<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2000
REGISTRATION NO. 333-32156
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACT TELECONFERENCING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7389 84-1132665
(State or other jurisdiction (Primary standard (I.R.S. Employer
of incorporation) industrial classification Identification Number)
code number)
</TABLE>
1658 COLE BOULEVARD, SUITE 130
GOLDEN, COLORADO 80401
(303) 235-9000
(Address and telephone number of principal executive offices)
GAVIN J. THOMSON
CHIEF FINANCIAL OFFICER
ACT TELECONFERENCING, INC.
1658 COLE BOULEVARD, SUITE 130
GOLDEN, COLORADO 80401
(303) 235-9000
(Name, address, and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM J. CAMPBELL, ESQ. J. MICHAEL PARISH, ESQ.
Faegre & Benson LLP Thelen Reid & Priest LLP
370 Seventeenth Street, Suite 2500 40 West 57th Street
Denver, Colorado 80202 New York, New York 10019-4097
Phone: (303) 820-0630 Phone: (212) 603-2154
Fax: (303) 820-0600 Fax: (212) 603-2001
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Shares of common stock no par value(1)...... 2,300,000 shares(2) $15.375 $35,362,500 $9,335.70
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act based upon a $15.375 per
share average of bid and asked prices of the Registrant's common stock on
the Nasdaq SmallCap Market on March 7, 2000.
(2) Includes 300,000 shares subject to an option granted to the Underwriters to
cover over-allotments, if any.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACT TELECONFERENCING, INC.
CROSS-REFERENCE SHEET BETWEEN
ITEMS OF FORM S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Inside Front Cover Page
Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary/Summary Consolidated
Financial Data; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Not Applicable
10. Directors, Executive Officers, Promoters, Executive Officers and Directors
and Control Persons
11. Security Ownership of Beneficial Owners Principal Stockholders; Shares Eligible
and Management for Future Sale
12. Description of Securities Description of Securities
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Indemnification of Officers and Directors
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Business
16. Description of Business Prospectus Summary; Business; Where You
Can Find More Information
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan of Operation Financial Condition and Results of
Operations
18. Description of Property Not Applicable
19. Certain Relationships and Related Certain Transactions; Management
Transactions
20. Market for Common Equity and Related Price Range of Common Stock; Certain
Stockholder Matters Transactions; Shares Eligible for Future
Sale
21. Executive Compensation Executive Compensation
22. Financial Statements Consolidated Financial Statements
23. Selected Financial Data Selected Consolidated financial data
24. Quantitative and Qualitative Disclosures Not Applicable
about market Risk
25. Changes in and Disagreements with Accoun- Not Applicable
tants on Accounts and Financial Disclosure
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 2, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
2,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
This is a public offering of 2,000,000 shares of common stock by ACT
Teleconferencing, Inc.
Our common stock is quoted on the Nasdaq Small Cap Market under the symbol
ACTT. We have been approved for listing on the Nasdaq National Market under the
same symbol pending the successful completion of this offering. On May 1, 2000,
the last reported sale price of our common stock was $8.875 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
---------------------
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS PROCEEDS TO ACT
<S> <C> <C> <C>
Per share......................... $ $ $
Total............................. $ $ $
</TABLE>
The underwriters have an option to purchase a maximum of 300,000 additional
shares from ACT to cover over-allotments of shares.
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
JOHN G. KINNARD AND COMPANY, INCORPORATED
KAUFMAN BROS., L.P.
---------------
This prospectus is dated , 2000
<PAGE>
[Included immediately following the cover page of the prospectus is a world
globe captioned "global presence, local expertise" which identifies the location
of our offices in nine countries, along with three illustrative photos of
customers using our services labeled "internet/ data conferencing," "video
conferencing," and "audio conferencing."]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Summary Consolidated Financial Data......................... 7
Risk Factors................................................ 8
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 13
Price Range of Common Stock................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Recent Announcements........................................ 22
Business.................................................... 23
Management.................................................. 33
Executive Compensation...................................... 36
Principal Stockholders...................................... 40
Certain Transactions........................................ 41
Description of Securities................................... 43
Shares Eligible for Future Sale............................. 47
Underwriting................................................ 48
Elimination of Director Liability........................... 51
Indemnification of Officers and Directors................... 51
Where You Can Find More Information......................... 52
Legal Matters............................................... 52
Experts..................................................... 52
Transfer Agent and Warrant Agent............................ 52
Table of Contents to Consolidated Financial Statements...... F-1
</TABLE>
------------------------
In this prospectus, "ACT," "we," "us," and "our" refer to ACT
Teleconferencing, Inc., a Colorado corporation.
Our logo and the names of our products and services mentioned in this
prospectus are either trademarks or servicemarks that we own. Each trademark,
tradename, or servicemark of any other company appearing in this prospectus
belongs to its holder.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS ONLY SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU BEFORE INVESTING IN OUR COMMON STOCK. TO UNDERSTAND THIS OFFERING FULLY, YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND
FINANCIAL STATEMENTS.
ACT Teleconferencing, Inc. is a leading full service provider of audio,
video, data, and Internet-based conferencing services to businesses and
organizations in North America, Europe, and Asia. Our conferencing services
enable our clients to conduct electronic meetings efficiently and cost
effectively by linking multiple participants in geographically dispersed
locations.
Currently, we have 11 operations centers and 13 sales offices in Australia,
Belgium, Canada, France, Germany, Hong Kong, the Netherlands, the United
Kingdom, and the United States. Our global presence and the rapid growth in the
conferencing services market have allowed us to build a quality client base
ranging from Fortune 500 companies to small business enterprises. Our primary
focus is on providing high value-added conferencing services to organizations in
information-intensive industries, such as accounting firms, consulting firms,
investment banks, high tech companies, law firms, investor relations firms, and
other multinational companies. Our customers include premier names such as
Ernst & Young, Concert Global Networks, Industrial Bank of Japan, Philips
Electronics, KLM, and British Petroleum.
OUR BUSINESS
Our services are designed to meet the growing teleconferencing needs of a
broad range of customers across a diverse range of information-intensive
industries. We provide services to clients on a global basis while aiming to
deliver unsurpassed excellence in quality of service. We use state-of-the-art
conferencing technology that allows us to accommodate as many as 1,000
participants in conference calls or Internet presentations at a level of quality
consistent with the highest business standards. We purchase best of class
equipment and services from leading suppliers, allowing us to deploy the latest
available technology.
We believe that our extensive range of value-added conferencing services,
combined with our global presence and emphasis on superior customer service,
provides significant competitive advantages that have enabled us to become the
provider of choice for numerous high volume users of teleconferencing services.
Our global presence enables us to serve our clients by operating in local time
zones, providing local language service, and staffing our operations centers
with country nationals. Attending to the global needs of our customers has
allowed us to grow from approximately 20,000 conferences in 1994 to over 250,000
in 1999, a compound annual growth rate exceeding 65 percent.
We market our services internationally through our direct sales force as
well as through outsourcing and co-marketing arrangements with leading
telecommunications providers, such as GTE and Concert, the worldwide joint
venture of AT&T and British Telecom. These arrangements allow our outsourcing
and co-marketing partners to market our teleconferencing services as a part of a
total telecommunications solution for their customers.
RECENT DEVELOPMENTS
During 1999, we initiated new product development efforts in Internet-based
conferencing opportunities. As a result, we recently announced:
- The acquisition of an Internet service provider to accelerate the
development and deployment of new Internet-based data conferencing
products and services for our clients.
4
<PAGE>
- An outsourcing agreement with INTERVU, Inc., authorizing us to deliver
their audio, video, and data streaming services. INTERVU is a leading
provider of streaming services over the Internet.
- Successful initial testing of a groundbreaking, full duplex Internet
telephony conferencing solution using Clarent Corporation's gateway
technology. Clarent is a leading developer of technology that enables the
conversion of Internet telephony into conventional circuit-switched
service. This service offering is scheduled for beta testing with selected
major telecommunications providers in the first half of 2000, with full
introduction scheduled later in 2000.
- In April 2000, we announced first quarter earnings of three cents per
share compared to a net loss of three cents per share in the same period
1999, the addition of Microsoft-Registered Trademark- technology and
promotional support for our Internet conferencing services, successful
beta testing of our Internet telephony conferencing service, and the
successful launch of our European Internet video streaming service. See
"Recent Announcements."
MARKET OPPORTUNITY
Industry sources indicate that the total worldwide market for all types of
traditional teleconferencing services generated $1 billion in revenues in 1998.
Market trends suggest that this market will grow to over $3 billion in 2004.
This excludes the potential for Internet-based voice, video, and data
conferencing, which we expect to grow at a faster rate than the growth of
traditional conferencing services. Several factors are driving the rapid growth
in the teleconferencing services market, including:
- COST AND TIME ADVANTAGES: Teleconferencing allows clients to conduct
meetings, run training sessions, and share information when face-to-face
meetings would be too costly, impractical, or inconvenient. In today's
business environment, the speed of obtaining information, efficient
communication of that information, and accelerated high quality
decision-making are increasingly recognized as competitive advantages.
- GLOBALIZATION AND CORPORATE DECENTRALIZATION: The increasing number of
companies with international subsidiaries has created a growing demand for
teleconferencing as a means of conducting business meetings. The growing
number of telecommuters who work from home or who travel extensively have
also increased the demand for conferencing services.
- INTERNET APPLICATIONS: The emergence of the Internet as a reliable
communications medium is expected to reduce transmission costs, stimulate
usage, and generate new conferencing applications such as voice over
Internet and streaming of audio, video, and data.
- DEREGULATION OF INTERNATIONAL TELECOMMUNICATIONS MARKETS: In certain
international markets, deregulation presents us with an opportunity to
enter new geographic markets with new value-added teleconferencing
services.
STRATEGY
Our objective is to become the world's leading single source provider of
audio, video, data, and Internet-based teleconferencing services. The key
elements of our strategy are to:
- Develop a full suite of Internet telephony teleconferencing services.
- Capitalize on the global market for teleconferencing services by growing
our operations in major international markets and expanding into others.
- Develop and leverage our present outsourcing and co-marketing arrangements
with major telecommunications service providers.
5
<PAGE>
- Pursue strategic acquisitions to further increase our service offerings,
expand our customer base, and broaden our geographic reach.
- Adapt and implement state of the art conferencing equipment and
technology.
- Maintain and grow long-term relationships with our clients by providing
superior service, the most extensive set of global operations, and the
broadest possible range of services.
OTHER INFORMATION
We were incorporated under the laws of Colorado in 1989 and commenced
operations on January 2, 1990. Our headquarters are located at 1658 Cole
Boulevard, Suite 130, Golden, Colorado, 80401 and our telephone number is
(303) 235-9000. Our web site address is www.acttel.com. Information contained on
our web site does not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by ACT.................. 2,000,000 shares
Common stock to be outstanding after the
offering, based on shares outstanding on
February 29, 2000............................ 6,797,686 shares
Use of proceeds (after expenses)............. We plan to use the estimated $18 million net
proceeds to:
- accelerate development and deployment of
Internet-based conferencing products and
services.
- repay indebtedness and redeem preferred
stock.
- open additional domestic and international
operations centers.
- acquire equipment to expand our capacity.
- develop Internet streaming and other high
speed digital services.
- pursue potential acquisitions.
- provide working capital for development of
outsourcing and co-marketing
opportunities.
- fund general corporate purposes.
Nasdaq SmallCap Market symbol (and proposed
market symbol for Nasdaq National Market).... ACTT
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on 4,797,686 shares outstanding on February 29, 2000, excluding:
- 2,128,891 shares of common stock issuable upon the exercise of options and
warrants outstanding as of February 29, 2000, at a weighted average
exercise price of $5.90 per share.
- 5,080 shares reserved for future grants under our 1991 and 1996 stock
option plans.
- 72,940 shares reserved for purchase under our employee stock purchase
plan.
The information in this prospectus assumes there is no exercise of the
underwriters' over-allotment option.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
You should read the financial information set forth below, in conjunction
with our "Management's Discussion and Analysis of Financial Condition and
Results of Operations," consolidated financial statements, and related notes
appearing elsewhere in this prospectus. The pro forma balance sheet data gives
effect to the sale of the 2,000,000 shares of common stock that we are offering
under this prospectus at an assumed offering price of $10 per share and
deduction of estimated underwriting discounts, commissions, and offering
expenses payable by us of approximately $2 million, resulting in estimated net
proceeds of $18 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Net revenues.................................... $3,461 $ 6,220 $10,234 $19,010 $28,329
Cost of services................................ 1,961 3,605 4,727 10,882 14,798
Selling, general, and administrative expense.... 1,668 3,526 5,310 9,121 11,992
Interest expense................................ 19 13 99 532 848
Provision for income taxes...................... 133 165 333 402 415
Minority interest............................... 104 119 201 190 195
Net income (loss)............................... (424) (1,208) (436) (2,117) 81
Net income (loss) per share(1).................. $ (.21) $ (.41) $ (.14) $ (.58) $ .01
Weighted average shares outstanding--basic...... 2,057 2,911 3,204 3,647 4,394
Weighted average shares outstanding--diluted.... 2,057 2,911 3,204 3,647 4,656
</TABLE>
- ------------------------
(1) Per basic and diluted shares
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL PRO FORMA
-------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
Cash and cash equivalents................................. $ 1,533 $14,534
Accounts receivable and other current assets.............. 7,583 7,583
Total equipment--net...................................... 11,275 11,275
Goodwill and other non-current assets..................... 1,707 1,707
------- -------
Total assets.............................................. $22,098 $35,099
======= =======
Accounts payable and other current liabilities............ $ 7,546 $ 7,546
Long term debt............................................ 5,003 2,003
Preferred stock........................................... 1,693 --
Deferred income taxes (United Kingdom).................... 320 320
Minority interest......................................... 968 968
Stockholders' equity...................................... 6,568 24,262
------- -------
Total liabilities and stockholders' equity................ $22,098 $35,099
======= =======
</TABLE>
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING WHETHER TO INVEST IN OUR COMMON STOCK. WHILE WE HAVE ATTEMPTED TO
IDENTIFY ALL RISKS THAT ARE MATERIAL TO OUR BUSINESS, ADDITIONAL RISKS THAT WE
HAVE NOT YET IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO
IMPAIR OUR BUSINESS OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE DUE TO ANY OF THESE RISKS, IN WHICH CASE YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER
INFORMATION IN THIS PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS,
THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION, AND RELATED NOTES.
OUR REVENUES MAY FLUCTUATE BECAUSE WE DRAW SIGNIFICANT REVENUES FROM THREE MAJOR
CLIENTS.
The loss of any one of our three largest customers, but especially the
largest one, would have a material adverse effect on our business. Our three
largest customers represent over 40 percent of our total business.
Teleconferencing customers can easily switch to a competing provider or allocate
their business among several vendors. In 1999, our three largest customers
accounted for 24 percent, 14 percent, and 4 percent of our revenues. Mergers,
consolidations, or other changes in ownership or alliances that impact any of
our customers could also adversely impact our revenues or cause us to lose a
substantial client.
THE FAILURE TO MANAGE OUR GROWTH INTO NEW SERVICE OFFERINGS OR TO HIRE
ADDITIONAL QUALIFIED EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our failure to attract and retain the necessary personnel or effectively
manage our growth in employees and operations could have a material adverse
affect on our business, financial condition, and operating results. The
expansion of our business into Internet-based service offerings as well as our
rapid internal growth will place a significant strain on our current management
resources. To structure, deliver, and support these new services, we will need
to provide additional training for current employees and compete in the market
for new employees, especially those who are skilled in the delivery of Internet
services. Competition for talented personnel is intense, and we cannot assure
you that we will be able to attract, integrate, and retain sufficiently
qualified staff to support the growth in our existing business or our expansion
into Internet-based conferencing services.
WE MAY NOT BE ABLE TO COMPETE AGAINST OUR MAJOR COMPETITORS IN THE
TELECOMMUNICATIONS INDUSTRY WHO HAVE SUBSTANTIALLY GREATER CAPITAL RESOURCES AND
NAME RECOGNITION THAN WE HAVE.
The telecommunications industry is highly competitive, and many of our
competitors and potential competitors have substantially greater capital
resources and name recognition than we have. Accordingly, we may not be able to
compete with them in terms of advertising, marketing, sales, and deployment of
capital. To compete successfully against other telecommunications and
teleconferencing providers, we must be able to maintain competitive pricing
while at the same time offering high quality services. A competitor that
operates substantially more ports than we operate will have more flexibility in
the size of conferences it can conduct and the prices it can charge. A
well-capitalized competitor can offer a wider array of service and pricing
options that we may not be able to match.
THE DEVELOPMENT OF INTERNET-BASED CONFERENCING SERVICES THAT COMPETE WITH
CONVENTIONAL CIRCUIT-SWITCHED AUDIO CONFERENCING INJECTS AN UNKNOWN COMPETITIVE
FACTOR INTO THE TELECONFERENCING INDUSTRY.
Over 90 percent of our current revenues are derived from audio conferences
that are carried over conventional circuit-switched analog and digital telephone
lines. The potential use of the Internet to transmit long distance voice, video,
and data and to develop new types of conferences represents a
8
<PAGE>
material change in the telecommunications industry. The Internet offers less
expensive long distance transmission and greater flexibility in conferences that
combine audio, video, and data. We offer no assurance that our current business
practices or our new initiatives in Internet conferencing can address and
exploit these developments, particularly since the scope of change and the
impact of change are not known to us at this early stage of market development.
IF INTERNET TELEPHONY AND INTERNET INFRASTRUCTURE DO NOT CONTINUE TO DEVELOP AS
ANTICIPATED, OUR OPERATIONS WILL BE NEGATIVELY AFFECTED.
For Internet telephony and Internet-based conferencing services to be
commercially viable, the size of the network infrastructure, enabling
technologies, necessary performance improvements, and user security will need to
be upgraded and usage must increase substantially. If the Internet continues to
experience an increased number of users, increased frequency of use, or
increased bandwidth requirements, we can provide you no assurance that the
performance or reliability of the Internet will not be adversely affected. We
cannot assure you that the infrastructure or products or services necessary to
make the Internet a viable commercial marketplace for the long term will be
developed. The Internet has experienced a variety of outages and other delays as
a result of damage to portions of its infrastructure, and could face such
outages and delays in the future. These outages and delays could adversely
affect the level of Internet telephony usage, the level of traffic, and our
Internet-based teleconferencing services.
IF INTERNET TELEPHONY CONFERENCING DOES NOT GAIN MARKET ACCEPTANCE, OUR
POTENTIAL FOR GROWTH WILL BE ADVERSELY AFFECTED.
We cannot be certain that Internet telephone service will gain market
acceptance or prove to be a viable alternative to traditional telephone service.
If the Internet telephony market fails to develop or develops more slowly than
we expect, then our future revenues from conferencing over the Internet would be
adversely affected.
TECHNOLOGICAL INNOVATIONS COULD RENDER OUR CURRENT SERVICES OBSOLETE.
We expect technical innovations to stimulate new developments in
teleconferencing services. These range from the development of more
sophisticated computers, telephone sets, private branch exchanges,
customer-owned bridges, and centralized office switching equipment to Internet
telephony. Other competitive developments within the telecommunications
industry, such as low-priced long distance services and new uses for the
Internet, aside from the Internet-based services we are currently developing,
may lead the major telecommunications companies to offer low-cost
teleconferencing services as a strategy to obtain greater market share in other
product areas. These innovations and developments could render our current
service offerings obsolete or uneconomic.
WE MAY BE VULNERABLE TO TECHNICAL MALFUNCTIONS WHICH COULD ADVERSELY AFFECT OUR
OPERATIONS.
We depend upon our software systems, communications hardware, and enhanced
services platform to conduct our conferencing business. Our systems,
communications hardware, and platform are vulnerable to damage or interruption
from:
- Natural disasters.
- Power loss.
- Telecommunication failures.
- Loss of Internet access.
- Physical and electronic break-ins.
9
<PAGE>
- Hardware defects.
- Computer viruses.
- Intentional acts of vandalism and similar events.
If we experience substantial technical difficulties with our
teleconferencing bridges, hardware, or software, we may not succeed in routing
conferencing traffic effectively.
WE INCUR FINANCIAL RISKS IN OUR INTERNATIONAL OPERATIONS.
We incur financial risks associated with international operations and
related foreign currencies. International sales comprised approximately
55 percent of revenues in 1999 and we anticipate that international sales will
continue to account for a significant portion of our consolidated revenue. Our
international conferences that are initiated outside the United States are
denominated in local currency and are subject to foreign currency exchange
risks. The assets and liabilities in our international operations also are
denominated in each country's local currency and are subject to foreign currency
exchange risks.
