commercial Code and under other applicable laws. Borrower, upon demand by Lender, shall assemble the Collateral and make it 8 available to Lender at a place designated by Lender which is mutually convenient to both parties. Lender or its agents may enter upon the Borrower's premises to take possession of the Collateral, to remove it, to render it unusable or to sell or otherwise dispose of it. Any written notice of the sale, disposition or other intended action by Lender with respect to the Collateral which is required by applicable laws and is sent by regular mail, postage prepaid, to Borrower at the address of Borrower specified above, or such other address of Borrower which may from time to time be shown on Lender's records, at least 5 days prior to such sale, disposition or other action, shall constitute reasonable notice to Borrower. Borrower shall pay to Lender on demand any and all expenses incurred or paid by Lender in establishing, defending, protecting or enforcing its security interest or rights upon or under the Loan Documents or with respect to the Collateral or in collecting all amounts due, including, without limitation, all of Lender's reasonable attorneys fees, accountants and appraisers fees, fees of auctioneers and selling agents, costs of taking possession, repair and refurbishing of the Collateral, cost of sale of the Collateral and cost of perfecting or protecting any security interest in the Collateral, and the cost of filing all financing statements or other documents required to perfect Borrower's security interest, including but not limited to all recording costs and taxes. All of such sums shall be deemed to be additional amounts due under this Agreement. 11. Deficiency. If the sale or other disposition of the Collateral fails to fully satisfy the Obligations in connection with the Loan, Borrower shall remain liable to Lender for any deficiency. 12. Remedies Cumulative. Each right, power and remedy of Lender as provided for in this Agreement or in the Loan Documents or existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Agreement or in the Loan Documents or existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Lender of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other rights powers or remedies. 13. Waiver. No failure by Lender to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of the Loan Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant or agreement of any such breach, or preclude Lender from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any sum due under the Loan Documents or any of the Obligations, Lender shall not be deemed to have waived the right either to regular payment when due of all other sums due under the Loan Documents or Obligations, or to declare a default for failure to effect such payment of any such other sum due Lender. 14. Expenses. Borrower shall pay to Lender on demand any and all expenses incurred or paid by Lender in establishing, defending, protecting or enforcing its security interest or rights upon or under the Loan Documents or with respect to the Collateral or in collecting all amounts due, including, without limitation, all of Lender's reasonable attorneys fees, accountants and 9 appraisers fees, fees of auctioneers and selling agents, costs of taking possession, repair and refurbishing of the Collateral, cost of sale of the Collateral and cost of perfecting or protecting any security interest in the Collateral, and the cost of filing all financing statements or other documents required to perfect Borrower's security interest, including but not limited to all recording costs and taxes. All of such sums shall be deemed to be additional amounts due under this Agreement. 15. Miscellaneous. The paragraph headings of this Agreement are for convenience only, and shall not limit or otherwise affect any of the terms. Neither this Agreement nor any term, condition, covenant or agreement of it may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. Lender reserves the right to assign the Promissory Note to be executed by Borrower provided the terms and conditions of the Note shall remain the same. This Agreement shall be governed by any applicable laws, and shall be binding upon the successors and assigns of Borrower and shall inure to the benefit of the successors and assigns of Lender. As used in this Agreement, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders, as the context may require, and the term "person" shall include an individual, a corporation, an association, a partnership, a trust and an organization. Unless varied by this Agreement, all terms which are defined by the Uniform Commercial Code shall have the same meanings under this Agreement as assigned to them by the Uniform Commercial Code. All covenants, agreements, representations and warranties made by Borrower shall survive the making of the Loan and the execution and delivery of the Note, and shall continue in full force and effect until all of the obligations arising in connection with the Loan are repaid. 16. Venue; Jurisdiction. All actions with respect to this Agreement and the Related Documents will be instituted in a state court sitting in Ventura County, California or in a federal court for the Central District of California subject to the provisions on arbitration. By the execution of this Agreement, Borrower irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waives: (a) any objection the Borrower might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum. 17. Arbitration. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Agreement or the Related Documents, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association, upon request of either party, in the County of Ventura, State of California. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. 10 In witness, the parties executed this Agreement on behalf of each of the parties by their respective duly authorized officers and subscribed on the day written above. View Tech, Inc. By /s/ Robert G. Hatfield ---------------------------- USTeleCenters, Inc. By /s/ Franklin A. Reece, III -------------------------------- 11 PROMISSORY NOTE $1,000,000 Camarillo, California July 26, 1996 FOR VALUE RECEIVED, USTELECENTERS, INC., a Massachusetts corporation (the "Borrower"), promises to pay to the order of VIEW TECH, INC., a California corporation, its successors and assigns (the "Lender") at 950 Flynn Road, Camarillo, California 93012, or at such other place as might be designated in writing by the Lender, the principal sum of One Million and 00/100 Dollars ($1,000,000.00) or so much thereof as has been disbursed by the Lender and remains unpaid, together with interest thereon at the rate of ten percent per annum. Interest will be calculated on the basis of the actual days elapsed based on a per diem charge computed over a year composed of three hundred sixty (360) days. All loan proceeds shall be disbursed in accordance with the terms of the Loan and Security Agreement between Lender and Borrower of even date herewith. Principal and interest will be paid as follows: Absent default, the Borrower shall make quarterly interest payments on this Promissory Note, which are due and payable commencing with the quarter ending September 30, 1996. The entire unpaid balance of principal and accrued but unpaid interest owing will be due and payable on June 15, 1997. Interest due shall be calculated from July 29, 1996 on the first $500,000 disbursed, and from the date of funding on the second $500,000. However, if prior to the scheduled repayment as set forth herein, the Borrower issues options and/or shares of its common stock which give the holders thereof more than 10% ownership of the Borrower based upon the number of shares currently outstanding, the outstanding principal and all accrued and unpaid