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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act for the transition period from _____________ to ___________.
Commission file number 0-27560
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ACT Teleconferencing, Inc.
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(Name of small business issuer as specified in its charter)
Colorado 84-1132665
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1658 Cole Blvd., Suite 130, Golden, Colorado 80401
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(Address of principle executive offices)
(303) 235-9000
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(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 1999, 4,595,947
shares of the issuer's common stock were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [xx]
This report contains 31 pages.
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ACT TELECONFERENCING, INC.
FORM 10-QSB
Table of Contents
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. Other Information
Item 2. Changes in Securities 14
Item 6. Exhibits 14
SIGNATURES 16
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PART I -- FINANCIAL INFORMATION
----------------------
Item 1. FINANCIAL STATEMENTS
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 373,644 $ 369,408
Accounts receivable (net of allowances for doubtful accounts
of $74,708 and $32,644 in 1999 and 1998 respectively) 5,495,582 4,295,216
Prepaid expenses 870,857 571,597
Inventory 181,339 269,795
------------------ -----------------
Total current assets 6,921,422 5,506,016
Equipment:
Telecommunications equipment 7,370,669 5,840,969
Office equipment 5,968,875 4,205,347
Less: accumulated depreciation (3,011,088) (1,969,428)
------------------ -----------------
Total equipment - net 10,328,456 8,076,888
Other Assets:
Goodwill (net of accumulated amortization of $191,387 and
$136,340 in 1999 and 1998, respectively) 1,482,274 1,537,321
Deferred items 253,565 205,975
------------------ -----------------
Total assets $ 18,985,717 $ 15,326,200
================== =================
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 1,582,898 $ 686,691
Accounts payable 2,114,235 2,935,331
Accrued liabilities 1,650,180 1,814,877
Current portion of long term debt 374,084 1,111,126
Income taxes payable 563,850 215,895
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Total current liabilites 6,285,247 6,763,920
Long-term debt (net of deferred interest cost of $340,567 5,174,040 4,949,051
and $413,545 in 1999 and 1998, respectively)
Deferred income taxes (United Kingdom) 299,888 302,145
Minority interest 1,014,947 806,519
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized;
none issued
Common stock, no par value; 10,000,000 shares authorized
4,595,947 and 3,755,633 shares issued and outstanding
in 1999 and 1998, respectively 11,414,330 7,463,931
Accumulated deficit (4,991,690) (4,846,194)
Accumulated other comprehensive loss (211,045) (113,172)
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Total Shareholders' equity 6,211,595 2,504,565
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Total liabilities and shareholders' equity $ 18,985,717 $ 15,326,200
================== =================
See notes to consolidated financial statements.
</TABLE>
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ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Common Stock Accumulated comprehensive
Shares Amount Deficit income (loss) Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,612,758 $ 6,158,584 $ (2,729,069) $ (51,582) $ 3,377,933
Shares issued in connection with
exercise of warrants 26,893 136,000 136,000
Exercise of employee stock options 2,000 6,000 6,000
Deferred interest expense in connection
with the issue of 330,967 Warrants 486,521 486,521
Shares issued in connection with the
acquisition of Advanced Multi-Point
Conferencing (AMC) Canada Inc. 113,982 676,826 676,826
Comprehensive loss
Net loss (2,117,125) (2,117,125)
Other comprehensive loss, net of tax
Foreign currency translation
adjustment, net of tax of $20,941 (61,590) (61,590)
--------------
Total comprehensive loss (2,178,715)
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Balance at December 31, 1998 3,755,633 $ 7,463,931 $ (4,846,194) $ (113,172) $ 2,504,565
Shares issued in connection with
conversion of 1996 warrants 549,154 2,637,051 2,637,051
Shares issued in connection with
1999 private placement 109,912 583,988 583,988
Shares issued in connection with the
employee stock purchase plan (ESPP) 12,304 50,988 50,988
Shares issued in connection with
a Canadian service agreement 18,500 91,744 91,744
1999 legal fees incurred for the
acquisition of Advanced Multi-Point
Conferencing (AMC) Inc. (38,792) (38,792)
Exercise of employee stock options 4,500 12,660 12,660
Shares issued for consulting 12,000 60,000 60,000
services rendered
Shares issued as placement fee for
conversion of 1996 warrants 13,500
Shares issued on exercise of under- 120,444 552,759 552,759
writer unit purchase options (1996 IPO)
Comprehensive loss
Net loss (145,496) (145,496)
Other comprehensive loss, net of tax
Foreign currency translation (97,873) (97,873)
--------------
Total comprehensive loss (243,369)
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Balance at September 30, 1999 4,595,947 $ 11,414,330 $ (4,991,690) $ (211,045) $ 6,211,595
=================================================================================
See notes to consolidated financial statements.
</TABLE>
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ACT Teleconferencing, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $ 7,221,308 $ 4,706,499 $ 20,492,854 $ 13,565,028
Cost of Services 3,755,941 2,594,222 10,810,457 7,412,783
-------------- -------------- ------------- ---------------
Gross Profit 3,465,367 2,112,277 9,682,397 6,152,245
Selling, marketing, general and administration expense 2,917,718 2,427,363 8,565,988 6,573,347
-------------- -------------- ------------- ---------------
Operating Income (loss) 547,649 (315,086) 1,116,409 (421,102)
Interest expense, net 242,140 143,220 692,355 284,252
-------------- -------------- ------------- ---------------
Income (loss) before income taxes and minority interest 305,509 (458,306) 424,054 (705,354)
Provision for income taxes 134,193 86,644 351,907 418,151
-------------- -------------- ------------- ---------------
Income (loss) before minority interest 171,316 (544,950) 72,147 (1,123,505)
Minority interest in earnings of consolidated subsidiary 84,970 16,677 217,643 232,662
-------------- -------------- ------------- ---------------
Net income (loss) for the quarter $ 86,346 $ (561,627) $ (145,496) $ (1,356,167)
============== ============== ============= ===============
Net income (loss) per share - primary and fully diluted $ 0.02 $ (0.15) $ (0.03) $ (0.37)
============== ============== ============= ===============
Weighted average number of shares outstanding 4,508,837 3,635,952 4,326,881 3,622,785
============== ============== ============= ===============
See notes to consolidated financial statements.