IF WE ARE UNABLE TO EXPAND OUR INTERNATIONAL OPERATIONS WHEN WE IDENTIFY
OPPORTUNITIES AND BRING THEM TO A PROFITABLE OPERATION WITHIN A REASONABLE TIME,
WE MAY BE UNABLE TO COMPLETE OUR GLOBAL PLATFORM.
We cannot assure you that all our international offices will become and
remain profitable. Our international offices are in Canada, the United Kingdom,
France, Belgium, the Netherlands, Germany, Australia, and Hong Kong. We intend
to expand the scope of our international operations, which will require us to
open and staff new offices in additional countries, invest in more bridging
equipment, fund marketing expenses, and incur other start-up costs. We incur
these startup expenses when we open a new international office before we
generate any revenue from that office. We intend to continue opening new
international offices and view these expansion expenses as a necessary
investment in future revenue growth, but we need each of these offices to become
profitable within a reasonable time if we are to continue building our global
platform.
OUR PLANS TO EXPAND MAY BE DISCONTINUED IF WE ARE UNABLE TO OBTAIN SUFFICIENT
FINANCING.
We may not be able to fully implement our domestic and international
expansion plans with only the net proceeds from this offering, especially with
respect to our plans for Internet telephony conferencing. We may need additional
equity or debt financing, collaborative arrangements with corporate partners, or
funds from other sources for these purposes. Additional equity financings may be
dilutive to our stockholders and debt financing may impose restrictive covenants
on the way we operate our business. We may have difficulty obtaining these funds
on a timely basis and on acceptable terms, if at all. If we cannot obtain
adequate funds from operations or additional sources of financing, particularly
if obtaining or retaining a customer's business depends on the prompt expansion
of existing facilities or the opening of a new foreign office, we may experience
operational difficulties and the loss of customers. Our business, financial
condition, and results of operations will be materially and adversely affected
by the unavailability of capital when we need it.
THERE ARE FEW REGULATORY BARRIERS TO ENTRY INTO OUR CURRENT MARKETS AND NEW
COMPETITORS MAY ENTER AT ANY TIME.
There are few regulatory barriers to competition in our markets. Until
recently, local exchange carriers in the United States, including local
telephone companies, were prohibited from providing audio teleconferencing,
except in limited areas. Recent federal legislation allows local exchange
carriers to offer teleconferencing services. This legislation may result in
additional competition if some or all of
10
<PAGE>
the local exchange carriers choose to enter or expand their activities in the
teleconferencing market in the United States.
There are no significant regulatory barriers to enter the markets we serve
in Canada, the United Kingdom, the Netherlands, France, Belgium, Germany,
Australia, or Hong Kong. Barriers to entry in other foreign markets vary, but
may involve governmental regulation or government-owned telephone systems that
block changes in existing regulations or resist competition with independent
teleconferencing companies. These barriers may restrict our expansion into
additional foreign markets.
WE MAY NOT FIND THE INVESTMENT OPPORTUNITIES TO OPTIMIZE THE USE OF PROCEEDS
GENERATED BY THIS OFFERING.
The intense competition within our industry for traditional conferencing
services and the opportunity to explore, develop, and deliver Internet
conferencing services require that we have resources available on short notice
to allow us to penetrate new markets or provide new services. We have broad
discretion in the application of the proceeds of this offering and cannot assure
you that our judgment in selecting these opportunities will optimize our use of
these proceeds.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS WHICH MAY LIMIT
OUR ABILITY TO COMPETE EFFECTIVELY.
We hold no patents. We may not be able to protect our proprietary
information, business practices, trade secrets, or trademarks against a
competitor's use, and we may not be successful in litigation we might bring to
protect our proprietary information, business practices, or trademarks. To
protect our proprietary rights, we rely generally on copyright, trademark, and
trade secret laws, and confidentiality agreements with employees and third
parties. However, employees, consultants, and others could breach their
confidentiality agreements and we may not have adequate remedies for such
breach. Further, while we believe our name and the "ACT" logo are unique in the
teleconferencing market, a variety of other enterprises' usage of the name "Act"
or "ACT" makes trademark protection in some contexts either unavailable or so
likely to generate litigation or the threat of litigation that the pursuit of
trademark protection is prohibitively expensive.
OUR COMMON STOCK PRICE HAS BEEN HIGHLY VOLATILE, AND WE EXPECT THIS VOLATILITY
TO CONTINUE.
The market price of our common stock is highly volatile and may decline. We
anticipate that the volatility of our common stock price may continue due to
factors such as:
- Actual or anticipated fluctuations in results of our operations.
- Changes in or failure to meet securities analysts' expectations.
- Changes in market valuations of other teleconferencing companies.
- Announcements by us or our competitors of significant technological
innovations, contracts, acquisitions, strategic partnerships, joint
ventures, or capital commitments.
- Introduction of new services by us or our competitors.
- Conditions and trends in the teleconferencing industry and related
technology industries.
- Future sales of our common stock.
These factors are in addition to significant price and volume fluctuations
in the securities markets that may be unrelated to our operating performance.
11
<PAGE>
PROVISIONS OF OUR ARTICLES OF INCORPORATION COULD DELAY OR PREVENT A CHANGE IN
CONTROL OF ACT.
Certain provisions of our articles of incorporation may discourage, delay,
or prevent a merger or acquisition that a stockholder may consider favorable.
These provisions include:
- Authority of the board of directors to issue additional preferred stock.
- Prohibition on cumulative voting in the election of directors.
- Election of directors by class for terms of three years.
- Limitations on the ability of third parties to acquire us by their offer
of a premium price to selected stockholders.
- Agreements with key executives which provide special termination payments
in the event of a change in control.
- A share rights plan that enables stockholders to dilute an acquiring
person's investment through the stockholders' purchase of a large number
of shares.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The offering price per share in this offering significantly exceeds our net
tangible book value per share. Accordingly, the purchasers of shares sold in
this offering will experience immediate and substantial dilution in the net
tangible book value of their investment.
THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE SALE OF A
SIGNIFICANT NUMBER OF THE SHARES AVAILABLE FOR FUTURE ISSUANCE THROUGH THE
EXERCISE OF OPTIONS AND WARRANTS.
The exercise of outstanding warrants and options and the potential sale of
the underlying shares could have a material adverse effect on the public trading
price of our stock, if the holders are willing to sell at a price that is
significantly less than the current market price or the number of shares sold
exceeds the number of shares the market can absorb at the current market price.
As of December 31, 1999, we had 4,595,947 shares of common stock outstanding. As
of December 31, 1999, various investors, lenders, suppliers, employees, and
directors held warrants to purchase a total of 1,022,539 shares of common stock
at a weighted average exercise price of $6.95. Directors, officers, and
employees held options to purchase 1,106,352 shares at a weighted average
exercise price of $4.93 per share, and 561,837, or 51 percent, of these options
are currently exercisable.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements refer to objectives, expectations,
intentions, future events, or our future financial performance, and involve
known and unknown risks, uncertainties, and other factors that may cause our
actual results, level of activity, performance, or achievements to be materially
different from any results expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking statements by words
such as "may," "will," "should," "could," "expects," "anticipates," "intends,"
"plans," "believe," "estimates," "predicts," "potential," and similar
expressions. Our actual results could differ materially from those included in
forward-looking statements. Factors that could contribute to these differences
include those matters discussed in "Risk Factors" and elsewhere in this
prospectus.
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of 2,000,000 shares of
common stock in this offering will be $18 million, after deducting estimated
underwriting discounts, the underwriters' non-accountable expense allowance, and
offering expenses. If the underwriters exercise their over-allotment option in
full, we will receive approximately $2.8 million in additional net proceeds.
We expect to use the net proceeds of this offering for these purposes:
- Investment in equipment, technology, and staff to develop and market full
duplex Internet telephony conferencing services (approximately
$4 million).
- Repayment of debt and redemption of Series A preferred stock
(approximately $5 million).
- Expansion into additional domestic and international locations
(approximately $2 million).
- Capacity expansion for traditional audio, video, and data conferencing
bridges and ancillary telecommunications equipment (approximately
$2 million).
- Development of Internet streaming and other high speed digital services
(approximately $3 million).
- Potential acquisitions, development of outsourcing and co-marketing
relationships with major telecommunications providers, working capital,
and general corporate purposes (approximately $2 million).
While we discuss potential acquisitions from time to time and have recently
completed one acquisition and the buy out of certain minority interests in
subsidiaries, we have not finalized commitments or agreements for any
acquisitions. Furthermore, we cannot guarantee that we will complete any other
acquisitions.
The amount of funds that we actually use for the above purposes will depend
on many factors, including revisions to our business plan, material changes in
our revenues or expenses, and other factors. Accordingly, our management will
have significant discretion over the use and investment of a large portion of
the net proceeds to us from the offering. See "Risk Factors--We may not find the
investment opportunities to optimize the use of proceeds generated by this
offering."
Prior to their eventual use, the net proceeds will be invested in high
quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities.
13
<PAGE>
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal year ended December 31, 1997
First Quarter............................................. $ 5.00 $2.88
Second Quarter............................................ 7.50 4.99
Third Quarter............................................. 13.05 8.25
Fourth Quarter............................................ 9.13 4.50
Fiscal year ended December 31, 1998
First Quarter............................................. 10.00 5.88
Second Quarter............................................ 11.63 8.00
Third Quarter............................................. 10.63 6.50
Fourth Quarter............................................ 7.25 5.25
Fiscal year ended December 31, 1999
First Quarter............................................. 5.63 4.63
Second Quarter............................................ 6.63 4.00
Third Quarter............................................. 9.63 5.00
Fourth Quarter............................................ 9.00 6.00
Fiscal year ended December 31, 2000
First Quarter............................................. 17.00 8.00
</TABLE>
On May 1, 2000, the last reported sale price of our common stock was $8.875
per share, and we had approximately 1,300 stockholders.
DIVIDEND POLICY
We have never paid any dividends on our common stock or preferred stock, in
part due to existing loan covenant restrictions. We expect for the foreseeable
future to retain all of our earnings from operations for use in expanding and
developing our business. Any future decision as to the payment of dividends will
be at the discretion of our board of directors and will depend upon our
earnings, financial position, capital requirements, plans for expansion,
existing loan covenants, and such other factors as the board of directors deems
relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
and as adjusted to reflect our sale of 2,000,000 shares of common stock in this
offering at an assumed public offering price of $10 per share and the
application of the estimated net proceeds from the sale of those shares. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
----------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Long-term debt, net of current maturities................... $ 5,003 $ 2,003
Minority interest........................................... 968 968
Preferred stock, non-voting, 1,000,000 shares authorized;
2,000 shares of Series A redeemable preferred
outstanding............................................... 1,693 --
Common stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized;
4,595,947 shares issued and outstanding (6,595,947 shares
as adjusted)(2)........................................... 11,378 29,378
Additional paid-in capital.................................. 100 100
Accumulated deficit(3)...................................... (4,809) (5,116)
Accumulated other comprehensive loss........................ (100) (100)
------- -------
Total common stockholders' equity........................... 6,568 24,262
------- -------
Total capitalization........................................ $14,233 $27,233
======= =======
</TABLE>
- ------------------------
(1) Adjusted to reflect estimated net proceeds of $18 million from our sale of
2,000,000 shares of common stock in this offering and our application of
approximately $5 million in net proceeds to the repayment of indebtedness
and redemption of Series A preferred stock.
(2) Excludes: (i) options outstanding on December 31, 1999 to purchase 1,106,352
shares of our common stock at a weighted average exercise price of $4.93 per
share; (ii) warrants outstanding on December 31, 1999, to purchase 1,022,539
shares of our common stock at a weighted average exercise price of $6.95 per
share; (iii) as of February 29, 2000, an additional 5,080 shares of common
stock reserved for issuance in connection with future stock options under
our Stock Option Plans of 1991 and 1996; and (iv) as of February 29, 2000,
an additional 72,940 shares of common stock reserved for purchase under our
Employee Stock Purchase Plan.
(3) Includes $307,000 related to charges to be incurred in the redemption of
Series A preferred stock. The same amount will be charged to earnings per
share in the quarter that redemption occurs.
15
<PAGE>
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $5,111,913,
or $1.11 per share of common stock. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding. After giving effect to the
sale of 2,000,000 shares of common stock in this offering at an assumed offering
price of $10 per share and after deducting estimated underwriting discounts and
commissions and offering expenses, and the effect of a $307,000 charge for the
redemption of Series A preferred stock, our pro forma net tangible book value as
of December 31, 1999 would have been $23,111,913, or $3.50 per share. This
represents an immediate increase in pro forma net tangible book value of $2.39
per share to existing stockholders and an immediate dilution of $6.50 per share
to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Per share offering price.................................... $10.00
Net tangible book value per share at December 31, 1999...... $1.11
Increase attributable to the offering to existing
stockholders.............................................. $2.39
Net tangible book value per share after offering............ $ 3.50
------
Per share dilution to investors in the offering............. $ 6.50
======
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the total number of shares and consideration paid to us
and the average price paid per share by the existing stockholders and by new
investors purchasing shares of common stock in the offering at an assumed
offering price of $10 per share, before underwriting discounts and other
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 4,595,947 69.7% $11,378,103 36.3% $ 2.48
New investors............. 2,000,000 30.3% 20,000,000 63.7% 10.00
--------- ---- ----------- ----
Totals.................. 6,595,947 100% $31,378,103 100% 4.76
========= ==== =========== ====
</TABLE>
These calculations assume the issuance of 2,000,000 shares of common stock
to be sold in this offering, but do not give effect to 1,106,352 shares of
common stock reserved for issuance upon the exercise of outstanding options
under our Stock Option Plan of 1991 and our Stock Option Plan of 1996; 1,022,539
shares of common stock reserved for issuance upon the exercise of various
warrants; and 72,940 shares to be issued under our Employee Stock Purchase Plan.
See "Shares Eligible for Future Sale."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and related Notes to the Financial Statements
appearing elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The consolidated statements
of operations data for each of the years ended December 31, 1997, 1998, and
1999, and the selected balance sheet data as of December 31, 1998 and 1999, are
derived from our consolidated financial statements audited by Ernst & Young
L.L.P., our independent auditors, appearing elsewhere in this prospectus. The
selected statement of operations data for the years ended December 31, 1995 and
1996 and the selected balance sheet data as of December 31, 1995, 1996, and 1997
have been derived from audited financial statements of the Company not included
in this prospectus. The selected financial data provided below is not
necessarily indicative of our future results of operations or our financial
performance.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenues................... $3,461,204 $ 6,219,946 $10,234,403 $19,009,645 $28,328,791
Costs and expenses:
Cost of services............. 1,961,434 3,604,729 4,727,236 10,881,556 14,797,606
Selling, general, and
administrative expense..... 1,668,200 3,526,164 5,309,444 9,121,235 11,991,913
Interest expense, net........ 18,576 12,702 99,496 532,322 848,014
---------- ----------- ----------- ----------- -----------
Total costs and expenses....... 3,648,210 7,143,595 10,136,176 20,535,113 27,637,533
Income (loss) before income
taxes and minority
interest..................... (187,006) (923,649) 98,227 (1,525,468) 691,258
Provision for income taxes..... (133,364) (164,591) (332,566) (401,762) (414,866)
---------- ----------- ----------- ----------- -----------
Income (loss) before minority
interest..................... (320,370) (1,088,340) (234,339) (1,927,230) 276,392
Minority interest.............. (103,690) (119,867) (202,469) (189,895) (194,967)
---------- ----------- ----------- ----------- -----------
Net income (loss).............. $ (424,060) $(1,208,107) $ (436,808) $(2,117,125) $ 81,425
========== =========== =========== =========== ===========
Net income (loss) per share--
basic and diluted............ $ (0.21) $ (0.41) $ (0.14) $ (0.58) $ .01
========== =========== =========== =========== ===========
Weighted average basic shares
outstanding.................. 2,056,940 2,911,187 3,204,747 3,647,188 4,393,963
========== =========== =========== =========== ===========
Weighted average diluted shares
outstanding.................. 2,056,940 2,911,187 3,204,747 3,647,188 4,655,501
========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term
investments.................. $ 288,345 $ 621,742 $ 451,434 $ 369,407 $ 1,532,551
Net working capital............ 24,203 697,151 512,982 (1,257,904) 1,569,332
Total assets................... 2,662,804 4,085,269 7,929,711 15,326,200 22,098,343
Total liabilities, preferred
stock, and minority
interest..................... 1,589,018 2,317,312 4,551,778 12,821,635 15,529,686
Stockholders' equity........... 1,073,786 1,767,957 3,377,933 2,504,565 6,568,657
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
GENERAL. We are a full-service provider of audio, video, data and
Internet-based teleconferencing services to businesses and organizations in
North America, Europe and Asia. Our conferencing services enable our clients to
cost-effectively conduct remote meetings by linking participants in
geographically dispersed locations. We have 11 operations centers and 13 sales
offices in 9 countries. Our primary focus is to provide high value added
conferencing services to organizations such as accounting firms, consulting
firms, investment banks, high tech companies, law firms, investor relations
firms, and other multinational companies.
We were incorporated in December 1989 and began offering audio
teleconferencing services at our Denver location in January 1990. In 1992 we
invested in an audio teleconferencing facility in the United Kingdom and in 1995
we invested in a similar operation in the Netherlands. In 1997 we announced a
major international capacity expansion plan intended to grow the company from
its then 3 locations in 3 countries (United States, United Kingdom and
Netherlands) to the current 13 offices in 9 countries offering a full range of
audio, video, and internet-based data conferencing services. The rationale for
this expansion plan is the rapidly growing market for teleconferencing services
worldwide, the expansion of Internet-based conferencing services, and an
increasing demand for additional services by certain of our multi-national
clients.
We completed our capacity expansion in 1999, after successful entry into the
markets of Canada, France, Belgium, Germany, Australia and Hong Kong. During
1999 we also entered the rapidly growing field of Internet-based
teleconferencing products and applications. We now offer data conferencing
services in-house, and offer audio, video and data streaming applications over
the Internet to our clients with a nationally recognized provider of broadcast
streaming products.
During 1999, our operating performance improved significantly. We were
assisted by large volume increases in all the countries in which we have
operations but especially in the United States, which grew conference call
volumes by over 100%. As a consequence, net income improved by over $2 million.
The following table shows revenues by major product sector over the past 3
years:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CONFERENCING SERVICES.......................................
Audio conferencing services................................. $ 9,493 $14,627 $25,133
Video, data and Internet-based services..................... 561 1,296 1,717
------- ------- -------
10,054 15,923 26,850
GROWTH RATES %.............................................. 69% 58% 69%
Equipment sales............................................. 180 3,087 1,479
------- ------- -------
Total....................................................... $10,234 $19,010 $28,329
======= ======= =======
GROWTH RATES %.............................................. 65% 86% 49%
</TABLE>
COMPONENTS OF MAJOR REVENUE AND EXPENSE ITEMS
REVENUES. We earn revenues from fees charged to clients for audio, video,
data and Internet-based teleconference bridging services, from charges for
enhanced services, and from rebilling certain long-distance telephone costs. We
also earn revenues from video equipment sales.
COST OF SALES. Cost of sales consists of telephony costs, depreciation on
our teleconferencing bridges and telecommunications equipment, equipment product
costs, operator and operations management salaries and office expenses for
operations staff.
18
<PAGE>
SELLING, GENERAL, AND ADMINISTRATION EXPENSE. Selling, general, and
administration expense consist of salaries, benefits, and office expenses of our
selling and administrative organizations.
COST AS A PERCENTAGE OF SALES
The following table outlines certain items in our income statement as a
percentage of sales for each of the last three years:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Sales....................................................... 100% 100% 100%
Cost of sales............................................... (46) (57) (52)
--- --- ---
Gross profit................................................ 54 43 48
Selling, general and administrative expense................. (52) (48) (43)
--- --- ---
Operating income............................................ 2 (5) 5
Interest expense............................................ (1) (3) (3)
--- --- ---
Net income before taxes and minority interest............... 1 (8) 2
Minority interest and income taxes.......................... (5) (3) (2)
--- --- ---
Net income (loss)........................................... (4) (11) --
=== === ===
</TABLE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1999, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
NET REVENUES. Net revenues increased 49% to $28.3 million for the year ended
December 31, 1999, compared to $19 million for 1998. The 49% revenue growth
resulted from an increase in sales to established customers as well as from
sales to new customers. Audio conferencing revenues grew by 72% while video,
data, Internet and other enhanced conferencing services grew by 32%. Audio
conferencing accounted for 89% and 77% of our revenues in 1999 and 1998,
respectively. During 1999 we scaled back the sales of video equipment due to low
margins in that sector, with the result that video equipment sales accounted for
5% of total revenues in 1999, a reduction of 52%.