interest shall immediately become due and payable. Advances and payments under this Note may, at the option of the Lender, be recorded on this Note, which will be prima facie evidence of such advances, payments and the unpaid balance of this Note, absent a showing of manifest error. The Borrower will have the right at any time and from time to time to prepay the unpaid principal balance of this Note in whole or in part without penalty, but with interest on the unpaid principal balance accrued to the date of prepayment. The Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender's rights under this Note or otherwise relating to the indebtedness hereby evidenced, the Borrower will pay the Lender's reasonable attorneys' fees, all court costs and all other expenses incurred by the Lender in connection therewith. The Lender may collect a late charge equal to five percent (5%) of each payment which is not received by the Lender within ten (10) days after the due date of such payment. Such late charge represents the estimate of reasonable compensation for the loss which will be sustained by the Lender arising from the Borrower's failure to make timely payments and may be collected without prejudice to the rights of the Lender to collect any other amounts arising from the occurrence of an Event of Default. During the existence of any Event of Default, the Lender may apply payments received on any amount due hereunder or under 12 the terms of any instrument now or hereafter evidencing or securing payment of this indebtedness as the Lender determines from time to time. This Note is issued by the Borrower and accepted by the Lender pursuant to a lending transaction negotiated, consummated and to be performed in the states of California and Massachusetts. This Note is to be construed according to the internal laws of the State of California. All actions with respect to this Note or any other instrument securing payment of this Note will be instituted in a state court sitting in Ventura County, California or in a federal district court for the Central District of California subject to the provisions on arbitration. By the execution of this Note, the Borrower irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waives: (a) any objection the Borrower might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum. On the breach by the Borrower of any provision of this Note or any other instrument now or hereafter evidencing or securing payment of the indebtedness hereby evidenced or on the default in payment or performance under any instrument governing, evidencing or securing payment of disbursements in the principal amount of up to One Million and 00/100 Dollars ($1,000,000.00) made by the Lender to the Borrower of even date, at the option of the Lender, the entire indebtedness evidenced by this Note will become immediately due, payable and collectible then or thereafter as the Lender might elect, regardless of the date of maturity of this Note in accordance with the provisions of this Note. Failure by the Lender to exercise such option will not constitute a waiver of the right to exercise the same on the occurrence of any subsequent Event of Default. This Note is intended to strictly conform with all usury laws to the extent applicable to the transactions contemplated hereby. The provisions of this Note and of all agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, shall the amount contracted for, charged, paid or agreed to be paid to the Lender for the use, forbearance or retention of money or credit hereunder or otherwise exceed the maximum rate permitted by law therefor. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between the Borrower and the Lender shall, at the time of the execution and delivery thereof, or at the time or performance of such provision shall be due, involve or purport to require any payment in excess of the limits prescribed by law, the obligation to be performed or fulfilled shall be reduced automatically to the limit prescribed by law without the necessity of the execution of any amendment or new document. The following events shall be deemed "Events of Default:" A. Nonpayment. The nonpayment when due of any installment of ---------- interest or principal owing under this Note within 30 days of the date of written notice of such non-payment. B. Breach of Agreement. The failure by the Borrower to perform ------------------- or observe any written representation, warranty or agreement provided to Lender. C. Representations and Warranties. Any representation, ------------------------------ statement, certificate, schedule or report made or furnished to the Lender by or on behalf of the Borrower proves to be false or erroneous in any respect at the time of the making thereof. D. Insolvency; Bankruptcy. The insolvency (meaning an inability ---------------------- to pay debts as the same become due or the existence of liabilities in excess of assets) of Borrower, or the institution of 13 bankruptcy, reorganization, liquidation, receivership or conservatorship proceeding by or against Borrower. E. Judgment. Entry by any court of a final uninsured judgment -------- against Borrower which is not discharged or stayed to the satisfaction of the Lender. F. Other Debt. The default in payment or acceleration of the ---------- maturity of any indebtedness of Borrower owing to any person or persons, including the Lender, which in the aggregate exceeds $100,000. G. Adverse Change. The occurrence of a material adverse change -------------- subsequent to the Borrower's June 30, 1996 Balance Sheet in the financial condition, business, operations, assets, properties, or prospects of Borrower. H. Ownership and Management. A change in the controlling ------------------------ ownership, the president, or the chief financial officer of Borrower shall occur which is unsatisfactory to Lender. I. Corporate Existence. Any act or omission (formal or informal) ------------------- of Borrower or its officers, directors or shareholders leading to, or resulting in, the termination, invalidation (partial or total), revocation, suspension, interruption or unenforceability of its corporate existences, rights, licenses, franchises or permits, or the transfer or disposition (whether by sale, lease or otherwise) to any person of all or a substantial part of their property. Within five (5) business days of the date of written notice (the "Cure Period") of the occurrence of an Event of Default as defined herein and in the Loan and Security Agreement of even date between Lender and Borrower (the "Loan Agreement"), Borrower shall cure any such Event of Default. Lender's obligation to fund any additional moneys under this Note and/or the Loan Agreement shall be tolled during the Cure Period. In the event Borrower cures such default, Lender shall fund any additional moneys still committed to Borrower by no later than the date equal to (i) the date on which Borrower effected the cure plus (ii) the number of days the lending obligation was tolled. If such default is not corrected by the expiration of the Cure Period, Lender shall have no duty to fund additional amounts due hereunder or under the Loan Agreement and may exercise any rights it has herein or therein. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association, upon request of either party, in the County of Ventura, State of California. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. IN WITNESS WHEREOF, the Borrower has executed this instrument effective the date first above written. Borrower: USTELECENTERS, INC. By /s/ Franklin A. Reece, Inc. ------------------------------- Its President 14 EX-10.17 5 SUBORDINATION AGREEMENT DATED JULY 26, 1996 Exhibit 10.17 SUBORDINATION AGREEMENT ----------------------- SUBORDINATION AGREEMENT, dated as of July 29, 1996 among VIEW TECH, INC., -- a California corporation (together with its successors and assigns, the "Subordinated Creditor"), THE FIRST NATIONAL BANK OF BOSTON (the "Bank") --------------------- ---- BANCBOSTON LEASING, THE INC.