-----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, E3ocnuPPG6rTiheoWbOCnbvREnYl1uaWTxM1h+3xVhcMHhHReBfrI32S/mgI4GWB LVBZsuPUcpkORr4JcKBZvw== 0000944209-98-001854.txt : 19981111 0000944209-98-001854.hdr.sgml : 19981111 ACCESSION NUMBER: 0000944209-98-001854 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981110 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25940 FILM NUMBER: 98743570 BUSINESS ADDRESS: STREET 1: 3760 CALLE TECATE STREET 2: STE A CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8054828277 10-Q 1 FORM 10-Q FOR PERIOD ENDING 9/30/98 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _____________ Commission file number: 0-25940 VIEW TECH, INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0312442 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3760 CALLE TECATE, SUITE A CAMARILLO, CA 93012 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (805) 482-8277 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports ), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class as of November 4, 1998 ----- ---------------------- Common Stock, $.0001 par value 6,895,610 ================================================================================ VIEW TECH, INC. TABLE OF CONTENTS -----------------
Page Reference -------------- PART I FINANCIAL INFORMATION Consolidated Balance Sheets September 30, 1998 (unaudited) and December 31, 1997 1 Consolidated Statements of Operations Three Months and Nine Months Ended September 30, 1998 and 1997 (unaudited) 2 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1998 and 1997 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Exhibits and Reports on Form 8-K 14 SIGNATURES 15
i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VIEW TECH, INC. CONSOLIDATED BALANCE SHEETS ASSETS
September 30, December 31, 1998 1997 -------------- ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 802,536 $ 1,204,690 Accounts receivable (net of reserves of $724,637 and $658,656, respectively) 13,718,807 13,326,667 Inventory 4,012,588 2,532,456 Other current assets 496,761 428,889 ----------- ----------- Total current assets 19,030,692 17,492,702 PROPERTY AND EQUIPMENT, Net 3,630,672 3,423,838 GOODWILL, net 2,333,856 4,198,927 OTHER ASSETS 760,667 696,701 ----------- ----------- $25,755,887 $25,812,168 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 8,961,336 $ 7,168,763 Current portion of long-term debt 688,323 661,290 Accrued payroll and related costs 1,962,891 1,904,506 Deferred revenue 2,055,104 1,087,161 Accrued restructuring costs 1,463,662 -- Other current liabilities 903,526 1,371,248 ----------- ----------- Total Current Liabilities 16,034,842 12,192,968 ----------- ----------- LONG-TERM DEBT 4,563,644 5,342,368 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $.0001, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.0001, authorized 20,000,000 shares, issued and outstanding 6,893,609 and 6,589,571 shares at September 30, 1998 and December 31, 1997, respectively 689 659 Additional paid-in capital 14,061,174 13,653,624 Accumulated deficit (8,904,462) (5,377,451) ----------- ----------- 5,157,401 8,276,832 ----------- ----------- $25,755,887 $25,812,168 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 1 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ------------------------- 1998 1997 1998 1997 -------------------------- ------------------------- Revenues: Product sales and service revenues $11,093,151 $ 9,108,062 $29,523,733 $23,499,101 Agency commissions 3,724,310 3,929,021 13,804,138 11,798,183 ----------- ----------- ----------- ----------- 14,817,461 13,037,083 43,327,871 35,297,284 ----------- ----------- ----------- ----------- Costs and Expenses: Costs of goods sold 7,600,287 6,581,193 20,620,986 16,901,135 Sales and marketing expenses 4,741,564 4,349,621 15,713,332 12,785,328 General and administrative expenses 1,854,646 1,634,854 5,897,974 5,244,982 Restructuring and other charges -- -- 4,201,013 -- ----------- ----------- ----------- ----------- 14,196,497 12,565,668 46,433,305 34,931,445 ----------- ----------- ----------- ----------- Income (Loss) from Operations 620,964 471,415 (3,105,434) 365,839 Interest expense (123,465) (104,406) (417,676) (259,570) ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes 497,499 367,009 (3,523,110) 106,269 Provision for Income Taxes - (3,135) (3,900) (4,512) ----------- ----------- ----------- ----------- Net Income (Loss) $ 497,499 $ 363,874 $(3,527,010) $ 101,757 =========== =========== =========== =========== Earnings (Loss) Per Share (Basic) $ 0.07 $ 0.06 $ (0.52) $ 0.02 ========== =========== =========== =========== Earnings (Loss) Per Share (Diluted) $ 0.07 $ 0.05 $(0.52) $ 0.02 ========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------------- 1998 1997 ---------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $(3,527,010) $ 101,757 Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 1,178,511 825,108 Provision for bad debts 65,981 (47,623) Non-cash charges related to restructuring 1,491,392 -- Changes in assets and liabilities: Accounts receivable (458,121) (2,010,909) Inventory (1,597,874) (220,512) Other assets (183,290) 196,464 Accounts payable 1,792,573 (229,933) Accrued merger costs -- (1,160,494) Accrued restructuring charges 1,474,120 -- Accrued payroll and related costs 58,385 121,577 Deferred revenue 967,943 612,085 Other accrued liabilities (267,723) 176,291 ----------- ----------- Net cash provided (used) by operating activities 994,887 (1,636,189) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITY: Purchase of property and equipment (805,108) (871,347) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under lines of credit (670,528) 1,391,068 Repayments of capital lease and other debt obligations (328,985) (591,953) Issuance of common stock, net 407,580 2,798,276 ----------- ----------- Net cash provided (used) by financing activities (591,933) 3,597,391 ----------- ----------- NET INCREASE (DECREASE) IN CASH (402,154) 1,089,855 CASH, beginning of period 1,204,690 365,139 ----------- ----------- CASH, end of period $ 802,536 $ 1,454,994 =========== =========== SUPPLEMENTAL DISCLOSURES: Operating activities reflect: Interest paid $ 457,001 $ 266,242 =========== =========== Income taxes paid $ 96,175 $ 2,800 =========== =========== Schedule of non-cash investing and financing activities: Equipment acquired under capital lease obligations $ 237,364 $ 123,378 =========== =========== Equipment transferred from inventory $ 117,742 $ -- =========== =========== Goodwill reserve write-off $ 200,000 $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - GENERAL - ---------------- View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations in July 1992 as a California corporation. Since its initial public offering of common stock in June 1995, View Tech has grown through internal expansion and acquisitions. In November 1996, View Tech merged with USTeleCenters, Inc., a Massachusetts corporation ("UST" and together with View Tech, the "Company") and the Company reincorporated in Delaware. In November 1997, the Company, through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc., a Vermont corporation headquartered in Burlington, Vermont, ("NSI") which sells, manages and supports telecommunication network solutions as an agent for Bell Atlantic. The Company currently has 28 offices nationwide. The Company, is a leading, single source provider of voice, video and data equipment, network services and bundled telecommunications solutions for business customers nationwide. The Company has equipment distribution partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc., Intel, Madge Networks, Ascend Communications, VideoServer, Inc., and Northern Telecom and markets network services through agency agreements with Bell Atlantic, BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies. The consolidated financial statements include the accounts of View Tech and UST. All significant intercompany balances and transactions have been eliminated in consolidation. The information for the nine months ended September 30, 1998 and 1997 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. The financial statements presented herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2 - ACQUISITIONS - ---------------------- In November 1997, the Company through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc. ("NSI"), a Vermont corporation headquartered in Burlington, Vermont, which sells, manages and supports telecommunication network solutions as an agent for Bell Atlantic. Following is summarized pro forma operating results assuming that the Company had acquired NSI on January 1, 1997.
Three Months Ended Nine Months Ended September 30, 1997 September 30, 1997 ------------------ ------------------ Revenues $13,604,872 $37,014,080 Income before income taxes 441,040 410,580 Net income 437,905 406,068 Net income per share Basic 0.07 0.06 Net income per share - Diluted 0.06 0.06
The summarized pro forma operating results include the historical operating results for NSI for the three months and nine months ended September 30, 1997. The summarized pro forma information may not be indicative of the results of operations that would have occurred if the acquisition had been concluded on January 1, 1997. 4 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) NOTE 3 - EARNINGS (LOSS) PER SHARE - ---------------------------------- Earnings (loss) per share - basic is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Earnings per share - diluted is based on the weighted average number of shares outstanding during the period including the dilutive effect of common stock equivalents using the treasury stock method.
Weighted Average Shares Outstanding Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ------------------------- 1998 1997 1998 1997 ----------------------------- ------------------------- Weighted average shares outstanding 6,833,329 6,387,188 6,746,100 6,323,135 Effect of dilutive options and warrants 135,574 460,535 -- 378,189 --------- --------- --------- --------- Weighted average shares outstanding including dilutive effect of securities 6,968,904 6,847,723 6,746,100 6,701,324 ========= ========= ========= =========
Options and warrants to purchase 2,113,314, 2,254,664, 2,294,153 and 2,237,610 weighted average shares of common stock were outstanding during the three month and nine month periods ended September 30, 1998 and 1997, respectively, but were not included in the computation of diluted EPS because the options' exercise price was either greater than the average market price of the common stock or the Company reported a net operating loss and their effect would have been antidilutive. NOTE 4 - LINES OF CREDIT - ------------------------ The Company entered into a $15 million Credit Agreement (the "Agreement") with Imperial Bank and BankBoston, N.A., effective November 21, 1997. The Agreement provides for a maximum credit line of up to $15 million for a term of five (5) years. Amounts outstanding under the Agreement are collateralized by certain assets of the Company. Funds available under the Agreement will vary from time to time depending on many variables including, without limitation, the amount of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as such terms are defined in the Agreement. The interest charged on outstanding amounts vary between the Prime Rate, plus the Prime Rate Margin, or between the Eurodollar Rate, plus the Eurodollar Rate Margin, depending upon the Company's Leverage Ratio, as defined in the Agreement. At September 30, 1998, the interest rate on this facility was 9.0%. The Agreement requires the Company to comply with various financial and operating loan covenants. As of September 30, 1998 the Company was in compliance with these covenants. Under certain conditions, the Agreement allows the Company to prepay principal amounts outstanding without penalty. The Agreement provides for three separate loan commitments consisting of (i) a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to $5 million and (iii) a Facility C Commitment up to $3 million. Amounts drawn under the Facility A Commitment are due and payable no later than November 21, 2002. Amounts drawn under the Facility B Commitment are subject to mandatory repayments in sixteen (16) equal quarterly installments commencing on March 31, 1999. Amounts outstanding under the Facility C Commitment are subject to mandatory repayments in twelve (12) equal quarterly installments commencing on March 31, 2000. All amounts outstanding under each such Facility are due and payable no later than November 21, 2002. At September 30, 1998, the total outstanding principal balance due under these facilities was $4,235,329. In connection with the Agreement the Company issued Common Stock Purchase Warrants for the purchase of 80,000 shares of the Company's common stock by the lenders at a purchase price of $7.08 per share. In July 1998, the warrants were re-priced at $4.50 per share. 5 NOTE 5 - RESTRUCTURING AND OTHER CHARGES - ---------------------------------------- On April 22, 1998, the Company announced a plan (the "Plan") to restructure the Company's operations in the second quarter of 1998 designed to reduce costs and improve profitability. The implementation of the Plan resulted in a one-time charge of $4,201,013. Included in this charge against second quarter results are costs related to an impairment write-down of goodwill relating to previous acquisitions and the closing of unprofitable operations. The following are the significant components of the charge for restructuring: Impairment write-down of goodwill relating to previous acquisitions.................. $1,464,843 Provision for costs in closing unprofitable operations, employee severance, benefits and related costs........................................................... 2,736,170 ---------- $4,201,013 ==========