GROSS PROFIT. Gross profit increased 67% to $13.5 million for the year
ended December 31, 1999, compared to $8.1 million for the prior year, reflecting
the achievement of significant economies of scale associated with volume
increases in all service sector categories. Gross profit percentage increased to
48% of net revenues for the year ended December 31, 1999, compared to 43% of net
revenues for 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expenses for the year ended December 31, 1999 were $11.9 million,
or 42% of revenue, compared to $9.1 million or 48% of revenue for 1998. The 32%
increase in such expenses was incurred mainly as a result of the increase in
selling, general and administrative staff in new operations as well as marketing
expenses incurred to introduce new products and services associated with
Internet-based and other high-speed digital conferencing products.
INTEREST EXPENSE. Net interest expense grew by 59% from $532,322 to
$848,013, reflecting the 44% growth in our total asset base from $15.3 million
at December 31, 1998 to $22.1 million at December 31, 1999. Although long-term
debt held relatively steady, $3.9 million in 1998 compared to $3.8 million in
1999, short-term debt grew by over $1.6 million, mainly as a result of the
extension of a $1.0 million supplier line of credit. This line was opened in
order to finance our audio, video and data bridging capacity expansion
worldwide.
19
<PAGE>
TAXES ON INCOME. Taxes on income increased 3% to $414,866 for the year
ended December 31, 1999, compared to $401,762 for 1998, due to increased taxable
income earned by our 60% majority-owned United Kingdom subsidiary. We paid no
other income taxes due to domestic and international tax loss carry-forwards of
approximately $8.0 million.
MINORITY INTEREST. Minority interest grew by 3% from $189,895 in 1998 to
$194,967 in 1999, primarily reflecting lower growth in net after-tax income of
our 60% held United Kingdom subsidiary.
NET INCOME. Net income for the year was $81,425, or $0.01 per share, and
increased by $2,198,550, or $0.59 per share over the previous year loss of
$2,117,125 or $0.58 per share, mainly due to the ongoing revenue growth, higher
gross margins and increased economies of scale noted above.
FISCAL YEAR ENDED DECEMBER 31, 1998, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
NET REVENUES. Net revenues increased 86% to $19 million for the year ended
December 31, 1998, compared to $10.2 million for 1997. As in 1997, revenue
growth resulted from increased service business to established customers and
increased revenues from higher priced enhanced services as well as from sales to
new customers. During the year ended December 31, 1998, audio conferencing
operations accounted for 77% of net revenues in 1998 compared to 93% in 1997,
and grew by 54%. Video and data conferencing grew by 131% accounting for 7% of
revenue in 1998 compared to 5% in 1997. Video equipment sales grew approximately
$3 million accounting for 16% of revenue in 1998 compared to 2% in 1997.
GROSS PROFIT. Gross profit increased 48% to $8.1 million for the year ended
December 31, 1998, compared to $5.5 million for the prior year, mainly
reflecting volume increases in sales of teleconferencing services. Gross profit
percentage declined to 43% of net revenues for the year ended December 31, 1998,
compared to 54% of net revenues for 1997, reflecting cost inefficiencies due to
the expansion of new operations in additional locations as well as the impact of
low margin video equipment sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense for the year ended December 31, 1998 were $9.1 million,
or 48% of revenue, compared to $5.3 million or 52% of revenue for 1997. The 72%
increase in such expense reflected the additional investment in the start up of
new international business units.
INTEREST EXPENSE. Interest expense grew 435% from $99,496 to $532,322,
mainly reflecting the interest on a $2.5 million subordinated financing taken
out to fund the investment in international business units. This financing bears
interest at a rate of 13.5%. Interest expense also grew as a result of
additional capital leases and various bank loans taken out to finance our
international expansion.
TAXES ON INCOME. Taxes on income increased 20.8% to $401,762 for the year
ended December 31, 1998, compared to $332,566 for 1997, due to taxable income
earned by our 60% majority-owned United Kingdom subsidiary. We paid no other
income taxes due to current year and carry-forward losses.
MINORITY INTEREST. Minority interest declined by 6% from $202,469 in 1997
to $189,895 in 1998. The decline in minority interest reflects the reduced
after-tax share of net income earned by our minority investment partners,
principally in our 60% held United Kingdom subsidiary, as well as the entry into
certain loss-generating international operations partially owned by minority
investors.
NET LOSS. Net Income declined by $1.7 million from a loss of $436,803 or
$0.14 per share, to a loss of $2.1 million or $0.58 per share, reflecting mainly
the cost of our international expansion into various countries around the world.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had approximately $1.5 million of cash and cash
equivalents. We will require additional cash to finance our ongoing revenue
growth, major capacity expansions and new product introductions.
Net cash used in operating activities for the year ended December 31, 1999
was $1 million, $242,000 in 1998 and $362,000 in 1997. Net cash used in
operating activities in 1998 and 1997 consisted primarily of increases in
accounts receivable and other assets, partially offset by increases in accounts
payable and accrued expenses. In 1999 net cash used in operating activities
consisted primarily of an increase in accounts receivable and reductions in
accounts payable and accrued expenses.
Net cash used in investing activities consisted of additions to
telecommunications and bridging equipment. Net cash used in investing activities
was $4.6 million for 1999, $5.5 million in 1998 and $1.8 million in 1997
reflecting our expansion into various countries as well as major capacity
expansions in North America.
Net cash provided by financing activities was $6.8 million in 1999, 5.7
million in 1998 and $1.9 million in 1997 and was achieved via a combination of
additional common stock issued, warrant conversions, and the utilization of
various lines of subordinated debt, interest bearing supplier credit and bank
credit. Additionally in 1999 the company issued preferred stock to help finance
expansion.
We anticipate that our available funds are sufficient to meet our needs for
working capital and capital expenditures in the near term. We may need to raise
additional funds if, for example, we pursue additional acquisitions, undertake
new product developments or experience operating losses that exceed our
expectations. If we raise additional funds through the issuance of equity, or
equity-related or debt securities, these securities may have rights, preferences
or privileges senior to those of the rights or our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
We plan to redeem our Series A preferred stock for $2 million, a redemption
that is mandated by a provision of the terms of Series A upon our receipt of $15
million or more in proceeds from a public offering of our common stock. This
redemption will result in a non-recurring, non-cash charge of approximately
$300,000 at the time of the redemption. Additionally, if we elect to repay our
subordinated debt of $2.5 million substantially in advance of its due date of
March 31, 2003, we will incur a further non-recurring charge of approximately
$400,000 relating to deferred loan costs and warrant valuations at the time of
repayment. We granted a total of 40,000 employee stock options to senior
management which will become effective only if our stock price exceeds $20 per
share for ten consecutive days before June 10, 2002. In the quarter these
options become effective, we will incur a minimum compensation charge of
$630,000.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $150,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
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RECENT ANNOUNCEMENTS
In April and May 2000 we announced several developments in our business:
- We added Microsoft Corporation's Windows-Registered Trademark- Media
technology as our preferred Internet conference system for audio and video
streaming and other high speed digital services. Microsoft's Digital Media
Division has indicated that it intends to promote our Internet
conferencing services in its electronic newsletters and Windows Media
website. This complements our existing outsourcing arrangement with
INTERVU, Inc. and enables us to accelerate development of our Internet
conferencing services.
- We completed successful initial beta testing of our Internet telephony
conferencing service and announced further testing with designated
customers operating in the United States, Australia, Canada, China, where
initial growth prospects in Internet telephony conferencing are most
promising.
- We successfully launched our European video streaming service over the
Internet in a three hour conference of the telecommunications managers of
200 international companies in the Netherlands.
- Our revenues for the quarter ending March 31, 2000 were $8.2 million,
representing an increase of $1.4 million, or 20 percent over the first
quarter of 1999. Our first quarter 2000 revenues from our core business,
teleconferencing services, grew by 38 percent over the same period in
1999; revenues during the first quarter of 1999 included equipment sales
which we have since phased out. Our operating income grew $845,000, an
increase of 273 percent over first quarter 1999 and 99 percent over fourth
quarter 1999. And our first quarter earnings before interest, taxes,
depreciation, and amortization (EBITDA) increased to $1.4 million from
$570,000 in the same period 1999, an improvement of 142 percent. Our net
income for the first quarter 2000 improved by $274,000 to $148,000 or
three cents per diluted share, from a net loss of $126,000 or three cents
per share in first quarter 1999. Our summary financial statement
information for first quarter 2000 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 2000 1999
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
Net revenues................................................ $ 8,183,767 $ 6,842,467
Cost of services............................................ 4,071,656 3,788,894
----------- -----------
Gross profit................................................ 4,112,111 3,053,573
Selling, general and administrative expense................. 3,266,611 2,827,166
----------- -----------
Operating income............................................ 845,500 226,407
Interest, net............................................... 238,555 172,800
----------- -----------
Income before income taxes and minority interest............ 606,945 53,607
Provision for income taxes.................................. 222,286 117,942
Minority interest in earnings of consolidated subsidiary.... 196,735 62,136
----------- -----------
Net income (loss)........................................... $ 187,925 $ (126,471)
Dividend declared on preferred stock........................ 40,000 --
----------- -----------
Income available to common shareholders..................... $ 147,925 $ (126,471)
=========== ===========
Earnings (loss) per share--diluted.......................... $ 0.03 $ (0.03)
=========== ===========
Weighted average number of shares outstanding--diluted...... 5,971,935 4,027,655
=========== ===========
*EBITDA..................................................... 1,377,749 570,116
</TABLE>
- ------------------------
* "EBITDA" is defined as operating income (loss) before depreciation and
amortization expense, charges for interest expense, provision for income
taxes and minority interest in the earnings of a consolidated subsidiary.
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
CONSOLIDATED BALANCE SHEET (UNAUDITED) 2000 1999
- -------------------------------------- ----------- -------------
<S> <C> <C>
Cash and cash equivalents................................... $ 874,150 $ 1,532,551
Accounts receivable and other current assets................ 8,791,636 7,583,181
Total equipment--net........................................ 11,623,151 11,275,247
Goodwill and other non-current assets....................... 2,633,097 1,707,364
----------- -----------
Total assets................................................ $23,922,034 $22,098,343
=========== ===========
Accounts payable and other current liabilities.............. $ 7,500,253 $ 7,546,401
Long term debt.............................................. 4,958,915 5,002,409
Deferred income taxes (United Kingdom)...................... 315,356 320,112
Minority interest........................................... 1,447,578 967,559
Preferred stock............................................. 1,703,770 1,693,006
Shareholders' equity........................................ 7,996,162 6,568,856
----------- -----------
Total liabilities and shareholders' equity.................. $23,922,034 $22,098,343
=========== ===========
</TABLE>
BUSINESS
Industry sources estimate that the worldwide teleconferencing services
market amounted to approximately $1 billion in 1998, and will grow to over $3
billion by 2004. This excludes growth in Internet-based conferencing services.
Teleconferencing is now an essential business tool in bringing decision
makers together more frequently, at lower cost, and with fewer scheduling
conflicts than is possible with face-to-face meetings. Within our target markets
of multinationals, professional firms, mid-size firms, and government agencies,
our customers use teleconferencing as a high performance productivity tool to
accelerate decision making, reduce travel costs, and improve teamwork. Members
of project teams, consulting teams, and working groups spread across a country
or the world can assemble through this medium more quickly and economically than
in face-to-face meetings. Examples are board meetings, sales and marketing
groups, training programs, investor presentations, press conferences, workshops,
seminars, and any other form of business or professional meeting.
Several key trends in today's business world, as well as ongoing
developments in technology, are driving growth in the market for
teleconferencing services:
- Globalization and the resulting demand for additional business
communication.
- The need for accelerated decision-making and the trend towards increased
teamwork within companies.
- Growth of the Internet as a viable medium for the efficient transport of
large volumes of voice, video, and data.
- Enhancements to the overall quality of audio, video, and data
conferencing.
- Reduced costs of transmission and hardware.
- Increased bandwidth capacity.
- Improved quality of life for participants in meetings who would otherwise
need to spend additional time and effort traveling.
- Reduced travel budgets for companies.
AUDIO CONFERENCING SERVICES MARKET. We derive our audio conferencing
revenue from a fee for the bridging service which combines a few or several
hundred telephone lines into one call while maintaining volume and clarity; the
cost of long distance which we buy in bulk and resell; and enhanced services,
such as recording/replay or polling the opinions of conference participants.
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The latest available research of industry consultants, Frost & Sullivan,
indicates that the North America market for all types of audioconferencing
services was approximately $885 million in 1998, as measured by annual revenues.
We estimate that North America was approximately 80 percent of the total world
market; accordingly, worldwide sales were over $1 billion during 1998. These
figures include bridging and other enhanced audio conferencing services, but
exclude long distance transmission charges. The major long distance companies
accounted for approximately 80 percent of this market with the remaining 20
percent provided by independent companies such as ourselves. We expect the audio
conferencing services market to continue growing at a compound rate of 20 to 25
percent annually through year 2005, which would result in an audio conferencing
services market of approximately $3 billion in sales in 2005. This growth does
not include development of the Internet-based services market.
VIDEO CONFERENCING SERVICES MARKET. Frost & Sullivan estimated the United
States video conferencing services market in 1998 was $200 million, excluding
transmission charges and public room rental. The Frost & Sullivan report
projects growth in the overall video conferencing market at a compound annual
rate of approximately 16 percent to over $400 million in the year 2005.
First introduced in the 1980s, video conferencing applications initially
involved expensive systems in dedicated locations used primarily for group
conferences. The introduction of affordable small group systems expanded the use
of video conferencing. The growing base of users with in-house systems, combined
with the greater bandwidth now available through the integrated services digital
network, or ISDN, will continue to drive increased usage as well as increased
Internet usage generally.
The appeal of videoconferencing is that it adds a person-to-person dimension
that improves communications in a growing number of applications. Video is the
preferred medium in certain industries. Examples of industry applications
include law (witness depositions), medicine (diagnosis and treatment through
telemedicine), manufacturing (determining production problems), pharmaceuticals
(marketing focus groups, research, and collaboration) and education (distance
learning discussions).
DATA CONFERENCING AND INTERNET TELEPHONY SERVICES MARKET. According to
International Data Corporation, a market research firm, the worldwide market for
Internet telephony services is expected to grow by 108 percent annually from
$480 million in 1999 to $19 billion in 2004. This research projects that, by
2004, Internet telephony minutes could reach 135 billion minutes, for a compound
annual growth rate from 1999 to 2004 of 119 percent. Currently, the Internet
telephony market is dominated by consumer voice calling; however, we expect that
adoption by business customers will follow improvements in quality and
usability. This research also suggests that enhanced services such as messaging
and conferencing could grow to approximately 25 percent of Internet telephony
services revenue by 2001. Similarly, we anticipate significant growth in the
amount of audio, video, and data conference calls that will be conducted over
the Internet.
Our next step in expanding Internet teleconferencing is to enable each
Internet conference participant to participate in a two-way, interactive
conference. Recent developments enable two-way voice transmissions to be made
using Internet telephony. Initially, we envision Internet conferencing to be an
incremental service rather than a replacement for our existing teleconferencing
solutions, but we believe that Internet-based services will comprise an
important percentage of the next generation of conferencing services. We are
preparing for the evolution to Internet conferencing services by:
- Designating a portion of the proceeds of this offering (approximately $7
million) to the development of our Internet telephony conferencing
capabilities.
- Developing the first full duplex Internet conferencing solution using
Clarent Corporation's gateway and command center technology. Clarent is a
leading provider of the technology required to convert Internet
transmission of voice to the circuit-switched network. Our Internet
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teleconferencing service, which is now in beta testing, will be accessible
through Clarent's Internet telephony gateways and call command centers.
- Investing in new bridging equipment capable of hosting data conferencing
calls over the Internet and strengthening our video and data streaming
service offerings.
- Acquiring an Internet service provider in January 2000 to accelerate our
introduction of data conferencing services over the Internet.
OUR STRATEGY
Our objective is to become the world's leading independent provider of
global teleconferencing services. Our strategy is to:
- DEVELOP A FIRST-TO-MARKET INTERNET TELEPHONY CONFERENCING SOLUTION. A
significant portion of the global telecommunications infrastructure is
expected to shift to the Internet over time. We intend to be first to
market with an Internet telephony conferencing solution developed in
conjunction with Clarent Corporation.
- CAPITALIZE ON THE GLOBAL MARKET FOR TELECONFERENCING THROUGH A LOCAL
PRESENCE. We use local operations centers staffed by country nationals. We
operate in local time zones and provide local language services. We employ
local management and staff to develop customer loyalty and improve local
market penetration. Our network of local centers provides our
multinational conference customers with knowledgeable and consistent
service, regardless of the continent or time zone.
- DEVELOP AND LEVERAGE OUR PRESENT DISTRIBUTION CHANNELS THROUGH MAJOR
THIRD-PARTY OUTSOURCE RELATIONSHIPS. Our outsourcing arrangement with
Concert and our co-marketing relationship with GTE allow us to concentrate
on additional volume delivery to their major customers while they promote
our conferencing services as part of an overall product portfolio. We
intend to leverage these two major opportunities and seek similar
arrangements with other telecommunications providers.
- PURSUE ACQUISITIONS. Having built the base of our teleconferencing
platform in key markets worldwide, we are positioned to expand our
infrastructure and obtain additional market size through acquisitions. We
will consider acquisitions that increase our service offerings, expand our
customer base, and broaden our geographic coverage. We will also utilize
acquisitions to broaden our technical expertise and enlarge our pool of
management talent.
- ADAPT AND IMPLEMENT STATE OF THE ART AND BEST PRACTICES TECHNOLOGY. Rather
than invest in expensive research and development, we take advantage of
technological advances by third-party vendors. We buy best-of-class
equipment to deliver audio, video, and data conferencing over the public
circuit-switched telephone network and through the Internet telephony
gateway. This allows us to leverage high technology development efforts of
third parties and provide our customers with reliable conventional
teleconferencing as well as innovative voice over Internet conferencing
applications.
- FOSTER AND MAINTAIN LONG-TERM RELATIONSHIPS WITH OUR CUSTOMERS. We train
our people to be committed to the delivery of superior service through our
proprietary customer care and service quality training programs. Our
quality standards and solid customer relationships generate large amounts
of repeat business and frequent referrals from satisfied clients. Our
long-term relationships with our customers are enhanced by our extensive
global operations and our broad range of services.
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OUR SERVICES
We are a single-source provider of audio, video, data, and Internet-based
conferencing services that are designed to meet the global teleconferencing
needs of a broad range of customers across a diverse range of
information-intensive businesses. We derive the large majority of our current
revenue from audio conferencing (approximately 90 percent) with the remaining 10
percent from the expanding video, data, and Internet-based conferencing sector.
Although we expect audio conferencing to continue comprising the bulk of our
revenues for the foreseeable future, we expect to generate a significant and
growing proportion of our revenues from new business, including enhanced
services and video, data, and Internet-based conferencing services.
AUDIO CONFERENCING SERVICES. Our ActionCall-SM- audio conferencing services
include full service-attended conferencing, reservationless unattended
conferencing, and a comprehensive suite of enhanced audio conferencing services.
We generate revenues by charging clients a fee per minute for bridging,
attendant call management, and various enhanced conferencing services, as well
as charges related to long distance transmission costs.
In a full service-attended conference, our conference coordinators either
will call each participant (a dial-out conference) or provide participants with
a toll free or local number for them to call at a certain time (a dial-in
conference). In an unattended conference, we provide the customer with a dial-
in telephone number and a code to allow the customers to arrange their own
conferences on our bridging equipment. We connect audio conference participants
to a high quality conference call from their office, at home, at a project site,
in their car, or on any mobile phone.
Our enhanced audio conferencing services, which are available on request,
include:
- Continuous monitoring and operator access.
- Security codes.
- Blast dial-out.
- Participant volume control and muting.
- Conference recording, translation, and transcription.
- Digital replay.
- Network management and fault reporting.
- Broadcast faxes, pre-notification fax, email, and participant
notification.
- Question and answer and polling services for large investor relations
calls.
- Customized billing.
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VIDEO CONFERENCING SERVICES. We offer our ActionView-SM- video conferencing
through our multipoint video bridging centers in Dallas, Paris, Amsterdam, and
London, as well as through outsourced arrangements in Australia and Canada. Our
offerings include full-service and advanced technical management features such
as:
- Operator-controlled conferences.