(the "Lessor" and together with the Bank, collectively, the"Lenders") and USTELECENTERS, INC., a corporation organized under the laws of Massachusetts(together with its successors and assigns, the "Borrower"). -------- The parties hereto agree as follows; SECTION 1. (a) As used herein the following terms shall have the following meanings: "Collateral" shall have the meaning assigned to it in the Loan ---------- Agreement. "Default" shall have the meaning assigned to it in the Loan Agreement. ------- "Event of Default" shall have the meaning assigned to it in the Loan ---------------- Agreement. "Forbearance Agreement" shall mean the Forbearance Agreement dated as --------------------- of June 14, 1995, as amended through a Fourth Amendment thereto, between the Borrower and the Bank, as the same may be further amended, amended and restated, modified, refinanced, extended or supplemented from time to time. "Loan Agreement" shall mean the Revolving Credit, Term Loan and -------------- Security Agreement dated as of October 19, 1992, as amended through a Seventh Amendment thereto, between the Borrower and the Bank, as the same may be further amended, amended and restated, modified, refinanced, extended or supplemented from time to time. "Senior Credit Agreements" shall mean, collectively, the Loan ------------------------ Agreement, the Forbearance Agreement and the equipment leases, rent schedules and agreements, as in effect from time to time, between the Lessor and the Borrower. "Senior Notes" shall mean, collectively, that Third Amended and ------------ Restated Secured Revolving Credit Note dated as of June 3, 1996 and that First Amended and Restated Term Promissory Note dated as of June 3, 1996, and any other promissory note or notes of the Borrower outstanding from time to time under any Senior Credit Agreement. "Senior Obligations" shall mean (a) the principal amount of, and ------------------ accrued interest on (including, without limitation, any interest which accrues after the commencement of and liabilities of the Borrower to any Lender now existing or hereafter incurred or created under any Senior Credit Agreement, and (c) all other indebtedness, obligations and liabilities of the Borrower to any Lender now existing or hereafter incurred or created. "Subordinated Note" shall mean the promissory note of the Borrower to ----------------- the Subordinated Creditor originally dated as of July____, 1996, as the same may be amended, modified or supplemented from time to time. "Subordinated Obligations" shall mean (a) the principal amount of, ------------------------ and accrued interest on (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower) the Subordinated Note, and (b) all other indebtedness, obligations and liabilities of the Borrower to the Subordinated Creditor now existing or hereafter incurred or created under the Subordinated Note. "Subordinated Security Agreement" shall mean the Security Agreement dated as of July______, 1996 between the Borrower and the Subordinated Creditor. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of the Agreement, and section, subsection, schedule and exhibits reference are to this Agreement unless otherwise specified. SECTION 2. (a) The Subordinated Creditor agrees, for itself and each future holder of the Subordinated Obligations, that the Subordinated Obligations are, and hereafter will be, expressly subordinate and junior in right of payment (as defined in Section 2(b)) to all Senior Obligations. (b) "Subordinated and junior in right of payment" shall mean that: (i) No part of the Subordinated Obligations shall have any claim to the assets of the Borrower on a parity with or prior to the claim of the Senior Obligations. Unless and until the Senior Obligations shall have been paid in full (A) the Subordinated Creditor will not, take, demand or receive, and the Borrower will not make, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any payment or (except pursuant to the Subordinated Security Agreement) security for the whole or any part of the Subordinated Obligations, and (B) the Subordinated Creditor will not, for any reason or under any circumstances, (a) accelerate the time for payment of any of the Subordinated Obligations, (b) commence or join in the commencement of any bankruptcy or insolvency proceeding against the Borrower or (c) commence or take any legal or other similar proceedings (whether at law, in equity, by arbitration or otherwise) against the Borrower to enforce any of the rights or remedies of the Subordinated Creditor against -2- the Borrower, provided, that the Borrower may make, and the Subordinated -------- Creditor may receive, scheduled payments on account of accured interest on the Subordinated Note in accordance with the terms thereof (A) during the Forbearance Period (as defined in the Forbearance Agreement), so long as (i) no Default or Event of Default, other than the Existing Defaults (as defined in the Forbearance Agreement), shall have occurred and be continuing or would occur as a result of, or after giving effect to, such payment, and (ii) no default under or breach of the Forbearance Agreement by the Borrower shall have occurred and be continued or would occur as a result of, or after giving effect to, such payment; and (B) after expiration of the Forbearance Period (as defined in the Forbearance Agreement), so long as (i) no Default or Event of Default shall have occurred and be continuing or would occur as a result of, or after giving effect to, such payment and (ii) no default under or breach of the Forbearance Agreement by the Borrower shall have occurred and be continuing or would as a result of, or after giving effect to, such payment. (ii) In the event of any distribution, division or application, partial or complete, voluntary of involuntary, by operation of law or otherwise, of all or any substantial part of the property, assets or business of the Borrower or the proceeds thereof, to any creditor or creditors of the Borrower, or of any insolvency, bankruptcy, liquidation, reorganization or similar proceedings, or its assets, or any proceedings for the voluntary liquidation, dissolution or other winding-up of the Borrower, whether or not involving insolvency or bankruptcy proceedings, or that all amounts owing under any Senior Note have become, or have been declared to be, due and payable (and have not been paid in accordance with their terms), then and in any such event, and payment or distribution of any kind or character, whether in cash, property or securities which, but for the subordination provisions contained herein, would otherwise be payable or deliverable to the Subordinated Creditor upon or in respect of the Subordinated Obligations, shall instead to be paid over or delivered to the Lenders and shall promptly be applied (subject to applicable law) as a prepayment on account of the Senior Obligations, and the Subordinated Creditor shall not receive any such payment or distribution or any benefit therefrom unless and until the Senior Obligations shall have been paid in full. (c) For purposes of this Agreement, the phrase "paid in full" shall mean the indefeasible payment in full of the Senior Obligations in cash or cash equivalents. (d) Until all the Senior Obligations are paid in full, the Borrower will not make and the Subordinated Creditor will not receive any prepayment of principle in respect of the Subordinated Obligations. SECTION 3. (a) The Subordinated Creditor irrevocably authorizes and empowers the Lenders the circumstances set forth in Section 2(b)(ii), to demand, sue