</TABLE>
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ACT Teleconferencing, Inc
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-----------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (145,496) $ (1,356,167)
Adjustments to reconcile net loss to net cash used from
operating activities:
Depreciation 1,041,660 605,891
Amortization of goodwill 55,047 24,455
Deferred income tax (2,257) 5,798
Minority interest 208,428 267,193
-----------------------------------------
Cash flow before changes in operating assets and liabilities: 1,157,382 (452,830)
Changes in operating assets and liabilities (Net of effect of
business combination):
Accounts receivable (1,166,361) (1,747,251)
Inventory 88,457 (41,989)
Prepaid expenses and other assets (299,260) (155,166)
Accounts payable (473,147) 1,555,616
Accrued liabilities (164,697) 486,548
-----------------------------------------
Net cash used for operating activities (857,626) (355,072)
Investing activities
Property and equipment purchases (3,293,229) (3,484,297)
Short term notes redeemed (33,998) (73,329)
Disposal of marketable securities - 50,000
-----------------------------------------
Net cash used for investing activities (3,327,227) (3,507,626)
Financing activities
Net proceeds (repayment) of debt 384,153 3,765,824
Net proceeds from issuance of common stock 3,950,399 629,272
Deferred loan issuance costs (47,590) (244,371)
-----------------------------------------
Net cash provided by financing activities 4,286,962 4,150,725
Effect of exchange rate changes on cash (97,873) (153,227)
-----------------------------------------
Net increase in cash and cash equivalents 4,236 134,800
Cash and cash equivalents, beginning of year 369,408 451,434
-----------------------------------------
Cash and cash equivalents, end of period $ 373,644 $ 586,234
=========================================
See notes to consolidated financial statements.
</TABLE>
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ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the nine-month period ending September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the financial
statements and footnotes included in our annual report on Form 10-KSB for the
year ended December 31, 1998 and its amendments.
Business
ACT Teleconferencing, Inc is engaged in the business of providing high-
quality audio, data, and video conferencing products and services to business
clients. We operate in the United States, Canada, the United Kingdom, the
Netherlands, France, Australia, and Hong Kong, and have sales offices in Belgium
and Germany.
Net Earnings (Loss) Per Share
Net earnings (loss) per share is computed based upon the weighted
average number of shares of common stock outstanding during the period. In
February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which was adopted on December 31, 1997. Under the new
requirements for calculating primary and fully diluted earnings per share, the
dilutive effect of stock options and warrants has been included. Although
options and warrants are included in the computation of fully diluted earnings
per share, the effect is presently not material.
Comprehensive Income (loss)
The difference between net loss and comprehensive loss solely relates
to foreign currency translation.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Except for historical information, certain statements contained in this
quarterly report on Form 10-QSB, including, without limitation, statements
containing the words "believes," "anticipates," "estimates," "expects," and
similar words, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. You should not place undue
reliance on these forward-looking statements. These forward-looking statements
are subject to numerous assumptions, risks, and uncertainties that may cause our
actual results to be materially different from any future results expressed or
implied by us in those statements. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including risks or "Risk Factors" described in this quarterly report, our
registration statement on Form S-3 filed on February 18, 1999 and its
amendments, and in other documents we file with the SEC. Copies of these
documents may be obtained at www.sec.gov or upon request from us.
Overview
The teleconferencing industry continues to show high growth. We
anticipate continued growth in teleconferencing revenues in all of our
operations in the United States, the United Kingdom, the Netherlands, Canada,
Australia, France, and Hong Kong as well as new enhanced services in video,
data, and internet conferencing.
In addition to satisfactory profit improvements and continued strong
growth in revenues, our third quarter and nine-month period ending September 30,
1999 included the following highlights:
. Revenues grew by 53% for the third quarter and 51% for the nine-month
period to September 30, 1999.
. Excluding the sale of video conferencing equipment, growth in our core
conferencing services business was 73% for the third quarter and 70%
for the year to date.
. Operating efficiencies enabled us to improve gross margin.
. Continued improvements in operating income and earnings per share were
achieved.
. Satisfactory ongoing implementation of the agreement with Concert
Global Networks Limited discussed below occurred including the
implementation of a global billing and reservation system.
In July of 1998 we announced a three-year audio conferencing supply
agreement with Concert Global Networks Limited, Concert, serving Concert
Audioconferencing Service. This service commenced in the fourth quarter of 1998,
and is being provided by our centers in New York, Denver, London, Paris,
Amsterdam, and Sydney.
On July 8, 1999 we entered into a three-year agreement with GTE
Communications Corporation, GTE, to provide enhanced teleconferencing services
to GTE and its customers. GTE Supply company also named us as a major supplier
of services to GTE's operating
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companies. We expect the combination of both announcements to increase our
revenue after the first year of implementation.
Components of Revenue and Expense
We derive revenues principally from fees charged to clients for audio
and video conference bridging services which connect multiple parties to a
conference call, from fees for enhanced services, and from the sale of
videoconferencing equipment units.
The costs of teleconferencing services consist of local and long-
distance telephone services, depreciation on equipment, salaries, benefits, and
office expenses of conference operators.
Selling, general, and administrative costs consist of salaries,
benefits, and office expenses of our administrative, market development, and
sales organizations. Development expenses consist of selling, general, and
administrative costs; depreciation; and interest incurred during the start-up
phase of new operations.
RESULTS OF OPERATIONS
Third quarter ending September 30, 1999, compared to third quarter ending
September 30, 1998
Net revenues. Net revenues increased 53% to $7.2 million for the
quarter ending September 30, 1999, compared to $4.7 million for the same period
in 1998, primarily due to ongoing sales volume growth, new growth of the Concert
Global Networks business, increased sales of audio teleconferencing in new
markets and continued use by existing customers. United States operations
accounted for 44% of the total revenue and international operations accounted
for 56%.
Gross Profit. Gross profit increased by 64% to $3.5 million for the
quarter ending September 30, 1999, compared to $2.1 million for the quarter
ending September 30, 1998. The gross profit percentage improved to 48% of sales
from 45% for the same period last year, mainly due to improved efficiencies and
higher traffic volumes over a fixed cost base.
Selling, general, and administrative costs. Selling, general, and
administrative costs for the third quarter of 1999 were $2.9 million and
accounted for 40% of revenue, compared to $2.4 million or 52% of revenue for the
same period last year. The 20% increase in such expenses resulted from an
ongoing increase in marketing focus in the United States as well as new
marketing efforts in the developing business units in France, Australia, Canada,
and Hong Kong.
Depreciation and amortization. Depreciation and amortization expense
increased by 83% from $234,140 during third quarter 1998 to $429,612 during
third quarter 1999. The increase can mainly be attributed to the approximately
$6 million increase in property and equipment capital expenditures incurred
during 1998 to accommodate higher traffic volumes.
Operating income (loss). Operating income improved by $862,735 from a
loss of $315,086 incurred during third quarter 1998 to income of $547,649 for
third quarter 1999 due to the improvements noted above.
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Net interest. Net interest for the quarter ending September 30, 1999
was $242,140 compared to $143,220 for the same period last year, a 69% increase.
This increase was due to the approximately $4 million increase in interest
bearing debt taken on after March 31, 1998 in order to finance our capital
expansion. This debt is carried at various interest rates at an average weighted
cost of 11.8%.
Net income before taxes and minority interest. Net income before taxes
and minority interest improved by $763,815 to $305,509 for the third quarter of
1999, compared to a loss of $458,306 for the third quarter in 1998. This
improvement was mainly due to revenue growth and operational efficiencies
resulting in higher gross profit margins as well as slower growth in selling,
general, and administrative costs.