- Continuous on-screen presence of all participants.
- Reservations and scheduling management.
- Room reservations.
- Video taping and cassettes.
- Multiple line speeds and voice-activated switching controls.
- Training, installation, and maintenance of equipment.
- Video conferencing site certification.
Our video bridging services enable us to provide video conferences that link
from two to 48 locations. Although we can accommodate higher numbers by linking
several video bridges, most video conferences, as a practical matter, involve
three to ten locations. Technical features of our multipoint control units
enable us to display all parties on one screen or select only certain parties as
needed during a conference. Similar to a television interview, participants from
two locations can be on screen while other locations are in a viewing-only mode.
We generate revenues from video conferencing in the same manner as audio
conferencing, but at higher per-minute rates. Recent decreases in per-minute
rates for bridging and long distance transmission, driven by improved technology
and competition among the long distance companies, have stimulated the market
for video conferencing and are expected to continue to do so.
DATA AND INTERNET-BASED CONFERENCING SERVICES. An outgrowth of the Internet
is the use of data conferencing to broadcast data for viewing by participants
during an audio or video meeting. We enhance the audio or video conference by
simultaneously transmitting data through our ActionData-SM- suite of services
over the Internet or a corporate intranet to personal computers of participants.
While not interactive, Internet streaming broadcasts are especially useful in
large conferences to enhance the audio or video interaction. These services
enable:
- Interactive audio or video conferences with simultaneous data streaming.
- Collaborative revision of data by participants equipped with appropriate
software.
- Viewing of whiteboard illustrations, slide presentations, or drawings.
Until the introduction of advanced Internet gateway technology that enables
simultaneous two-way, or full duplex, voice transmission at acceptable quality
and reliability levels, Internet technology did not allow effective, high
quality interactive conferencing, in comparison with the existing
public-switched telephone network. While reasonable voice quality is available
on internal intranets or virtual private networks for companies only wishing to
conduct in-house conference calls, the development of gateway technology opens
the market for us to begin providing high quality Internet telephony
conferencing involving more than one company. We selected Clarent Corporation's
technology in January 2000 in order to test, develop, and introduce the gateway
and command center that will enable the delivery of a first-ever full duplex
Internet telephony conferencing service.
We plan to implement the new solution, which we are initially calling Action
VOIP-SM- , a voice over Internet protocol service, using our own combination of
bridging equipment and software, in a beta test with selected telecommunications
companies. We believe the potential market for Internet
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protocol telephony conferences is significant, but until these services are
fully implemented and we can evaluate customer response, we cannot anticipate
the degree to which it will impact our business.
We expect increasing volumes of long distance to be carried over the
Internet because it will cost less than the public-switched circuit network. We
anticipate this development will stimulate the market for teleconferencing
generally and for collaborative types of conferences that integrate voice, data,
and video. Our existing data and Internet services will also continue to be
provided in support of and as an adjunct to our conventional circuit-switched
telephone network, rather than as a complete substitute for audio or video
conferencing.
Currently, we provide the following data and Internet-based services:
- ActionCast-SM---one-way audio streaming for up to 5,000 passive
participants, for example, stockholders listening to analysts.
- ActionCastPlus-SM---audio streaming plus a
PowerPoint-Registered Trademark- presentation.
- ActionVideo-SM---audio and video streaming over the Internet.
- ActionEmail-SM---broadcast email services.
- WebRez-SM---teleconference reservations accessed by Internet.
- ActionConnect-SM---a web-based unattended conferencing service.
We will continue to provide these services as we roll out our Action
VOIP-SM- conferencing service.
SERVICE QUALITY AND CUSTOMER CARE
We train all employees in the principles of customer care management, which
include continuous service quality monitoring and the development of positive
relationships with clients. We pursue a philosophy of continuous performance
improvement, meaning we consistently measure our performance and endeavor to
improve it.
We actively monitor, analyze, and control all facets of a conference call,
including reservation, call execution, billing, and follow up with customer
satisfaction surveys. We believe our commitment to quality and customer
satisfaction is among the strongest in the industry.
We also review our performance with our customers on a regular basis,
continually set specific performance improvement goals, and modify our
operations accordingly. Feedback from our customers indicates that these factors
contribute to our high customer retention rate.
SALES AND MARKETING
Over 60 percent of our annual growth results from additional demand by
existing customers. Our sales and marketing strategy is based on two main
tenets: we attract customers through multiple distribution channels and, once
the relationship has been established, we cross sell multiple services
throughout the customer's organization worldwide.
We attract our customers through direct and indirect sales efforts such as
customer referrals, telemarketing, trade show promotions, and advertising. Our
direct sales force focuses on multinational and mid-market accounts. We also
leverage outsourcing relationships with large telecommunications providers, such
as Concert and GTE. Our range of service offerings allows us to cross sell our
services once we have initially established an account.
We have built a customer base of approximately 2,000 established accounts.
Our records indicate that over 5,000 schedulers, administrative staff, and
managers employed by these customers are
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responsible for requesting or arranging conferences with us. These customers
range from small manufacturing firms to Fortune 500 companies, and are exclusive
of customers of Concert and GTE. Over 60 percent of our revenue is generated by
30 major multinational businesses that contact us through approximately 1,000
individual conference schedulers within those businesses.
We have targeted the following customer groups for our conferencing services
and applications:
- Major multinational companies, investment banks, and professional services
firms within the Fortune 1000 (GLOBAL ACCOUNTS). Selected global customers
using our audio, video, data, or Internet conferencing services include
Ernst & Young, Industrial Bank of Japan, British Petroleum, ABN Amro Bank,
Philips Electronics, and KLM.
- Medium-to-large-sized domestic companies, associations, and governmental
organizations (MIDMARKET ACCOUNTS), such as the American Electronics
Association, the State of Colorado, and a number of universities.
- Customers of major telecommunications providers such as Concert and GTE,
which we access through outsourcing and co-marketing arrangements
(OUTSOURCED AND CO-MARKETING RELATIONSHIPS).
GLOBAL ACCOUNTS. Our global account managers based in New York, London,
Amsterdam, and Paris are responsible for some 30 multinational accounts
comprising 60 percent of our international business. We focus on the home
country or headquarters of these multinationals as a base for developing our
global business relationships. Each account manager deals with the customer's
home country office or headquarters when establishing global service.
MIDMARKET ACCOUNTS. Our direct sales staff targets medium to large
companies with a high volume of teleconferencing, as well as smaller companies
with lower demand for our services. As in any business, purchasers of higher
volume sales benefit from volume discounts. While we continue to promote sales
to our global accounts, we seek situations in which we can provide competitive
services to mid-sized companies at higher margins. Our direct sales effort
manages each of our midmarket accounts through contacts with our customers'
upper management and also with their administrative staff who are responsible
for scheduling and travel budgets. Once we have become a repeat provider of
services for a customer, we stress personal contact with the call organizers,
conference chairpersons, and members of senior management within our customers'
organizations.
OUTSOURCED AND CO-MARKETING RELATIONSHIPS. Outsourced and co-marketing
relationships with major telecommunications companies are a relatively new
development within our company. Our independence from other network providers
allows us to serve their customers without concern that we would compete for
their customers' other telecommunication business.
- CONCERT. On January 1, 2000, Concert became the vehicle for an
international joint venture between AT&T and British Telecom. Our initial
services to Concert involved the delivery of services for Concert's
internal conferencing. We are now phasing into the delivery of services to
Concert's customers. Revenues from the Concert agreement will depend on
usage and pricing.
- GTE. In July 1999, GTE Corporation designated us as a major supplier of
teleconferencing services to all subsidiaries and divisions of GTE, the
only independent teleconferencing provider so designated by GTE. We sell
and cooperatively market our services directly to GTE's customers in
conjunction with GTE on large volume telecommunications bids. Revenues
from GTE customers depend on usage and pricing.
- INTERVU. In March 2000, we announced an agreement to work together with
INTERVU, Inc., a leading provider of audio and video streaming over the
Internet, as one of our co-marketing partners. We expect definitive
arrangements to be completed during the second quarter of 2000. Revenues
will depend on usage and pricing. INTERVU has announced that it has signed
a
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merger agreement with Akamai Technologies, Inc. which is subject to
shareholder and regulatory approvals.
- OTHER OUTSOURCING AND CO-MARKETING OPPORTUNITIES. We believe our role as
an independent full-service teleconferencing provider will continue to
drive our growth in this sector, because, while teleconferencing is an
essential part of a telecommunications provider's portfolio of services,
it can often be provided effectively on an outsource basis. For example,
we are currently negotiating an international teleconferencing services
agreement with a major long-distance carrier. None of our outsource
relationships are on an exclusive basis, and our revenues are dependent
upon our delivery of high quality service at competitive prices.
INTELLECTUAL PROPERTY
We seek to protect our proprietary information and business practices as
trade secrets. We have developed customized copyrighted software, which we
consider proprietary, for our service and quality control functions, and have
also developed in-depth technical know-how with respect to the operation of
telecommunications equipment and the coordination of large volume conference
calls. We require each of our employees to execute a nondisclosure agreement for
the protection of our confidential information. We hold no patents.
Our United Kingdom subsidiary has a British trademark for "CONFERCALL," and
we own British trademarks for "ACT" and "ACTIONCALL," which we license to our
United Kingdom subsidiary. "ACT Teleconferencing" is trademarked in the Benelux
countries. "ACT" is not trademarked in the United States since a wide variety of
companies use "ACT" in their corporate name or advertising. However, we believe
we are the only enterprise currently using "ACT" in the teleconferencing
industry. We claim a number of service marks that use "ACT" or "Action" in the
mark. Nevertheless, other enterprises' usage of "ACT" makes registered trademark
protection prohibitively expensive.
SUPPLIERS
We are not dependent on any single carrier or supplier for any of the
services we sell. We have negotiated volume discounts with our primary
long-distance carriers, and believe we could negotiate similar arrangements at
similarly competitive prices with one or more other carriers should our current
carriers be unable to continue to provide service at competitive prices.
The equipment we purchase for use in our operations is also available from a
variety of suppliers, some of which compete in the teleconferencing services
business. We have chosen to purchase most of our audio bridging equipment from
Compunetix, a supplier based in Pittsburgh, Pennsylvania. According to
Compunetix, it accounts for approximately 30 percent of the worldwide market for
conferencing bridges. Compunetix is a supplier of conferencing platforms to U.S.
government agencies such as the National Aeronautics and Space Administration,
the Federal Aviation Administration emergency management platform, and the U.S.
Department of Defense, as well as major telecommunications providers. We
recently added Outreach Technologies, Spectel, Videoserver, Accord, and Clarent
Corporation to our list of equipment suppliers.
OUR COMPETITION
We compete with major long distance companies, independently owned
teleconferencing companies, and in-house services such as company-operated
bridges and private branch exchange equipment.
The principal competitive factors in the teleconferencing market are
service, quality, reliability, price, name recognition, and available capacity.
The location of an operations center can also be a
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competitive factor, as a local presence will reduce transmission costs and
reflect the language, accent, or business practices of local customers. In
certain cities and countries, we have opened local sales offices to ensure that
marketing is more personal and effective.
Our competition comes from large companies such as AT&T, MCI Worldcom,
Global Crossing, Sprint, British Telecom, Bell Canada, France Telecom, Deutsche
Telekom, Telstra, Belgakom, and Hong Kong Tel. We also face competition from
independent teleconferencing companies similar to us, including Premiere
Technologies, Intercall, Vialog, and Genesys. In the United States, we may also
face additional competition from the regional carriers which, under the
Telecommunications Act of 1996, will be allowed to provide long distance
services nationwide under certain conditions and whose long distance customers
would expect access to teleconferencing services. This may become an additional
opportunity for us, as certain regional bell carriers may choose to outsource
their customers' needs to independent teleconferencing providers.
Despite their large share of the teleconferencing services market,
teleconferencing is not a primary focus of the major long distance carriers. We
have been able to compete with the conferencing divisions of the long distance
companies on the basis of quality of service for the large volume business of
prestigious companies such as investment banks, accounting and consulting firms,
and law firms. Excess long-distance line capacity enables the long distance
companies to offer discounted prices to high-volume conferencing customers, but
they generally charge higher prices to smaller and medium volume customers. This
creates a pricing structure that enables us and others to compete on a price-
and-service basis for the teleconferencing business of the medium and smaller
businesses.
There are few regulatory barriers in the countries in which we operate, but
new entrants into the teleconferencing business will face various economic
barriers. The complex planning, installation, and operation of a global
teleconferencing platform involving multiple facilities and office locations
such as ours, together with the implementation of network technology and
coordination of operations, would likely take extensive funding to replicate.
Some companies own and operate their own conferencing bridges, but many
companies find that the costs of operating their own bridge outweigh the
benefits and prefer to outsource their teleconferencing services. Technology is
available to enhance private branch exchange conferencing capability (usually up
to six calls), but private branch exchange-handled conference calls typically
have poor sound quality and each additional line weakens the overall sound
volume. Additional competition may also develop from more sophisticated
telephone sets and other centralized switching devices. These alternative
techniques may enable our customers to conduct some of their own conferences,
but we believe they will continue to outsource their larger conferences,
particularly if their distance meetings require a collaboration of audio, video,
data, and Internet conferencing techniques.
FACILITIES
Our development of local facilities serves the dual purpose of providing
local language, local currency, and local time zone services to the areas served
by each operations center, as well as backup and overflow capacity among other
centers in the event all or part of a conference needs to be rerouted from an
operations center that is at full capacity.
We currently lease office and operations space at our locations in Denver,
Holmdel, Dallas, Toronto, Ottawa, London, Amsterdam, Brussels, Paris, Frankfurt,
Sydney, Adelaide, and Hong Kong,
31
<PAGE>
which we have listed in the table below. We also plan to add an operations
facility in Frankfurt by the second quarter of 2000.
<TABLE>
<CAPTION>
YEAR
LOCATION COUNTRY DESCRIPTION ESTABLISHED
- -------- --------------- -------------------- -----------
<S> <C> <C> <C>
Denver United States Sales and operations 1990
London United Kingdom Sales and operations 1992
Amsterdam Netherlands Sales and operations 1995
Brussels Belgium Sales office 1996
Sydney Australia Sales and operations 1997
Holmdel United States Sales and operations 1997
Paris France Sales and operations 1997
Ottawa Canada Sales and operations 1998
Toronto Canada Sales and operations 1998
Frankfurt Germany Sales office 1998
Adelaide Australia Sales and operations 1999
Dallas United States Sales and operations 1999
Hong Kong China Sales and operations 1999
</TABLE>
All operations are in office locations close to the city center or in nearby
suburbs. These leases expire or are renegotiable within the next five years and
are adequate for our expansion plans. Forward lease commitments are not
significant in relation to total ongoing operating expenses and all lease costs
are consistent with generally available market rentals. We believe we could
obtain comparable facilities at similar market rates if necessary.
Our operations centers provide us with a high degree of redundancy. We can
reroute most of our conferences to other centers if necessary. By networking our
operations centers in different time zones, we use idle evening and nighttime
capacity in one center to fulfill daytime demand at another center.
Each of our operations centers includes at least one audio or video bridge.
Our capacity is measured in ports, with one port needed for each conference
participant. Our audio conferencing call centers operate more than 3,000 ports
worldwide. This enables us to handle conferences of varying sizes by linking the
port capacity of our operation centers together. Although we can network our
ports to handle 1,000 or more participants and have handled conferences of this
size, the low demand for such a large conference and the logistics of handling
multiple conferences during the business day make it unlikely that large
conferences will exceed 500 participants. Weekday mornings and early afternoons
are peak conferencing times. Our video conferencing capacity includes over 300
ports operated from Dallas, London, Paris, and Amsterdam. Our data conferencing
capacity includes 192 ports operated from four bridges--two in the United
States, one in Canada, and one in Australia. We outsource our overflow to other
teleconferencing companies in the event we have temporary capacity limitations.
We also provide outsourced services to certain of our competitors when they have
similar capacity constraints.
REGULATION
Although the telecommunications industry has been subject to extensive
regulation, government regulation or licensing has no material impact on the
delivery of teleconferencing services in the countries where we now conduct our
business.
EMPLOYEES
As of December 31, 1999, we had a total of 287 employees worldwide. Of
these, 262 were full time and 25 were part time. There were 133 employees in our
North American operations, 117 in our European operations, and 37 in our Asia
Pacific operations. Of the 287 total worldwide employees, 160 were in
teleconferencing operations, 66 were in sales and marketing, and 61 were in
management and administration. Our entry into Internet conferencing eventually
will require new employees, but we expect the initial growth in the number of
employees to be gradual. We do not anticipate any material change in the number
of employees in the near future. None of our employees are represented by labor
unions. We have not experienced any work stoppages and consider our employee
relations to be good.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Officers receive salaries agreed upon by the officer and the board and are
eligible for performance incentives determined from time to time by the board.
Our executive officers and directors since the beginning of the 1999 fiscal
year are as follows:
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ---- -------- -------------------------------------------------------------
<S> <C> <C>
Gerald D. Van Eeckhout....... 59 Chairman of the Board; Chief Executive Officer
Gavin J. Thomson............. 42 Chief Financial and Planning Officer, Secretary and Treasurer
Gene Warren.................. 48 Regional Managing Director, North America
Thierry Bignet............... 44 Regional Managing Director, Europe
Peter Eeles.................. 44 Regional Managing Director, Asia Pacific
David L. Holden.............. 39 Managing Director, ACT Teleconferencing Limited, UK
Charles T. Stout............. 53 Director of Global Projects, Assistant Secretary and
Assistant Treasurer
Carolyn R. Van Eeckhout...... 61 Vice President, Human Resources, and Director
James F. Seifert............. 72 Director
Ronald J. Bach............... 66 Director
Donald L. Sturtevant......... 62 Director
</TABLE>
- ------------------------
* Age is as of February 29, 2000
GERALD D. VAN EECKHOUT, one of our founders, has been chairman of our board
of directors and chief executive officer since our formation in 1989. He has
served as a director and chairman since 1989, and his current term as a director
ends in 2001. From 1982 to 1989, Mr. Van Eeckhout was president, chief executive
officer, and a director of ConferTech International, Inc., a teleconferencing
services and manufacturing company, which was subsequently sold to Global
Crossing. Before 1982 he served seven years as chief financial and
administrative officer of Medtronic, Inc., five years as chief financial and
planning officer at Pillsbury International Division, and eight years as a
certified public accountant with Touche Ross & Co., based in Minneapolis,
Minnesota. He received a bachelor of science degree from the University of North
Dakota in 1962, and completed the Stanford Executive Program in 1976. He has
also been a national director of the American Electronic Association and
President of the University of North Dakota Foundation.
GAVIN J. THOMSON, our chief financial and planning officer, secretary, and
treasurer, joined us in February 1997. From 1994 to 1996, Mr. Thomson served as
managing director of TEK Corporation, a consumer electronics company based in
Johannesburg, South Africa. Before holding that position he was the chief
financial officer of TEK Electronics, then one of the largest consumer appliance
companies in South Africa, for a period of four years. He is a chartered
accountant (South Africa) and received his bachelor's and post-graduate degrees
in accounting from Natal University, South Africa; earned his master's degree in
business administration from the University of Denver; and completed the
Stanford Business School Advanced Management College.
GENE WARREN, our regional managing director of North America operations
since 1997, joined us in August 1996. Mr. Warren came to us with over 20 years
of executive and technical experience in telecommunications. From 1993 to 1996,
Mr. Warren served as senior vice president of business development, operations,
and technology at Global Access, a teleconferencing services company later
33
<PAGE>
acquired by Genesys Group. Prior to his employment by Global Access, he served
as director of technical services for ConferTech International and senior
director of technical support for MCI. Mr. Warren received a bachelor of science
degree in physics and mathematics from Clark Atlanta University in 1975. He also
holds a master's degree in business administration from Regis University.
THIERRY BIGNET, our regional managing director of European operations,
joined us in November 1997. From 1990 to 1995, he was the founder and senior
consultant of Carta France, an independent business consultant in Europe to
companies such as Volvo and Peugeot. From 1995 to 1997, Mr. Bignet was chairman
and CEO of Genesys Group, then a leading European provider of unattended
teleconferencing services. He holds a Master of Business Administration degree
from Ecole Superieure des Dirigeants d'Enterprises (Paris) and an undergraduate
degree in engineering from Institut National d'Informatique de Gestion (Paris).
PETER EELES currently our regional managing director of Asia-Pacific
operations, joined us in February 1997. From 1994 to 1997, he was director of
CSG Systems, a telecommunications systems company based in Sydney, Australia.