for, and collect and receive every such payment or distribution referred to in such Section and give acquittance therefor, and file -3- claims and proofs and claim, and to the claims of the Subordinated Creditor, in any statutory or non-statutory proceedings and take such other proceedings, in the name of the Lenders or in the name of the Subordinated Creditor or otherwise, as the Lenders may deem necessary or advisable for the enforcement of the provisions of this Agreement. The Subordinated Creditor hereby agrees, under the circumstances set forth in Section 2(b)(ii), duly and promptly to take such action as may be requested at any time and from time to time by any lender to file appropriate proofs of claim in respect of the Subordinated Obligations, and to execute and deliver such powers of attorney, assignments or proofs of claim or other instruments as may be requested by any Lender in order to enable such Lender to enforce any and all claims upon or in respect of Subordinated Obligations and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or in respect of the Subordinated Obligations. (b) Should any payment or distribution or security, or the proceeds of any thereof, be collected or received by the Subordinated Creditor in respect of the Subordinated Obligations, and such collection or receipt is not expressly permitted hereunder, the Subordinated Creditor will forthwith turn over the same to the Lensers in the form received (except for the endorsement or the assignment of the Subordinated Creditor when necessary) and, until so turned over, the same shall be held in trust by the Subordinated Creditor as the property of the Lenders. (c) Subject to the payment in full of the Senior Obligations, the Subordinated Creditor shall be subrogated to the rights of the Lenders to receive payments or distributions of assets of the Borrower made on the Senior Obligations until the Senior Obligations shall be paid in full; and, for the purposes of such subrogation, payment or distributions to the Lenders of any cash, property or securities to which the Subordinated Creditor would be entitled except for the provisions of this Agreement shall, as between the Borrower and its creditors other than the Lenders and the Subordinated Creditor, be deemed to be a payment by the Borrower to or on account of Subordinated Obligations, it being understood that the provisions of this Agreement are, and intended solely, for the purpose of defining the relative rights of the Subordinated Creditor, on the one hand, and the Bank, on the other hand. SECTION 4. The Subordinated Creditor represents and warrants to the Lenders that: (a) The Subordinated Note has been issued to it for the good and valuable consideration, is owned by the Subordinated Creditor free and clear of any security interest, liens, charges or encumbrances whatsoever arising from, through or under the Subordinated Creditor other than the interest of the Lenders under this Agreement, is payable solely and exclusively to the Subordinated Creditor and to no other person, firm, corporation or other entity, without deduction for any defense, offset or counterclaim, and constitutes the only evidence of the obligations evidenced thereby; (b) The Subordinated Creditor has full power, authority and legal right to execute, deliver and perform this Agreement, and the execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Subordinated -4- Creditor, does not require and stockholder approval or approval or consent of any trustee or holders of any indebtedness or obligations of the Subordinated Creditor and will not violate any provisions of law, governmental regulation, order or decree of any provision of the certificate of incorporation, the by-law, or any preferred stock of the Subordinated Creditor or any provision of any indenture, mortgage, contract or other Agreement to which the Subordinated Creditor is a party or by which it is bound; (c) No consent, license, approval or authorization of, or registration or declaration with any governmental instrumentality, domestic or foreign, is required in connection with the execution, delivery and performance by the Subordinated Creditor of this Agreement; and (d) This Agreement constitutes a legal, valid and binding obligation of the Subordinated Creditor enforceable in accordance with its terms. SECTION 5. The Subordinated Creditor consents that, without the necessity of any reservation of rights against the Subordinated Creditor, and without notice to or further assent by the Subordinated Creditor, any demand for payment of any Senior Obligation made by the Lenders may be rescinded in whole or in part by the Lenders and any Senior Obligation may be continued, and the Senior Obligations, or the liability of the Borrower or any other party upon or for any part thereof, or any collateral security or guaranty therefor, or right of offset with respect thereto, or any obligation or liability of the Borrower or any other party under any Senior Credit Agreement, may, from time to time, in whole or in part, be renewed, extended, modified, accelerated, compromised, waived, surrendered or released by the Lenders and any Senior Credit Agreement and any Senior Note and any document or instrument evidencing or governing the terms of any Senior Obligations or any collateral security documents or guaranties or documents in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders may deem advisable from time to time, and any collateral security at any time held by the Lenders for the payment of any of the Senior Obligations may be sold, exchanged, waived, surrendered or released, in each case all without notice to or further assent by the Subordinated Creditor, which will remain bound under this Agreement, and all without impairing, abridging, releasing or affecting the subordination provided for herein, notwithstanding any such renewal, extension, modification, acceleration, compromise, amendment, supplement, termination, sale, exchange, waiver, surrender or release. The Subordinated Creditor waives any and all notice of the creation, renewal, extension or accrual of any of the Senior Obligations and notice of or proof of reliance by the Lenders upon this Agreement, and the Senior Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Agreement, and all dealings between the Borrower and the Lenders shall be deemed to have been consummated in reliance upon this Agreement. The Subordinated Creditor acknowledges and agrees that the Lenders has relied upon the subordination provided for herein in entering into the Senior Credit Agreements and in making funds available to the Borrower thereunder. The Subordinated Creditor waives notice of or proof of reliance on this Agreement and protest, demand for payment and notice of default. -5- SECTION 6. The Subordinated Creditor will not (i) sell, assign or otherwise transfer, in whole or in part, the Subordinated Note or any interest therein to any other person or entity (a "Transferee") or (ii) create, incur or suffer to exist any security interest, lien, charge or other encumbrance whatsoever upon the Subordinated Note in favor of any Transferee unless, in either case, such Transferee expressly acknowledges to the Lenders in writing the subordination provided for herein and agrees to be bound by all of the terms hereof. SECTION 7. The Subordinated Creditor hereby confirms that, regardless of the relative times of attachment or perfection thereof or the order of filing of financing statement, mortgages ar other Security Documents, or anything in this Agreement or the Subordinated Security Agreement to the contrary, the security interests and liens granted or to be granted from time to time pursuant to the Senior Creditor Agreements, or any of them, shall in all respects be first and senior security