Taxes on income and minority interest. Taxes on income and minority
interest amounted to $219,163 for the third quarter of 1999, compared to
$103,321 for the third quarter of 1998, a 112% increase. This increase is due to
an increased contribution to consolidated net income by our 60% majority-owned
United Kingdom operation, which pays full tax.
Net income. Net income reported for the quarter ending September 30,
1999 was $86,346, compared to a net loss of $561,627 for the quarter ending
September 30, 1999. This improvement of $647,973 can be attributed to continued
revenue growth; improved operating efficiencies resulting in higher gross profit
margins; stabilized selling, general, and administrative expenses; and to
reduced development costs.
Earnings (loss) per common share. Earnings per share improved from a
loss of $0.15 per share during the third quarter in 1998, to earnings of $0.02
per share for the third quarter in 1999. Earnings per share data was calculated
based on the weighted average number of 4,508,837 common shares outstanding
during the third quarter of 1999.
Nine-month period ending September 30, 1999, compared to nine-month period
ending September 30, 1998.
Net revenues. Net revenues increased 51% to $20.5 million for the nine
months ending September 30, 1999, compared to $13.6 million for the same period
in 1998, primarily due to ongoing sales volume growth, new growth of the Concert
business, increased audio teleconferencing traffic in new international markets,
and continued growth from existing customers. United States operations accounted
for 44% of the total revenue and international operations accounted for 56% of
total revenue in 1999.
Gross profit. Gross profit increased by 57% to $9.7 million for the
nine months ending September 30, 1999, compared to $6.2 million for the nine
months ending September 30, 1998. The gross profit percentage increased to 47%
of sales from 45% for the same period last year, mainly due to improved
efficiencies and higher traffic volumes over a fixed cost base.
Selling, general, and administrative costs. Selling, general, and
administrative costs for the nine months ended September 30, 1999 were $8.6
million and accounted for 42% of revenue, compared to $6.6 million or 48% of
revenue for the same period last year. The 30% increase in such expenses
resulted primarily from an ongoing expanded marketing focus in the United States
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as well as new marketing efforts in the developing business units in France,
Australia, Canada, and Hong Kong, albeit that these costs are growing at a
slower rate than in previous years.
Depreciation and amortization. Depreciation and amortization expense
increased by 74% during the nine months ending September 30, 1999, over the same
period in 1998 from $630,344 in 1998 to $1,096,709 in 1999. The increase can
mainly be attributed to the approximately $6 million increase in property and
equipment capital expenditures incurred to accommodate higher traffic volumes.
Operating income. Operating income grew by over $1.5 million from a
loss of $421,102 in the nine months ending September 30, 1998, to income of
$1,116,409 in the nine months ending September 30, 1999. The improvement in net
income was attributable to a combination of an increase in worldwide revenues,
improved gross profits and a relative slow-down in the growth of our selling,
general, and administrative expenses.
Net interest. Net interest for the nine months ending September 30,
1999, was $692,355 compared to $284,252 for the same period last year, a 143%
increase. The increase was due to the increase in interest bearing debt incurred
in 1998 and 1999 in order to finance our approximately $6 million capital
expansion during 1998 and early 1999. This debt is carried at various interest
rates at an average weighted cost of 11.8%.
Net income before taxes and minority interest. Net income before taxes
and minority interest improved by over $1.1 million to income of $424,054 for
the nine months ended September 30, 1999, compared to a loss of $705,354 for the
same nine months in 1998. As noted above, this improvement was also mainly due
to revenue growth and operational efficiencies resulting in higher gross profit
margins as well as the deceleration of selling costs, general, and
administrative costs and the reduction of development costs.
Taxes on income and minority interest. Taxes on income and minority
interest amounted to $569,550 for the nine months ended September 30, 1999,
compared to $650,813 for the same nine months in 1998, a 12% reduction. This
decrease is due to a relatively lower contribution to consolidated net income by
our 60 percent majority-owned United Kingdom operation, which pays full tax.
Net loss. Net loss reduced by 89% or $1.2 million to a loss of $145,496
for the nine months ended September 30, 1999, compared to the net loss of
$1,356,167 for the same period in 1998. The reduction in loss can be attributed
to revenue growth, an improved operating efficiency resulting in higher gross
profit margins, a stabilization of selling, general, and administrative
expenses, and finally to a reduction in taxes and minority interest.
Earnings (loss) per share. Loss per share reduced from a loss of $0.37
per share during the nine months ended September 30, in 1998, to a loss of $0.03
per share for the same nine months ending September 30, 1999. Earning per share
data was calculated based on the weighted average number of 4,326,881 common
shares outstanding during the nine months ended September 30, 1999, which
increased by 19% over the previous period, see "Liquidity and capital resources"
below.
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Liquidity and capital resources (for the nine months ending September 30, 1999)
During the nine months ended September 30, 1999, net cash increased by
$4,236 from January 1, 1999. At September 30, 1999, we had cash and cash
equivalents of $373,644 compared to cash and cash equivalents on hand on
December 31, 1998 of $369,408.
Cash generated through operating activities and before funding net
operating assets amounted to $1.2 million for the nine-month period ending
September 30, 1999, compared to a cash outflow of $452,830 for the same period
last year. Cash after financing operating assets and liabilities amounted to a
net outflow of $857,626 during the nine months ending September 30, 1999,
compared to an outflow of $355,072 for the same period last year primarily as a
result of an accelerated pay-down of accounts payable as well as the ongoing
need to finance $1.2 million normal growth in accounts receivables.
During the first nine months of 1999, we invested $3.2 million in
additional equipment mainly to provide global capacity, for developing a global
reservation and billing system, for further expansion into Australia, for the
opening of new offices in Hong Kong and Dallas, and for the ongoing development
of existing international operations.
The gross cash outflow of $4.2 million, after capital investment for
the nine months to September 30, 1999 was funded through proceeds from the
issuance of common stock arising from a January private placement offering as
well as the conversion of warrants. Total equity capital raised including
certain underwriter unit purchase options exercised, stock options exercised and
employee stock purchase plans amounted to $3,950,399, or 840,314 shares issued
at a net value of $4.70 per share. Net debt financing of $384,153 accounted for
the balance of our financing for the nine-month period. Total net cash provided
by financing activities amounted to $4.3 million.
Year 2000 Compliance
As the Year 2000 approaches, many date-sensitive computer applications
in businesses may fail because they are unable to process dates properly beyond
December 31, 1999. Businesses will be required to devote significant resources
to convert their information systems to meet Year 2000 requirements. We are
significantly dependent upon external or third parties, including electrical
utilities, telecommunications, banking and financial services, airlines, and
governmental agencies and institutions to provide services to us and to purchase
services from us. Their failure to provide services to us due to Year 2000
problems could have a material adverse effect on our business, results of
operations, and financial condition. Additionally, as these entities devote
financial resources to comply with Year 2000 requirements, the purchasing
patterns of our customers may be affected as they may have reduced funds
available to purchase our services, which could result in a material adverse
effect on our business, results of operations, and financial condition.