The total cash impact of the restructuring amounted to $2,709,621, of which $1,474,120 remains to be paid as of September 30, 1998. Included in the accompanying balance sheet at September 30, 1998 is $1,463,662 of current liabilities and $10,458 of long-term liabilities related to the restructuring charge. The Company anticipates that the balance of the restructuring cost will be paid by October 31, 1999. NOTE 6 - SUBSEQUENT EVENT - ------------------------- The Company has received a notice from Nasdaq informing it that its common stock is subject to delisting from the Nasdaq National Market due to the fact that is does not meet the applicable listing requirements stipulating $4,000,000 in net tangible assets. Nasdaq has notified the Company that Nasdaq scheduled a hearing before a panel for November 13, 1998 to consider this matter. The Company has been advised that, should the hearing panel decide to delist the common stock, the common stock will cease to trade on the Nasdaq National Market pending further appeals, if any. As of September 30, 1998, the Company's net tangible assets were $2,823,545. The Company is committed to the continued listing of its stock on the Nasdaq National Market, and therefore it is raising up to an additional $1,200,000 of capital through a private placement of its common stock to a limited group of accredited investors. The Company believes that it will be successful in raising such capital, and that Nasdaq will continue to list its common stock for trading, however, this decision is not within the control of the Company and no assurance can be given that Nasdaq will not delist the common stock from the Nasdaq National Market. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-Q. Except for historical information contained herein, the statements in this Form 10-Q are forward-looking statements (including without limitation, statements indicating that the Company "expects," "estimates," "anticipates," or "believes" and all other statements concerning future financial results, product offerings or other events that have not yet occurred), that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933, as amended. Forward-looking statements involve known factors, risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Those factors, risks and uncertainties include, but are not limited to: the Company's ability to raise additional funds that may be necessary to meet its future capital needs; the uncertainties related to restructuring; the Company's limited history of profitable operations and significant fluctuations in operating results which may continue due to delays in product enhancements and new product introductions by its suppliers; the termination of or change of the Company's business relationships with PictureTel or Bell Atlantic, disruption in supply, failure of PictureTel or Bell Atlantic to remain competitive in product quality, function or price or a determination by PictureTel or Bell Atlantic to reduce reliance on independent providers such as the Company; and the introduction of new rules and regulations by the federal government and/or certain states pertaining to the Company's telecommunications business that could lead to additional competition from entities with greater financial and managerial resources. Additional information on these and other risk factors are included under "Risk Factors" and elsewhere in this Form 10-Q. GENERAL View Tech, Inc. ("View Tech") commenced operations in July 1992 as a California corporation. Since its initial public offering of common stock in June 1995, View Tech has grown through internal expansion and through acquisitions. In November 1996, View Tech merged with USTeleCenters, Inc., a Massachusetts corporation ("UST" and together with View Tech, the "Company") and the Company reincorporated in Delaware. In November 1997, the Company through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc., a Vermont corporation headquartered in Burlington, Vermont, ("NSI") which sells, manages and supports telecommunication network solutions as an agent for Bell Atlantic. The Company currently has 28 offices nationwide. The Company is a leading, single source provider of voice, video and data equipment, network services and bundled telecommunications solutions for business customers nationwide. The Company has equipment distribution partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc., Intel, Madge Networks, Ascend Communications, VideoServer, Inc., and Northern Telecom and markets network services through agency agreements with Bell Atlantic, BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies. In the second quarter of 1998, the Company implemented a restructuring plan (the "Plan") designed to reduce costs and improve profitability. The implementation of the Plan resulted in a one time charge of $4.2 million. Included in this charge against second quarter results are costs related to an impairment write-down of goodwill relating to previous acquisitions and the closing of unprofitable operations. 7 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from the Company's consolidated financial statements expressed as a percentage of the Company's revenues:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------- 1998 1997 1998 1997 --------- -------- ------- ----- Revenues: Product sales and service revenues.............................. 74.9% 69.9% 68.1% 66.6% Agency commissions..................... 25.1 30.1 31.9 33.4 ----- ----- ----- ----- 100.0 100.0 100.0 100.0 ===== ===== ===== ===== Costs and Expenses: Costs of goods sold.................... 51.3 50.5 47.6 47.9 Sales and marketing expenses........... 32.0 33.4 36.3 36.2 General and administrative expenses.............................. 12.5 12.5 13.6 14.9 Restructuring and other costs................................. 0.0 0.0 9.7 0.0 ----- ----- ----- ----- 95.8 96.4 107.2 99.0 ----- ----- ----- ----- Income (Loss) from Operations........... 4.2 3.6 (7.2) 1.0 Interest Expense........................ (0.8) (0.8) (0.9) (0.7) ----- ----- ----- ----- Income (Loss) Before Provision for Income Taxes............. 3.4 2.8 (8.1) 0.3 Provision for Income Taxes.............. 0.0 0.0 0.0 0.0 ----- ----- ----- ----- Net (Loss) Income....................... 3.4% 2.8% (8.1)% 0.3% ===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997 REVENUES Total revenues for the three months ended September 30, 1998 increased by $1.780 million or 14% to $14.817 million compared to $13.037 million in 1997. Product Sales and Service Revenues Product sales and service revenues increased by $1.985 million or 22% to $11.093 million in 1998 compared to $9.108 million in 1997. This increase in revenues was primarily related to expansion of the Company's videoconferencing business. Agency Commissions Agency commissions for 1998 decreased by $204,711 or (5%) to $3.724 million compared to $3.929 million in 1997. The decrease in agency commissions was primarily due to the closure of one of the Company's offices and changes in compensation rates and product offers from one of the Company's significant service providers. COSTS AND EXPENSES Costs of goods sold for 1998 increased by $1.019 million or 15% to $7.6 million compared to $6.581 million in 1997. Costs of goods sold as a percentage of revenues increased to 51% in 1998 from 50% in 1997. The dollar increase in costs of goods sold is primarily related to the increase in product sales. The percentage increase is primarily related to the higher product revenue mix. Sales and marketing expenses for 1998 increased by $391,943 or 9% to $4.742 million from $4.350 million in 1997. Sales and marketing expenses as a percentage of revenues decreased to 32% in 1998 from 33% in 1997. The dollar increase was primarily due to the compensation and related expenses associated with the revenues generated by NSI. The 8 percentage decrease was attributable to the Company's product sales and service revenues growing at a faster rate than the associated sales and marketing expenses. General and administrative expenses for 1998 increased by $219,792 or 13% to $1.855 million from $1.635 million in 1997. General and administrative expenses as a percentage of total revenues remained constant at 13%. The dollar increase resulted from a general increase in such expenses as a result of the growth of the Company's videoconferencing business. Income from operations increased $149,549 or 32% to income of $620,964 in 1998 from income of $471,415 in 1997. The increase in income from operations for 1998 was primarily related to the overall increase in sales and improved profitability relating to the Company's restructuring which included cost- savings from closing of unprofitable operations. Interest expense increased $19,059 to $123,465 in 1998 from $104,406 in 1997 due to additional borrowings related to the Company's credit facilities and capital lease obligations. There was no provision for income tax expense in 1998, compared to a tax provision of $3,135 for 1997. The decrease relates to the operating loss created by the restructuring charges recorded in the second quarter of 1998. Net income increased $133,625 or 37% to income of $497,499 in 1998 from net income of $363,874 for 1997. Net income as a percentage of revenues increased to 3.4% for 1998 compared to 2.8% for 1997. Net income per share increased to $0.07, or 17%, for 1998 compared to net income of $0.06 per share for 1997. Net income per share, assuming dilution, increased to $0.07, or 40%, for 1998 compared to net income of $0.05 per share for 1997. The weighted average number of shares outstanding increased to 6,833,329 for 1998 from 6,387,188 in 1997. The weighted average number of shares outstanding assuming dilution increased to 6,968,904 in 1998 from 6,847,723 in 1997. NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997 REVENUES Total revenues for the nine months ended September 30, 1998 increased by $8.031 million or 23% to $43.328 million from $35.297 million in 1997. Product Sales and Service Revenues Product sales and service revenues increased by $6.025 million or 26% to $29.524 million in 1998 from $23.499 million in 1997. This increase in revenues was primarily related to the Company's nationwide growth of its videoconferencing business. Agency Commissions Agency commissions for 1998 increased by $2.006 million, or 17%, to $13.804 million from $11.798 million in 1997. The increase in agency commissions was due primarily to the Company benefiting from agency commissions generated by its wholly-owned subsidiary, NSI, acquired in the fourth quarter of 1997. COSTS AND EXPENSES Costs of goods sold for 1998 increased by $3.720 million or 22% to $20.621 million from $16.901 million in 1997. Costs of goods sold as a percentage of revenues decreased to 47.6% in 1998 from 47.9% in 1997. The dollar increase in costs of goods sold is primarily related to the increase in product sales and service revenues and to an increase in technical service costs related to the Company's videoconferencing business. The percentage decrease is primarily related to an increase in service revenues related to the Company's videoconferencing business. Service revenues generally provide a higher profit margin than equipment revenues. Sales and marketing expenses for 1998 increased by $2.928 million or 23% to $15.713 million from $12.785 million in 1997. Sales and marketing expenses as a percentage of revenues increased to 36.3% in 1998 from 36.2% in 1997. The 9 dollar increase was primarily due to higher sales volume which resulted in higher compensation and related expenses for the Company's sales force. The percentage increase was attributable to the mix of product and service revenues versus agency commissions. General and administrative expenses for 1998 increased by $652,992 or 12% to $5.898 million from $5.245 million in 1997. General and administrative expenses as a percentage of total revenues decreased to 13.6% in 1998 from 14.8% in 1997. The dollar increase resulted from a general increase in such expenses as a result of the growth of the Company's videoconferencing business. The percentage decrease is due to synergies achieved as part of the integration and restructuring efforts. In the second quarter of 1998, the Company implemented a restructuring plan (the "Plan") designed to reduce costs and improve profitability. The implementation of the Plan resulted in a one-time charge of $4.201 million. Included in this charge against second quarter results are costs related to an impairment write-down of goodwill relating to previous acquisitions and the closing of unprofitable operations. Income (loss) from operations decreased to a loss of $(3.105) million compared to income of $365,839 in 1997. This loss in income related to the Company's restructuring efforts in the second quarter. Income (loss) from operations as a percentage of revenues decreased to (7.2)% for 1998, compared to 1.04% for 1997. Interest expense increased $158,106 to $417,676 in 1998 from $259,570 in 1997. The increase was primarily due to additional borrowings related to the Company's credit facilities and capital lease obligations. Provision for income tax expense decreased $612 to a provision of $3,900 in 1998 compared to a provision of $4,512 for 1997. The decrease was primarily attributable to state tax provisions. Net income (loss) decreased $3.629 million to a loss of $(3.527) million in 1998 from income of $101,757 for 1997. Net income as a percentage of revenues decreased to (8.14)% for 1998 compared to 0.3% for 1997. Net income (loss) per share decreased to $(0.52) for 1998 compared to $0.02 for 1997. Net income (loss) per share, assuming dilution, decreased to $(0.52) for 1998 compared to $0.02 for 1997. The weighted average number of shares outstanding for both basic and diluted earnings per share increased to 6,746,100 and 6,746,100 for 1998 from 6,323,135 and 6,701,324 in 1997, respectively. LIQUIDITY AND CAPITAL RESOURCES Over the past two years, View Tech has financed its operations and expansion activities with the proceeds from its initial public offering completed in June 1995, private placements of equity securities, bank debt and vendor credit arrangements. Net cash provided by operating activities for the nine months ended September 30, 1998 was $.995 million, primarily generated by non-cash charges related to restructuring of $1.491 million and increases in accounts payable, accrued restructuring charges, and deferred revenue of $1.793 million, $1.474 million and $.967 million, respectively, offset by an increase in inventory of $1.598 million and an increase in accounts receivable of $.458 million. Net cash used by investing activities for the nine months ended September 30, 1998 was $805,108, primarily relating to the purchase of office furniture and computer equipment. Net cash used by financing activities for the nine months ended September 30, 1998 was $591,933, related to net repayments under the Company's line of credit of $670,528, repayments under capital lease obligations of $328,985, offset by the issuance of common stock of $407,580. The Company entered into a $15 million Credit Agreement (the"Agreement") with Imperial Bank and BankBoston, N.A., effective November 21, 1997. The Agreement provides for a maximum credit line of up to $15 million for a term of five (5) years. Amounts outstanding under the Agreement are collateralized by certain assets of the Company. Funds available under the Agreement will vary from time to time depending on many variables including, without limitation, the amount of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as such terms are defined in the Agreement. The interest charged on outstanding amounts vary between the Prime Rate, plus the Prime Rate Margin, or between the 10 Eurodollar Rate, plus the Eurodollar Rate Margin, depending upon the Company's Leverage Ratio, as defined in the Agreement. At September 30, 1998, the interest rate on this Facility was 9.0%. The Agreement requires the Company to comply with various financial and operating loan covenants. As of September 30, 1998 the Company was in compliance with these covenants. Under certain conditions, the Agreement allows the Company to prepay principal amounts outstanding without penalty. The Agreement provides for three separate loan commitments consisting of (i) a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to $5 million and (iii) a Facility C Commitment up to $3 million. Amounts drawn under the Facility A Commitment are due and payable no later than November 21, 2002. Amounts drawn under the Facility B Commitment are subject to mandatory repayments in sixteen (16) equal quarterly installments commencing on March 31, 1999. Amounts outstanding under the Facility C Commitment are subject to mandatory repayments in twelve (12) equal quarterly installments commencing on March 31, 2000. All amounts outstanding under each such Facility are due and payable no later than November 21, 2002. At September 30, 1998, the total outstanding principal balance due under these facilities was $4,235,329 RISK FACTORS VIEW TECH MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET Nasdaq has notified the Company that it does not meet the applicable listing requirements because it does not have $4,000,000 in net tangible assets and, therefore, is subject to delisting from the Nasdaq National Market. The Company believes that delisting of its common stock from the Nasdaq National Market could have a material adverse effect on the liquidity of the common stock and consequently on market capitalization of the Company. The Company is committed to the continued listing of its stock on the Nasdaq National Market, and therefore it is raising up to an additional $1,200,000 of capital through a private placement of its common stock to a limited group of accredited investors. The Company believes that it will be successful in raising such capital and that Nasdaq will continue to list its common stock for trading, however, this decision is not within the control of the Company and no assurance can be given that Nasdaq will not delist the Common Stock from the Nasdaq National Market. DEPENDENCE UPON KEY PERSONNEL The Company depends to a considerable degree on the continued services of certain of its executive officers, including William J. Shea, its chief executive officer, Franklin A. Reece III, its president and Ali Inanilan, its chief financial and administrative officer, as well as on a number of key personnel. Any further changes in current management, including but not limited to the loss of