interests and liens, superior to any security interests and liens granted to be granted to the Subordinated Creditor in assets of, or ownership interests in, the Borrower pursuant to the Subordinated Security Agreement or otherwise, it being the express intention of the parties that, notwithstanding anything in this Agreement or the Subordinated Security Agreement to the contrary, all liens and security interests granted to any lender from time to time shall be prior and superior to any liens or security interests granted to the Subordinated Creditor. In foreclosing on its security interests and liens in the Collateral, so long as the relevant Lender proceeds in a commercially reasonable manner, such lender may proceed to foreclose on such Lender's security interests and liens in any manner which such lender, in its sole discretion, chooses even though a higher price might have been realized if such Lender had proceeded to foreclose on such Lender's security interests or liens in another manner. Without limiting any of the rights (including any of the foreclosure rights) of any Lender under any of the Senior Credit Agreements or under the provisions of any applicable law, each Lender shall have the right , exercisable at any time, and the Subordinated Creditor does hereby agree upon request by such lender to release or discharge any and all security interests in, and liens upon, all or any part of the Collateral under any of the Senior Credit Agreements or under any of the agreements securing the Subordinated Obligations, provided that such lender believes in good faith that any released or discharged Collateral is being sold or transferred either (a) in the ordinary course of business, or (b) following the occurrence and during the continuance of a Default or Event of Default under one or more of the Senior Credit Agreements or the indebtedness secured thereby, or a default under or breach of the Forbearance Agreement, for the consideration believed by such Lender to be reasonably equivalent to the fair value of such property, provided that the proceeds of any such sale under the clause (b) shall be applied to prepay Senior Obligations. Without limiting the foregoing and without implying that any lender is obligated to undertake any special investigation with respect to its good faith belief as to the fair value of any property, the parties hereby to be bound as to the fair value of any property as determined by any independent appraisal of such property that may be conducted at the request of any Lender. The cost of any such appraisal shall be borne by the Borrower and shall constitute Senior obligations. The Subordinated Creditor and each remedies under the Subordinated Security Agreement are subject and Subordinated to the rights and remedies of the senior lender in accordance with the provisions hereof and, without limiting the foregoing, further agrees that Subordinated Creditor and each subsequent holder shall not take any action that is inconsistent with the provisions hereof. The Subordinated Creditor and each subsequent holder of the Subordinated Obligations shall provide the Lenders with a copy of any notice given by the Subordinated Creditor and each subsequent holder of the Subordinated Note to the Borrower in connection with the Subordinated Obligations or under the documents relating to the Subordinated Obligations. The Subordinated Creditor further agrees that it shall not take a lien against any collateral other than pursuant to the Subordinated Security Agreement. SECTION 8. (a) No failure to exercise, and no delay in exercising on the part of the Lenders (or any agent therefor), from time to time, any right, power or privilege under this Agreement or any of the Senior Obligations shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power of privilege under this Agreement preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement and in any agreement relating to any of the Senior Obligations and all other agreements, instruments and documents referred to in any of the foregoing are cumulative and shall not be exclusive of any rights or remedies provided by law. (b) The Subordinated Creditor agrees to execute and deliver such further documents and to do such other acts and things as the Lenders may reasonably request in order fully to effect the purposes of this Agreement. (c) Any notice, request, demand, statement or consent desired or required to be given hereunder shall be in writing and shall be delivered by hand, sent by certified mail, return receipt requested, sent by a nationally recognized commercial overnight delivery service with provisions for a receipt, postage or delivery charges prepaid, or sent by facsimile transmission, and shall be deemed given when actually delivered, if delivered by hand, upon receipt, if sent by certified mail, the next Business Day after being placed in the possession of an overnight delivery service, if sent by an overnight delivery service or if sent by facsimile transmission, when electronic indication of receipt is received, addressed as set forth below the addressee's signature on the signature pages of this Agreement or to such other address as may hereafter be notified by the respective parties hereto. (d) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, THE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. (e) The subordination provisions contained herein are for the benefit of the Lenders and its successor and assigns as holders from time to time of the Senior Obligations and may not de rescinded or canceled or modified in any way; nor, unless otherwise expressly provided for -6- herein, may any provision of this Agreement be waived or changed without the express prior written consent of the Lenders. (f) The Subordinated Creditor will cause the Subordinated Note to bear upon its face a statement or legend to the effect that such Note is subordinate and junior in right of payment to the Senior Obligations in the manner and to the extent herein set forth. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. VIEW TECH, INC. By /s/ Robert G. Hatfield ------------------------ Name: ROBERT G. HATFIELD Title: CEO Address: 950 Flynn Road Camarillo, CA 93012 Attention:______________ -7- THE FIRST NATIONAL BANK OF BOSTON By /s/ Barbara S. Raymond ---------------------------- Name: BARBARA S. RAYMOND Title: VICE PRESIDENT Address: 100 Federal Street Boston, MA 02110 Attention: BANCBOSTON LEASING, INC. By /s/ Robert M. Thomas ---------------------------- Name: ROBERT M. THOMAS Title: VICE PRESIDENT Address: 100 Federal Street Boston, MA 02110 Attention: USTELECENTERS, INC. By /s/ Franklin A. Reece III ---------------------------- Name: FRANKLIN A. REECE III Title: PRESIDENT & CHAIRMAN Address: 745 Atlantic Ave. Boston, MA 0211 -8- EX-10.20 6 CONSULTING AGREEMENT DATED JUNE 27, 1996 EXHIBIT 10.20 June 27, 1996 Mr. Robert E. Yaw II Windermere Holdings, Incorporated The Oaks 227 St. James Park Osprey, Florida 34229 Re: Consulting Agreement -------------------- Dear Mr. Yaw: This letter confirms View Tech, Inc.'s (the "Company") agreement (this "Consulting Agreement") to retain Windermere Holdings, Incorporated and its employees (collectively "WHI") to position management and the Company so as to increase the Company's visibility in its industry and position it for growth in the future. WHI will also assist the Company in connection with the acquisition of other entities whose business complements and/or supplements the business of the Company. Attached hereto is a summary of the major activities that WHI will perform in connection with this Consulting Agreement. This summary is incorporated into the terms of this Consulting Agreement between WHI and the Company. Below are additional agreements between the parties with respect to this Consulting Agreement. 