Except as noted below, at this time, we are not aware of any issues
that require remediation. Our review of potential business interruptions has not
identified any likely interruptions. Such interruptions, if they occur, will
depend, in part, on the handling of year 2000 issues by our vendors and
customers.
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State of Readiness. Our principal information technology systems have
been developed intensively only over the last four years with desktop based Year
2000 compatible software. We are principally dependent on one of the leading
audio conferencing bridge manufacturers, Compunetix, Inc., for our
teleconferencing bridges. We have requested Compunetix to certify that all its
embedded systems within our bridges are year 2000 compliant. To that end we have
received and installed year 2000 compliant software updates from Compunetix for
each of our bridges. To the best of our knowledge, we are not presently
substantially dependent upon any other significant internal non-information
technology and/or embedded system which is not year 2000 compliant.
Costs to Address Year 2000 Issues. We believe that our internal systems
are substantially year 2000 compliant; and we have not incurred any material
costs for remediation for the year 2000. However, to address the impact of
acquisitions, new facilities, and other contingencies, we estimate that the
future costs to monitor, control, and remediate our systems to be year 2000
compliant are not likely to exceed either $500,000 in 1999 or an additional
$500,000 beyond year 2000. We will continue to review and reevaluate the
potential costs of remediation and business interruptions.
Risks of Year 2000 Issues. Our dependence upon external or third
parties is significant. The major areas where a year 2000 failure could have an
effect on our business would be a failure in one or more of the following major
industries or institutions on which we are dependent either as a supplier to us
or as a customer:
. electrical utilities
. telecommunications
. banking and financial services
. airlines
. government agencies and institutions
Their failure to provide services to us due to year 2000 problems could
have a material adverse effect on our business, results of operations, and
financial condition. The consequences of our dependence on external or third
parties and changes in our customers' purchasing patterns is uncertain.
Contingency Plans. We believe that we operate in a changing, high
growth, volatile, and high risk environment, and our management will continually
assess and address all risks, not only year 2000 risks. In anticipation of year
2000, the following contingency plans are being implemented:
. Restrictions will be imposed on travel for personnel on
airline flights between December 15, 1999 and January 15,
2000.
. Uninterrupted power supply has been installed to give
additional support to the operation of our bridges in all our
major locations.
. A minimum of two telecommunications network providers will be
connected at all major locations.
. Operations centers will be stocked with food, water, and
bedding, as they are currently for snowstorms, hurricanes, and
other natural events.
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PART II - Other Information
Item 2. Changes in Securities
On October 19, 1999, under Rule 506 of the Securities Act of 1933, we
closed a $2 million cash preferred stock transaction issuing 2,000 shares of
series A preferred stock and 400,000 common stock purchase warrants to GMN
Investors II, L.P., an affiliate of Gemini Investors of Wellesley, Massachusetts
pursuant to an agreement dated October 15, 1999. The offering price was
$1,999,900 for the preferred stock and $100 for the warrants. The series A
preferred stock is non-voting, is redeemable in five years, and carries an 8%
coupon payable when declared by the board of directors.
The 400,000 common stock purchase warrants have an exercise price of
$7.00 per share. The exercise price may be reset to market if, on or after
October 19, 2000, the average closing bid price of our common stock on the
NASDAQ SmallCap market for the ten consecutive trading days prior to October 19,
2000, is less than $7.00, but at an exercise price no less than $5.00. The
warrants expire on October 19, 2006. If we redeem the series A shares on or
prior to December 31, 2001, other than as the result of a merger, the sale of
our assets, or similar transaction, we may elect to repurchase for a nominal
consideration up to 100,000 warrants on or before December 31, 2000; 75,000
warrants between January 1, 2001 and June 30, 2001; and 50,000 warrants after
June 30, 2001 and on or before December 31, 2001.
We plan to invest the proceeds in capacity expansion to accommodate
anticipated increases in our audio conferencing volume.
Bathgate McColley Capital Corp. LLC of Englewood, Colorado was the sole
underwriter, and we paid $120,000 in sales commissions.
Item 6(a). Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Restated Articles of Incorporation of ACT April 15, 1996, as
amended October 18, 1999
3.2 (2) Bylaws of ACT, amended as of April 15, 1996
4.1(1) Form of specimen certificate for Common Stock of ACT
10.1(1) Stock Option Plan of 1991, as amended, authorizing 400,000
shares of Common Stock for issuance under the Plan
10.2(1) Form of Stock Option Agreement
10.3(1) Form of Common Stock Purchase Warrant
10.10(1) Split Dollar Insurance Agreement dated March 1, 1990, between
ACT and Gerald D. Van Eeckhout
10.11(1) Service Agreement dated April 10, 1992 between David Holden
and ACT Teleconferencing Limited
10.19(4) Stock Option Plan of 1996, as amended
10.20(5) Employee Stock Purchase Plan
10.22(6) Loan and Security Agreement dated March 31, 1998 and Form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
Page 14
<PAGE>
10.23(6) Loan Agreement with Key Bank, N.A.
10.24(7) Lease Commitment and Warrant with R.C.C. Finance Group Ltd.
10.25(7) Contract for the Supply of Conferencing Services Design
Development and Information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global Networks
Limited
10.26(7) Agreement for the Supply of Conferencing Services signed July
14, 1998 between ACT Teleconferencing Services, Inc. and
Concert Global Networks Limited
10.27(7) Agreement for Videoconferencing Equipment and Services (GTE
Telephone Operating Companies) dated October 1, 1998
27.1 Financial Data Schedule
(1)Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the SEC on October 10, 1995,
and amendments to our Form SB-2, File No. 33-97908-D.
(2)Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC on May
15, 1996, File No. 0-27560.
(3)Incorporated by reference, attached as an exhibit of the same number to our
Form S-8, filed with the SEC on July 2, 1998, File No. 0-27560.
(4)Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998,
File 333-58403.
(5)Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
(6)Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE on
August 14, 1998) File 0-27560.
(7)Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ending September 30, 1998, filed with the SEC on
November 16, 1998, File 0-27560.
Page 15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACT TELECONFERENCING, INC.
DATE: November 9, 1999 By: /s/ Gavin J. Thomson
------------------------------
Gavin J. Thomson,
Chief Financial Officer
(Duly authorized officer and
Principal Financial Officer)
Page 16
<PAGE>
Index of Exhibits
All exhibits are filed electronically, unless incorporated by reference.