Prior to 1994, he worked for Telstra, an Australian telecommunications company,
in various technical, sales, and marketing functions. He is a telecommunications
engineer and holds a degree in electronics.
DAVID L. HOLDEN has been the managing director of ACT Teleconferencing
Limited since 1992. Immediately before joining us, he was employed for seven
years with British Telecommunications as general manager of its audio
teleconferencing service business in London. Mr. Holden received a bachelor of
science degree in business administration from the University of Wales.
CHARLES T. STOUT has held the position of director of global projects since
1998. He was also our treasurer from 1991 until 1996, and served as vice
president of finance for U.S. operations from 1996 to 1998. In 1998, he became
assistant secretary and assistant treasurer. From 1985 to 1990, Mr. Stout was
vice president of finance for ConferTech International, Inc., an audio
teleconferencing service and manufacturing company. From 1991 to 1992,
Mr. Stout held an accounting management position with Capital Associates
International, Inc., and from 1992 to 1995, the Resolution Trust Corporation
engaged Mr. Stout as an accountant. He holds a bachelor's degree and a master's
degree in accounting and management science from the University of Colorado.
CAROLYN R. VAN EECKHOUT, one of our founders, serves as vice president of
human resources for ACT Teleconferencing, Inc. She has been one of our directors
since 1991 and has been employed by us since our inception. From 1985 to 1989,
she was a self-employed consultant to various health professionals and the
Denver Public Schools. She received her bachelor's degree in education from
Pennsylvania State University. Her current term as a director ends 2002.
JAMES F. SEIFERT, one of our directors since 1991, has been chairman and
chief executive officer of James F. Seifert & Sons LLC since 1993. Mr. Seifert
was previously chairman and chief executive officer of Grafton Group, Inc.,
doing business as Seifert's, a women's apparel chain that operated up to
234 stores. Mr. Seifert received his bachelor of science degree in commerce from
the University of North Dakota in 1950. He is a former president of the
University of North Dakota Foundation. His current term as a director ends in
2000.
RONALD J. BACH, a director since 1992, is a certified public accountant who
was employed continuously by the firm of Deloitte and Touche from 1955 until his
retirement in 1991 at which time he was partner in charge of its Bloomington,
Minnesota office. He holds a bachelors degree in business administration from
the University of Minnesota, and serves as a director of a number of privately
held companies in which he has an ownership interest. His current term as a
director ends in 2001.
DONALD L. STURTEVANT was elected as one of our directors in 1996. His
current term as a director ends in 2002. Since 1996, he has been the chief
operating officer and a director of St. Croix Medical, Inc., a medical
implantable hearing systems company. He was president and chief executive
34
<PAGE>
officer of MediVators, Inc. from 1991 through 1996. Previously, he held the
positions of CEO and chairman of the board of BallistiVet, Inc., from 1988
through 1990. From 1985 through 1987 Mr. Sturtevant was vice president of Alpha
Business Group, Inc., a medical venture management group which he co-founded.
From 1972 to 1985 Mr. Sturtevant held various positions at Medtronic, Inc.,
including vice president and general manager of the instrument division.
Mr. Sturtevant received a bachelor of science degree in business administration
from the University of Minnesota in 1966 and is a 1975 graduate of Northwestern
University's International Management Program in Bergenstock, Switzerland.
GERALD D. VAN EECKHOUT and CAROLYN R. VAN EECKHOUT are husband and wife. All
officers serve at the discretion of our board of directors.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation we paid to
our chief executive officer and our four most highly compensated executive
officers who were serving as executive officers at the end of fiscal years ended
December 31, 1999, December 31, 1998, and December 31, 1997. All amounts are in
U.S. dollars.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
FISCAL ------------------- SECURITIES ALL OTHER
NAME YEAR SALARY BONUS UNDERLYING OPTIONS(1) COMPENSATION
- ---- -------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout ................. 1999 $160,000 $ 36,320 50,000(4) $18,771(2)(3)
1998 120,000 87,752 150,000(5) 18,771(2)(3)
1997 120,000 54,816
Gavin J. Thomson ....................... 1999 140,000 5,091 10,000(6) 4,800(3)
1998 120,000 3,616 100,000(7) 4,800(3)
1997 100,000
Gene Warren ............................ 1999 145,000 173,982 20,000(6) 6,418(3)
1998 120,000 43,342 100,000(8)
1997 96,081 39,835
Thierry Bignet ......................... 1999 140,000 30,599 5,000(6) 6,000(3)
1998 120,000 4,898 50,000(9) 6,000(3)
David L. Holden ........................ 1999 112,000 27,600 15,500(10) 17,280(3)
1998 106,000 20,343 45,000(10)
1997 80,000 51,320
</TABLE>
- --------------------------
(1) All options are for the purchase of common stock.
(2) Includes an annual disability insurance premium payment of $1,971 per year
and a split dollar life insurance policy premium of $12,000 per year.
(3) Includes car allowances.
(4) 50,000 options granted on December 22, 1998, at an exercise price of $6.05
per share. These options vest at 50 percent per annum.
(5) Includes 100,000 options granted on November 1, 1996, at an exercise price
of $3.03 per share; 50,000 options granted on September 3, 1996, at an
exercise price of $3.03 per share. These options vest at 25 percent per
annum.
(6) On June 10, 1999, Messrs. Thomson, Bignet, and Warren received grants of
10,000, 5,000, and 20,000 options, respectively, at an exercise price of
$4.25 per share. These options are only valid if our closing bid price is
$20 or more for a minimum of ten days before June 10, 2002; however, they
will vest immediately in such circumstance.
(7) Includes 50,000 options granted on February 15, 1997, at an exercise price
of $3.00 per share; 25,000 options granted on June 18, 1997, at an exercise
price of $5.00 per share; and 25,000 options granted on December 30, 1997,
at an exercise price of $6.00 per share. These options vest at 25 percent
per annum.
(8) Includes 50,000 options granted on November 1, 1996, at an exercise price
of $2.75 per share; 25,000 options granted on June 18, 1997, at an exercise
price of $5.00 per share; and 25,000 options granted on December 30, 1997,
at an exercise price of $6.00 per share. These options vest at 25 percent
per annum.
(9) 50,000 options granted on December 30, 1997, at an exercise price of $6.00
per share. These options vest at 25 percent per annum.
(10) Includes 45,000 options granted on July 1, 1996, at an exercise price of
$3.00 per share; 4,500 options granted on December 30, 1997, at an
exercise price of $6.00 per share; and 10,500 options granted on July 1,
1998, at an exercise price of $9.00 per share. These options vest at 25
percent per annum.
36
<PAGE>
STOCK OPTIONS
The following two tables set forth information concerning stock option
grants to our chief executive officer and our four most highly compensated
executive officers during 1999:
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN LAST PRICE EXPIRATION ---------------------
NAME GRANTED POSITION FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ------------------ ----------------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout.... none 0% n/a n/a n/a n/a
Gene Warren............... 20,000(1) 9.8% $4.25 June 10, 2002 n/a n/a
Gavin J. Thomson.......... 10,000(1) 4.9% $4.25 June 10, 2002 n/a n/a
Thierry Bignet............ 5,000(1) 2.5% $4.25 June 10, 2002 n/a n/a
David L. Holden........... none 0% n/a n/a n/a n/a
</TABLE>
- --------------------------
(1) This option grant becomes valid only if the closing bid price of our common
stock is $20 or more for a minimum of ten consecutive days before June 10,
2002. No value will be realizable at a 5 percent appreciation rate (value of
$4.4625 per share) or 10 percent appreciation rate (value of $4.675 per
share), because the grant will not be effective until the $20 closing bid
price condition is satisfied. In the quarter these options become valid, we
will incur a compensation charge for the difference between the exercise
price and the fair market value of the underlying shares.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout...... -- -- 137,500 62,500 $607,875 $235,125
Gene Warren................. -- -- 62,500 57,500 259,375 128,125
Gavin J. Thomson............ -- -- 48,000 60,000 177,500 187,500
Thierry Bignet.............. -- -- 25,000 30,000 50,000 50,000
David L. Holden............. -- -- 38,625 21,375 170,625 60,750
</TABLE>
Through December 31, 1999, the total increase in stock options granted in
1999 to the above executive officers, net of forfeiture and exercise, amounted
to 35,000. The total number of stock options granted during 1999 was 221,700,
bringing the total outstanding to 1,106,352.
DIRECTORS' FEES
We have adopted a compensation plan for our three non-executive directors
which provides for payment of directors' fees in the form of stock options or
stock grants. Under this plan, we granted stock options for a total of 15,000
shares in 1997, or 5,000 options for each of our three non-executive directors,
at an exercise price of $5.00 per share; for a total of 15,000 shares in 1998 at
an exercise price of $9.00 per share; for a total of 15,000 shares in 1999 at an
exercise price of $5.25 per share; and for a total of 15,000 shares at an
exercise price of $8.00 per share in 2000. All options vest one year from the
date of grant and expire ten years from the date of grant. In 2000, we made
stock grants of 500 shares to each of our non-executive directors at a grant
price of $8.00 per share.
37
<PAGE>
KEY EMPLOYEE INSURANCE
We maintain a key-employee life insurance policy on the lives of all of our
senior executives in amounts ranging from $500,000 to $1.8 million; the major
portion of proceeds are payable to us with the balance to the executive's
estate. The intended purpose of these policies is to assist us in replacing
these executives and in making other adjustments in operations in the event of
their death. Our United Kingdom subsidiary holds an additional life insurance
policy on the life of David L. Holden, its managing director, in the amount of
L1,090,000, payable to the subsidiary. The proceeds are for the purpose of
recruiting a successor, acquiring a portion of Mr. Holden's estate's ownership
of 40 percent of the subsidiary's shares, and other adjustments to operations.
We have the option to repurchase Mr. Holden's shares upon his death or
disability.
KEY EMPLOYEE AGREEMENTS
Our board adopted executive agreements with Gerald D. Van Eeckhout, Gene
Warren, and Gavin J. Thomson as of April 1, 1999, as amended on July 26, 1999.
If any person that is not our affiliate takes control of us, the takeover
triggers the effective date of the executive agreements. Each executive
agreement provides that the executive is entitled to a three-year employment
agreement commencing on the effective date at the executive's regular salary and
bonus. If the executive is dismissed without cause or leaves for good reason as
defined under the agreement, the executive is entitled to three years' salary
and a bonus that is determined according to the board of directors' bonus
policy. Our board of directors has determined that the average compensation of
these executives historically has been less than the compensation received for
comparable responsibilities in other companies. Accordingly, our board has
decided that actual compensation under these executive agreements may exceed
limitations imposed by the Internal Revenue Code on "parachute payments" if such
compensation is triggered before April 1, 2002, and, therefore, these payments
may not be fully deductible and to the extent they are not fully deductible,
they will be subject to a 20 percent excise tax. If such compensation is
triggered on or after April 1, 2002, the amount will be limited to three times
the average total compensation for each person over the preceding five years in
accordance with Section 280G of the Code and will be deductible and not subject
to the 20 percent excise tax.
One of our founders, Gerald D. Van Eeckhout, also has executed a five-year
employment agreement dated July 1, 1999, at a salary and bonus no less than the
amount in effect upon execution of the agreement, which includes covenants
prohibiting competition with us following the termination of his employment.
This employment agreement ensures that the services of Mr. Van Eeckhout will be
available to us, as determined by the board of directors, and will prohibit
Mr. Van Eeckhout from engaging in activities on behalf of a competitor for two
years following termination of his employment. Compensation under his agreement
is reviewed annually by the compensation committee of the board of directors and
includes medical insurance and other benefits available to employees generally.
If a change in control occurs, as defined in the executive agreement, Mr. Van
Eeckhout's executive agreement will prevail over the terms of his employment
agreement, except that his benefits and spousal benefits for his wife,
Carolyn R. Van Eeckhout, including medical coverage, will continue for the
balance of the five year term, and he will receive a minimum of two years
compensation under the employment agreement.
Our United Kingdom subsidiary has a service agreement with its managing
director, David L. Holden, which may be terminated by the employer or employee
on six months' notice. Under this agreement, Mr. Holden receives a base salary,
currently L85,000 (US $140,000) per year, and a performance-related bonus as
determined by the subsidiary's board from time to time.
38
<PAGE>
LOCK-UP ARRANGEMENTS
Our executive officers and directors have agreed not to sell or otherwise
dispose of 930,000 shares of common stock and 712,000 options and warrants to
purchase common stock for a period of 180 days after the date of this
prospectus, without the prior written consent of the representatives, John G.
Kinnard and Company, Incorporated, and Kaufman Bros., L.P., an arrangement known
as a lock-up agreement. We have also agreed not to sell or otherwise dispose of
any shares of our common stock for a period of 180 days after the date of this
prospectus without consent of the representatives. Following the expiration of
the lock-up period, approximately 715,000 shares held by officers and directors
will continue to be subject to the restrictions of Rule 144. In addition, the
shares underlying 400,000 of these warrants and options are also subject to
lock-up agreements by our officers and directors. See "Underwriting."
Gerald D. Van Eeckhout and Carolyn R. Van Eeckhout, who have executed
lock-up agreements, have pledged 36,000 shares of ACT common stock owned by them
in a margin account. If the loan is called and Mr. and Mrs. Van Eeckhout do not
provide additional collateral, the lender will be entitled to sell the margin
shares without regard to the lock-up agreement.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of February 29, 2000, by our
principal stockholders. For this purpose, a principal stockholder is a person
that holds beneficial ownership of five percent or more of our outstanding
common stock. Under the rules of the Securities and Exchange Commission,
beneficial ownership includes voting or investment power with respect to
securities and includes the shares issuable pursuant to stock options that are
exercisable within 60 days following February 29, 2000. Shares issuable from
stock options are deemed outstanding for computing the percentage of the person
holding such options but are not outstanding for computing the percentage of any
other person.
The number of shares of common stock outstanding after this offering
includes 2,000,000 shares of common stock we are offering for sale in this
offering. The percentage of beneficial ownership for the following table is
based on 4,797,686 shares of common stock outstanding as of February 29, 2000,
and 6,797,686 shares of common stock outstanding after the completion of this
offering.
To our knowledge, except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES TO OWNED AFTER
MATERIAL THE OFFERING BE SOLD THE OFFERING
NAME AND ADDRESS OF RELATIONSHIP --------------------- IN THE ---------------------
BENEFICIAL OWNER WITH ACT NUMBER PERCENTAGE OFFERING NUMBER PERCENTAGE
- ------------------- ------------ -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerald D. and Carolyn R. Van Eeckhout(1)... Officers and 611,000 15.4% None 611,000 11.0%
Directors
James F. Seifert(1) (2).................... Director 231,250 5.4% None 231,250 3.9%
Nikos Moschos(3)........................... Stockholder 466,236 9.7% None 466,236 6.9%
Katerina Scordou(4)........................ Stockholder 307,440 6.4% None 307,440 4.5%
Katerina Kopsida(5)........................ Stockholder 358,100 7.5% None 358,100 5.3%
Alexandros Makris(6)....................... Stockholder 240,000 5.0% None 240,000 3.5%
All Directors and executive officers as a
group (11 persons)....................... 998,108 23.5% None 998,108 17.9%
</TABLE>
- --------------------------
(1) 1658 Cole Boulevard, Suite 130, Golden, Colorado 80101.
(2) Held jointly with his spouse, Nancy Seifert.
(3) Agiou Konstaninou 40, 2nd Floor, Marousi, Athens 15124, Greece; 307,440 of
these shares are held by Mr. Moschos and Katerina Scordou (his spouse) and
158,796 shares are held by Euro-American Securities SA, a company he
controls.
(4) Agiou Konstaninou 40, 2nd Floor, Marousi, Athens 15124, Greece; held with
Nikos Moschos (her spouse).
(5) 9, Leonidiou Street, Nea Kiffisia, Athens 14562, Greece.
(6) Orfeos 13, Rodon Ekali, Athens 14565, Greece.
40
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE EQUITY, LEASE, AND SUBORDINATED DEBT TRANSACTIONS
We have obtained financing for our expansion and operations through several
private equity, debt, or lease transactions that involved the issuance of
securities in reliance on exemptions from the Securities Act of 1933.
SIRROM CAPITAL CORPORATION AND EQUITAS, L.P. In 1998, we issued
subordinated notes in the amount of $1,610,000 and $890,000, or a total of
$2,500,000, in favor of Sirrom Capital Corporation and Equitas, L.P., under a
subordinated loan and security agreement. The subordinated notes bear interest
at 13.5 percent, payable monthly, are due on March 31, 2003, and are secured by
a subordinated security interest in our accounts receivable, inventory,
intangibles, equipment, and other personal property as well as our pledge of 100
percent of our voting shares in our subsidiary, ACT Teleconferencing Services,
Inc., and our 60 percent ownership interest in the outstanding shares of ACT
Teleconferencing Limited, a United Kingdom company, collectively, the
collateral. The subordinated notes became subject to an intercreditor and
subordination agreement dated May 20, 1999, between Sirrom Investments, Inc.
(assignee of Sirrom) and Equitas and our commercial lender, Coast Business
Credit, in which Sirrom Investments, Inc. and Equitas agreed to subordinate
their rights in the collateral to a $2,000,000 line of credit that Coast
Business Credit made available to ACT Teleconferencing Services, Inc.
When we issued the subordinated notes, we also issued warrants to Sirrom as
of March 31, 1998 for the purchase of 183,853 shares of common stock at an
exercise price of $7.00 per share, expiring on April 30, 2003. If the
subordinated notes are not fully paid on the second, third, or fourth
anniversaries of issuance, the number of shares subject to the Sirrom warrants
will increase to 216,802 shares on the second anniversary, 269,702 shares on the
third anniversary, and 360,495 shares on the fourth anniversary. We issued
identical warrants to Equitas for the purchase of 147,114 shares of common
stock, the Equitas warrants. If the subordinated notes to Equitas are not fully
paid on the second, third, or fourth anniversary dates, the number of shares
subject to the Equitas warrants will increase to 173,832 shares on the second
anniversary, 200,825 shares on the third anniversary, and 228,410 shares on the
fourth anniversary. We intend to repay these subordinated notes with the
proceeds of this offering.
The number of shares subject to the Sirrom warrants and the Equitas warrants
are subject to anti-dilution adjustments and are also subject to adjustment for
stock splits, stock dividends, consolidations, and similar transactions. Holders
of shares issued upon the exercise of the Sirrom warrants and Equitas warrants
have piggy-back registration rights.
R.C.C. FINANCE GROUP LTD. In 1998, R.C.C. Finance Group Ltd., a New York
corporation, R.C.C., issued an equity lease commitment to us in the amount of
$2,000,000. We have drawn on the commitment to finance our acquisition of
conferencing bridges and related equipment in support of our expansion to new
offices and for handling the volume of traffic the Concert agreement may
generate. As consideration for the commitment, we granted to R.C.C. a warrant to
purchase 75,000 shares of our common stock at an exercise price of $8.00 per
share, based on the market price of $8.00 per share on April 7, 1998, the R.C.C.
warrants. All but 10,000 of these warrants were exercised in January 2000. The
R.C.C. warrants will expire on April 7, 2003. Holders of the R.C.C. warrants
hold demand registration rights and piggy-back registration rights. The R.C.C.
warrants are also subject to customary anti-dilution provisions and to
adjustment in the event of stock splits, stock dividends, consolidations, and
similar transactions.
1999 PRIVATE PLACEMENT. In February 1999, we closed on a private placement
of securities, the 1999 private placement, in which we sold 109,912 units at
$5.50 per unit, which was the average closing price of our common stock on the
Nasdaq SmallCap Market for the preceding ten trading days. Each unit
41
<PAGE>
was comprised of one share of common stock and a warrant, the 1999 private
placement warrants, to purchase one share of common stock at an exercise price
of $7.00 and expiring on December 31, 2003. See "Certain Transactions--Private
Equity, Lease, and Subordinated Debt Transactions--1999 Private Placement." The
following officers and directors of ACT participated:
<TABLE>
<CAPTION>
UNITS VALUE
-------- --------
<S> <C> <C>
Gerald and Carolyn Van Eeckhout............................ 16,000 $88,000
James Seifert.............................................. 18,000 99,000
Thierry Bignet............................................. 500 2,750
Peter Eeles................................................ 500 2,750
</TABLE>
Additionally, Bill Seifert, brother of director James Seifert, participated in
the private offering and purchased 18,181 units for $100,000.
ISSUANCE OF PREFERRED STOCK. On October 19, 1999, we issued 2,000 shares of
Series A preferred stock to GMN Investors II, L.P. for $2,000,000. In connection
with this transaction, we also issued warrants to GMN to purchase 400,000 shares
of common stock at an exercise price of $7.00 per share, expiring on
October 19, 2006. See "Description of Securities--Preferred Stock--Series A."