1. Term. Commencing July 1, 1996, the Company hereby appoints WHI to ---- perform the duties and render the services described in the attached Summary of Services on a month to month basis subject to termination upon 30 days written notice from either party. 2. Non-Exclusive Services. WHI will devote part of the time and efforts ---------------------- of its employees to the Company during the term of this Consulting Agreement. 3. Board Approval. This Consulting Agreement has not been approved by -------------- the Company's board of directors and is only binding upon the Company if and when such approval is obtained. 4. Compensation. In consideration of WHI's services, the Company shall ------------ pay WHI a cash retainer of $5,000 per month due on the first day of each month through September 30, 1996, for a total of $15,000, plus reimbursement of reasonable out-of-pocket expenses. Such reasonable out-of-pocket expenses incurred in the performance of its services hereunder shall be documented by WHI in a writing submitted to the Company at least 30 days prior to the date payment is to be made hereunder. Robert E. Yaw II June 27, 1996 Page 2 5. Non-Competition. WHI from time to time may represent entities in --------------- competition with the Company, and the Company acknowledges that such representation is not a breach of this Consulting Agreement. Nevertheless, WHI (i) shall not divulge trade secrets or confidential information of any sort with respect to the Company; and (ii) shall advise the Company of any such business relationship. 6. Stock Options. In consideration of the services to be provided ------------- hereunder, WHI will receive options to purchase a total of 110,000 shares of the Company's common stock. 55,000 options shall have an exercise price equal to $7.00, which was the closing price of the common stock on the Nasdaq National Market, and shall be issued to Robert E. Yaw II. The remaining 55,000 options shall be issued to Rolf N. Hufnagel on or about August 18, 1996 and shall have an exercise price equal to the closing price of the common stock on the date of issuance. The Company will issue Mr. Hufnagel a separate option agreement that sets forth the terms of his options. The options shall be vested at such time as this agreement is ratified by the Company's board of directors. Furthermore, WHI shall receive additional options equal to 5% of the Transaction Value of any acquisition that WHI assists with. For purposes of this Agreement, "Transaction Value" means the total of all consideration received, including but not limited to, (i) all cash and non-cash remuneration paid or payable; (ii) the aggregate fair market value of any securities issued or issuable; and (iii) the aggregate fair market value of any debts or contingent obligations assumed or satisfied in connection with the relevant transaction. The exercise price of any such additional options shall be equal to the closing market price of the Company's common stock on the day that any agreement between the Company and any such other entity becomes binding on both entities, i.e., the closing date of such merger or acquisition. 7. Registration Rights. At the time the Company prepares and files ------------------- with the SEC a registration statement on a Form S-3 under the Securities Act of 1933, as amended (the "Registration Statement"), the Company will include in any such Registration Statement information relating to the offering, issuance, and resale of the common stock underlying the 110,000 stock options to be issued under Paragraph 6 hereof. View Tech will use its reasonable best efforts to respond to the comments of the SEC thereon and will make any further filings (including amendments and supplements) in connection therewith that may be necessary, proper, or advisable. View Tech, at its sole discretion, will include information relating to the offering, issuance, and resale of the common stock underlying any additional options that WHI will receive in connection with its assistance with acquisitions at such time as View Tech amends its Registration Statement on Form S-3 or in any other registration statement that View Tech may file. 8. Non-Assignability. This Consulting Agreement shall inure to the ----------------- benefit of and shall be binding upon the successors and the assigns of the Company. Since this Consulting Agreement is based upon the unique abilities and personal confidence in WHI and its employees, WHI shall have no right to assign this Consulting Agreement or any of the rights hereunder written without the written consent of the Company. Robert E. Yaw II June 27, 1996 Page 3 9. Notices. Any notice required or permitted to be given hereunder shall ------- be sufficient if in writing and if sent by certified mail or facsimile to the parties at their present principal business addresses. Any change of address must be sent to the other party via such procedure to be valid against such other party. 10. Severability. If any provision of this Consulting Agreement shall be ------------ found invalid by any court of competent jurisdiction, such findings shall not effect the validity of the other provisions hereof and the invalid provisions shall be deemed to have been severed herefrom. 11. Entire Agreement. This Consulting Agreement constitutes the entire ---------------- agreement between the parties pertaining to its subject matter, and it supersedes all prior contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Consulting Agreement shall be binding unless executed in writing by all parties. 12. Attorneys' Fees. If any action is brought to enforce the terms of --------------- this Consulting Agreement, the prevailing party shall be entitled to its costs and reasonable attorneys' fees. 13. Arbitration. Any dispute concerning this Consulting Agreement shall ----------- be settled by binding Arbitration in accordance with the Rules of the American Arbitration Association in the County of Ventura, State of California. If the terms hereof meet with your approval, please indicate by signing below. Sincerely, By: /s/ Robert G. Hatfield ------------------------------------ Robert G. Hatfield Chief Executive Officer Agreed and accepted as of the date first above stated: Windermere Holdings, Incorporated By: /s/ Robert E. Yaw II ------------------------------------ Robert E. Yaw II, its Chairman SUMMARY OF SERVICES RESEARCH REPORT - --------------- WHI will assist the Company in locating a securities firm capable of providing analyst coverage of the Company, its products, and the industries in which it competes. BOARD OF DIRECTORS AND ADVISORY BOARD - ------------------------------------- WHI will continue to assist the Company in maintaining a quality board of directors and introducing the Company to other people that can provide their respective expertise as board members or advisors to the board of directors. FINANCING OPTIONS/ACQUISITION CANDIDATES - ---------------------------------------- WHI will assist the Company in reviewing different financing options/acquisition candidates that will enable the Company to continue to grow and take advantage of marketing opportunities. PUBLIC RELATIONS - ---------------- WHI will assist the Company with any and all appropriate press releases, designed not only for the trade community but also the investment community. The public relations will: serve to create a higher degree of visibility for the Company within its trade; be used for marketing purposes among present and future clients; and develop a level of awareness among potential investors. EX-10.21 7 OPTION AGREEMENT DATED AUGUST 22, 1996 EXHIBIT 10.21 STOCK OPTION AGREEMENT DATE: August 22, 1996 PARTIES: View Tech, Inc. a California corporation (Corporation) Rolf N. Hufnagel (Consultant) RECITALS: A. WHEREAS, the Consultant is employed by the Windermere Holdings, Inc. ("WHI"), a company retained by the Corporation to provide certain consulting services. B. WHEREAS, WHI has been an integral part of the growth and profitability of the Corporation. C. WHEREAS, the Corporation desires to grant the Consultant an option to purchase 55,000 shares of the common stock of the Corporation in order to induce the Consultant to remain, in his capacity as an employee of WHI, a consultant to the Corporation and to continue to contribute to the growth and profitability of the Corporation. AGREEMENTS: SECTION 1. OPTION The Corporation hereby grants to the Consultant the option to purchase 55,000 shares of the authorized but unissued common stock, $0.01 par value, of the Corporation upon the terms and conditions set forth in this agreement. SECTION 2. PURCHASE PRICE The purchase price for shares of stock purchased pursuant to this option shall be $7.25 per share, which was the closing price of the Corporation's common stock on the date hereof as reported by the Nasdaq National Market. SECTION 3. EXERCISE OF OPTION This option may be exercised by the Consultant at any time, or from time to time, as to any part or all of the shares of stock covered by this option, on or before the expiration of three (3) years from the date of this agreement. The option shall be exercised by the Consultant giving notice of such exercise to the Corporation. The notice shall state the number of shares to be purchased. SECTION 4. PAYMENT OF PURCHASE PRICE AND ISSUANCE OF STOCK 4.1 Purchase Price. The purchase price for all shares purchased under this option shall be paid in cash, or a certified bank check or money order, for the full option price. Upon receipt of such funds, the shares purchased shall be issued by the Corporation as fully paid and nonassessable shares in accordance with the provisions of section 4.2 of this Agreement. 4.2 Issuance of Stock. Following receipt of notice of exercise and payment of the full purchase price, the Corporation shall instruct its transfer agent, U.S. Stock Transfer Corporation, or such other transfer agent as may be employed by the Corporation at the time of exercise, to issue to the Consultant the number of shares requested to be purchased by the Consultant. SECTION 5. REGISTRATION RIGHTS 5.1 Registration Rights. At the request of the Consultant, the Corporation hereby agrees to register under the Securities Act of 1933, as amended (the "Act"), the shares underlying options referred to in section 1 of this Agreement in any registration statement relating to the Corporation's securities (other than a registration statement relating solely to securities held or to be held by the Corporation's employees, directors or consultants, or a registration of securities to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with another corporation). The Corporation agrees to give the Consultant reasonable notice regarding the filing of any such registration statement, and the Consultant agrees to notify the Corporation of the number of Consultant's shares to be included in any such registration statement within a reasonable time after receipt of such notice. 5.2 Terms of Registration Rights. The Corporation shall be obligated to register shares underlying the options referred to in section 1 of this Agreement pursuant to section 5.1 of this Agreement commencing on the date of issuance of the option relating to such shares and until the expiration of two years following the date the option relating to such shares is exercised. However, all such registration rights terminate with respect to unexercised options upon the expiration of such options pursuant to section 6 of this Agreement or the cancellation of such options in accordance with section 9 of this Agreement. 5.3 Allocation of Expenses. The Corporation hereby agrees to pay all costs and expenses relating to any registration pursuant to section 5.1 of this Agreement, except transfer taxes, if any, fees and expenses of the Consultant's counsel, and the Consultant's pro rata portion of any underwriting non-accountable expense allowance and selling commissions. 5.4 Rights to Exclude the Consultant's Shares. Notwithstanding the provisions of sections 5.1, 5.2, and 5.3 of this Agreement, if the Corporation's managing underwriter, in connection with any registration statement that would otherwise give rise to registration rights, advises the Corporation that (a) the number of the Consultant's shares requested to be included in such registration statement exceeds the number of shares that can be sold in an orderly manner in such offering or (b) the inclusion of the Consultant's shares would adversely affect the offering, then the Corporation shall be required to include only that number of the Consultant's shares that would not exceed such number or have such adverse effect. The number of Consultant's shares to be included in any such registration statement shall be that number that such 2 managing underwriter determines in its sole discretion will not jeopardize the success of the respective offering. 5.5 Indemnification. The Corporation hereby agrees to indemnify and hold harmless the Consultant from any losses, claims, damages or liabilities to which he may become subject based upon or arising from any registration of the Consultant's common stock pursuant to this Agreement; provided, however, that the Corporation shall not indemnify the Consultant for losses, claims, damages or liabilities resulting from a statement or omission made in reliance upon and in conformity with information furnished to the Corporation by the Consultant for use in connection with the preparation of the registration statement. The Consultant hereby agrees to indemnify and hold harmless the Corporation and its officers, directors, and employees for and from any losses, claims, damages or liabilities to which they may become subject based upon or arising from any registration of the Consultant's common stock pursuant to this Agreement, if such losses, claims, damages or liabilities result from a statement or omission made in reliance upon and in conformity with information furnished to the Corporation by the Consultant for use in connection with the preparation of the registration statement. SECTION 6. TERMINATION This option shall terminate, and all rights of Consultant under this option shall lapse, three years from the date hereof. SECTION 7. SHAREHOLDER RIGHTS The Consultant shall not have any rights as a shareholder of the Corporation with respect to the shares covered by this option except to the extent that the shares have been issued to the Consultant following the Consultant's exercise of the option. SECTION 8. ADJUSTMENTS The number of shares subject to this option shall be proportionately adjusted for any change in the stock structure of the Corporation because of any stock dividends, recapitalizations, reorganizations, mergers, or other restructuring. SECTION 9. PROHIBITION AGAINST TRANSFER This option is personal to the Consultant, and the Consultant shall have no right to transfer his rights in the option in any manner other than by will or by the laws of descent and distribution. The Consultant is the only person that can exercise this option during his lifetime. Except as permitted by the first sentence of this section 9, the options granted hereby and the rights and privileges thereby conferred may not be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise) nor shall any such option, right, or privilege be subject to execution, attachment, or similar process. Upon any attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose of the options 3 granted hereby or of any right or privilege conferred thereby contrary to the provisions hereof, or upon the levy or any attachment