Exhibit No. Description
3.1 Restated Articles of Incorporation of ACT April 15, 1996, as
amended October 18, 1999
3.2(2) Bylaws of ACT, amended as of April 15, 1996
4.1(1) Form of specimen certificate for Common Stock of ACT
10.1(1) Stock Option Plan of 1991, as amended, authorizing 400,000
shares of Common Stock for issuance under the Plan
10.2(1) Form of Stock Option Agreement
10.3(1) Form of Common Stock Purchase Warrant
10.10(1) Split Dollar Insurance Agreement dated March 1, 1990, between
ACT and Gerald D. Van Eeckhout
10.11(1) Service Agreement dated April 10, 1992 between David Holden
and ACT Teleconferencing Limited
10.19(4) Stock Option Plan of 1996, as amended
10.20(5) Employee Stock Purchase Plan
10.22(6) Loan and Security Agreement dated March 31, 1998 and Form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
10.23(6) Loan Agreement with Key Bank, N.A.
10.24(7) Lease Commitment and Warrant with R.C.C. Finance Group Ltd.
10.25(7) Contract for the Supply of Conferencing Services Design
Development and Information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global Networks
Limited
10.26(7) Agreement for the Supply of Conferencing Services signed July
14, 1998 between ACT Teleconferencing Services, Inc. and
Concert Global Networks Limited
10.27(7) Agreement for Videoconferencing Equipment and Services (GTE
Telephone Operating Companies) dated October 1, 1998
27.1 Financial Data Schedule
(1)Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the SEC on October 10, 1995,
and amendments to our Form SB-2, File No. 33-97908-D.
(2)Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC on May
15, 1996, File No. 0-27560.
(3)Incorporated by reference, attached as an exhibit of the same number to our
Form S-8, filed with the SEC on July 2, 1998, File No. 0-27560.
(4)Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998,
File 333-58403.
(5)Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
Page 17
<PAGE>
(6)Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE on
August 14, 1998) File 0-27560.
(7)Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ending September 30, 1998, filed with the SEC on
November 16, 1998, File 0-27560.
Page 18
<PAGE>
Exhibit 3.1
- -----------
RESTATED ARTICLES OF INCORPORATION
OF
ACT TELECONFERENCING, INC.
The Board of Directors of ACT Teleconferencing, Inc. (the
"Corporation"), pursuant to Section 7-110-107(1) of the Colorado Business
Corporation Act, adopts the following as its Restated Articles of Incorporation
to integrate and replace the Corporation's original Articles of Incorporation
and all prior amendments:
ARTICLE I
The name of this Corporation is ACT Teleconferencing, Inc.
ARTICLE II
The Corporation is authorized to issue an aggregate total of 10,000,000
shares, all of which shall be designated Common Stock, with no par value.
ARTICLE III
No shareholder of this Corporation shall have any cumulative voting
rights in the election of directors.
ARTICLE IV
No shareholder of this Corporation shall have any preemptive rights to
subscribe for, purchase or acquire any shares of the Corporation of any class,
whether unissued or now or hereafter authorized, or any obligations or other
securities convertible into or exchangeable for any such shares.
ARTICLE V
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article shall
not eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
acts specified in Section 7-108-403 of the Colorado Statutes, (iv) for any
transaction from which the director derived an improper personal benefit or (v)
for any act or omission occurring prior to the effective date of this Article.
No amendment to or repeal of this Article shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Page 19
<PAGE>
ARTICLE VI
The Corporation shall indemnify directors, officers, and others for
liabilities and expenses incurred in connection with their corporate duties to
the fullest extent permitted by the Colorado Business Corporation Act or its
amended or successor provisions.
ARTICLE VII
Whenever the statutes of Colorado, as amended, require the holders of
two-thirds of the outstanding shares entitled to vote to approve certain
proposals and to approve amendments to the Articles of Incorporation, the
affirmative vote of holders of a majority of shares entitled to vote thereon
shall be sufficient for approval, except the affirmative vote of holders of two-
thirds of the outstanding shares entitled to vote shall be necessary whenever
specifically required by these Articles.
ARTICLE VIII
The Board of Directors shall consist of not more than nine (9) members,
none of whom need be shareholders. The exact number of directors within the
maximum limitation of nine (9) shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board of
Directors from time to time; however, no decrease in the number of directors
shall change the term of any director. The Board of Directors shall be divided
into three classes, as nearly equal in number of directors as possible, as
determined by the Board of Directors. Each class shall be elected for a term
expiring at the Annual Meeting of the Shareholders held in the third year
thereafter; provided, however, that at the 1994 Annual Meeting of Shareholders,
one class shall be elected for a term expiring at the 1995 annual meeting, one
class for a term expiring at the 1996 annual meeting, and one class for a term
expiring at the 1997 annual meeting. Each director shall continue in office
until the Annual Meeting of Shareholders in the year in which the director's
term expires, and thereafter until the director's successor is duly elected and
qualified, unless a prior vacancy shall occur by reason of the director's death,
resignation, or removal from office.
Newly created directorships resulting from an increase in the
authorized number of directors within the approved maximum and any vacancies in
directorships may be filled by the affirmative vote of a majority of directors
then in office, even though less than a quorum, or by the affirmative vote of
the holders of a majority of the shares present and entitled to vote at a
meeting called for the purpose of electing directors. Directors so chosen by the
Board of Directors of the shareholders to fill a vacancy or newly created
directorship shall hold office for a term expiring at the Annual Meeting of
Shareholders at which the term of class to which the director or directors have
been appointed or elected expires.
Any director, or the entire Board of Directors, may be removed from
office at any time, with or without cause, but only by the affirmative vote of
the holders of at least two-thirds of the outstanding common stock of the
Corporation entitled to vote for the election of directors.
Page 20
<PAGE>
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of common stock of the Corporation entitled to vote for the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article VIII.
ARTICLE IX
A. In addition to the requirements of any applicable statute, the
affirmative vote of shareholders holding not less than two-thirds of the
outstanding shares of the Corporation's common stock shall be required for the
approval of any "Business Combination" (as defined herein) involving this
Corporation and for the approval or authorization by this Corporation, in its
capacity as a shareholder, of any Business Combination involving a subsidiary of
this Corporation which requires the approval or authorization of the
shareholders of the subsidiary, provided, however, that the two-thirds voting
requirement shall not be applicable if:
1. A majority of all the "Continuing Directors" (as
defined herein) by vote have expressly approved the Business
Combination; or
2. The Business Combination is a merger, consolidation,
exchange of shares or sale of all or substantially all of the assets of
this Corporation and the cash to be received per share in the Business
Combination by holders of the common stock of this Corporation (other
than the "Related Person" as hereinafter defined) is not less than the
highest per share price (including brokerage commissions, transfer
taxes, soliciting dealers' fees and dealer-management compensation)
paid by the Related Person in acquiring any of its holdings of this
Corporation's common stock (with appropriate adjustments for
recapitalizations, stock splits, stock dividends and other changes to
the Corporation's capital structure).