EMPLOYEE STOCK PURCHASE PLAN
During plan years ending December 31, 1998 and December 31, 1999, the
following executive officers purchased 10,973 shares under our employee stock
purchase plan:
<TABLE>
<CAPTION>
SHARES
--------
<S> <C>
Gavin Thomson............................................... 4,190
Gene Warren................................................. 4,056
Thierry Bignet.............................................. 786
Peter Eeles................................................. 1,941
------
Total....................................................... 10,973
======
</TABLE>
Participants in this plan contribute monthly to the plan which purchases
shares in their names every six months on each December 31 and June 30. See
"Description of Securities--Employee Stock Purchase Plan."
OPTIONS AND WARRANTS
We have granted options or warrants for the purchase of our common stock to
various officers, directors, subsidiary officers, consultants, lenders, and
investors. See also "Executive Compensation--Stock Options" and "Description of
Securities--Stock Options."
We will at all times reserve a sufficient number of shares of common stock
for issuance upon exercise of the warrants and options currently outstanding.
All currently outstanding shares of common stock are, and any common stock
issued in this offering or in connection with the future exercise of options or
warrants will be, fully paid and non-assessable.
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<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 10,000,000 shares of common stock,
no par value, and 1,000,000 shares of non-voting preferred stock, no par value.
On October 19, 1999, we issued 2,000 shares of Series A preferred stock to one
investor, which shares are currently outstanding. In connection with our
stockholder rights plan, we created Series B Junior Participating Preferred
Shares for stockholders of record on and following December 10, 1999, but have
not issued any Series B shares.
COMMON STOCK
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters on which stockholders are entitled or
permitted to vote. There is no cumulative voting for the election of directors.
After recognition of any applicable preferences to any outstanding preferred
stock, holders of common stock are entitled to receive dividends as the board of
directors may lawfully declare out of funds legally available and in liquidation
and to share pro rata in any other distribution to the holders of common stock.
We have never paid any dividends. Holders of common stock have no preemptive or
subscription rights. There are no conversion rights, redemption rights, sinking
fund provisions, fixed dividend rights, liabilities to further calls, assessment
for liabilities under state statute, restriction on alienability, or any
discriminating provision against existing or prospective stock with respect to
the common stock.
PREFERRED STOCK
Our board of directors is authorized to establish by resolution different
classes or series of non-voting preferred stock and to fix the rights,
preferences, and privileges, including dividend rights, dividend rates,
conversion rights, terms of redemption, redemption prices, liquidation
preferences, and the number of shares constituting any class or series or the
designation of such class or series without any further stockholder vote or
action. The issuance of a class or series of preferred stock with special rights
or privileges could have the effect of delaying, deferring, or preventing a
change in our control, which may adversely affect the voting and other rights of
the holders of common stock. See "Description of Securities--Anti-Takeover
Provisions."
SERIES A. We issued 2,000 shares of preferred stock, Series A, to GMN
Investors II, L.P. for $2 million on October 19, 1999. The issuance of Series A
was accompanied by warrants to purchase 400,000 shares of common stock at $7.00
per share, expiring on October 19, 2006, the GMN warrants. The holders of
Series A are entitled to dividends of 8 percent per year compounded quarterly,
payable when declared by our board of directors, but no later than the
redemption of Series A or on liquidation of our company. Holders of Series A
have no voting rights except in certain instances as provided by statute. Our
redemption of the Series A shares is mandatory on October 19, 2004, or upon our
default in the terms of the investor's purchase of Series A. Redemption is also
mandatory if we obtain net proceeds of $15 million or more in a public offering
of our capital stock; accordingly, if we generate the estimated net proceeds of
$27.2 million from this offering, the redemption of Series A will be required.
In addition, we have the right to redeem Series A shares for any reason prior to
October 19, 2004, upon payment to the holders of $2 million plus accrued but
unpaid dividends, as adjusted for any stock dividend, stock split, combination,
or similar recapitalization.
SERIES B. As part of a share rights plan, effective on and following
December 10, 1999, our board created Series B Junior Participating Preferred
Shares, no par, non-voting, under authority of our Articles of Incorporation.
Each share of Series B is entitled to receive a dividend when, as, and if
declared by the board of directors out of funds legally available for this
purpose, payable quarterly in cash at the rate of $1.00 per share (one cent per
1/100th share) or 100 times the cash or non-cash dividends payable to holders of
shares of common stock. Shares of Series B have priority in payment of
43
<PAGE>
dividends and distributions on dissolution of our company which is senior to
holders of common stock, but junior to creditors and to holders of Series A.
Whether any shares of Series B will be issued and the number of shares issued
will be determined under provisions of the rights plan.
STOCK OPTIONS
As of December 31, 1999, we had a total of 1,106,352 stock options
outstanding that we had granted under two similar plans.
We adopted the Stock Option Plan of 1991, the 1991 Plan, in order to
attract, retain, and motivate key employees and consultants by providing them a
means of acquiring an ownership interest in us. The 1991 Plan covers incentive
stock options within the meaning of section 422 of the Internal Revenue Code, as
amended, and nonstatutory (sometimes called nonqualified) stock options. This
plan was amended as of April 28, 1995, to reserve a total of 400,000 shares of
common stock for this purpose.
We adopted the Stock Option Plan of 1996, the 1996 Plan, at the 1997 annual
meeting of stockholders. At our 1998 annual meeting, we increased the number of
shares subject to options under the 1996 Plan from 400,000 to 800,000. The 1996
Plan was adopted for the same purposes as was the 1991 Plan, and likewise covers
incentive stock options and nonstatutory stock options.
The personnel and compensation committee of the board of directors
administers the plans. The term of options under the plans may not exceed ten
years from the date of grant. The plans also provide that the purchase price of
the shares covered by incentive stock options may not be less than the fair
market value of the shares on the date the option is granted and that the
exercise price of a nonstatutory option shall not be less than 85 percent of
such fair market value.
As a general rule, our incentive stock options vest at the rate of 25
percent per year. The committee determines the length of each option at the time
of grant with both plans providing a maximum term of ten years (five years for
holders of ten percent of our outstanding shares). The employee may exercise the
options granted under the plans only during his or her employment and, under
specified circumstances, for three months following termination of employment.
In the event the employee dies while holding options, the employee's personal
representative has twelve months, or until the expiration date of the options,
whichever is earlier, to exercise the options. The number of shares purchasable
and the purchase price under both plans are subject to antidilution provisions
and adjustments upon the occurrence of specified events. The committee has power
to establish the exercise price of nonstatutory options granted.
As of December 31, 1999, there were 1,106,352 options outstanding under the
plans, and 76,100 options had been exercised. Of the 1,106,352 outstanding
options, 961,352 were incentive stock options with exercise prices ranging from
$2.00 to $9.00 per share and expiration dates between August 15, 2003, and
December 12, 2009. As of December 31, 1999, we had options for 17,548 shares
available for issuance. On February 29, 2000, we had options for 5,080 shares
available.
WARRANTS
We have issued various common stock purchase warrants from time to time,
collectively, the warrants, which, as of December 31, 1999, entitled the holders
to purchase a total of 1,022,539 shares of common stock. The warrants include
400,000 GMN warrants (See "Description of Securities--Preferred
Stock--Series A"), 10,000 R.C.C. warrants (See "Description of
Securities--Private Equity, Lease, and Subordinated Debt Transactions--R.C.C.
Finance Group Ltd."), and 109,912 1999 private placement warrants (See "Certain
Transactions--Private Equity, Lease, and Subordinated Debt Transactions--1999
Private Placement").
The above warrants expire at various dates from March 31, 2003, to
October 19, 2006. See Note 5 of Notes to Consolidated Financial Statements.
44
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan became effective July 1, 1998. The plan has
been structured within the meaning of Section 423(b) of the Internal Revenue
Code of 1986. The purpose of the plan is to provide employees with an
opportunity to acquire an ownership interest in us through the purchase of our
common stock, thereby developing a stronger incentive to work for our continued
success. A maximum of 100,000 shares of common stock are available for sale to
our employees under the plan. The purchase price of each share of common stock
will be the lesser of 85 percent of the fair market value of such share on the
first day of the six month purchase period, or 85 percent of the fair market
value of such share on the last day of the purchase period. One purchase period
commences on January 1 of each year and ends on the following June 30. The other
purchase period begins on July 1 and ends on the following December 31.
Participants declare on the first day of the purchase period an amount they wish
to be deducted from their wages during each payroll period to be applied toward
the purchase of shares. Participants have the right to terminate their payroll
deductions at any time. Currently, 60 employees have elected to participate in
the plan, but we cannot determine the number of shares that will be purchased
during any purchase period until the close of that period. Through February 29,
2000, our employees had purchased 27,060 shares of common stock under the plan.
ANTI-TAKEOVER PROVISIONS
STAGGERED TERMS FOR DIRECTORS. Our articles of incorporation set the
maximum number of directors at nine, with the actual number of seats filled
determined by the board from time to time. Each class is elected for a term
expiring at the annual meeting of stockholders in the third year after the
election. The board has established the size of the board at six members, which
consists of three classes of two members each. Currently, there are five members
and one vacancy. Election of the board by classes strengthens the position of
the board in dealing with takeover attempts. By making it difficult to unseat
the entire board at one annual meeting, it is intended that the board as a whole
will have more bargaining power in the event a potential acquiring person
proposes a takeover.
BUSINESS COMBINATIONS. A provision of our articles of incorporation
regarding business combinations imposes substantial conditions on third parties
who might attempt to acquire control of us through a two-tiered pricing strategy
in which a premium price is paid to obtain a majority of the voting stock and a
less desirable consideration, sometimes in the form of bonds or other securities
is paid to other stockholders. These conditions include approval of such
proposals by holders of two-thirds of the outstanding shares unless (1) the
board of directors as constituted prior to receipt of the proposals approve, or
(2) the proposal involves a merger, consolidation, exchange of shares, or sale
of all or substantially all our assets and the cash per share the stockholders
will receive is not less than the highest per share price any person pays,
including the person's affiliates, whose beneficial ownership of the common
stock, in the aggregate, equals or exceeds 20 percent of the outstanding voting
power. The effect of these conditions is to discourage new stockholders from
replacing incumbent directors with new directors solely for the purpose of
obtaining approval of a tender offer and to require that the same consideration
per share be paid to all stockholders that an acquiring person, who would be
willing to pay a premium to obtain a 20 percent or more position in our common
stock, would pay. The amendment discourages two-tiered pricing proposals and
strengthens the board of directors' position in dealing with potential takeover
proposals.
However, the conditions imposed on third parties attempting to take us over
and the potential benefits of the classification of directors are offset, in
part, by the possibility that a corporate suitor might be discouraged from
making a takeover offer, thereby depriving stockholders of an opportunity to
sell their shares at an attractive price. On balance, it is our management's
belief that its strengthened position in dealing with suitors will enable it to
bargain more effectively with all potential business partners, including those
desiring a takeover.
45
<PAGE>
RIGHTS AND PREFERENCES OF PREFERRED STOCK. The board of directors will
determine the rights and limitations of the preferred stock. Stockholder
approval will not be required for the issuance of such shares. Such shares of
preferred stock could have rights that are senior to the rights of the holders
of shares of common stock, e.g., preferred liquidation rights, cumulative
dividends, or voting and conversion rights that could adversely affect the
voting power or dividend rights of the holders of common stock and delay, defer,
or prevent a change in control of us.
AGREEMENTS WITH CERTAIN OFFICERS. We entered executive agreements dated
April 1, 1999, as amended July 26, 1999, with Gerald D. Van Eeckhout, Gavin J.
Thomson, and Gene Warren. The executive agreements provide that in the event of
a change in our control, as defined in the agreements, any termination without
cause or resignation with good reason, generally defined as a significant change
in employment duties, will trigger payment of a special termination payment
equal to three times the executive's then-current base salary and bonus. We also
entered a five year employment agreement with Gerald D. Van Eeckhout dated
July 1, 1999. If a change in control occurs, the terms of Mr. Van Eeckhout's
executive agreement will prevail over the terms of the employment agreement,
with certain exceptions. See "Executive Compensation--Key Employee Agreements."
SHARE RIGHTS PLAN. On November 18, 1999, our board of directors adopted a
share rights plan, commonly known as a "poison pill." Each right entitles the
holder, upon payment of the exercise price of $80.00 per right, to purchase
1/100th of a share of Series B Junior Participating Preferred (See "Description
of Securities--Preferred Stock--Series B") Each share of Series B is entitled to
receive a dividend when, as, and if declared by the by the board of directors
out of funds legally available for this purpose, payable quarterly in cash at
the rate of $1.00 per share (one cent per 1/100th share) or 100 times the cash
or non-cash dividends payable to holders of shares of common stock. Our board
declared a dividend of one right for each share of common stock. The rights were
issued to stockholders of record on and following December 10, 1999. These
rights are not exercisable or transferable separately from shares of common
stock until 15 days after the ownership of our common stock by any person or
group of persons acting together as acquiring person exceeds 20 percent of our
outstanding common stock or 15 days after a tender offer that would result in
beneficial ownership of at least 20 percent of our common stock. We can redeem
the rights before an acquiring person's ownership of our common stock exceeds 20
percent, subject to an exception for persons who inadvertently cross the 20
percent threshold and promptly divest to a level below 20 percent. The rights
expire in ten years and are subject to extension.
Instead of exercising the right to acquire Series B, the holder of the right
may exercise the right, following expiration of the redemption period, to
purchase the number of shares of common stock, priced at its then market value,
which is equal to twice the exercise price. For example, if the market price of
common stock is $16 per share, the holder of one right could purchase 10 shares
for each right ($80 times 2 divided by $16 per share). This is called a "Flip-in
Right" and has the effect of substantially diluting the acquiring person's
ownership of our common stock because the acquiring person or group is
ineligible to exercise this right. The Flip-in Right also entitles the board to
issue common stock of the same economic value to rights holders had they
exercised their rights, unless the acquiring person holds at least 50 percent of
the outstanding shares of common stock. The rights also become exercisable for
the common stock of a surviving or acquiring corporation with market values of
twice the exercise paid, called a "Flip-over Right."
Our board has broad authority to amend the plan prior to the exercisability
of the rights and to amend the plan after the rights are exercisable if the
amendments do not adversely affect the interests of rights holders.
The rights plan discourages hostile takeover bids by the potentially
dilutive effect of the exercise of the rights on the acquiring person. The
purpose of the rights plan is to provide our board with a stronger hand in
negotiating the sale of our company, should that opportunity be presented. The
board
46
<PAGE>
will consider the fairness of any offer that it considered a good faith attempt
to provide fair value to the stockholders, but it feels it must have the rights
plan in effect to deter hostile offers that are undervalued, given all the
information about our company then available to the board. One of the
underwriters of this offering, John G. Kinnard and Company, Incorporated,
provided us investment banking advice in conjunction with our consideration of
the rights plan.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us.
As of December 31, 1999, we had 4,595,947 shares of common stock issued and
outstanding, together with warrants to purchase a total of 1,022,539 shares of
common stock at a weighted average purchase price of $6.95 per share. See
"Description of Securities--Warrants." We also had a total of 1,106,352 options
outstanding under the Stock Option Plan of 1991, and the Stock Option Plan of
1996, as amended, at a weighted average purchase price of $4.93 per share. See
"Description of Securities--Stock Options."
If all the warrants and options were to be exercised, the number of
outstanding shares of common stock would increase from 4,595,947 shares as of
December 31, 1999, to 6,724,838 shares; however, 544,515 stock options are
subject to vesting restrictions and 400,000 warrants are subject to lock-up
restrictions. All of the shares optioned under the Stock Option Plans of 1991
and 1996 are the subject of effective registration statements. Holder of the
warrants can request registration under their demand or piggy-back registration
rights. All of the options outstanding and certain of the warrants outstanding
may be exercised by the surrender of options or warrants outstanding at the
value per option that is equal to the excess of the market price per share over
the exercise price on the date of exercise, a cashless exercise, or through a
combination of cashless exercise and payment. In a cashless exercise, the
dilutive effect on existing stockholders of our issuance of shares underlying
the warrants and options is lessened because the shares underlying the
surrendered warrants or options do not become outstanding shares.
Of the 4,595,947 shares outstanding on December 31, 1999, 1,254,930 shares
or 27.3 percent are "restricted securities" as defined in Rule 144 under the
Securities Act. Holders of restricted securities are eligible to resell such
securities under the provisions of Rule 144. Generally, Rule 144 requires a
one-year holding period, compliance with certain volume limitations, and the
filing of Form 144 with the Securities and Exchange Commission before sales can
be effected. However, Rule 144(k) allows persons, who have held restricted
securities for at least two years and who have not been "affiliates" for the
three months prior to such sale, to sell shares without complying with
Rule 144. "Affiliates," generally, are persons who are in a position of control
such as executive officers, directors, and principal stockholders. Restricted
securities are those shares issued to our founders and other investors prior to
our initial public offering in February 1996, shares issued in private
placements since our initial public offering, or stock grants. Excluding
affiliates' ownership at February 29, 2000 of 998,108 shares that continue to be
restricted, the required holding period under Rule 144(k) for non-affiliates has
now been satisfied for all shares issued prior to February 28, 1998. In
addition, 1,022,539 shares underlying warrants, when issued, will be deemed
restricted securities unless included in an effective registration statement.
Holders of 405,967 of these warrants have the right to purchase shares through a
cashless exercise. The Securities and Exchange Commission has indicated that
holders of restricted shares purchased through a cashless exercise are permitted
to sell those restricted shares through Rule 144 procedures, assuming the
warrants have been held for one year and all the requirements of Rule 144 are
satisfied.
47
<PAGE>
UNDERWRITING
The underwriters named below have agreed to underwrite 2,000,000 shares in a
firm commitment, acting through their representatives, John G. Kinnard and
Company, Incorporated, and Kaufman Bros., L.P., under the terms and conditions
of the underwriting agreement and to purchase from us the number of shares of
common stock set forth opposite their respective names below. The underwriters
are committed to purchase and pay for all such shares if any are purchased,
under the conditions stated in the underwriting agreement.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
- ------------------- ----------------
<S> <C>
John G. Kinnard and Company, Incorporated...................
Kaufman Bros., L.P..........................................
Total...................................................
</TABLE>
The underwriters propose to offer the shares of common stock to the public
at the offering price on the cover page of this prospectus and to certain
dealers at that price less a concession of not more than $ per share, of
which $ may be reallowed to other dealers. After the public offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the representatives. No such reduction shall change the amount of proceeds to be
received by us as listed on the cover page of the prospectus.
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statements, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the continued listing of the common stock
for quotation on the Nasdaq SmallCap or National Market, and no occurrence of an
event that would have a material adverse effect on us. The underwriters are
obligated to purchase and accept delivery of all the shares of common stock,
other than those covered by the over-allotment option described below, if they
purchase any of the shares of common stock.
We have granted to the representatives an option, expiring at the close of
business on the 30th day after the effective date of this offering, to purchase
up to 300,000 additional shares at the public offering price, less the
underwriting discounts, all as set forth on the cover page of this prospectus.
The representatives may exercise such option only to cover over-allotments made
in connection with the sale of the common stock in this offering.
The underwriting agreement contains covenants of indemnity among the
underwriters and us against civil liabilities, including liabilities under the
Securities Act and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
Upon completion of this offering, we will sell to the representatives for $1
a warrant to purchase 200,000 shares of common stock (ten percent of shares
offered). The representatives' warrant will become exercisable one year after
the effective date of this offering at a per share exercise price equal to 120
percent of the public offering price on the cover page of this prospectus and
will expire five years from the effective date of this offering. The
representatives' warrant and underlying shares of common stock will be
restricted from sale, transfer, assignment, or hypothecation for a period of one
year from the date of this prospectus, except to members of the underwriting
group and their respective officers and partners. During the exercise period,
holders of the representatives' warrant are entitled to certain demand and
incidental registration rights with respect to the shares of common stock
48
<PAGE>
issuable upon exercise of the representatives' warrant. The common stock
issuable on exercise of the representatives' warrant is subject to adjustment in
certain events to prevent dilution.
We will pay the representatives a nonaccountable expense allowance of one
percent of the gross proceeds of the offering, which will include proceeds from
the over-allotment option, if exercised. We have paid an advance of $25,000
toward the nonaccountable expense allowance.
The representatives do not have any material relationship with us, except
for services provided us in conjunction with the adoption of our Rights plan in
November 1999, for which we paid a fee customary for such services. See
"Description of Securities--Anti-Takeover Provisions--Share Rights Plan."