or similar process upon such option, right, or privilege, the option and such rights and privileges shall immediately become null and void. The terms of this Agreement shall be binding upon the executors, administrators, heirs, and successors of the Consultant. SECTION 10. EMPLOYMENT OF CONSULTANT This Agreement is not an employment agreement and shall not be construed as such. Nothing in this Agreement shall be construed to constitute or to be evidence of any agreement or understanding, express or implied, on the part of the Corporation to employ or retain the Consultant as a consultant for any specific period of time, or on the part of the Consultant to remain as a consultant of the Corporation for any specific period of time. However, it is the desire of both parties that the Corporation's association with WHI continues beyond the date hereof. SECTION 11. MISCELLANEOUS PROVISIONS 11.1 Notice. Any notice or other communication required or permitted to be given under this agreement shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, addressed to the parties at the following addresses: Consultant: Rolf N. Hufnagel 4200 E. Skelly Drive, Suite 590 Tulsa, OK 74135 Telephone (918) 491-6333 Fax (918) 491-6433 Corporation: Robert G. Hatfield View Tech, Inc. 950 Flynn Road Camarillo, CA 93012 Telephone (805) 482-8277 Fax (805) 482-3825 All notices and other communications shall be deemed to be given at the expiration of three days after the date of mailing. The address of a party to which notices or other communications shall be mailed may be changed from time to time by giving written notice to the other party. 11.2 Litigation Expense. In the event of a default under this agreement, the defaulting party shall reimburse the nondefaulting party or parties for all costs and expenses reasonably incurred by the nondefaulting party or parties in connection with the default, including without limitation attorney's fees. Additionally, in the event a suit or action is filed to enforce this agreement or with respect to this agreement, the prevailing party or parties shall be reimbursed by the other party for all costs and expenses incurred in connection with the suit or action, including without limitation reasonable attorney's fees at the trial level and on appeal. 4 11.3 Waiver. No waiver of any provision of this agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 11.4 Applicable Law. This agreement shall be governed by and shall be construed in accordance with the laws of the State of California. 11.5 Entire Agreement. This agreement constitutes the entire agreement between the parties pertaining to its subject matter, and it supersedes all prior contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties. View Tech, Inc. By: /s/ Robert G. Hatfield -------------------------------- Its: Chief Executive Officer ------------------------------- /s/ Rolf N. Hufnagel ------------------------------------ Rolf N. Hufnagel 5 EX-23.1 8 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS' We hereby consent to the use in the Annual Report on Form 10-KSB of our report dated September 24, 1996, relating to the financial statements of View Tech, Inc., which appear in such Annual Report. CARPENTER KUHEN & SPRAYBERRY Oxnard, California September 27, 1996 EX-24.1 9 POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that and each of the undersigned officers and directors of View Tech, Inc., a California corporation (the "Company"), individually and in their respective capacities indicated below, hereby makes, constitutes and appoints Robert G. Hatfield and William M. McKay, or each of them, his true and lawful attorneys-in-fact and agents, each acting alone, with full powers of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to execute on behalf of the Company, by signing their respective names as acting for the Company, this annual report on Form 10-KSB, including all exhibits thereto and any and all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full powers and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-KSB has been signed by the following persons in the capacities and on the date indicated. Dated as of the 20th day of September, 1996. VIEW TECH, INC. Attest: /s/ William M. McKay By: /s/ Robert G. Hatfield --------------------- ----------------------- Secretary Robert G. Hatfield, Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Robert G. Hatfield - ------------------------------ Robert G. Hatfield Chairman, Chief Executive Officer, and Director /s/ William M. McKay - ------------------------------ William M. McKay Chief Financial Officer (Principal Financial and Accounting Officer) /s/ John W. Hammon - ------------------------------ John W. (Bill) Hammon President, Chief Operating Officer, and Director /s/ Calvin A. Carrera - ------------------------------ Calvin A. Carrera Director /s/ Robert F. Leduc - ------------------------------ Robert F. Leduc Director EX-24.2 10 CERTIFIED COPY OF BOARD OF DIRECTORS' RESOLUTION EXHIBIT 24.2 SECRETARY'S CERTIFICATE ----------------------- I, William M. McKay, Corporate Secretary for View Tech, Inc. (the "Company"), hereby certify that, as of the date set forth below, attached hereto as Exhibit "A" is a true and correct copy of the resolutions of the Company's Board of Directors adopted as of September 20, 1996, regarding authorization to file the Company's Annual Report on Form 10-KSB with the Securities and Exchange Commission and the power of attorney related thereto, and such resolutions have not been altered or amended and remain in full force and effect as of the date hereof. September 27, 1996 /s/ William M. McKay ------------------------- William M. McKay Secretary Exhibit A --------- RESOLUTIONS OF THE BOARD OF DIRECTORS OF VIEW TECH, INC. adopted as of September 20, 1996 1. RESOLVED, that the Company be, and hereby is, authorized to file its Annual Report on Form 10-KSB, including all exhibits thereto and any and all amendments thereto (the "Form 10-KSB"), with the Securities and Exchange Commission (the "SEC") in connection with its reporting requirements under the Securities Exchange Act of 1934, as amended. 2. RESOLVED FURTHER, that any officer or director of the Company executing, on behalf of the Company or in any other capacity, the Form 10-KSB and any and all exhibits and amendments thereto and other documents to be filed with the SEC in connection therewith be, and hereby is, authorized to execute the same through or by his duly authorized attorneys-in-fact pursuant to an appropriate power of attorney signed by such officer or director appointing each of Robert G. Hatfield and William M. McKay so to act or each of them to so act alone; and that any officer or director of the Company executing on behalf of the Company or otherwise any document or exhibit or amendment thereto to be filed with the SEC is hereby authorized to execute the same and to do and perform each and every act and thing whatsoever as necessary or advisable to otherwise carry out the full intents and purposes as he might or could do in person, through Robert G. Hatfield and William M. McKay, or each of them acting alone as attorney-in-fact, pursuant to a power of attorney reflecting such authorization. 3. RESOLVED FURTHER, that the Board of Directors hereby ratifies, adopts and approves all agreements, instruments and other corporate actions previously taken by the Company in connection with the filing of the Form 10-KSB with the SEC. EX-27.1 11 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1,463,199 0 4,744,018 23,756 1,104,577 7,997,709 1,013,067 172,656 8,849,121 3,755,933 0 0 0 28,902 4,822,003 8,849,121 13,346,103 13,346,103 8,094,728 14,241,057 (153,222) 0 0 (1,048,176) 352,116 0 0 0 0 (696,060) (.24) (.24)
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