B. For purposes of this Article:
1. The term "Business Combination" shall mean:
i) any merger or consolidation of this
Corporation or a subsidiary of this Corporation with or into a
Related Person;
ii) any sale, lease, exchange, transfer,
mortgage, or other disposition to a Related Person (in one
transaction or in a series of related transactions), of all or
any "Substantial Part" (as hereinafter defined) of the assets
of this Corporation (including, without limitation, any voting
securities of a subsidiary of this Corporation) or a
subsidiary of this Corporation;
iii) any sale, lease, exchange, transfer
or other disposition (in one transaction or in a series of
related transactions) of all or any Substantial Part of the
assets of a Related Person to this Corporation or a subsidiary
of this Corporation;
iv) any issuance, sale, exchange,
transfer or other disposition of any securities of this
Corporation or a subsidiary of this Corporation to a
Page 21
<PAGE>
Related Person (except common stock issuable pursuant to the
exercise of options to purchase, during any twelve-month
period, not more than one percent of the common stock
outstanding during such period), including, without
limitation, any exchange of shares of this Corporation or a
subsidiary of this Corporation for shares of a Related Person
which, in the absence of this Article, would have required the
affirmative vote of at least a majority of the voting power of
the outstanding shares of this Corporation entitled to vote or
the affirmative vote of this Corporation in its capacity as a
shareholder of the subsidiary;
v) any acquisition by this Corporation
or a subsidiary of this Corporation of any securities of a
Related Person or any securities of this Corporation or a
subsidiary of this Corporation from a Related Person;
vi) any recapitalization or
reclassification of the securities of this Corporation which
would have the effect of increasing the voting power of the
Related Person;
vii) any plan or proposal for the
liquidation of this Corporation proposed by or on behalf of a
Related Person; and
viii) any agreement, contract or other
arrangement providing for any of the transactions described in
this definition of Business Combination.
2. The term "Related Person" shall mean and include any
"Person" (as defined herein) which, together with its "Affiliates" and
"Associates" (as defined herein), beneficially owns in the aggregate 20
percent or more of the voting power of the voting stock, and any
Affiliate or Associate of any such Person. Beneficial ownership shall
be determined under Rule 13d-3 of the Securities Exchange Act of 1934,
as amended, as in effect on August 9, 1993; provided, however, a Person
shall also be deemed to be the beneficial owner of (i) any shares of
common stock which such Person or any of its Affiliates or Associates
has the right to acquire at any time pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise, and (ii) any shares of common stock
beneficially owned by any other Person with which such Person or any of
its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of the shares of common stock.
3. The term "Person" shall mean any individual,
corporation, partnership or other person or entity.
4. The term "Affiliate," used to indicate a relationship
to a specified person, shall mean a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person.
5. The term "Associate," used to indicate a relationship
with a specified person, shall mean (i) any corporation or organization
(other than this Corporation or a majority-owned subsidiary of this
Corporation) of which such specified person is an
Page 22
<PAGE>
officer or partner or is, directly or indirectly, the beneficial owner
of 10 percent of more of any class of equity securities, (ii) any trust
or other estate in which such specified person has a substantial
beneficial interest or as to which such specified person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or
spouse of such specified person, or any relative of such spouse, who
has the same home as such specified person or who is a director or
officer of this Corporation or any of its parents or subsidiaries.
6. The term "Continuing Director" shall mean any person
then serving as a director of this Corporation (i) who was a member of
the Board of Directors of this Corporation on August 9, 1993, or (ii)
who became a director after August 9, 1993, and whose election, or
nomination for election by this Corporation's shareholders, was
approved by a majority of all of the Continuing Directors, either by a
specific vote or by issuance of a proxy statement authorized by the
Board of Directors in which such person is named as nominee for
director; provided, however, that in no event shall a director who
announces that he has a conflict of interest with respect to, and
refrains from voting on, the Business Combination in question be deemed
to be a Continuing Director for purposes of such vote.
7. The term "Substantial Part" shall mean more than 25
percent of the fair market value of the total assets of the corporation
in question, as of the end of its most recent fiscal year ending prior
to the time the determination is being made.
C. For the purpose of this Article, the Continuing Directors by a
majority vote shall have the power to make a binding determination as to: (i)
the number of shares of common stock of this Corporation that any person or
entity beneficially owns; (ii) whether a person or entity is an Affiliate or
Associate of another; (iii) whether the assets subject to any Business
Combination is one in which a Related Person has an interest; (iv) whether the
cash to be received per share by holders of common stock of this Corporation
other than the Related Person in a Business Combination is an amount at least
equal to the highest per share price paid by the Related Person; and (v) such
other matters with respect to which a determination is required under th is
Article.
D. The affirmative vote of the holders of at least two-thirds of
the outstanding shares of common stock of this Corporation shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article.
ARTICLE X
This Corporation is authorized to issue, in addition to the Common
Stock, no par value, authorized in Article II, an aggregate of 1,000,000 shares
of nonvoting Preferred Stock, subject to the following:
A. The Board of Directors is authorized, subject to limitations
prescribed by the statutes of Colorado and by these Articles of Incorporation,
to provide for the issuance of shares of the Preferred Stock in series. The
Board of Directors shall establish the number of shares to be included in each
series and determine the designations, preferences, limitations, and relative
rights of shares of each series. When such a determination has been made, the
Corporation shall
Page 23
<PAGE>
deliver Articles of Amendment to these Articles of Incorporation to the
Secretary of State for filing, which shall be effective without Shareholder
action, specifying the designations, preferences, limitations, and relative
rights of such class as required by statute.
B. The authority of the Board of Directors with respect to the
designation of each series shall include, without limitation, the authority to
establish and define the number of shares initially constituting each series;
the distinctive designation of each series; dividend rights; redemption rights,
if any; the establishment of a sinking fund, if appropriate; liquidation rights;
conversion privileges, if any; and other matters appropriate to each series to
the extent deemed necessary by the Board of Directors or as required or allowed
by the Colorado Business Corporation Act and not otherwise limited by said Act
or by these Articles of Incorporation.
C. To the extent holders of nonvoting Preferred Stock are
entitled by statute to vote on certain matters, the Board may determine such
matters attendant to such voting rights within the limitations established by
statute.
D. Shares of Preferred Stock of any series that have been
redeemed or otherwise cancelled or that have been converted into shares of any
other class of the Corporation's authorized securities shall be restored to the
status of authorized and unissued Preferred Stock and shall thereafter be
eligible for reissuance as part of any series of Preferred Stock.
IN WITNESS WHEREOF, I, as Secretary of ACT Teleconferencing, Inc.,
certify under penalty of perjury, that the foregoing comprises the Restated
Articles of Incorporation of ACT Teleconferencing, Inc., as adopted by the Board
of Directors on April 15, 1996.
-----------------------------------
Secretary
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<PAGE>
Mail to: Secretary of State For office use only 002
Corporations Section
1560 Broadway, Suite 200
Denver, CO 80202
(303) 894-2251
MUST BE TYPED Fax (303) 894-2242
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
---
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is ACT Teleconferencing, Inc.