Messrs. Shea, Reece or Inanilan could have a material adverse affect on the Company. The loss of key management or technical personnel or the failure to attract and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS AND NON-RECURRING ITEMS; FUTURE RESULTS OF OPERATIONS View Tech and UST have operated since 1992 and 1987, respectively. Since November 29, 1996, the Company has operated on a combined basis. The Company reported net income (loss) of $497,499 and $(3,527,010), including restructuring costs, for the three months and nine months ended September 30, 1998, respectively. Although the Company achieved operating profitability, in the future, the Company may continue to experience significant fluctuations in operating results as a result of a number of factors, including, without limitations, 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, the Company's operating results may vary significantly depending on the mix of products and services comprising its revenues in any period. There can be no assurance that the Company will achieve revenue growth or will be profitable on a quarterly or annual basis in the future. DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL, BELL ATLANTIC AND GTE For the nine months ended September 30, 1998, approximately 31% of the Company's consolidated revenues were attributable to the sale of equipment manufactured by PictureTel Corporation and an additional 31% of consolidated revenues to the sale of network products and services provided by Bell Atlantic and GTE. Termination of or change of the Company's business relationships with PictureTel, Bell Atlantic or GTE, disruption in supply, failure of PictureTel, Bell Atlantic or GTE to 11 remain competitive in product quality, function or price or a determination by PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers such as the Company, among other things, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is a party to agreements with PictureTel on the one hand, Bell Atlantic and GTE on the other, that authorize the Company to serve as a non-exclusive dealer and sales agent, respectively, in certain geographic territories. The PictureTel, Bell Atlantic and GTE agreements can be terminated without cause upon written notice by the suppliers, subject to certain notification requirements. There can be no assurance that these agreements will not be terminated, or that they will be renewed on terms acceptable to the Company. These suppliers have no affiliation with the Company and are competitors of the Company. In October 1998, Bell Atlantic announced a decrease in the commission rates paid to the Company effective January 1, 1999. COMPETITION The video communications industry is highly competitive. The Company competes with manufacturers of video communications equipment, which include PictureTel, VTEL Corporation, Computer Telephone and Lucent Technologies, and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Other telecommunications carriers and other corporations that have entered the video communications market include, AT&T, MCI, some of the Regional Bell Operating Companies ("RBOCs"), Minnesota Mining & Manufacturing Corporation, Intel Corporation, Microsoft, Inc., Sony Corporation and British Telecom. Many of these organizations have substantially greater financial and other resources than the Company, furnish many of the same products and services provided by the Company and have established relationships with major corporate customers that have policies of purchasing directly from them. Management believes that as the demand for video communications systems continues to increase, additional competitors, many of which may have greater resources than the Company, may 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 current agreement with PictureTel authorizes the Company to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and Wyoming. Because the agreement is non-exclusive, however, the Company is subject to competition within these territories 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 on August 1, 2000 and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with the Company and is a competitor of the Company. While there are suppliers of video communications equipment other than PictureTel, termination of the Company's relationship with PictureTel could have a material adverse effect on the Company. The Company believes that customer purchase decisions are influenced by several factors, including cost of equipment and services, video communication system features, connectivity and compatibility, a system's capacity for expansion and upgrade, ease of use and services provided by a vendor. Management believes its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment the Company sells, the quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video communications systems enable the Company to compete successfully in the industry. The telecommunications industry is also highly competitive. The Company competes with many other companies in the telecommunications business which have substantially greater financial and other resources than the Company, selling both the same and similar services. The Company's competitors in the sale of network services include RBOCs such as Bell South, Bell Atlantic, Southwestern Bell and GTE, long distance carriers such as AT&T Corporation, MCI Communications Corporation, SPRINT Corporation, other long distance and communications companies such as Qwest Communications International Inc. and IXC Communications Inc., by-pass companies and other agents. There can be no assurance that the Company will be able to compete successfully against such companies. 12 YEAR 2000 DISCLOSURE As the year 2000 approaches, it is generally anticipated that certain computers, software and other equipment utilizing microprocessors may be unable to recognize or properly process dates after the year 1999 without software modifications. The Company is reviewing all internal systems, outside services, and the products it sells for their Year 2000 compliance. The Company has determined that some internal systems are not Year 2000 compliant. The Company expects these systems to be compliant no later than March 31, 1999. The costs to upgrade these systems and become fully Year 2000 compliant is not expected to exceed $50,000. The Company has evaluated its products and believes that most of the products it is currently shipping are Year 2000 compliant. The Company plans to upgrade any products that are not Year 2000 compliant through its suppliers, and anticipates completion of this process during 1999. Based on its review of all systems and products to date, the Company does not expect the costs related to the Year 2000 problem will have a material effect on its financial condition. The ability of its suppliers and customers to correct potential Year 2000 problems, however, are beyond the Company's control. The Company's operations and financial results could be adversely affected to the extent that the costs to become fully compliant differ materially from its present estimates. The Company is conducting interviews with suppliers to determine the extent of their Year 2000 readiness. The Company is developing a contingency plan in the event third party systems are not Year 2000 compliant. 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 and services obsolete, unmarketable or noncompetitive. The Company's ability to implement its growth strategies and remain competitive will depend upon its ability to successfully (i) maintain and develop relationships with manufacturers of new and enhanced products that include new technology, (ii) achieve levels of quality, functionality and price acceptability to the market, (iii) maintain a high level of expertise relating to new products and the latest in communications systems technology, (iv) continue to market quality telecommunications services on behalf of its RBOC and other exchange service carriers, and (v) continue to design, sell, manage and support competitive telecommunications solutions for its customers. There can be no assurance, however, that the Company will be able to implement its growth strategies or remain competitive. 13 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K (a) Exhibits 2.1 Amendment No. 2 dated as of May 1, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). 2.2 Amendment No. 3 dated as of August 14, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). 2.3 Amendment No. 4 dated as of October 27, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). 10.1 Amendment No. 1, Exhibit A, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by Imperial bank. 10.2 Amendment No. 1, Exhibit B, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A. 10.3 Separation Agreement, effective August 31, 1998, by and between View Tech, Inc., a Delaware corporation, and David A. Kaplan, the former Chief Financial Officer. 10.4 General Release between, David A. Kaplan, former Chief Financial Officer and View Tech, Inc., a Delaware corporation. 27.1 Financial Data Schedule (b) Reports on Form 8-K None 14 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIEW TECH, INC. Date: November 09, 1998 By: \s\ Ali Inanilan ------------------------ Ali Inanilan Chief Financial and Administrative Officer (Principal Financial and Accounting Officer) 15 EX-2.1 2 AMEND. NO. 2 TO CREDIT AGREEMENT EXHIBIT 2.1 AMENDMENT NO. 2 TO CREDIT AGREEMENT ----------------------------------- AMENDMENT NO. 2, dated as of May 1, 1998, to the Credit Agreement, dated as of November 21, 1997 (as amended from time to time, the "Credit ------ Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the - --------- "Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"), - --------- -------------- (c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in ----- its capacity as Agent for the Banks and as Issuer with respect to Letters of Credit. RECITALS -------- The Borrower, the Parent Company, the Banks and the Agent have agreed to amend certain of the provisions contained in the Credit Agreement, all as set forth in this Amendment No. 2 ("this Agreement"). -------------- Accordingly, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined ------------------------------- herein, terms defined in the Credit Agreement are used herein as therein defined. SECTION 1.2. AMENDED AND RESTATED DEFINED TERM. Section 1.1 of the Credit --------------------------------- ----------- Agreement is amended by amending and restating the following defined term to read in its entirety as follows: "Adjusted Borrowing Base" means, as at any date, (a) the Borrowing ----------------------- Base determined as at such date, less (b) $1,500,000. SECTION 1.3. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is ----------------- ----------- amended by adding thereto each of the following new defined terms: "Agency Account Agreement" means, with respect to any depository or ------------------------ other similar account maintained by a particular Obligor with an Agency Account Institution, the Agency Account Agreement, in or substantially in the form of Exhibit C to Amendment No. 2 (or in a form otherwise approved --------- by the Agent), entered into by such Obligor with the -2- Agent and such Agency Account Institution with respect to such depository or other similar account. "Agency Account Institution" means any financial institution (other -------------------------- than Imperial Bank) which receives deposits directly or indirectly (whether as the result of an interim concentration of funds in depository accounts or otherwise) from or for the account of a particular Obligor. "Agency Account" means any depository or other similar account -------------- maintained by a particular Obligor with an Agency Account Institution, the funds from which are periodically transferred, upon the terms contained in the Agency Account Agreement applicable thereto, to the Concentration Account of such Obligor with the Agent. "Approved Account" is defined in Section 9.2.14 ---------------- -------------- "Amendment No. 2" means Amendment No. 2, dated as of May 1, 1998, --------------- among the Borrower, the Parent Company, the Banks and the Agent, and upon the terms of which each of the parties to this Agreement has agreed to amend this Agreement. "Amendment No. 2 Effective Date" means May 1, 1998. ------------------------------ "Concentration Account" means, with respect to a particular Obligor, --------------------- the depository account of such Obligor with the Agent under the control of the Agent for the benefit of the Banks and the Agent. "Controlled Disbursement Account" means, with respect to a particular ------------------------------- Obligor, the controlled disbursement account maintained by such Obligor with the Agent. "Imperial Bank" means Imperial Bank, a bank organized under the laws ------------- of the State of California. "Net Settlement Amount" means, in relation to any particular --------------------- Settlement pursuant to Section 3.11, the net amount (if any) shown by such ------------ Settlement to be owed by one Settling Party ("net payor") to another --------- Settling Party ("net payee"), such net amount (if any) to be equal to the --------- EXCESS OF (a) the Settlement Amount shown by such Settlement to be owed by --------- the net payor to the net payee, OVER (b) the Settlement Amount shown by ---- such Settlement to be owed by the net payee to the net payor. "Obligors" means, collectively, the Borrower and the Parent Company; -------- and "Obligor" means either of the Obligors. ------- -3- "Operating Account" means, with respect to a particular Obligor, any ----------------- demand deposit account maintained by such Obligor with Imperial Bank or BankBoston. "Primary Operating Account" means, with respect to a particular ------------------------- Obligor, the Operating Account of such Obligor with Imperial Bank identified on Exhibit A to Amendment No. 2 as the "Primary Operating --------- Account" of such Obligor. "Settlement" means, in relation to the Agent and the Banks on or as of ---------- any Settlement Date, (a) the determination on and as of such Settlement Date, in accordance with the provisions set forth in Section 3.11.1(a), of ----------------- (i) the Settlement Amount (if any) required to be paid by the Agent to each Bank for or on account of principal of Facility A Loans received and held by the Agent for and on behalf of the Banks pursuant to Section 3.10.1 -------------- during the Settlement Reference Period ended on the day before such Settlement Date, (ii) the Settlement Amount (if any) required to be paid by each Bank to the Agent (for the Agent's own account) for or on account of principal of Facility A Loans advanced by the Agent for and on behalf of the Banks pursuant to Section 3.1.3 during such Settlement Reference ------------- Period, and (iii) the Settlement Amount (if any) required to be paid by one Bank to another Bank in order to cause each Bank's actual share of the aggregate outstanding principal amount of all Facility A Loans (determined on and as of such Settlement Date) to be equal to each Bank's Percentage (determined as of such Settlement Date) of such aggregate outstanding principal amount of all Facility A Loans, in any case where, prior to the payment of such Settlement Amount, the actual share is not so equal, (b) the determination on and as of such Settlement Date, in accordance with the provisions set forth in Section 3.11.1(b), of the Net Settlement Amount (if ----------------- any) required to be paid by any Settling Party to another Settling Party, and (c) the payment of Net Settlement Amounts by Settling Parties to other Settling Parties on and as of such Settlement Date pursuant to and in compliance with Section 3.11.1(c). ----------------- "Settlement Amount" is defined in Section 3.11.1(a). ----------------- ----------------- "Settlement Date" means each of (a) the Drawdown Date relating to any --------------- Loan Request for a Facility A Loan, (b) Friday of each week, or if Friday is not a Business Day, the Business Day immediately following such Friday, and (c) the Business Day immediately following the day on which the Agent shall receive from any of the