The price of the shares of common stock purchased by the underwriters will
be the public offering price on the cover page of this prospectus less the
following underwriting discounts and commissions, which we will provide. The
following table summarizes the compensation and estimated expenses which we will
pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and expense
allowance............................. $ $ $ $
Our expenses............................
</TABLE>
Without the prior written consent of the representatives, our executive
officers and directors have agreed, for a period of 180 days after the date of
this prospectus, not to sell, transfer, grant any third party the right to
purchase, or otherwise dispose of any shares of common stock or other securities
that they own or acquire, except: (i) if the holder of shares subject to the
lock-up agreement is an individual, he or she may transfer such shares by gift,
by will, or by the laws of descent and distribution to a person who agrees to be
bound by the lock-up agreement; and (ii) 36,000 shares subject to the lock-up
agreement have been pledged to secure margin loans and, in the event of a margin
call, may be sold by the lender immediately without regard to the lock-up
agreement. The representatives may, without notice and in their sole discretion,
allow any executive officer, or director to dispose of common stock or other
securities before the expiration of the lock-up period. In addition, during such
period and subject to certain exceptions, we have agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and the selling stockholders have agreed not to make any demand for or
exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock without
the prior written consent of the representatives.
On the date of expiration of the lock-up agreements, all of the shares
subject to the lock-up will be eligible for immediate sale, of which
approximately 750,000 shares will remain subject to volume, manner of sale, and
other limitations of Rule 144.
The underwriters have advised us that in connection with this offering,
certain persons participating in this offering may engage in transactions that
may have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market.
These transactions may include stabilizing bids, syndicate covering
transactions, and the imposition of penalty bids.
- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of preventing or retarding a decline
in the market price of the common stock.
49
<PAGE>
- A syndicate covering transaction is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with the offering if the common stock originally sold
by such underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on
the Nasdaq SmallCap Market or Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Other than in the United States and Canada, no action has been taken by the
underwriters or us that would permit a public offering of the shares of common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares of common stock included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisement in connection with the offer and sale
of any shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons who receive this prospectus
are advised to inform themselves about and to observe any restrictions relating
to this offering of the common stock and the distribution of this prospectus.
This prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction in which
that would not be permitted or legal.
50
<PAGE>
ELIMINATION OF DIRECTOR LIABILITY
Our articles eliminate the personal liability of our directors to the
company and to our stockholders for monetary damages for breach of fiduciary
duty, except in the instances described below. The Colorado Business Corporation
Act authorizes the elimination of personal liability and is designed, among
other things, to encourage qualified individuals to serve as directors of
Colorado corporations by permitting Colorado corporations to limit or eliminate
directors' liability for monetary damages for breach of the duty of care.
Directors remain liable for breaches of their duty of loyalty to us and our
stockholders, as well as for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law and for transactions from
which a director derives improper personal benefit. The articles do not
eliminate director liability under a separate provision of the Colorado Business
Corporation Act that makes directors personally liable for unlawful payments of
dividends, unlawful stock repurchases or redemptions, unlawful distributions of
assets during liquidation, and unlawful loans or guarantees to a director. The
Colorado Business Corporation Act expressly sets forth a negligence standard
with respect to such liability.
The provisions that eliminate liability as described above will apply to our
officers only if they are our directors and are acting in their capacity as
directors and will not apply to our officers who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Colorado Business Corporation Act contains provisions permitting and, in
some situations, requiring Colorado corporations to provide indemnification to
their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation. Our Articles and Bylaws
contain provisions requiring our indemnification of our directors and officers
and other persons acting in their corporate capacities.
The Colorado Business Corporation Act permits indemnification of a director
of a Colorado corporation, in the case of a third-party action, if the director:
- Conducted himself or herself in good faith,
- Reasonably believed that (a) in the case of conduct in his or her official
capacity, his or her conduct was in the corporation's best interest, or
(b) in all other cases, his or her conduct was not opposed to the
corporation's best interest, and
- In the case of any criminal proceeding, had no reasonable cause to believe
that his or her conduct was unlawful.
The Act further provides for mandatory indemnification of directors and
officers who are successful on the merits or otherwise in litigation. The
statute limits the indemnification that a corporation may provide to its
directors in a derivative action in which the director is held liable to the
corporation, or in any proceeding in which the director is held liable on the
basis of his improper receipt of a personal benefit.
In addition, we may enter into agreements with our directors providing
contractually for indemnification consistent with the Articles and Bylaws.
Currently, we have no such agreements. The Colorado Business Corporation Act
also authorizes us to purchase insurance for our directors and officers insuring
them against risks as to which we may be unable lawfully to indemnify them. We
have obtained limited insurance coverage for our officers and directors as well
as insurance coverage to reimburse us for potential costs of our corporate
indemnification of officers and directors.
51
<PAGE>
As far as exculpation or indemnification for liabilities arising under the
Securities Act of 1933 may be permitted for directors and officers and
controlling persons, we have been advised that in the opinion of the Securities
and Exchange Commission such exculpation or indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other
information with the SEC. You may read and copy any reports, statements, or
other information on file at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC.
We have filed a Registration Statement on Form S-1 with the SEC. This
prospectus, which forms a part of the Registration Statement, does not contain
all of the information included in the Registration Statement. Certain
information is omitted, and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of ours, such references are not necessarily complete, and you
should refer to the exhibits attached to the Registration Statement for copies
of the actual contract or document. You may review a copy of the Registration
Statement at the SEC's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Chicago, Illinois; or New York, New York. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms.
Our Securities and Exchange Commission filings and the Registration
Statement can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov.
LEGAL MATTERS
The legality of the issuance of shares we are offering will be passed upon
by Faegre & Benson LLP, Denver, Colorado. Certain legal matters will be passed
upon for the underwriters by Thelen Reid & Priest, LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999 as set forth in their report, which
is included in this prospectus and elsewhere in this registration statement. Our
consolidated financial statements are included in this prospectus in reliance on
their report, given on their authority as experts in accounting and auditing.
TRANSFER AGENT AND WARRANT AGENT
Our stock transfer agent and warrant agent is American Securities Transfer
and Trust, Inc., 12039 West Alameda Parkway, Suite Z-2, Lakewood, CO 80228.
52
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ACT Teleconferencing, Inc.
We have audited the accompanying consolidated balance sheets of ACT
Teleconferencing, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ACT Teleconferencing, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Denver, Colorado
February 8, 2000
F-2
<PAGE>
ACT TELECONFERENCING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,532,551 $ 369,407
Accounts receivable (net of allowance for doubtful
accounts of $153,677and $32,644 in 1999 and 1998,
respectively)........................................... 6,606,641 4,295,216
Prepaid expenses.......................................... 847,021 571,597
Inventory................................................. 129,519 269,796
----------- -----------
Total current assets...................................... 9,115,732 5,506,016
Equipment:
Telecommunications equipment.............................. 8,254,966 5,840,969
Office equipment.......................................... 6,383,765 4,205,347
Less: accumulated depreciation............................ (3,363,484) (1,969,428)
----------- -----------
Total equipment--net...................................... 11,275,247 8,076,888
Other assets:
Goodwill (net of accumulated amortization of $247,980 and
$136,340 in 1999 and 1998, respectively)................ 1,456,944 1,537,321
Deferred loan placement fees.............................. 250,420 205,975
----------- -----------
Total assets................................................ $22,098,343 $15,326,200
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt................................... $ 2,313,454 $ 686,691
Accounts payable.......................................... 2,541,822 2,935,331
Accrued liabilities....................................... 1,492,382 1,814,877
Capital lease obligations due in one year................. 609,076 1,111,126
Income taxes payable...................................... 589,666 215,895
----------- -----------
Total current liabilites.................................. 7,546,400 6,763,920
Long-term debt.............................................. 3,778,614 3,940,867
Capital lease obigations due after one year................. 1,223,795 1,008,184
Preferred stock, no par value, 1,000,000 shares authorized;
2,000 issued.............................................. 1,693,006 --
Deferred income taxes (United Kingdom)...................... 320,112 302,145
Minority interest........................................... 967,559 806,519
Shareholders' equity:
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............................. 11,378,103 7,463,931
Additional paid in capital................................ 99,900 --
Accumulated deficit....................................... (4,809,176) (4,846,194)
Accumulated other comprehensive loss...................... (99,970) (113,172)
----------- -----------
Total shareholders' equity................................ 6,568,857 2,504,565
----------- -----------
Total liabilities and shareholders' equity.................. $22,098,343 $15,326,200
=========== ===========
</TABLE>
F-3
<PAGE>
ACT TELECONFERENCING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................................ $28,328,791 $19,009,645 $10,234,403
Cost of services........................................ (14,797,606) (10,881,556) (4,727,236)
----------- ----------- -----------
Gross profit............................................ 13,531,185 8,128,089 5,507,167
Selling, general and administration expense............. (11,991,914) (9,121,235) (5,309,444)
----------- ----------- -----------
Operating income........................................ 1,539,271 (993,146) 197,723
Interest expense........................................ (848,013) (532,322) (99,496)
----------- ----------- -----------
Income (loss) before income taxes and minority
interest.............................................. 691,258 (1,525,468) 98,227
Provision for income taxes.............................. (414,866) (401,762) (332,566)
----------- ----------- -----------
Income (loss) before minority interest.................. 276,392 (1,927,230) (234,339)
Minority interest in earnings of consolidated
subdsidiary........................................... (194,967) (189,895) (202,469)
----------- ----------- -----------
Net income (loss)....................................... $ 81,425 $(2,117,125) $ (436,808)
=========== =========== ===========
Net income (loss) per share-basic and fully diluted..... $ 0.01 $ (0.58) $ (0.14)
=========== =========== ===========
Weighted average number of shares outstanding--basic.... 4,393,963 3,647,188 3,204,747
=========== =========== ===========
Weighted average number of shares outstanding--fully
diluted............................................... 4,655,501 3,647,188 3,204,747
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
ACT TELECONFERENCING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
<TABLE>
<CAPTION>
ACCUMULATED
COMMON OTHER
STOCK ACCUMULATED COMPREHENSIVE
SHARES VALUE DEFICIT INCOME (LOSS) TOTAL
--------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 2,939,930 $ 4,022,671 $(2,292,261) $ 37,547 $ 1,767,957
Employee stock option exercise.... 43,500 52,000 52,000
Shares issued in connection with
exercise of warrants............ 514,950 1,520,834 1,520,834
Share issuance as fee to warrant
placement agent................. 33,000 115,500 115,500
Shares issued for acquisitions.... 81,378 447,579 447,579
Comprehensive loss
Net loss........................ (436,808) (436,808)
Other comprehensive loss, net of
tax
Foreign currency translation
adjustment.................... (89,129) (89,129)
-----------
Total comprehensive loss.......... $ (525,937)
--------- ----------- ----------- --------- ===========
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
Employee stock option exercise.... 2,000 6,000 6,000
Issue of warrants in lieu of
interest........................ 486,521 486,521
Shares issued for acquisitions.... 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........ (61,590) (61,590)
-----------
Total comprehensive loss.......... $(2,178,715)
--------- ----------- ----------- --------- ===========
Balance at December 31, 1998...... 3,755,633 $ 7,463,931 $(4,846,194) $(113,172) $ 2,504,565
Shares issued in connection with
exercise of warrants............ 562,654 2,619,890 2,619,890
Issuance of private placement
shares.......................... 109,912 592,505 592,505
Shares issued in connection with
the employee stock purchase
plan............................ 12,304 50,990 50,990
Shares issued as payment for
consulting fees................. 30,500 84,591 84,591
Employee stock option exercise.... 4,500 12,660 12,660
Exercise of unit purchase
option.......................... 120,444 553,537 553,537
Additional paid in capital-warrant
issue........................... 99,900 99,900
Preferred dividend................ (44,407) (44,407)
Comprehensive income
Net income...................... 81,425 81,425
Other comprehensive loss, net of
tax
Foreign currency translation.... 13,202 13,202
-----------
Total comprehensive income........ $ 94,627
--------- ----------- ----------- --------- ===========
Balance at December 31, 1999...... 4,595,947 $11,478,003 $(4,809,176) $ (99,970) $ 6,568,857
--------- ----------- ----------- --------- -----------
</TABLE>
F-5
<PAGE>
ACT TELECONFERENCING, INC
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ 81,425 $(2,117,125) $ (436,808)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation......................................... 1,394,056 874,489 358,382
Amortization of goodwill............................. 80,377 57,920 18,054
Deferred income tax.................................. 17,967 184,691 76,416
Minority interest.................................... 161,040 199,275 202,469
----------- ----------- -----------
Cash flow before changes in operating assets and
liabilities:....................................... 1,734,865 (800,750) 218,513
Changes in operating assets and liabilities (net of
effect of business combinations):
Accounts receivable.................................. (2,287,387) (1,324,560) (1,310,000)
Inventory............................................ 140,277 (133,680) 73,276
Prepaid expenses and other assets.................... (275,424) (364,794) (124,612)
Accounts payable..................................... (425,438) 1,471,474 288,217
Income tax payable................................... 373,771 (84,506) 136,243
Accrued liabilities.................................. (322,495) 994,452 356,356
----------- ----------- -----------
Net cash used for operating activities................. (1,061,831) (242,364) (362,007)
INVESTING ACTIVITIES
Property and equipment purchases....................... (4,592,415) (5,268,971) (1,618,359)
Short term notes redeemed.............................. (24,037) 11,776 (26,739)
Sale of marketable securities.......................... -- 50,000 --
Cash paid for acquisitions net of cash acquired........ -- (249,298) (101,257)
----------- ----------- -----------
Net cash used for investing activities................. (4,616,452) (5,456,493) (1,746,355)
FINANCING ACTIVITIES
Net proceeds from the issuance of debt................. 1,178,071 5,255,875 258,985
Net proceeds from issuance of common stock............. 4,014,072 628,521 1,688,334
Net proceeds from issuance of preferred stock.......... 1,680,526
Deferred loan issuance costs........................... (44,445) (205,975) --
----------- ----------- -----------
Net cash provided by financing activities.............. 6,828,224 5,678,421 1,947,319
Effect of exchange rate changes on cash................ 13,202 (61,590) (9,265)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 1,163,143 (82,026) (170,308)
Cash and cash equivalents, beginning of year........... 369,408 451,434 621,742
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 1,532,551 $ 369,408 $ 451,434
=========== =========== ===========
</TABLE>
F-6
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
ACT Teleconferencing, Inc. (the Company) is engaged in the business of
providing high quality audio, video and data conferencing products and services
to business clients worldwide. The Company operates principally in the United
States, Canada, the United Kingdom, France, the Netherlands, Belgium, Germany,
Australia, and Hong Kong.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc, its wholly-owned domestic and worldwide subsidiaries ACT
Teleconferencing Services Inc, ACT VideoConferencing Inc, ACT Research Inc, ACT
Teleconferencing Canada Inc, ACT Teleconferencing Limited (United Kingdom), ACT
Business Solutions Limited (United Kingdom), ACT Teleconferencing France SA, ACT
Teleconferencing BV (Netherlands), ACT Teleconferencing Gmbh (Germany), ACT
Teleconferencing Belgium SA, ACT Teleconferencing (Pty) Limited (Australia), and
ACT Teleconferencing Hong Kong Limited. With the exception of ACT
Teleconferencing Limited (UK), which is 60% held, and ACT Teleconferencing (Pty)
Limited (Australia) and ACT Business Solutions Limited, both of which are 80%
held, ACT owns 100% of all of its subsidiaries.
REVENUE RECOGNITION
Revenue is recognized upon completion of conferencing services or delivery
of equipment.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Video and audio equipment inventories are stated at the lower of cost or
market, on a first-in, first-out ("FIFO") basis. Equipment is priced using
specific unit costs consisting of materials, labor, and related manufacturing
overhead, but exclusive of research and development, selling, and general and
administrative expenses, which are charged to operations as incurred.
EQUIPMENT AND DEPRECIATION
Equipment is stated at cost. Depreciation is calculated on a straight-line
basis over the estimated useful lives of five years for office furniture and
five or ten years for telecommunications equipment. Depreciation expense
includes capital lease amortization charges.
GOODWILL
Goodwill represents the excess of purchase price over tangible assets
acquired less liabilities assumed arising from acquisitions and is being
amortized on a straight-line basis over an estimated useful life of fifteen
(15) years.
F-7
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Long-Lived Assets are reviewed for impairment when events indicate that the
carrying amount may not be recoverable. If such events are noted, the Company
estimates the future flows to be generated by those assets. In the event that
the sum of the cash flows is less than the carrying amount of those assets, the
assets would be written down to fair value, which is normally measured by
discounting the estimated future cash flows.
FOREIGN CURRENCY CONVERSION
The financial statements of the Company's foreign subsidiaries have been
translated into United States dollars at the average exchange rate during the
year for the statement of operations and year-end rate for the balance sheet.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common 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 basic 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 in 1999, the effect of 1998 and 1997 is anti-dilutive and therefore
not disclosed.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statement
presentation in order to conform to the 1999 presentation.
F-8
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. LONG AND SHORT TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
ACT Teleconferencing Services, Inc., a United States
subsidiary, has a line of credit secured by all tangible
and intangible assets with the exception of leased assets
of its operations. The line of credit carries an interest
rate of 2% above the prime rate (7.5% at December 31,
1999), no less than 9% per annum with a borrowing base
restricted to qualified accounts receivable up to
$2 million. .............................................. $ 1,429,511 $ --
Revolving lines of credit, available through various banks,
secured by accounts receivable and mortgage debenture over
assets. These short-term financings bear interest rates
ranging from 2% to 3.75% above the bank's prime rate. The
maximum borrowing base ranges from $32,800 to
$825,000. ................................................ 109,284 617,377
Subordinated debt financing--promissory note payable by ACT
Teleconferencing, Inc. bearing an interest rate of 13.5%
per annum with monthly interest payments of $28,125.
Principal is due on the maturity date of March 31, 2003.
The note is secured by a second lien on Company assets,
subordinated to the Company's senior lenders. ............ 2,500,000 2,500,000
Line of credit to equipment vendor owed by ACT
Teleconferencing, Inc. bearing interest at 6% per annum.
Payments are due in monthly installments calculated on 6%
of principal balance and interest. This facility is
limited to $1,000,000. ................................... 925,809 717,968
Subordinated two-year convertible note to an equipment
vendor payable by ACT Teleconferencing, Inc. bearing
interest at 9%, with principal due on July 31, 2001. This
note will be converted into common stock at a conversion
price of $7 per share if it is not repaid on or before due
date. .................................................... 500,000 --
Note payable by a subsidiary to an equipment vendor at an
interest rate of 7% until 2002. Payments of $93,333 are
due annually. ............................................ 280,000 280,000
Notes payable to vendors bearing interest at rates from
14.157% to 16.75% due in monthly interest and principal
repayments of $13,525. These notes are collateralized by
certain telecommunications and bridging equipment owned by
a subsidiary. ............................................ 396,845 493,295
Bank notes payable bearing interest at rates ranging from 6%
to 9.6%. Monthly or quarterly payments are made in
accordance with the debt agreements. The notes are secured
by registered mortgage debentures or corporate guarantee.
Maturity dates range from August 2002 to September
2003. .................................................... 266,860 432,464
----------- ----------
Subtotal.................................................... 6,408,309 5,041,104
Less deferred interest cost................................. (316,241) (413,546)
----------- ----------
Subtotal.................................................... 6,092,068 4,627,558
Less, current portion of long term debt..................... (2,313,454) (686,691)
----------- ----------
Long term debt.............................................. $ 3,778,614 $3,940,867
=========== ==========
</TABLE>
F-9
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. LONG AND SHORT TERM DEBT (CONTINUED)
Total interest paid on notes and capitalized leases for the year ended
December 31, 1999, 1998, and 1997 amounted to $848,013, $532,322, and $99,496,
respectively.
The aggregate minimum annual payments as of December 31, 1999 for long term
debt are as follows:
<TABLE>
<S> <C>
2000........................................................ $2,313,453
2001........................................................ 1,136,406
2002........................................................ 415,259
2003........................................................ 43,191
2004 and thereafter......................................... 2,500,000
----------
$6,408,309
==========
</TABLE>
3. COMMITMENTS--OPERATING AND CAPITALIZED LEASES
OPERATING LEASES
The company leases office space in the United States, Canada, the United
Kingdom, France, the Netherlands, Australia, and Hong Kong. These leases expire
December 2000 through July 2008. Total rent expense charged to operations was
$1,109,422, $743,380, and $301,316 for the years ended December 31, 1999, 1998,
and 1997, respectively.