--------------------------
SECOND: The following amendment to the Articles of Incorporation was adopted on
October 18, 1999, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
No shares have been issued or Directors Elected - Action by
- ----- Incorporators
No shares have been issued but Directors Elected - Action by Directors
- -----
X Such amendment was adopted by the board of directors where shares have
- ----- been issued and shareholder action was not required.
Such amendment was adopted by a vote of the shareholders. The number of
- ----- shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is___________
________________________________________________________________________________
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows: See attached
If these amendments are to have a delayed effective date, please list that date:
(Not to exceed ninety (90) days from the date of filing)
----------------------------------------------
Signature_____________________________________
Title Chief Financial Officer and Secretary
Page 25
<PAGE>
ARTICLE XI
1. SERIES A PREFERRED STOCK.
------------------------
Two Thousand (2,000) shares of the nonvoting Preferred Stock of the
Corporation, as authorized in ARTICLE X and not previously issued, are hereby
designated "Series A Preferred Stock" (the "Series A Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1.1 Dividends.
---------
(a) The Corporation will pay preferential dividends to the holders
of the Series A Preferred Stock as provided in this Section 1.1. Dividends on
each outstanding share of Series A Preferred Stock will accrue cumulatively on a
daily basis during each fiscal year of the Corporation at the rate of 8% per
annum, compounded quarterly, on the Liquidation Value thereof, and will be
payable only when, as and if declared by the Board of Directors of the
Corporation, but in no event later than the redemption of such shares of Series
A Preferred Stock pursuant to Section 1.4 hereof or upon a liquidation (as
defined below) in accordance with Section 1.2 hereof.
(b) Dividends on each share of Series A Preferred Stock will
accrue from and including the date of issuance of such share to and including
the date on which the Liquidation Value (plus all then accrued but unpaid
dividends thereon) of such share is paid, whether or not they have been declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The date on which the
Corporation initially issues any share of Series A Preferred Stock will be
deemed to be its "date of issuance", regardless of the number of times transfer
of such share is made on the stock records maintained by or for the Corporation
and regardless of the number of certificates which may be issued to evidence
such share. Except for any repurchases of Common Stock or warrants permitted
pursuant to the Securities Purchase Agreement (as defined below) which are made
in accordance with the terms thereof, no dividends or other distributions will
be paid, declared or set apart with respect to the Common Stock or any other
shares of capital stock of the Corporation ranking on liquidation junior to the
Series A Preferred Stock (collectively, "Junior Stock") without the prior
written consent of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, unless all accrued and unpaid dividends on the Series
A Preferred Stock shall have been paid.
(c) If at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred Stock, such
payment will be distributed ratably among the holders of the Series A Preferred
Stock based upon the aggregate accrued but unpaid dividends on the shares of
Series A Preferred Stock held by each such holder.
(d) All dividends payable on the Series A Preferred Stock pursuant
to this Section 1.1 shall be paid in cash.
1.2 Liquidation.
-----------
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<PAGE>
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation (each such event being hereafter referred to as a
"Liquidation"), the holders of Series A Preferred Stock will be entitled to be
paid, before any payment shall be made to the holders of Junior Stock, an amount
in cash equal to $1,000.00 per share of Series A Preferred Stock, subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting the Series A Preferred
Stock (as so adjusted, the "Liquidation Value"), plus all then accrued and
unpaid dividends to the date of payment, and the holders of Series A Preferred
Stock will not be entitled to any further payment. If, upon any Liquidation, the
Corporation's assets to be distributed among the holders of the Series A
Preferred Stock are insufficient to permit payment to such holders of the full
amount to which they are entitled hereunder, then the entire assets to be
distributed will be distributed ratably among such holders based upon the then
aggregate Liquidation Value (plus all then accrued but unpaid dividends) of the
Series A Preferred Stock held by each such holder.
(b) Upon and after any Liquidation, unless and until the holder of
each share of Series A Preferred Stock receives payment in full of the
Liquidation Value plus all accrued and unpaid dividends on such share of Series
A Preferred Stock, the Corporation shall not redeem, repurchase or otherwise
acquire for value, or declare or pay any dividend or other distribution on or
with respect to, any class or series of Junior Stock. Upon and after any
Liquidation, after the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock and any other class or series of
stock of the Corporation ranking on liquidation on a parity with the Series A
Preferred Stock, the holders of Junior Stock then outstanding shall be entitled
to receive the remaining assets of the Corporation available for distribution to
its stockholders.
1.3 Voting Rights.
-------------
(a) Voting Rights. Except as required by law or as otherwise set
-------------
forth herein, holders of Series A Preferred Stock will have no right to vote on
any matter submitted to stockholders of the Corporation for vote, consent or
approval.
(b) No Amendment, Alteration or Repeal. The Corporation will not
----------------------------------
amend, alter or repeal the preferences, special rights or other powers of the
Series A Preferred Stock so as to affect adversely the Series A Preferred Stock
without the written consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class. For this purpose, without limiting the generality of the
foregoing, any increase in the number of authorized shares of Series A Preferred
Stock or any authorization or issuance of any series or class of capital stock
with either preference or priority over the Series A Preferred Stock or parity
with the Series A Preferred Stock as to the right to receive either dividends or
amounts distributable upon a Liquidation of the Corporation shall be deemed to
affect adversely the Series A Preferred Stock.
1.4 Redemptions.
-----------
(a) Mandatory Redemption. Subject to the provisions of subsection
--------------------
(d) of this Section 1.4, (i) the Corporation will, upon the occurrence of a
Redemption Event, redeem at the closing thereof all of the shares of Series A
Page 27
<PAGE>
Preferred Stock then outstanding at a per share price equal to the Redemption
Price, (ii) the Corporation will redeem all of the shares of Series A Preferred
Stock outstanding on October 18, 2004 at a per share price equal to the
Redemption Price, and (iii) during any time when an Event of Default under the
Securities Purchase Agreement has occurred and is continuing, the Corporation
will redeem all of the shares of Series A Preferred Stock outstanding within 10
days after receipt of notice from the holders of at least a majority of such
outstanding shares requiring redemption at a per share price equal to the
Redemption Price, unless, in the case of either clause (ii) or (iii), the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock advise the Corporation in writing that they do not wish to be
redeemed in connection with such event, in which case no shares of Series A
Preferred Stock shall be redeemed in connection with such event. Notwithstanding
any of the foregoing to the contrary, in any redemption of all of the shares of
Series A Preferred Stock, any holder thereof shall be entitled to retain at
least one share of Series A Preferred Stock so as to maintain their voting
rights as described in Section 1.3(a) above.
(b) Optional Redemption. Subject to Section 1.4(d) hereof, the
-------------------
Corporation shall be entitled at any time to redeem all or a portion of the
shares of Series A Preferred Stock then outstanding at a price per share equal
to the Redemption Price thereof.
(c) Late Payments. If any share of Series A Preferred Stock is not
-------------
redeemed on the date scheduled for redemption pursuant to this Section 1.4 other
than with the consent of the holders of at least a majority of the outstanding
shares of Series A Preferred Stock, the dividend rate applicable to such share
shall be increased to 12% per annum, compounded quarterly, accruing from such
scheduled redemption date to the date on which such share actually shall be
redeemed.