Principal Companies or Banks a written notice of the existence of any Event of Default. "Settlement Reference Period" means the period beginning on a --------------------------- Settlement Date and ending on the day before the next Settlement Date. -4- "Settling Parties" means, for all purposes of Section 3.11 and any ---------------- ------------ Settlement hereunder, collectively, the Agent and the Banks; and "Settling -------- Party" means any one of the Settling Parties. ----- ARTICLE II AMENDMENTS ----------- Effective on and as of May 1, 1998 ("Effective Date"), and subject always -------------- in any event to the provisions of Article III, the Credit Agreement is hereby ----------- amended in each of the following respects: SECTION 2.1. DAILY BORROWINGS OF FACILITY A LOANS. Section 3.1 of the ------------------------------------ ----------- Credit Agreement is hereby amended by adding the following new Section 3.1.3 ------------- immediately after Section 3.1.2 of the Credit Agreement: ------------- SECTION 3.1.3. DAILY BORROWINGS OF FACILITY A LOANS. ------------------------------------ (a) Notwithstanding the notice and minimum amount requirements set forth in Section 3.1.1(a), and notwithstanding the requirement set ---------------- forth in Section 7.2.3 to calculate and confirm the Borrowing Base as ------------- of the Drawdown Date of each Facility A Loan, the Agent shall from time to time, for and on behalf of each Bank pro rata in accordance -------- with its Percentage thereof, make Facility A Loans to the Borrower by entry of credits to the Controlled Disbursement Account of each Obligor to cover checks or other items or charges which such Obligor has drawn or made against such Controlled Disbursement Account or to cause payment of principal, interest, fees or other charges due and payable by such Obligor under the Loan Documents. Each of the Borrower, the Parent Company and the Banks hereby irrevocably requests and authorizes the Agent to make such Facility A Loans to the Borrower from time to time pursuant to this Section 3.1.3(a) by means of ---------------- appropriate entries of such credits sufficient to cover any such checks, items and other charges then presented. (b) Each of the Obligors acknowledges and agrees that, except as otherwise expressly provided below in this Section 3.1.3(b), the ---------------- making of such Facility A Loans pursuant to Section 3.1.3(a) shall, in ---------------- each case, be subject in all respects to the provisions of, including, without limitation, the applicable conditions precedent contained in, this Agreement as if each of such Facility A Loans were Facility A Loans covered by a Loan Request, including, without limitation, the limitations set forth in Section 2.1(a) and the requirement that the -------------- applicable provisions of Section ------- -5- 7.2 be satisfied. The parties hereto agree that the making of such --- Facility A Loans pursuant to Section 3.1.3(a) shall not be subject to ---------------- the requirements contained in Section 3.1.1 and shall not be subject ------------- to the satisfaction of the conditions precedent set forth in Section ------- 7.2.2. or Section 7.2.3. ------ -------------- (c) Each of the Obligors agrees with the Banks and the Agent that the making of each Facility A Loan pursuant to Section 3.1.3(a) shall ---------------- constitute the representation and warranty of such Obligor that each of the applicable conditions contained in Sections 7.2.1, 7.2.4 and -------------- ----- 7.2.5 have been satisfied before giving effect to such Facility A Loan ----- and will, after giving effect to such Facility A Loan, also be satisfied. All actions taken by the Agent from time to time pursuant to the provisions of Section 3.1.3(a) shall be conclusive and binding ---------------- on the Borrower, the Parent Company and the Banks, in each case absent the Agent's gross negligence or willful misconduct. Each Bank shall, in connection with Settlement on each Settlement Date, be obligated to provide to the Agent, in the manner contemplated and provided by Section 3.11.1, such Bank's Percentage of each Facility A Loan -------------- advanced by the Agent during the Settlement Reference Period ended on the day before such Settlement Date. (d) The Borrower absolutely and unconditionally understands and agrees that each Facility A Loan so made pursuant to Section 3.1.3(a) ---------------- by entry of credits to the Controlled Disbursement Account of the Parent Company shall, for all purposes of this Agreement and the other Loan Documents, be treated as and deemed to be a Facility A Loan made directly to the Borrower. (e) Without limitation of the Obligations of the Obligors under Section 9.1.1(c)(iii), which Obligations remain unaltered, the --------------------- Obligors hereby further agree to furnish to the Agent from time to time upon the Agent's request therefor a Borrowing Base Report confirming the Borrowing Base calculations as of such date or dates as may be specified by the Agent. SECTION 2.2. DEPOSITORY ARRANGEMENTS; SETTLEMENT; ETC. Article III of the ---------------------------------------- ----------- Credit Agreement is hereby amended by adding the following new Section 3.10 and ------------ Section 3.11 immediately after Section 3.9 of the Credit Agreement: - ------------ ----------- SECTION 3.10. DEPOSITORY ARRANGEMENTS. ----------------------- -6- SECTION 3.10.1. THE DEPOSITORY ARRANGEMENTS, ETC. -------------------------------- (a) Each Obligor will, from and after the Amendment No. 2 Effective Date, (i) maintain a separate Controlled Disbursement Account with the Agent, (ii) maintain a separate Primary Operating Account with Imperial Bank, (iii) maintain a separate Concentration Account with and under the control of the Agent, (iv) direct each Agency Account Institution, pursuant to the Agency Account Agreements to which it is a party (whereby such Agency Account Institution shall, among other things, waive all rights of set-off, other than for service charges and returns incurred in connection therewith), to cause all funds held by such Agency Account Institution in its Agency Accounts to be transferred daily (or with such other frequency as the Agent shall request) to, and only to, the Agent for deposit in such Obligor's Concentration Account, and (v) upon the Agent's request after the occurrence of any Default or Event of Default, direct all of its account debtors and obligors on instruments and other obligors of such Obligor to make all payments due or to become due to such Obligor directly to such Obligor's Concentration Account. If, at any time from and after the Amendment No. 2 Effective Date, an Obligor receives any cash proceeds or cash payments in respect of any of the Collateral, whether in the form of money, checks or otherwise, such Obligor will hold such cash proceeds or payments in trust for the benefit of the Agent and the Banks and turn such cash proceeds or payments promptly over to the Agent in the identical form received by deposit to such Obligor's Concentration Account. (b) The Agent shall, for each Obligor and such Obligor's Concentration Account, (i) with respect to all funds and cash proceeds in the form of money, checks and like items received in such Concentration Account, on the same Business Day on which the Agent determines that good collected funds have been -7- received, and prior to the final collection of good collected funds, on a provisional basis until such final collection, (ii) with respect to all funds and cash proceeds in the form of a wire transfer received in such Concentration Account, on the same Business Day as the Agent's receipt of such amounts (or on such later date as the Agent determines that good collected funds have been received), and (iii) with respect to all funds and cash proceeds in the form of an automated clearing house transfer received in such Concentration Account, on the next Business Day following the Agent's receipt of such amounts (or on such later date as the Agent determines that good collected funds have been received), in each case, (A) receive for and on behalf of the Banks for immediate application to the aggregate principal amount of the Facility A Loans then outstanding all such funds and cash proceeds which were deposited to such Concentration Account, and hold all of such funds and cash proceeds so received and applied for and on behalf of the Banks until the next Settlement, and (B) so long as no Default or Event of Default shall be then continuing, cause any excess to be credited to the Primary Operating Account of such Obligor with Imperial Bank (subject always to the limitations of Section 9.2.14). During the continuance -------------- of any Default or Event of Default, the Agent may, from time to time in the Agent's discretion, retain any or all of such excess to pay any Obligations then due and payable and to provide cash collateral for any Obligations not then due and payable, with the Agent causing any surplus, subject to the rights of any other persons entitled thereto, to be credited to the Primary Operating Account of such Obligor with Imperial Bank (subject always to the limitations of Section 9.2.14). -------------- For the purposes of the foregoing provisions of this paragraph (b), ------------- the Agent shall not be deemed to have received any such cash proceeds on any day unless received by the Agent before 1:00 p.m., San Jose time, on such day. Each of the Obligors further acknowledges and agrees that any such provisional credit by the Agent shall be subject to reversal if final collection in good collected funds of the related item is not received by the Agent in accordance with the Agent's customary procedures and practices for collecting provisional items. (c) The Agent shall, in connection with Settlement on each Settlement Date, be obligated to provide to each Bank, in the manner contemplated and provided by Section 3.11.1, such Bank's Percentage of -------------- the principal of the Facility A Loans repaid pursuant -8- to Section 3.10.1 during the Settlement Reference Period ended on the -------------- day before such Settlement Date. The parties hereto agree that repayment and prepayment of principal of the Facility A Loans from time to time pursuant to the provisions of this Section 3.10.1 shall -------------- not be subject to the notice and minimum amount requirements set forth in Section 3.3.2(a). ---------------- SECTION 3.10.2. FEES AND EXPENSES; ETC. Each Obligor agrees to ---------------------- pay to the Agent, upon demand, any and all reasonable fees, costs and expenses which the Agent shall charge or otherwise incur from time to time in connection with (a) the Agent's provision of the cash management services contemplated by this Agreement, (b) opening and maintaining the Concentration Accounts, Controlled Disbursement Accounts and Primary Operating Accounts, or (c) the depositing for collection by the Agent of any check or other item of payment. Absent gross negligence or willful misconduct by the Agent, each Obligor, jointly and severally, agrees to indemnify the Agent and each of the Banks and to hold the Agent and each of the Banks harmless from and against any loss, cost or expense sustained or incurred by the Agent or by any of the Banks on account of any claims of third parties arising in connection with the Agent's operation of the Concentration Accounts, Controlled Disbursement Accounts or Primary Operating Accounts. SECTION 3.11. SETTLEMENT, ETC. ---------------- SECTION 3.11.1. SETTLEMENT AND FUNDING PROCEDURES. --------------------------------- (a) On each Settlement Date, the Agent shall, prior to 11:00 a.m., San Jose time, determine each of the following amounts (each, a "Settlement Amount"): ----------------- (i) the sum for each Bank of (A) the amount (if any) required to be paid by the Agent to such Bank for or on account of principal of Facility A Loans received and held by the Agent for and on behalf of the Banks pursuant to Section 3.10.1 during -------------- the Settlement Reference Period ended on the day before such Settlement Date, plus (B) interest payable by the Agent to such ---- Bank calculated on the basis of such Bank's Percentage of principal of Facility A Loans repaid with funds so received by the Agent, such interest to accrue on such principal at an annual rate equal to the daily average Federal Funds Rate plus 1/2% from the date of repayment of such principal to and including the day before such Settlement Date; -9- (ii) the sum for each Bank of (A) the amount (if any) required to be paid by such Bank to the Agent (for the Agent's own account) for or on account of principal of Facility A Loans advanced by the Agent for and on behalf of the Banks pursuant to Section 3.1.3 during the Settlement Period ended on the day ------------- before such Settlement Date, plus (B) interest payable by such ---- Bank to the Agent calculated on the basis of such Bank's Percentage of each Facility A Loan so advanced, such interest to accrue on such Bank's Percentage of such Facility A Loan at an annual rate equal to the daily average Federal Funds Rate plus 1/2% from the date of advance to and including the day before such Settlement Date; and (iii) the amount (if any) required to be paid by one Bank to another Bank in order to cause each Bank's actual share of the aggregate outstanding principal amount of all Facility A Loans (determined on and as of such Settlement Date) to be equal to each Bank's Percentage (determined as of such Settlement Date) of such aggregate outstanding principal amount of all Facility A Loans, in any case where, prior to the payment of such Settlement Amount, the actual share is not so equal. (b) On each Settlement Date, the Agent shall, not later than 11:00 a.m., San Jose time, also determine the Net Settlement Amount (if any) required to be paid by each Settling Party to another Settling Party, undertake to complete a Settlement with respect to each Settling Party for the immediately preceding Settlement Reference Period and give telephonic or facsimile notice (i) to each of the Banks and the Obligors of the principal amount of each of the Facility A Loans made by the Agent for and on behalf of the Banks during the immediately preceding Settlement Reference Period, (ii) to each of the Banks and the Obligors of the principal amount of each of the Facility A Loans received and held by the Agent for and on behalf of the Banks during such Settlement Reference Period, (iii) to each of the Banks of the Settlement Amount (if any) owed by each Settling Party to each other Settling Party as determined by the Agent for such Settlement, and (iv) to each of the Banks of the Net Settlement Amount (if any) required to be paid by each Settling Party to each other Settling Party in order to effect and complete a Settlement on and as of such Settlement Date. (c) A statement of the Agent submitted to each of the Banks with respect to each (if any) Net Settlement Amount owing by any Settling Party to another Settling Party under this Section ------- -10- 3.11.1 in connection with each Settlement shall be prima facie ------ ----------- evidence thereof. Each Settling Party shall, not later than 1:00 p.m., San Jose time, on each Settlement Date, pay, by wire transfer of immediately available funds, the Net Settlement Amount required to be paid by such Settling Party to another Settling Party in connection with the completion of Settlement on such Settlement Date. SECTION 3.11.2. ADVANCES BY AGENT, ETC. The Agent shall, unless ---------------------- notified in writing to the contrary by any Bank prior to the making of any particular Facility A Loan pursuant to Section 3.1.3(a), be ---------------- entitled conclusively to presume that the Agent is authorized by such Bank to advance such Bank's Percentage of such Facility A Loan. In reliance upon such presumption, the Agent shall be held harmless by such Bank for making available such Bank's Percentage of each such Facility A Loan to the Borrower pursuant to and as contemplated by Section 3.1.3(a). To the extent of any inconsistency between the ---------------- provisions contained in the last three sentences of Section 3.7.1 and ------------- the provisions of