(d) Contractual Prohibitions. Notwithstanding any other provision
------------------------
herein to the contrary, no redemption of any shares of Series A Preferred Stock
shall be made by the Corporation at any time when such redemption would be
prohibited by the terms of any credit or other financing agreement with any
lender to the Corporation; provided that the failure to make such redemption as
a consequence of such prohibition shall nonetheless be deemed for all purposes
to be a default by the Corporation of its obligations under this Section 1.4.
(e) Notice of Redemption. The Corporation shall provide written
--------------------
notice of any event giving rise to the redemption of Series A Preferred Stock
pursuant to this Section 1.4 specifying the time and place of redemption and the
redemption price per share, by first class or registered mail, postage prepaid,
to each holder of record of Series A Preferred Stock at the address for such
holder last shown on the records of the transfer agent therefor (or the records
of the Corporation, if it serves as its own transfer agent), not more than 60
nor less than 30 days prior to the date on which such redemption is to be made.
If less than all the shares of Series A Preferred Stock owned by such holder are
then to be redeemed, the notice will also specify the number of shares of Series
A Preferred Stock which are to be redeemed. Upon mailing any such notice of
redemption, the Corporation will become obligated, to the extent permitted by
law, to redeem at the time of redemption specified therein all shares of Series
A Preferred Stock specified therein.
(f) Redemption Price and Priority of Payment. For each share of
----------------------------------------
Series A Preferred Stock which is to be redeemed, the Corporation will be
obligated on the applicable Redemption Date to pay to the holder thereof (upon
surrender by such holder at the Corporation's principal office of the
certificate representing such share of Series A Preferred Stock), in immediately
available funds, an amount equal to the Liquidation Value thereof (plus all then
accrued but
Page 28
<PAGE>
unpaid dividends thereon). If the funds of the Corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of shares of Series A Preferred Stock
ratably among the holders of such shares to be redeemed based upon the aggregate
redemption price of such shares (plus all then accrued but unpaid dividends
thereon) held by each such holder. At any time thereafter when additional funds
of the Corporation are legally available for the redemption of Series A
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date, but which it has not redeemed. In case fewer than the total
number of shares of Series A Preferred Stock represented by any certificate are
redeemed, a new certificate representing the number of unredeemed shares will be
issued to the holder thereof without cost to such holder within seven business
days after surrender of the certificate representing the redeemed shares of
Series A Preferred Stock.
(g) Pro Rata Treatment of Series A Preferred Stock. The number of
----------------------------------------------
shares of Series A Preferred Stock to be redeemed from each holder thereof in
redemption hereunder will be the number of shares of Series A Preferred Stock
determined by multiplying the total number of shares of Series A Preferred Stock
to be redeemed by a fraction, the numerator of which will be the total number of
shares of Series A Preferred Stock then held by such holder and the denominator
of which will be the total number of shares of Series A Preferred Stock then
outstanding. The Corporation shall not redeem, repurchase or otherwise acquire
any Series A Preferred Stock except as expressly authorized herein or pursuant
to a purchase offer made pro rata to all holders of Series A Preferred Stock on
the basis of the aggregate Liquidation Value (plus all then accrued but unpaid
dividends thereon) of shares of Series A Preferred Stock owned by each such
holder.
(h) Dividends after Payment of Redemption Price. No share of
-------------------------------------------
Series A Preferred Stock is entitled to any dividends accruing after the date on
which the Redemption Price of such share is paid pursuant to subsection (f) of
this Section 1.4. On such date all rights of the holder of such share of Series
A Preferred Stock will cease, and such share of Series A Preferred Stock will be
deemed not to be outstanding.
(i) Payments on Junior Stock. If and so long as there are any
------------------------
shares of Series A Preferred Stock outstanding which the Corporation has become
obligated to redeem pursuant to this Section 1.4, until the Corporation has
redeemed all of such shares of Series A Preferred Stock, the Corporation shall
not redeem, repurchase or otherwise acquire for value, or declare or pay any
dividend or other distribution on or with respect to, any class or series of
Junior Stock.
1.5. Ranking. The Series A Preferred Stock shall rank senior to all
-------
other series of the Corporation's Preferred Stock and Common Stock as to the
distribution of assets on liquidation, dissolution or winding-up of the
Corporation and as to the declaration and payment of dividends.
1.6. Definitions. As used herein, the following terms shall have
-----------
the following meanings:
"Redemption Date" as to any redemption of any share of Series A
---------------
Preferred Stock, means the redemption date for such share of Series A Preferred
Stock specified herein.
Page 29
<PAGE>
"Redemption Event" means the occurrence of (i) any sale or other
----------------
disposition of all or substantially all of the assets of the Corporation in any
single transaction or series of related transactions, (ii) any transfer or other
disposition in any single transaction or series of related transactions of a
majority of the Corporation's Common Stock, (iii) a public offering by the
Corporation of its capital stock in a public offering registered under the
Securities Act of 1933, as amended which yields net proceeds to the Corporation
of more than $15,000,000, (iv) a merger or consolidation in which the
Corporation is not the surviving entity, or (v) the occurrence of any event or
circumstance which requires the Corporation to repay, repurchase, redeem or
otherwise to retire any equity security of the Corporation or which permits the
holder of such equity security to require any such repayment, repurchase,
redemption or retirement.
"Redemption Price" shall mean, with respect to each share of Series A
----------------
Preferred Stock, a price equal to the Liquidation Value, plus all then accrued
and unpaid dividends (subject to appropriate adjustment in the event of any
dividend, stock split, combination or other recapitalization).
"Securities Purchase Agreement" means the Securities Purchase Agreement
-----------------------------
dated on or near October 18, 1999, among the Corporation and the purchasers
named therein, as the same may be amended, restated, modified or supplemented
and in effect from time to time.
Page 30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ACT
Teleconferencing, Inc.'s unaudited September 30, 1999 financial statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 373,644
<SECURITIES> 0
<RECEIVABLES> 5,570,290
<ALLOWANCES> (74,708)
<INVENTORY> 181,339
<CURRENT-ASSETS> 2,606,696
<PP&E> 13,339,544
<DEPRECIATION> (3,011,088)
<TOTAL-ASSETS> 18,985,717
<CURRENT-LIABILITIES> 6,285,247
<BONDS> 0
0
0
<COMMON> 11,414,330
<OTHER-SE> 5,202,735
<TOTAL-LIABILITY-AND-EQUITY> 18,985,717
<SALES> 20,492,854
<TOTAL-REVENUES> 20,492,854
<CGS> 10,810,457
<TOTAL-COSTS> 8,565,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 692,355
<INCOME-PRETAX> 424,054
<INCOME-TAX> (351,907)
<INCOME-CONTINUING> (145,496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,496)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