Section 3.11.1, the provisions of Section 3.11.1 -------------- -------------- shall be controlling. SECTION 2.3. LIMITATIONS ON FUNDING OPTIONS FOR FACILITY A LOANS. Section --------------------------------------------------- ------- 4.4.2 of the Credit Agreement is hereby amended by adding the following new - ----- sentence to such Section 4.4.2 immediately after the first sentence thereof: ------------- "Anything herein to the contrary notwithstanding, no portion of the outstanding principal amount of any Facility A Loan may, at any time on or after the Amendment No. 2 Effective Date, be continued as, or converted into, any Eurodollar Loans." SECTION 2.4. COVENANTS REGARDING BANK ACCOUNTS. Section 9.2 of the Credit --------------------------------- ----------- Agreement is hereby amended by adding the following new Section 9.2.14 -------------- immediately after Section 9.2.13 of the Credit Agreement: -------------- SECTION 9.2.14. BANK ACCOUNTS, ETC. Each Obligor covenants and ------------------ agrees with the Agent and the Banks that, from and after the Amendment No. 2 Effective Date and until all of the Commitments have terminated and all of the Obligations have been paid in full, such Obligor will not for any reason or under any circumstances: (a) establish or maintain any bank accounts other than the Controlled Disbursement Account of such Obligor, the Primary Operating Account of such Obligor and the other bank accounts of such Obligor identified on Exhibit A to --------- Amendment No. 2 (each bank account of each Obligor identified on Exhibit A (as amended from time to time) being herein referred to as --------- an -11- "Approved Account"), (b) breach in any respect any of its obligations ---------------- under any Agency Account Agreement, (c) deposit into, or otherwise maintain on deposit in, any "Operating Account" of such Obligor identified on Exhibit A to Amendment No. 2 any amounts in excess of --------- the amounts necessary to pay current obligations of such Obligor, (d) at any time deposit into any "Operating Account" of such Obligor identified on Exhibit A to Amendment No. 2 any amounts other than --------- proceeds of Facility A Loans or funds transferred from such Obligor's Controlled Disbursement Account or Concentration Account as permitted by Section 3.10.1, or (e) at any time deposit into, or otherwise -------------- maintain or deposit in, any bank account any funds or cash proceeds unless such bank account is an Approved Account of such Obligor. Each Obligor will, within thirty days after the Amendment No. 2 Effective Date, make subject to an Agency Account Agreement each bank account of such Obligor identified on Exhibit A to Amendment No. 2 as an Agency --------- Account, which Agency Account Agreement shall have been duly and properly executed and delivered to the Agent by such Obligor and the financial institution with which such bank account has been established. The execution and delivery by each Obligor of each such Agency Account Agreement shall have been duly authorized by resolutions, in or substantially in the form set forth in Exhibit B to --------- Amendment No. 2, duly adopted by the Board of Directors of such Obligor. ARTICLE III CONDITIONS PRECEDENT -------------------- Each of the amendments to the Credit Agreement set forth in Article II of ---------- this Agreement shall be effective and in full force and effect on and as of and from and after the Effective Date, provided that each of the following -------- conditions precedent shall first be satisfied: SECTION 3.1. AGREEMENT. The Agent shall have received counterparts of --------- this Agreement duly executed by each of the Borrower and the Parent Company and also by each of the Banks. SECTION 3.2. REPRESENTATIONS AND WARRANTIES. Each of the representations ------------------------------ and warranties made by the Borrower and the Parent Company pursuant to this Agreement shall be true and correct in all material respects on and as of the Effective Date with the same full force and effect as if made and repeated on and as of such date. SECTION 3.3. REIMBURSEMENT OF COSTS AND EXPENSE. The Borrower and the ---------------------------------- Parent Company shall have paid in full all of the reasonable -12- out-of-pocket costs and expenses (including all of the reasonable fees and disbursements of special counsel to the Agent incurred during the period from November 22, 1997 through the Effective Date) payable by the Borrower and the Parent Company pursuant to Section 13.3 of the Credit Agreement and for which ------------ invoices shall have been submitted to the Borrower and the Parent Company on or prior to the Effective Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Borrower and the Parent Company represents and warrants to the Agent and the Banks as follows: SECTION 4.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the --------------------------------- representations and warranties made by or on behalf of each of the Principal Companies to the Agent and the Banks in the Loan Documents was true and correct in all material respects when made and is true and correct in all material respects on and as of the date hereof, except (a) as affected by the consummation of the transactions contemplated by the Loan Documents (including this Agreement), and (b) to the extent that any such representation or warranty relates by its express terms solely to a prior date. SECTION 4.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each ------------------------- of the Principal Companies of this Agreement and the performance by each of the Principal Companies of their respective agreements and obligations under this Agreement have been duly and properly authorized by all necessary corporate or other action on the part of each of the Principal Companies, and do not and will not conflict with, result in any violation of, or constitute any default under, (a) any provision of any Governing Document of any Principal Company, (b) any Contractual Obligation of any Principal Company, or (c) any Applicable Law. SECTION 4.3. VALIDITY, ETC. This Agreement has been duly executed and ------------- delivered by each of the Principal Companies and constitutes the legal, valid and binding obligation of each of the Principal Companies, enforceable against each of the Principal Companies in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally and to general equitable principles. Each of the Principal Companies hereby ratifies and confirms in all respects all of the Obligations as modified hereby. SECTION 4.4. NO DEFAULTS. After giving effect to this Agreement, no ----------- Defaults or Events of Default will be continuing under the Credit Agreement. -13- SECTION 4.5. BANK ACCOUNTS. Exhibit A to this Agreement identifies each ------------- --------- bank account of each Obligor which has been opened or established by such Obligor with any financial institution (wherever located) at any time on or prior to the date hereof and which remains open on or as of the date hereof. ARTICLE V PROVISIONS OF GENERAL APPLICATION --------------------------------- SECTION 5.1. NO OTHER CHANGES. Except as otherwise expressly provided by ---------------- this Agreement, all of the terms, conditions and provisions of the Credit Agreement, and all rights and remedies of the Agent and the Banks thereunder, shall remain unaltered. In particular, and without limitation of the understanding and agreement of the parties hereto contained in the immediately preceding sentence, each of the Obligors expressly understands and agrees that the mandatory prepayment provisions contained in Section 3.3.5 and the ------------- requirement to furnish Borrowing Base Reports contained in Section 9.1.1(c)(iii) --------------------- remain in full force and effect without waiver or alteration. SECTION 5.2. OTHER PROVISIONS. This Agreement is a Loan Document for all ---------------- purposes of the Credit Agreement and each of the other Loan Documents. This Agreement and the rights and obligations hereunder of each of the parties hereto shall in all respects be construed in accordance with and governed by the laws of the State of California. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -14- IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 2 TO THE CREDIT AGREEMENT to be executed and delivered by their respective authorized officers as of the date first above written. THE BORROWER: ------------ USTELECENTERS, INC. By: /s/ Angelo P. Gentile ----------------------------------------- Name: Angelo P. Gentile Title: Vice President of Finance THE PARENT COMPANY: ------------------ VIEW TECH, INC. By: /s/ Angelo P. Gentile ----------------------------------------- Name: Angelo P. Gentile Title: Vice President of Finance THE BANKS: --------- IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS AGENT By: /s/ Paula J. Barysauskas ----------------------------------------- Name: Paula J. Barysauskas Title: Vice President BANKBOSTON, N.A. By: /s/ Frank Gianino ----------------------------------------- Name: Frank Gianino Title: Vice President EX-2.2 3 AMEND. NO. 3 TO CREDIT AGREEMENT EXHIBIT 2.2 [EXECUTION COPY] -------------- AMENDMENT NO. 3 TO CREDIT AGREEMENT ----------------------------------- AMENDMENT NO. 3, dated as of August 14, 1998, to the Credit Agreement, dated as of November 21, 1997 (as amended from time to time, the "Credit ------ Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the - --------- "Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"), -------- -------------- (c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in ----- its capacity as Agent for the Banks and as Issuer with respect to Letters of Credit. RECITALS -------- The Borrower, the Parent Company, the Banks and the Agent have agreed to amend certain of the provisions contained in the Credit Agreement and in certain of the other Loan Documents, all as set forth in or required by this Amendment No. 3 ("this Agreement"). -------------- Accordingly, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined ------------------------------- herein, terms defined in the Credit Agreement (as amended hereby) are used herein as therein defined. The term "AMENDMENT DOCUMENTS," as used in this ------------------- Agreement, shall mean this Agreement and the 1998 Warrant Amendments. ARTICLE II AMENDMENTS ---------- Effective on and as of August 14, 1998 ("Effective Date"), and subject -------------- always in any event to the provisions of Article III hereof, the Credit ----------- Agreement is hereby amended in each of the following respects: SECTION 2.1. AMENDMENT OF DEFINED TERMS. Section 1.1 of the Credit -------------------------- ----------- Agreement is amended by amending and restating the following defined term to read in its entirety as follows: -2- "Permitted Acquisition" means any Acquisition by any Principal Company --------------------- from time to time after the Amendment No. 3 Effective Date; provided, however, -------- ------- that: (a) the Borrower and the Parent Company shall have received, before the implementation or completion of such Acquisition, the express prior written consent and approval of each of the Agent and the Banks for such Acquisition, such consent and approval not to be unreasonably withheld or delayed by the Agent or the Banks; (b) after giving effect to such Acquisition, all of the Property acquired pursuant thereto shall be owned exclusively by such Principal Company or one of its direct Subsidiaries that, immediately upon completion of such Acquisition, shall have become party hereto as a Principal Company and shall have complied with the covenants contained in Section 9.1.9 ------------- hereof; (c) the Parent Company shall have demonstrated to the reasonable satisfaction of the Agent and the Banks, based on historical financial statements, projections and pro forma financial statements, in each case --- ----- certified by an Authorized Officer of the Parent Company, that all covenants, including all covenants contained in Article IX hereof, ---------- contained herein (A) would have been satisfied on a pro forma basis as at --- ----- the end of or for the most recent Reference Period, and (B) will be satisfied on a pro forma basis through the Final Maturity Date, based on --- ----- operating and financial projections which are consistent with historical results which conservatively can be expected for the future; (d) the Acquisition is of a Person or business engaged in one of the businesses of the Principal Companies as of the date hereof, or of a business reasonably incidental or related thereto; and (e) at any time any offer or commitment is made to engage in any such Acquisition, at any time any agreement to engage in any such Acquisition is entered into, and after giving effect to any such Acquisition, no Default or Event of Default shall occur or be continuing. Section 1.1 of the Credit Agreement is hereby further amended in each of the ----------- following respects: (a) The defined term "Consolidated EBITDA" is hereby amended by adding the ------------------- following new paragraph to such defined term: -3- For purposes of determining the "Consolidated EBITDA" of the Parent Company and its Subsidiaries for any period which includes the fiscal quarter of the Parent Company ended June 30, 1998, the "Consolidated Net Operating Profit" of the Parent Company and its Subsidiaries for such fiscal quarter shall be adjusted by adding back to such Consolidated Net Operating Profit (but only to the extent taken as a charge or otherwise deducted in arriving at the "Net Operating Profit" of the Parent Company and its Subsidiaries for such fiscal quarter) the restructuring charge of $4,201,013 taken by the Parent Company for its fiscal quarter ended June 30, 1998. (b) The defined term "Consolidated Net Worth" is hereby amended by ---------------------- adding the following new paragraph to such defined term: For purposes of determining the "Consolidated Net Worth" of the Parent Company and its Subsidiaries as at any date, the consolidated shareholders' equity of the Parent Company and its Subsidiaries as at such date shall be determined after giving effect to the consequences of, and after making appropriate deduction for, the restructuring charge of $4,201,013 taken by the Parent Company for its fiscal quarter ended June 30, 1998. (c) The defined term "Debt Service Coverage Ratio" is hereby amended --------------------------- by adding the word "income" between the words "cash" and "taxes" appearing in the fourth line of such defined term. SECTION 2.2. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is ----------------- ----------- hereby further amended by adding thereto each of the following new defined terms: "Amendment No. 3" means Amendment No. 3 to Credit Agreement, --------------- dated as of August 14, 1998, among the Borrower, the Parent Company, the Banks and the Agent, and upon the terms of which each of the parties hereto has agreed to amend this Agreement. "Amendment No. 3 Effective Date" means August 14, 1998, the ------------------------------ so-called "Effective Date" of Amendment No. 3 to Credit Agreement. "1998 Warrant Amendments" means, collectively, (a) Amendment ----------------------- No. 1 ("1998 Imperial Bank Warrant Amendment") to the Common Stock ------------------------------------ Purchase Warrant, dated November 21, 1997, issued by the Parent Company to Imperial Bank, and (b) Amendment No. 1 ("1998 BankBoston --------------- Warrant Amendment") to the ----------------- -4- Common Stock Purchase Warrant, dated November 21, 1997, issued by the Parent Company to BankBoston. SECTION 2.3. COLLATERAL AUDITS. Section 9.1.7 of the Credit Agreement is ----------------- ------------- hereby amended by deleting the word "twice" appearing in the last sentence of Section 9.1.7 and by inserting "three (3) times" in place thereof. - ------------- SECTION 2.4. LEVERAGE RATIO. Section 9.2.4(a) of the Credit Agreement is -------------- ---------------- hereby amended and restated to read in its entirety as follows: (a) Maximum Leverage Ratio. Permit the Leverage Ratio as of the ---------------------- last day of any Reference Period identified below to be greater than the Leverage Ratio specified below:
----------------------------------------------------- REFERENCE MAXIMUM PERIOD ENDING LEVERAGE RATIO ------------- -------------- ----------------------------------------------------- June 30, 1998 9.00:1 ----------------------------------------------------- September 30, 1998 7.50:1 ----------------------------------------------------- December 31, 1998 6.00:1 ----------------------------------------------------- March 31, 1999 3.75:1 ----------------------------------------------------- Thereafter 3.00:1 -----------------------------------------------------
SECTION 2.5. MINIMUM CONSOLIDATED NET WORTH. Section 9.2.4(b) of the ------------------------------ ---------------- Credit Agreement is hereby amended and restated to read in its entirety as follows: (b) Minimum Consolidated Net Worth. ------------------------------ (i) Permit the Consolidated Net Worth on or as of any date identified in the table below to be less than the Consolidated Net Worth specified below opposite such date: -5-
-------------------------------------------------------------- MINIMUN CONSOLIDATED DATE NET WORTH ---- --------- -------------------------------------------------------------- June 30, 1998 $4,000,000 -------------------------------------------------------------- September 30, 1998 $4,500,000 -------------------------------------------------------------- December 31, 1998 $5,250,000 --------------------------------------------------------------
(ii) Permit the Consolidated Net Worth on or as of the last day of any Reference Period ending after March 30, 1999 to be less than the sum of (i) $5,250,000, plus (ii) one-half ---- of cumulative Consolidated Net Profit for the Parent Company and its Subsidiaries for the most recently completed fiscal quarter ending after December 31, 1998 for which the Banks shall have received financial statements required by Section ------- 9.1.1(b), and for each, if any, prior fiscal quarter of the -------- Parent Company ending after December 31, 1998 for which Consolidated Net Profit shall be positive, plus (iii) the ---- aggregate amount of Net Equity Proceeds received by the Parent Company after August 14, 1998. SECTION 2.6. DEBT SERVICE COVERAGE RATIO. Section 9.2.4(c) of the Credit --------------------------- ---------------- Agreement is hereby amended and restated to read in its entirety as follows: (c) Minimum Debt Service Coverage Ratio. Permit the Debt ----------------------------------- Service Coverage Ratio for the Reference Period ending June 30, 1998 to be less than .40:1.00, for the Reference Period ending September 30, 1998 to be less than .90:1.00, for the Reference Period ending December 31, 1998 to be less than 1.50:1.00, and for any Reference Period ending thereafter to be less than 1.50:1.00. -6- ARTICLE III CONDITIONS PRECEDENT -------------------- Each of the amendments to the Credit Agreement set forth in Article II of ---------- this Agreement shall be effective and in full force and effect on and as of and from and after the Effective Date, provided that each of the following -------- conditions precedent shall first be satisfied: SECTION 3.1. AMENDMENT DOCUMENT. The Agent shall have received ------------------ counterparts of this Agreement duly executed by each of the Borrower and the Parent Company and also by each of the Banks. SECTION 3.2. REPRESENTATIONS AND WARRANTIES. Each of the representations ------------------------------ and warranties made by the Borrower and the Parent Company pursuant to this Agreement shall be true and correct in all material respects on and as of the Effective Date with the same full force and effect as if made and repeated on and as of such date. SECTION 3.3. FEES, COSTS AND EXPENSES. The Borrower and the Parent ------------------------ Company shall have paid in full (a) to the Agent, for the account of the Banks, an amendment fee in the total amount of $20,000, and (b) to special counsel for the Agent, all of the reasonable out-of-pocket costs and expenses of special counsel to the Agent incurred during the period from July 22, 1998 through the Effective Date and that are payable by the Borrower and the Parent Company pursuant to Section 13.3 of the Credit Agreement and for which an invoice shall ------------ have been submitted to the Borrower and the Parent Company on or prior to the Effective Date. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS ----------------------------------------- Each of the Borrower and the Parent Company represents and warrants to and covenants with the Agent and the Banks as follows: SECTION 4.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the --------------------------------- representations and warranties made by or on behalf of each of the Principal Companies to the Agent and the Banks in the Loan Documents was true and correct in all material respects when made and is true and correct in all material respects on and as of the date hereof, EXCEPT (a) as affected by the ------ consummation of the transactions contemplated by the Loan Documents (including this Agreement), and (b) to the extent that any such representation or warranty relates by its express terms solely to a prior date. -7- SECTION 4.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each ------------------------- Principal Company of this Agreement, and the performance by each Principal Company of its agreements and obligations under this Agreement, have been duly and properly authorized by all necessary corporate or other action on the part of each of the Principal Companies, and do not and will not conflict with, result in any violation of, or constitute any default under, (a) any provision of any Governing Document of any Principal Company, (b) any Contractual Obligation of any Principal Company, or (c) any Applicable Law. SECTION 4.3. VALIDITY, ETC. This Agreement has been duly executed and ------------- delivered by each Principal Company and constitutes the legal, valid and binding obligation of each Principal Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally and to general equitable principles. Each of the Principal Companies hereby ratifies and confirms in all respects all of the Obligations as modified hereby. SECTION 4.4. NO DEFAULTS. After giving effect to this Agreement, no ----------- Defaults or Events of Default are continuing under the Credit Agreement or any of the other Loan Documents. SECTION 4.5. COLLATERAL EXAMINATION AND AUDIT. Each of the Borrower and -------------------------------- the Parent Company will permit representatives of the Agent and the Banks to conduct and complete, during the period of sixty (60) days commencing on the Effective Date, at the sole cost and expense of the Borrower and the Parent Company, a Collateral examination and audit on all premises where Collateral or other Property owned by the Borrower, the Parent Company or any of their Subsidiaries is located. SECTION 4.6. PROVISION OF COLLATERAL BY SUBSIDIARY, ETC. On and as of the ------------------------------------------ Effective Date, Vermont Network Telecommunications Services, Inc. ("VTNSI") is a ----- Subsidiary of the Borrower and the Parent Company. The Borrower and the Parent Company will, and will cause VTNSI to, comply in all material respects with the provisions of Section 9.1.9(a) of the Credit Agreement applicable to VTNSI, its ---------------- Capital Stock and its Property, all of the Obligations of the Borrower and the Parent Company under Section 9.1.9(a) applicable to VTNSI, its Capital Stock and ---------------- its Property to be performed and completed in a manner reasonably satisfactory to the Agent and the Banks no later than October 15, 1998. The Agent and the Banks hereby (a) agree that the provisions of this Section 4.6 shall control and ----------- govern the time frame during which the Borrower and the Parent Company shall be obligated to comply with Section 9.1.9(a) with respect to VTNSI, its Capital ---------------- Stock and its Property, and (b) waive any Defaults or Events of Default that may have resulted or may result from the failure of the Borrower and the Parent Company to comply with Section 9.1.9(a) of the Credit Agreement in relation to ---------------- VTNSI, its Capital Stock and its Property prior to October 15, 1998. Upon compliance by the Borrower -8- and the Parent Company with the foregoing provisions of this Section 4.6 and ----------- completion of the Collateral examination and audit required by Section 4.5 ----------- hereof, and subject always to the reasonable satisfaction of the Agent and the Banks with the information arising out of and the results of such Collateral examination and audit pertaining to Accounts Receivable (and, if appropriate, Inventory) of VTNSI, the Agent and the Banks will make a reasonable effort to establish a basis on which Accounts Receivable (and, if appropriate, Inventory) of VTNSI may be included in the determination of the Borrowing Base and the Adjusted Borrowing Base. The Borrower and the Parent Company hereby acknowledge and agree that the inclusion of Accounts Receivable and Inventory of VTNSI in the determination of the Borrowing Base and the Adjusted Borrowing Base shall in any event be subject to the approval of the Agent and the Banks. SECTION 4.7. 1998 WARRANT AMENDMENTS. Not later than October 15, 1998: ----------------------- (a) Imperial Bank shall receive from the Parent Company the 1998 Imperial Bank Warrant Amendment, which shall have been duly executed and delivered by the Parent Company, and be in or substantially in the form attached hereto as Exhibit A. - --------- (b) BankBoston shall receive from the Parent Company the 1998 BankBoston Warrant Amendment, which shall have been duly executed and delivered by the Parent Company, and be in or substantially in the form attached hereto as Exhibit B. - --------- ARTICLE V PROVISIONS OF GENERAL APPLICATION --------------------------------- SECTION 5.1. NO OTHER CHANGES. Except as otherwise expressly provided or ---------------- to be provided by the Amendment Documents, all of the terms, conditions and provisions of the Credit Agreement and each of the other Loan Documents, and all rights and remedies of the Agent and the Banks thereunder, shall remain unaltered. SECTION 5.2. OTHER PROVISIONS. This Agreement and the other Amendment ---------------- Documents are, or (as the case may be) shall when executed be, Loan Documents for all purposes of the Credit Agreement and each of the other Loan Documents. This Agreement and the rights and obligations hereunder of each of the parties hereto shall in all respects be construed in accordance with and governed by the laws of the State of California. This Agreement may be executed in any number of counterparts and by different parties hereto in -9- separate counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 3 TO CREDIT AGREEMENT to be executed and delivered by their respective authorized officers as of the date first above written. THE BORROWER: ------------ USTELECENTERS, INC. By: /s/ David A. Kaplan -------------------------------- Name: David A. Kaplan Title: CFO & Treasurer THE PARENT COMPANY: ------------------ VIEW TECH, INC. By: /s/ David A. Kaplan -------------------------------- Name: David A. Kaplan Title: CFO & Treasurer THE BANKS: --------- IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS AGENT By: /s/ Paula J. Barysauskas -------------------------------- Name: Paula J. Barysauskas Title: Vice President BANKBOSTON, N.A. By: /s/ Frank Gianino -------------------------------- Name: Frank Gianino Title: Vice President EX-2.3 4 AMEND. NO. 4 TO CREDIT AGREEMENT EXHIBIT 2.3 AMENDMENT NO. 4 TO CREDIT AGREEMENT ----------------------------------- AMENDMENT NO. 4, dated as of October 27, 1998, to the Credit Agreement, dated as of November 21, 1997 (as amended from time to time, the "Credit Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the ---------------- "Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"), -------- -------------- (c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in ----- its capacity as Agent for the Banks and as Issuer with respect to Letters of Credit. RECITALS -------- As required by Section 9.1.9 of the Credit Agreement, Vermont Network ------------- Services Corporation, a Delaware corporation and a wholly-owned Subsidiary of the Parent Company, has agreed to become a party to the Credit Agreement as a "Principal Company" and as a "Guarantor" thereunder; and, in connection therewith, the Principal Companies, the Banks and the Agent have agreed to amend certain of the provisions contained in the Credit Agreement, all as set forth in this Amendment No. 4 ("this Agreement"). -------------- Accordingly, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined ------------------------------- herein, terms defined in the Credit Agreement (as amended hereby) are used herein as therein defined. The term "AMENDMENT DOCUMENTS," as used in this ------------------- Agreement, shall mean this Agreement and the VNSC Security Agreement. ARTICLE II AMENDMENTS ---------- Effective on and as of October 27, 1998 ("Effective Date"), and subject -------------- always in any event to the provisions of Article IV hereof, the Credit Agreement ---------- is hereby amended in each of the following respects: -2- SECTION 2.1. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is ----------------- ----------- hereby amended by adding thereto each of the following new defined terms: "Amendment No. 4" means Amendment No. 4 to Credit Agreement, --------------- dated as of October 27, 1998, among VNSC, the Borrower, the Parent Company, the Banks and the Agent, upon the terms of which VNSC has agreed to become a party hereto as a Principal Company and as a Guarantor hereunder, and upon the terms of which each of the parties hereto has agreed to amend this Agreement. "Amendment No. 4 Effective Date" means October 27, 1998, the so- ------------------------------ called "Effective Date" of Amendment No. 4 to Credit Agreement. "VNSC" means Vermont Network Services Corporation, a Delaware ---- corporation and a wholly-owned Subsidiary of the Parent Company. "VNSC Security Agreement" means the Security Agreement, dated as ----------------------- of October 27, 1998, between VNSC and the Agent, executed and delivered by VNSC in favor of the Agent, for the benefit of the Secured Parties. SECTION 2.2. WAIVERS BY GUARANTORS, ETC. Article VI of the Credit -------------------------- ---------- Agreement is hereby amended by adding the following new Section 6.6 immediately ----------- after Section 6.5 thereof: ----------- SECTION 6.6. WAIVERS BY GUARANTORS, ETC. The Obligations of -------------------------- each of the Guarantors under this Agreement and the other Loan Documents shall not be to any extent or in any way or manner whatsoever satisfied, discharged, diminished, impaired or otherwise affected by any of the following, and each of the Guarantors hereby absolutely and irrevocably waives any defenses that it may otherwise have as a result of the occurrence of any of the following, whether or not any of the Guarantors shall have had any notice or knowledge of any thereof: (a) the existence or creation at any time or times on or after the date of this Agreement of any claim, defense, right of set- off or counterclaim of any nature whatsoever of any Guarantor against any of the Secured Parties; (b) any incapacity or lack of authority of any Guarantor; -3- (c) any of the Obligations or any of the Loan Documents or any provision of any thereof or any of the Liens securing any Obligations shall at any time or for any reason whatsoever cease to be in full force or effect with respect to any one or more of the Guarantors or shall be declared null and void or illegal, invalid, unenforceable or inadmissible in evidence in relation to any one or more of the Guarantors, or any of the Obligations of any one or more of the Guarantors or any Liens securing any Obligations of any one or more of the Guarantors shall be subject to avoidance, or shall be avoided, as a fraudulent transfer or fraudulent conveyance, whether prior to or after the commencement of any Bankruptcy or Insolvency Proceedings; or (d) the existence of any other condition or circumstance or the occurrence of any other event or condition that might otherwise constitute a legal or equitable discharge of or a suretyship defense to performance by any Guarantor of any of its Obligations to any of the Secured Parties. Each Guarantor hereby absolutely, unconditionally and irrevocably waives all suretyship and other similar defenses to performance by such Guarantor of any of its Obligations, and each Guarantor further assents to and waives notice of any and all matters hereinbefore specified in clauses (a) through (d) of this Section 6.6. ----------- - ----------- SECTION 2.3. YEAR 2000 COMPLIANCE. Section 9.1 of the Credit Agreement is -------------------- ----------- hereby amended by adding the following new Section 9.1.10 immediately after -------------- Section 9.1.9 thereof: - ------------- SECTION 9.1.10. YEAR 2000 COMPLIANCE. Perform all acts -------------------- necessary to ensure that each of the Principal Companies becomes Year 2000 Compliant in a timely manner. Such acts will include, as and to the extent determined by the Principal Companies on a reasonable basis to be reasonably necessary and appropriate considering the nature of the business and operations conducted by the Principal Companies and their Subsidiaries, performing a comprehensive review and assessment of all systems of the Principal Companies and their Subsidiaries and, if and as reasonably necessary or appropriate, adopting a plan, with itemized budget, if appropriate, for the remediation, monitoring and testing of such systems. As used in this Section 9.1.10, the term -------------- "YEAR 2000 COMPLIANT" means, with respect to any Person, that all -------------------- software, hardware, firmware, equipment, goods or systems utilized by or material to the business, operations or financial condition of such Person will properly perform date sensitive functions before, during and after the year 2000. The Principal Companies will, -4- promptly upon request by the Agent or any of the Banks, provide to the Agent and the Banks such evidence of compliance by the Principal Companies and each of their Subsidiaries with the terms of this Section 9.1.10 as the Agent or any of the Banks may from time to time -------------- reasonably require. ARTICLE III ACCESSION AGREEMENT ------------------- SECTION 3.1. OBLIGATIONS OF VNSC UNDER THE CREDIT AGREEMENT. VNSC hereby ---------------------------------------------- agrees to become a party to the Credit Agreement on and as of the Effective Date as a Principal Company and as a Guarantor thereunder and to be bound at all times from and after the Effective Date, as a Principal Company and as a Guarantor, by all of the terms and provisions of the Credit Agreement applicable to Principal Companies and Guarantors thereunder. VNSC further agrees that, from and after the Effective Date, each reference in the Credit Agreement to a "Principal Company" or to a "Guarantor" shall also mean and be a reference to - ------------------ --------- VNSC, and each reference in any of the other Loan Documents to a "Principal --------- Company" or to a "Guarantor" shall also mean and be a reference to VNSC. - ------- --------- SECTION 3.2. OBLIGATIONS OF VNSC UNDER THE INTERCOMPANY SUBORDINATION -------------------------------------------------------- AGREEMENT. VNSC hereby agrees to become a party to the Intercompany - --------- Subordination Agreement on and as of the Effective Date as an Affiliated Company thereunder and to be bound at all times from and after the Effective Date, as an Affiliated Company, by all of the terms and provisions of the Intercompany Subordination Agreement applicable to Affiliated Companies thereunder. VNSC further agrees that, from and after the Effective Date, each reference in the Intercompany Subordination Agreement to an "Affiliated Company" shall also mean ------------------ and be a reference to VNSC. SECTION 3.3. RATIFICATION OF OBLIGATIONS BY PRINCIPAL COMPANIES, ETC. ------------------------------------------------------- (a) All of the Obligations of the Borrower to the Secured Parties under the Credit Agreement, the Notes and the other Loan Documents are, by the execution and delivery by the Borrower of this Agreement, ratified and confirmed by the Borrower in all respects. (b) All of the Obligations of each Guarantor to the Secured Parties under the Guaranties and the Credit Agreement and under the other Loan Documents to which it is a party are, by the execution and delivery by such Guarantor of this Agreement, ratified and confirmed by such Guarantor in all respects. -5- SECTION 3.4. WAIVER. Each of the Banks and the Agent hereby waives all ------ such Defaults and Events of Default that may have occurred or resulted as a consequence of the failure by the Principal Companies to perform by October 15, 1998 all of their Obligations (a) with respect to VNSC under Section 9.1.9 of ------------- the Credit Agreement and Section 4.6 of Amendment No. 3, and (b) with respect to ----------- the 1998 Warrant Amendments under Section 4.7 of Amendment No 3. It is the ----------- understanding of the parties hereto that the Obligations of the Principal Companies (i) under Section 9.1.9 of the Credit Agreement and Section 4.6 of ------------- ----------- Amendment No. 3 with respect to VNSC, and (ii) under Section 4.7 of Amendment ----------- No. 3 with respect to the 1998 Warrant Amendments, shall be satisfied when the conditions precedent set forth in Article IV hereof are satisfied by the ---------- Principal Companies. ARTICLE IV CONDITIONS PRECEDENT -------------------- This Agreement, including each of the amendments to the Credit Agreement set forth in Article II of this Agreement and the waivers of the Banks and the ---------- Agent set forth in Section 3.4, shall be effective and in full force and effect ----------- on and as of and from and after the Effective Date; provided, however, that each -------- ------- of the following conditions precedent shall first be satisfied: SECTION 4.1. AMENDMENT DOCUMENTS, ETC. The Agent and the Banks shall have ------------------------ received counterparts of this Agreement duly and properly authorized and executed by each of VNSC, the Borrower and the Parent Company. The Agent and the Banks shall have received counterparts of the VNSC Security Agreement duly and properly authorized and executed by VNSC. Each of the 1998 Warrant Amendments shall have been duly and properly authorized, executed and delivered by the Parent Company. SECTION 4.2. REPRESENTATIONS AND WARRANTIES. Each of the representations ------------------------------ and warranties made by the Principal Companies in this Agreement shall be true and correct in all material respects on and as of the Effective Date with the same full force and effect as if made and repeated on and as of such date. SECTION 4.3. FEES, COSTS AND EXPENSES. The Borrower and the Parent ------------------------ Company shall have paid in full to special counsel for the Agent all of the reasonable out-of-pocket costs and expenses of special counsel to the Agent incurred during the period from August 14, 1998 through the Effective Date and for which an invoice shall have been submitted to the Borrower and the Parent Company. -6- SECTION 4.4. UCC FILINGS, ETC. All action reasonably required by the ---------------- Agent to create in favor of the Agent and for the benefit of the Secured Parties perfected first-priority Liens in the Collateral described in the VNSC Security Agreement shall have been duly and properly taken by or on behalf of VNSC in order to create such perfected first-priority Liens. The Agent shall have received from the Parent Company in pledge, upon the terms contained in the Pledge Agreement, a stock certificate evidencing all of the issued and outstanding shares of Capital Stock of VNSC, together with an undated stock power duly executed in blank. SECTION 4.5. CERTIFICATES, ETC. The Agent shall have received: ----------------- (a) from VNSC, a certificate, dated as of the Effective Date, of its Secretary or Assistant Secretary as to: (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance by VNSC of this Agreement and the VNSC Security Agreement; and (ii) the incumbency and signatures of the officers of VNSC authorized to act with respect to this Agreement and the VNSC Security Agreement (upon which certificate the Secured Parties may conclusively rely until the Agent shall have received a further certificate of VNSC canceling or amending such prior certificate, which further certificate shall be reasonably satisfactory to the Agent); (b) a certificate signed by the Secretary of State of the State of organization or incorporation of VNSC, dated a date reasonably near (but prior to) the Effective Date, stating that VNSC is a corporation duly organized, validly existing and in good standing under the laws of such State; and (c) such other documents as the Agent or any of the Banks may reasonably request with respect to any matter relevant to VNSC, this Agreement, the other Loan Documents or any of the transactions contemplated hereby or thereby. Each of such documents shall be in form and substance reasonably satisfactory to the Agent and the Banks. SECTION 4.6. NO MATERIALLY ADVERSE EFFECT. Except as shall have been ---------------------------- described by the Principal Companies to the Agent and the Banks in writing prior to the date hereof, no events or developments shall have occurred since June 30, 1998 which, individually or in the aggregate, have had or could reasonably be expected to have a Materially Adverse Effect. SECTION 4.7. SATISFACTORY LEGAL FORM, ETC. All Instruments executed and ---------------------------- delivered or otherwise submitted pursuant hereto by or on behalf -7- of VNSC or any of the other Principal Companies shall be reasonably satisfactory in form and substance to each of the Banks, the Agent and its special counsel; each of the Banks, the Agent and its special counsel shall have received all such information, and such counterpart originals or such certified or other copies of such materials, as any of the Banks, the Agent or its special counsel may reasonably request; and all legal matters incident to the transactions contemplated by this Agreement or the VNSC Security Agreement shall be reasonably satisfactory to each of the Banks, the Agent and its special counsel. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS ----------------------------------------- Each of the Principal Companies represents and warrants to and covenants with the Agent and the Banks as follows: SECTION 5.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the --------------------------------- representations and warranties made by or on behalf of each of the Principal Companies to the Agent and the Banks in the Loan Documents was true and correct in all material respects when made and is true and correct in all material respects on and as of the date hereof, EXCEPT (a) as affected by the ------ consummation of the transactions contemplated by the Loan Documents (including this Agreement), and (b) to the extent that any such representation or warranty relates by its express terms solely to a prior date. SECTION 5.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each ------------------------- Principal Company of each Amendment Document to which it is a party, and the performance by each Principal Company of its agreements and obligations under each such Amendment Document, have been duly and properly authorized by all necessary corporate or other action on the part of each of the Principal Companies, and do not and will not conflict with, result in any violation of, or constitute any default under, (a) any provision of any Governing Document of any Principal Company, (b) any Contractual Obligation of any Principal Company, or (c) any Applicable Law. SECTION 5.3. VALIDITY, ETC. This Agreement has been duly executed and ------------- delivered by each Principal Company and constitutes the legal, valid and binding obligation of each Principal Company, enforceable against it in accordance with its terms, and the VNSC Security Agreement has been duly executed and delivered by VNSC and constitutes the legal, valid and binding obligation of VNSC, enforceable against it in accordance with its terms, except (in each case) as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally and to -8- general equitable principles. Each of the Principal Companies hereby ratifies and confirms in all respects all of the Obligations as modified hereby. SECTION 5.4. NO DEFAULTS. After giving effect to this Agreement, no ----------- Defaults or Events of Default are continuing under the Credit Agreement or any of the other Loan Documents. SECTION 5.5. YEAR 2000 PROBLEM. Each of the Principal Companies has ----------------- reviewed the areas within its operations and business which could be adversely affected by, and has developed or is developing a program to address on a timely basis, the Year 2000 Problem and has made related inquiry of material suppliers and vendors. Based on such review and program, the Principal Companies represent and warrant that the Year 2000 Problem will not have a Materially Adverse Effect. As used herein, the term "Year 2000 Problem" means the ----------------- possibility that any computer applications or equipment used by the Principal Companies or any of their Subsidiaries may be unable to recognize and properly perform date-sensitive functions SECTION 5.6. EXISTING LIENS AND EXISTING INDEBTEDNESS FOR BORROWED MONEY. ----------------------------------------------------------- None of the Property of VNSC is or will be subject to any Liens, except such Liens as are permitted by Section 9.2.3. VNSC is not and will not become liable ------------- or responsible for any Indebtedness for Borrowed Money, except such Indebtedness for Borrowed Money as is permitted by Section 9.2.2. ------------- SECTION 5.7. LITIGATION, ETC. There is no pending or, to the best --------------- knowledge of VNSC or of any of the other Principal Companies (after due inquiry), threatened litigation, arbitration or governmental investigation or proceeding against VNSC or to which any of the Property of VNSC is subject. SECTION 5.8. COMPLIANCE WITH APPLICABLE LAWS. VNSC is in substantial ------------------------------- compliance in all material respects with all applicable laws, except to the extent that any failure so to be in compliance has not had and could not reasonably be expected to have a Materially Adverse Effect. ARTICLE VI PROVISIONS OF GENERAL APPLICATION --------------------------------- SECTION 6.1. NO OTHER CHANGES. Except as otherwise expressly provided by ---------------- the Amendment Documents, all of the terms, conditions and provisions of the Credit Agreement and each of the other Loan Documents, and all rights and remedies of the Agent and the Banks thereunder, shall remain unaltered. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -9- SECTION 6.2. OTHER PROVISIONS. This Agreement and the VNSC Security ---------------- Agreement are Loan Documents for all purposes of the Credit Agreement and each of the other Loan Documents. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 4 TO CREDIT AGREEMENT to be executed and delivered by their respective authorized officers as of the date first above written. THE BORROWER: VNSC: - ------------ ---- USTELECENTERS, INC. VERMONT NETWORK SERVICES CORPORATION By: /s/ Franklin A. Reece, III By: /s/ Franklin A. Reece, III ------------------------------ ------------------------------ Name: Franklin A. Reece, III Name: Franklin A. Reece, III Title: President Title: President THE PARENT COMPANY: - ------------------ VIEW TECH, INC. By: /s/ Ali Inanilan ------------------------------ Name: Ali Inanilan Title: Chief Financial and Administrative Officer THE BANKS AND THE AGENT: - ----------------------- IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS THE AGENT By: /s/ Paula J. Barysauskas ------------------------------ Name: Paula J. Barysauskas Title: Vice President BANKBOSTON, N.A., INDIVIDUALLY AS A BANK By: /s/ Frank Gianino ------------------------------ Name: Frank Gianino Title: Vice President EX-10.1 5 AMEND. NO. 1 TO PURCHASE WARRANT (EX-A) EXHIBIT 10.1 Exhibit A --------- AMENDMENT NO. 1 --------------- to COMMON STOCK PURCHASE WARRANT for the purchase of COMMON STOCK of VIEW TECH, INC. (A DELAWARE CORPORATION) ORIGINAL ISSUE DATE: NOVEMBER 21, 1997 AMENDMENT NO. 1, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997 (the "Warrant"), issued by VIEW ------- TECH, INC., a Delaware corporation (the "Company"), to IMPERIAL BANK or ------- registered assigns permitted thereunder (the "Holder"). ------ The Company and Imperial Bank have agreed to amend the Warrant as follows, such amendment to be effective on and as of the date hereof: Section 1 of the Warrant is hereby amended by amending and restating the --------- defined term "Purchase Price" to read in its entirety as follows: -------------- "Purchase Price" means $4.50, subject to automatic adjustment -------------- from time to time in accordance with Section 3. --------- Except as otherwise expressly provided by this Agreement, all of the terms of the Warrant shall remain unchanged. THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE 2 STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE. IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO THE COMMON STOCK PURCHASE WARRANT identified above to be executed by their respective authorized officers as of the date first above written. THE COMPANY: ----------- VIEW TECH, INC. By: /s/ Ali Inanilan ------------------------------- Name: Ali Inanilan Title: Chief Financial and Administrative Officer THE HOLDER: ---------- IMPERIAL BANK By: /s/ Paula J. Barysauskas ------------------------------- Name: Paul J. Barysauskas Title: Vice President EX-10.2 6 AMEND. NO. 1 TO PURCHASE WARRANT (EX-B) EXHIBIT 10.2 Exhibit B --------- AMENDMENT NO. 1 --------------- to COMMON STOCK PURCHASE WARRANT for the purchase of COMMON STOCK of VIEW TECH, INC. (A DELAWARE CORPORATION) ORIGINAL ISSUE DATE: NOVEMBER 21, 1997 AMENDMENT NO. 1, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997 (the "Warrant"), issued by VIEW ------- TECH, INC., a Delaware corporation (the "Company"), to BANKBOSTON, N.A. or ------- registered assigns permitted thereunder (the "Holder"). ------ The Company and BankBoston, N.A. have agreed to amend the Warrant as follows, such amendment to be effective on and as of the date hereof: Section 1 of the Warrant is hereby amended by amending and restating the --------- defined term "Purchase Price" to read in its entirety as follows: -------------- "Purchase Price" means $4.50, subject to automatic adjustment -------------- from time to time in accordance with Section 3. --------- Except as otherwise expressly provided by this Agreement, all of the terms of the Warrant shall remain unchanged. 2 THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE. IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO THE COMMON STOCK PURCHASE WARRANT identified above to be executed by their respective authorized officers as of the date first above written. THE COMPANY: ----------- VIEW TECH, INC. By: /s/ Ali Inanilan ----------------------------------- Name: Ali Inanilan Title: Chief Financial and Administrative Officer THE HOLDER: ---------- BANKBOSTON, N.A. By: /s/ Frank Gianino ----------------------------------- Name: Frank Gianino Title: Vice President EX-10.3 7 SEPARATION AGREEMENT EXHIBIT 10.3 SEPARATION AGREEMENT -------------------- This Separation Agreement (the "Agreement") is made effective as of the 31st day of August, 1998, by and between View Tech, Inc., a Delaware corporation (the "Company"), and David A. Kaplan, an individual residing at 22 Jackson Drive, Acton, MA 01720, (the "Executive"). A. The Executive is employed by the Company as its Chief Financial Officer. B. The Executive and the Company have determined that it is in their mutual best interests for the Executive to resign from his position as an employee and Chief Financial Officer of the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: 1. Termination of Employment as Chief Financial Officer. The Executive ---------------------------------------------------- hereby resigns from his positions as an employee and Chief Financial Officer of the Company and from any other position he may hold with the Company, its subsidiaries or on behalf of the Company or its subsidiaries, effective as of the date of this Agreement, and the Company hereby accepts such resignations. The Executive acknowledges that no salary, deferred compensation, business expenses or any other compensation or payments are or may be payable to him on account of his employment with, service as Chief Financial Officer of, or stock or other equity ownership or interests in, the Company, except as specifically set forth herein. 2. Severance Payment. Subject to the terms and conditions of this ----------------- Agreement, the Company shall continue to pay the Executive, as severance, the Executive's salary as in effect immediately prior to the date of this Agreement, until March 5, 1999, payable at such times and in such manner consistent with the Company's payroll practices in effect from time to time, less any amounts required to be withheld under applicable law. 3. Continuation of Benefits. Subject to the terms and conditions of this ------------------------ Agreement, the Company shall continue the Executive's current health insurance coverage, until March 5, 1999, on the same terms and conditions (including any co-pay requirements) as in effect immediately prior to the date of this Agreement. 4. Release. Simultaneously with the execution of this Agreement, the ------- Executive shall execute the General Release in the form annexed hereto. 5. Confidentiality of Agreement. The parties hereto agree to maintain the ---------------------------- confidentiality of this Agreement. The terms of this Agreement will not be disclosed to any person, except to immediate family members, to legal or financial advisors, to meet bona fide tax, financing or other business requirements of any party, or as may be required by law or applicable rules and regulations of the Securities and Exchange Commission and other regulatory or administrative bodies. 6. Nondisparagement. Each party agrees not to make any statements, ---------------- written or oral, which denigrate, disparage or otherwise criticize the other party, their respective affiliates or subsidiaries or the officers, directors, employees, agents or representatives of any of the foregoing. 7. Confidential Information. The Executive acknowledges and agrees that ------------------------ the confidential information of the Company is of vital importance to the Company's competitive situation and its good will and that unauthorized use or divulgence of such information would cause the Company substantial damage. The Executive agrees that he shall not, at any time, use for his own purposes or reveal to any person, firm, corporation or other organization any of the trade secrets or confidential information concerning the operations, business or finances of the Company, or any developments, inventions, processes, improvements or methods of the Company, except as may be in the public domain through no fault of the Executive. The Executive represents that he has delivered to the Company any and all originals and all copies of notes, memoranda, specifications, programs, data or other materials of the Company embodying or containing any of the foregoing trade secrets or confidential information, it being agreed that all of the foregoing shall be and remain the sole and exclusive property of the Company. 8. Return of Documents. The Executive shall immediately deliver to the ------------------- Company all tangible materials in his possession or control which relate in any way to the business, operations or properties of the Company or any of its subsidiaries or affiliates, including without limitation, all books, plans, records, correspondence, notes, agreements, computer software, memoranda and contracts, and all copies and reproductions thereof. 9. Cooperation. The Executive agrees, from time to time, at the Company's ----------- request, to provide the Company with reasonable cooperation and assistance in the defense or prosecution of any lawsuits heretofore or hereafter brought against or by the Company arising out of or relating in any way to events, actions, practices or policies of which the Executive is knowledgeable or has any relevant information, such cooperation and assistance to include, but not be limited to, attendance at and participation in meetings with legal counsel, depositions, hearings and trials relating to such matters. The Company agrees to reimburse the Executive for all out-of-pocket costs and expenses reasonably incurred by the Executive in rendering the foregoing cooperation and assistance. The Executive further agrees that he will never, individually or with any person, commence, aid in any way (except as required by legal due process), prosecute or cause to permit to be commenced or prosecuted against the Company, its subsidiaries, affiliates, or any officer, director or employee of any of the foregoing, any action or other proceeding based upon any claim which is the subject of the Release referred to in Section 4. 10. Further Assurances. In addition to the actions, agreements and ------------------ documents specifically required to be taken or delivered pursuant to this Agreement, the Executive shall -2- execute such other agreements and documents and take such further actions as may be required by the Company to carry out the provisions of this Agreement and the transactions contemplated hereby. 11. Governing Law; Jurisdiction. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to its conflicts of law principles. 12. Entire Agreement. This Agreement embodies the entire agreement and ---------------- understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings (written or oral) with respect to such subject matter, including without limitation any employment or severance agreements between the parties. 13. Waiver. Unless specifically waived in writing, the failure of any ------ party at any time or times to require performance of any provision hereof shall in no manner affect that party's right at a later time to enforce such provision. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term of covenant contained in this Agreement. 14. Notices. All notices, requests, demands and any other communications ------- hereunder shall be made in writing and shall be deemed to have been duly given if delivered or sent by prepaid registered or certified mail, if to the Company addressed to the Company at its principal executive office, and if to the Executive addressed to him at the address shown in the first paragraph of this Agreement. Any party may change its or his address for notice hereunder by giving notice of change of address in the manner herein provided. 15. Binding Nature. This Agreement shall be binding upon and inure to the -------------- benefit of the Executive and his heirs, executors, administrators and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 16. Amendment. This Agreement may be amended, modified, superseded, --------- canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument signed by all the parties hereto, or the case of a waiver, by the party waiving compliance. 17. Severability. If any of the provisions of this Agreement are held by ------------ a court of competent jurisdiction to be invalid, void, unenforceable or against public policy for any reason, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and such court shall be empowered to substitute, to the extent enforceable, provisions similar thereto or other provisions so as to provide to the parties, to the fullest extent permitted by applicable law, the benefits intended by such provisions. 18. Headings. The paragraph headings contained herein are for convenience -------- and reference only, and shall be given no effect in the interpretation of any term or condition of this Agreement. -3- IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement or caused this Agreement to be executed by a duly authorized officer as of the date first written above. VIEW TECH, INC. /s/ David A. Kaplan /s/ Franklin A. Reece, III - -------------------------- ------------------------------------ David A. Kaplan Franklin A. Reece III Dated: October 5, 1998 Its: President and COO -------------------- -------------------------------- Dated: September 18, 1998 ------------------------------ -4- EX-10.4 8 GENERAL RELEASE EXHIBIT 10.4 GENERAL RELEASE Reference is hereby made to a certain Separation Agreement of even date herewith (the "Agreement") between the undersigned and View Tech, Inc., a Delaware corporation (the "Company"). In consideration of the Company's agreement to provide severance payments and other benefits under the Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, I hereby remise, release and forever discharge the Company and its affiliates and subsidiaries, and all of the officers, directors, employees, legal representatives, successors and assigns of each of the foregoing (both individually and in their official capacities) from any and all debts, demands, actions, causes of action (including but not limited to claims for attorneys' fees and for punitive damages), suits, accounts, covenants, agreements, demands, and any and all claims, demands and liabilities whatsoever of every name and nature, specifically including claims under the Age Discrimination in Employment Act, both in Law and in Equity, which against them or any of them, I now have or ever had from the beginning of the world to this date and more especially on account of or in connection with my employment and termination from employment by the Company and any and all acts, incidents and/or occurrences which took place during the term of my employment, including, without limitation, any and all claims based on an alleged violation of any local, state or federal laws, regulations or ordinances in connection with the termination of my employment with the Company, and any and all claims for breach of any alleged contract, agreement or understanding, whether oral or written, having any bearing whatsoever on the terms and conditions of my employment with the Company. However, I do not remise, release or discharge claims for the enforcement of the Agreement. I acknowledge that I have been advised by the Company that I should consult an attorney concerning this Release. I further agree and understand that I have been given a period of at least 21 days within which to consider the terms of this Release. I agree and understand that if I sign this Release before 21 such days have elapsed, then my signature will be treated as effective by the Company because I will have waived the 21 day period. I agree and understand that for a period of 7 additional days after signing this Release, I have the right to revoke it. I understand that any revocation, to be effective, must be in writing and must be addressed to Franklin A. Reece, President of the Company. I HEREBY ACKNOWLEDGE THAT I HAVE TAKEN A SUFFICIENT AMOUNT OF TIME TO CAREFULLY AND THOROUGHLY REVIEW THIS RELEASE, THAT I HAVE READ THIS RELEASE AND UNDERSTAND ALL OF ITS TERMS AND CONDITIONS AND THAT I HAVE SIGNED THIS RELEASE OF MY OWN FREE WILL AND NOT UNDER ANY DURESS FROM ANY REPRESENTATIVE OF THE COMPANY OR ANY OTHER PERSON. -1- I HEREBY WAIVE ANY CLAIM FOR REINSTATEMENT BY THE COMPANY TO MY FORMER POSITION. Signed in the Presence of: Witness my Hand and Seal: October 5, 1998 /s/ David A. Kaplan - --------------- ------------------- David A. Kaplan Dated: -2- EX-27 9 ARTICLE 5 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 JUL-01-1998 JAN-01-1998 SEP-30-1998 SEP-30-1998 802,536 802,536 0 0 14,443,444 14,443,444 724,637 724,637 4,012,588 4,012,588 19,030,692 19,030,692 8,793,863 8,793,863 5,163,191 5,163,191 25,755,887 25,755,887 16,034,842 16,034,842 0 0 0 0 0 0 689 689 5,156,712 5,156,712 25,755,887 25,755,887 14,817,461 43,327,871 14,817,461 43,327,871 7,600,287 20,620,986 14,196,497 46,433,305 0 0 0 0 123,465 417,676 497,499 (3,523,110) 0 3900 497,499 (3,527,010) 0 0 0 0 0 0 497,499 (3,527,010) 0.07 (0.52) 0.07 (0.52)
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