The Company has also entered into several operating leases for computer and
office equipment. Total rent expense charged under these leases was $243,074,
$102,351, and $51,715 for the years ended December 31, 1999, 1998, and 1997,
respectively.
CAPITALIZED LEASES
The Company leases telecommunication equipment, office equipment, computers
and furniture under long-term leases classified as capital leases. For several
of these leases, the Company has the option to purchase the equipment for a
nominal cost at the termination of the lease. The assets classified as capital
leases are amortized over the shorter of the estimated useful life of the
property or the lease term. Amortization related to the leased assets is
included in depreciation for financial reporting purposes.
The following property is secured under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Telecommunications and office equipment, computers
and furniture...................................... $2,582,438 $2,317,286
Less accumulated depreciation........................ (498,281) (278,613)
---------- ----------
Net value of equipment secured....................... $2,084,157 $2,038,676
========== ==========
</TABLE>
F-10
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
3. COMMITMENTS--OPERATING AND CAPITALIZED LEASES (CONTINUED)
The aggregate minimum annual commitments for operating and capital leases as
of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
2000................................................. $1,568,365 $ 807,685
2001................................................. 1,294,032 716,823
2002................................................. 1,100,143 418,740
2003................................................. 700,730 222,435
2004 and thereafter.................................. 576,048 5,257
---------- ----------
Total minimum lease payments......................... $5,239,318 $2,170,940
==========
Less amounts representing interest................... (338,069)
----------
Present value of net minimum capital leases
payments........................................... $1,832,871
Less capital lease obligations due within one year... (609,076)
----------
Capital lease obligations due after one year......... $1,223,795
==========
</TABLE>
During 1999 and 1998, the Company incurred capital lease obligations of
$422,336 and $1,714,690 respectively, in connection with lease agreements to
acquire equipment.
4. SHAREHOLDERS' EQUITY
Our authorized capital stock consists of 10,000,000 shares of common stock,
no par value, and 1,000,000 shares of non-voting preferred stock, no par value.
PREFERRED STOCK
SERIES A. On October 19, 1999 we issued 2,000 shares of Series A 8%
preferred stock to GMN Investors II, L.P. for $2,000,000. This transaction was
accompanied by the issuance of 400,000 warrants to purchase shares of common
stock at $7.00 per share (see Warrants Outstanding below). The holders of
Series A are entitled to dividends compounded quarterly, payable no later than
the redemption date. Redemption of the Preferred stock is mandatory on
October 19, 2004. We have the right to redeem this instrument for any reason
prior to October 19, 2004 by payment of $2,000,000 plus any outstanding
dividends. At December 31, 1999, the preferred stock had a value of $1,693,006,
net of deferred placement cost of $306,994 which is accreted to redemption value
through October 19, 2004, and we recognized $31,927 for ordinary dividends and
$12,480 for accretion of discount.
COMMON STOCK
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters on which stockholders are entitled or
permitted to vote.
During 1999 we increased our issued share capital from 3,755,633 shares
outstanding to 4,595,947. Our share capital was increased by warrant conversions
as well as a private placement of shares, both described more fully below (see
1999 Private Placement and Warrant Conversions).
F-11
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
1999 PRIVATE PLACEMENT
In February 1999, the Company completed a private offering of 109,212 units,
each comprised of one share of common stock at $5.50 per share and one warrant
to purchase one share of common stock. The private placement raised net capital
of $592,505. The warrants are exercisable at $7.00 and expire December 31, 2003.
The shares and the shares underlying the warrants entitle the holder to
piggyback registration rights from June 30, 1999, through December 31, 2003.
WARRANT CONVERSIONS
On February 2, 1999 a total of 549,154 warrants, or 77% of the total
publicly held 1996 warrants, which were issued pursuant to our initial public
offering were exercised at a conversion price of $5 per share raising cash
proceeds to our company, net of expenses, of $2,619,890.
Pursuant also to our initial public offering, we had granted a unit purchase
option to the underwriter. Each unit contained the right to obtain one share of
common stock for $4.20 per share and a three-year warrant for the purchase of a
share at $5.00 per share. The unit purchase option granted the holder the right
to purchase up to 71,250 units or 142,500 shares at an average price of $4.60
via the exercise of the unit. In August 1999, 60,222 unit purchase options were
exercised resulting in the issuance of 120,444 shares at an average exercise
price of $4.60 per unit, raising $553,537 in net proceeds to the Company.
WARRANTS OUTSTANDING
On March 31, 1998, in conjunction with the issuance of its $2.5 million
subordinated promissory notes, the Company issued stock purchase warrants for
the purchase of 330,967 shares of common stock at an exercise price of $7.00 per
share to Sirrom Capital Corp. and Equitas L.P. If the notes are not fully paid
on the second, third, or fourth anniversary dates from the above date, the
number of shares subject to these warrants will increase to 390,634, 470,527,
and 588,905 shares, respectively, retaining the same strike price of $7.00 per
share. The warrants expire on March 31, 2003.
In February 1999 we issued 109,212 warrants in connection with our private
placement at a $7.00 exercise price and an expiration date of December 31, 2003.
On October 19, 1999, in association with the issue of preferred stock, we issued
400,000 warrants to GMN Investors II at a $7.00 exercise price and an expiration
date of October 19, 2006.
In 1998, R.C.C. Finance issued a $2 million lease commitment to us. We
granted R.C.C. 75,000 warrants at an exercise price of $8.00 per share and an
expiration date of April 3, 2003.
During 1999 we issued 95,000 warrants at an average strike price of $5.95
for consulting services for work to be done for the company in investor
relations, global business development, and the identification of new partners
and acquisitions in new markets.
We have 21,660 warrants remaining at an average strike price of $6.39 per
share, 11,660 of which were pursuant to the underwriter's unit purchase option
not yet exercised at $5.00 per share.
All warrants were issued at or above market price on the day of the grant.
All warrants are also subject to customary anti-dilution provisions and to
adjustment in the event of stock splits, stock dividends, consolidations, and
the like. Holders of shares issued upon the exercise of these warrants
F-12
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
have piggy-back rights to registration and certain investors, principally GMN
Investors II, have demand registration rights.
Holders of warrants are not entitled to vote, receive dividends, or exercise
any of the rights of shareholders of Common Stock for any purpose until the
warrants have been duly exercised. Warrants issued during 1998 and 1999 were
valued at their estimated fair market value based on valuation opinions provided
by independent investment banks.
5. STOCK OPTION PLAN
The Company's 1991 Stock Option Plan, as approved by shareholders,
authorizes the grant of options to officers, key employees, and consultants for
up to 400,000 shares of the Company's common stock. The Stock Option Plan of
1996, as amended and as approved by shareholders, authorizes the grant of an
additional 800,000 options to officers, key employees, and consultants of the
Company for a total of 1.2 million options authorized. Options granted under
both plans generally have 10-year terms and vest 25% each year following the
date of grant.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options are generally
equal to the market price of the underlying stock on the date of grant, no
compensation expense is recognized. FASB Statement No. 123, "Accounting for
stock-based compensation" establishes an alternative method of expense
recognition for stock-based compensation awards to employees based on fair
values. The Company elected not to adopt FASB Statement No. 123 for expense
recognition purposes.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model. The following are weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate of
6.0%; a dividend yield of 0%; volatility factors of the expected market price of
the Company's common stock of .77, .75, and .80; and a weighted-average expected
life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-13
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
5. STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Pro forma net loss....................... $(1,001,935) $(2,746,828) $(714,230)
Pro forma loss per share................. $ (.23) $ (.75) $ (.22)
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year.............. 902,437 $4.89 730,400 $4.02 454,300 $2.53
Granted.................................... 221,700 5.18 232,693 7.54 325,100 5.62
Exercised.................................. (4,500) 3.00 (2,000) 3.00 (43,500) 1.20
Forfeited.................................. (13,285) 7.35 (58,656) 4.69 (5,500) 2.00
--------- ----- ------- ----- ------- -----
Outstanding-end of year.................... 1,106,352 $4.93 902,437 $4.89 730,400 $4.02
========= ======= =======
Exercisable at end of year................. 561,837 $4.02 341,675 $3.15 186,350 $5.62
Weighted-average fair value of options
granted during the year
Market price equals exercise price....... $ 3.78 $ 6.68 $ 3.74
Market price exceeds exercise price...... $ 4.05 $ 6.25 --
Market price is less than exercise
price.................................. -- $ 3.94 --
</TABLE>
The following table summarizes our stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE
EXERCISE PRICE RANGE SHARES CONTRACTUAL LIFE EXERCISE PRICE
- -------------------- --------- ---------------- ----------------
<C> <C> <S> <C>
$ 2.00 98,500 4.7 years $2.00
$2.75-$3.03 347,800 6.86 years $2.98
$4.25-$5.25 148,640 9.5 years $4.37
$5.00-$6.05 323,900 8.66 years $5.70
$6.50-$7.00 71,700 10 years $6.86
$ 9.00 115,812 8.5 years $9.00
---------
1,106,352
=========
</TABLE>
6. INCOME TAXES
The Company accounts for income taxes in conformity with FASB Statement
No. 109, Accounting for Income Taxes. Under the provisions of FASB Statement
No. 109, a deferred tax liability or asset (net of valuation allowance) is
provided in the financial statements by applying the provisions of applicable
tax laws to measure the deferred tax consequences of temporary differences. This
will result
F-14
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
6. INCOME TAXES (CONTINUED)
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
Income tax expense and the related current and deferred tax liabilities for
all periods presented relate solely to the Company's U.K. operations and
therefore have no relation to the U.S. statutory rates.
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ----------- ---------
<S> <C> <C> <C>
Pretax income (loss):
United States............................ $710,747 $(1,701,724) $(564,701)
Foreign.................................. (19,489) 176,256 662,928
-------- ----------- ---------
$691,258 $(1,525,468) $ 98,227
======== =========== =========
</TABLE>
The provision for income taxes for the years ended December 31, is comprised
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current....................................... $393,331 $217,242 $256,154
Deferred...................................... 18,138 184,520 76,412
-------- -------- --------
$411,469 $401,762 $332,566
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
Deferred Tax Liabilities--Domestic
Tax depreciation in excess of book depreciation......... $ (495,227) $ (257,627) $(100,267)
Deferred Tax Assets--Domestic
Net operating loss carry-forward........................ 1,826,424 2,019,656 926,714
Reserves for doubtful accounts.......................... 28,723 7,764 3,850
Other................................................... (93,998) (41,106) 12,381
----------- ---------- ---------
1,761,149 1,986,314 942,945
Valuation allowance for deferred tax assets............... (1,265,922) (1,728,687) (842,678)
----------- ---------- ---------
Net Deferred Tax--Domestic................................ $ -- $ -- $ --
=========== ========== =========
Deferred Tax Liabilities--International
Tax depreciation in excess of book depreciation......... $ 320,112 $ (302,145) $(117,454)
Deferred Tax Assets--International
Net operating loss carry-forward........................ 1,096,655 698,677 335,088
Other................................................... -- -- 3,234
Valuation allowance for deferred tax assets............... (1,096,655) (698,677) (338,322)
----------- ---------- ---------
Net Deferred Tax Liability--International................. $ (320,112) $ (302,145) $(117,454)
=========== ========== =========
</TABLE>
F-15
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to actual income tax expense
is:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Expected rate at 35%......................... $241,940 $(533,914) $ 34,379
Effect of permanent difference............... 41,567 38,172 26,163
Utilization of NOLs.......................... (40,339) -- --
Foreign taxes................................ (38,692) (47,024) (17,194)
Valuation allowance.......................... 210,390 944,528 289,238
-------- --------- --------
$414,866 $ 401,762 $332,586
======== ========= ========
</TABLE>
Taxes of $0, $279,008, and $118,989 were paid during 1999, 1998, and 1997,
respectively. The total domestic net operating loss carry forward of
approximately $4.7 million will begin to expire in the year 2005. The Company
has not provided for any taxes on undistributed foreign earnings as the Company
intends to permanently reinvest these earnings in the future growth of the
business and there are no unremitted, cumulative foreign earnings.
7. BUSINESS SEGMENT ANALYSIS
The Company offers a broad range of audio, video, and data teleconferencing
services and products to corporate business clients and institutions, and these
products and services are considered one line of business. The Company's
management makes decisions on resource allocation and assesses performance based
on the market potential of each operating location. Each of the locations offers
the same products and services, has similar customers and teleconferencing
equipment, and is managed directly by the Company's executives, allowing all
locations to be aggregated under the guidelines of FAS 131 resulting in one
reportable line of business. Audio conferencing services presently comprise
approximately 90% of total services. Video, data, and Internet conferencing are
presently services which are offered together with the audio product offering
and their revenues are approximately 10% of total revenues. The following is a
summary of the significant geographic markets:
FOR THE YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Revenues............................... $14,182,533 $12,049,040 $2,097,218 $28,328,791
Long-Lived Assets.......................... $ 7,282,181 $ 4,210,370 $1,239,639 $12,732,190
Deferred Tax Liability..................... -- $ 320,112 -- $ 320,112
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Revenues............................... $8,241,490 $10,190,686 $577,469 $19,009,645
Long-Lived Assets.......................... $4,626,746 $ 4,081,218 $906,245 $ 9,614,209
Deferred Tax Liability..................... -- $ 302,145 -- $ 302,145
</TABLE>
F-16
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
7. BUSINESS SEGMENT ANALYSIS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net Revenues................................ $4,706,890 $5,424,307 $103,206 $10,234,403
Long-Lived Assets........................... $1,968,535 $2,024,994 $209,833 $ 4,203,363
Deferred Tax Liability...................... -- $ 117,454 -- $ 117,454
</TABLE>
One customer accounted for 24%, 22%, and 24% of consolidated revenues for
the years ended December 31, 1999, 1998, and 1997, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, temporary
investments, accounts receivable, accounts payable, long-term debt, and
capitalized lease obligations.
Because accounts receivable and accounts payable are short-term instruments
that are settled at face value, the Company considers the carrying amounts to
approximate fair value.
The fair value of long-term debt, consisting of notes and capitalized lease
obligations, is based on interest rates available to the Company and comparisons
to market rates. The Company considers the carrying amounts to approximate fair
value.
9. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution 401(k) plan for its United States
employees, which allows eligible employees to contribute a percentage of their
compensation and provides for certain discretionary employer matching
contributions. For the years ended December 31, 1999, 1998, and 1997, the
Company contributed $0, $24,980, and $15,355, respectively.
10. EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan became effective July 1, 1998. The plan has
been structured within the meaning of Section 423(b) of the Internal Revenue
Code of 1986. A maximum of 100,000 shares of common stock are available for sale
to our employees under the plan. The purchase price of each share of common
stock will be the lesser of 85% of the fair market value of such share on the
first day of the six month purchase period, or 85% of the fair market value of
such share on the last day of the purchase period. Currently 60 employees have
elected to participate in the plan. Through December 31, 1999, our employees had
purchased 27,060 shares of common stock under the plan.
11. SUBSEQUENT EVENTS
Effective January 1, 2000, we acquired the remaining minority interest in
ACT Teleconferencing (Pty) Ltd, based in Australia, for stock issued,
consideration aggregating approximately $400,000 and 16.7% of ACT Business
Solutions Limited, based in the United Kingdom, for stock issued, consideration
aggregating approximately $130,000.
Effective January 6, 2000 we acquired the assets of the Internet service
provider division of Mueller Telecommunications, Inc. for stock issued,
consideration aggregating approximately $365,000.
F-17
<PAGE>
[Included on the inside back cover is the opening page of our website
(acttel.com), a brief description of our business, and our address and telephone
number]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
Securities and Exchange Commission filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 9,350
Nasdaq National Market listing fee.......................... 70,000
Legal fees and expenses*.................................... 150,000
Accounting fees and expenses*............................... 60,000
Transfer agent fees and expenses*........................... 5,000
Printing and engraving expenses*............................ 75,000
Miscellaneous*.............................................. 30,650
--------
Total..................................................... $400,000
========
</TABLE>
- ------------------------
* Indicates estimate for the purpose of this filing.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Colorado Business Corporation Act permits a corporation organized under
it to indemnify its directors, officers, employees, and agents for various acts.
Our articles of incorporation conform to the Colorado Business Corporation Act.
Our articles of incorporation, and their amendments, are incorporated by
reference as Exhibit 3.1 to this registration statement.
In general, we may indemnify any officer, director, employee, or agent
against expenses, fines, penalties, settlements, or judgments arising in
connection with a legal proceeding to which this person is a party, if that
person's actions were in good faith, were believed to be in our best interest,
and were not unlawful. Indemnification is mandatory with respect to a director
or officer who was wholly successful in defense of a proceeding. In all other
cases, indemnification of a director, officer, employee, or agent requires the
board of directors independent determination, independent legal counsel's
determination, or a vote of the stockholders that the person to be indemnified
met the applicable standard of conduct.
The circumstances under which indemnification is granted in connection with
an action brought on our behalf are generally the same as those mentioned above.
However, with respect to actions against directors, indemnification is granted
only with respect to reasonable expenses actually incurred in connection with
the defense or settlement of the action. In these actions, the person to be
indemnified must have acted in good faith and in a manner the person reasonably
believed was in our best interest; the person must not have been adjudged liable
to us; and the person must not have received an improper personal benefit.
Indemnification may also be granted under the terms of agreements which may
be entered into in the future according to a vote of stockholders or directors.
In addition, we are authorized to purchase and maintain insurance which protects
our officers and directors against any liabilities incurred in connection with
their services in these positions. We may obtain an insurance policy in the
future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the registrant has issued and sold unregistered
securities as set forth below. We did not utilize an underwriter in any of these
transactions. The recipients of securities in each transaction represented their
intention to acquire the securities without a view to the distribution
II-1
<PAGE>
thereof. All the issued securities were restricted securities under Rule 144 and
appropriate restrictive legends were affixed to the securities in each
transaction.
1. In July 1997, the holder of a warrant to purchase 3,750 shares of common
stock exercised his warrants at $4.00 per share, and in January 1998, the holder
of 2,500 identical warrants exercised his warrants. These securities were issued
in a transactions exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
2. On December 29, 1997, we issued 81,378 shares of common stock at our
stated value of $7.25 per share in a Regulation S transaction to Finley Malcom
Anthony John McKeracher, Irene Brown McKeracher, Martin James Offwood, and Sarah
Jane Stacey (all United Kingdom residents), in partial consideration for our
purchase of 80 percent of the outstanding common shares of MaTS, a United
Kingdom company.
3. On March 31, 1998, we agreed to issue 183,853 warrants to purchase
common stock, exercisable at $7.00 each (the market value of our common stock on
the day we began negotiations), to Sirrom Capital Corporation and 147,114
identical warrants to Equitas L.P., in consideration for a loan to us totaling
$2.5 million in the form of subordinated debt. The warrants expire April 30,
2003. The number of warrants is adjustable if the loan is not paid within two
years. These securities were issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the
Securities Act of 1933.
4. In July 1998, we executed a lease financing agreement with R.C.C.
Finance Group Ltd., in which we agreed to issue warrants to purchase 75,000
shares of common stock at $8.00 per share to R.C.C. The exercise price was based
on the fair market value of the common stock on March 5, 1998, the date on which
R.C.C. and we began our negotiations. The warrants expire March 5, 2003. These
securities were issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities
Act of 1933.
5. In October 1998, we issued 112,710 shares of our common stock to the
stockholders of Advanced Multi-Point Conferencing, Inc., or AMC, all of whom
were non-U.S. persons, as partial consideration for our purchase of 100 percent
of the outstanding shares of AMC. The market price on the closing date was
$5.938 per share. We paid the balance of the purchase price in cash. The
transaction was exempt from registration in reliance on Regulation S.
6. In October 1998, we issued 18,500 shares of common stock to Intrepid
Communications, LLC for consulting services pertaining to our acquisition in
Canada. These securities were issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance on Section 4(2) of the Securities
Act of 1933.
7. In February 1999, we completed a private offering of 109,212 units, each
comprised of one share of common stock at $5.50 per share and one warrant to
purchase one share of common stock. The private placement generated net proceeds
of $592,505, which were used for general corporate purposes. The warrants are
exercisable at $7.00 and expire on December 31, 2003. The securities were
purchased primarily by our officers, directors, and employees. These securities
were issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) of the Securities Act of 1933 and Rule 506
thereunder.
8. On April 1, 1999, we issued 12,000 shares of common stock and warrants
to purchase 25,000 shares of common stock to the Adizes Institute in
consideration for consulting services. The warrants are exercisable at $7.00 and
expire on April 1, 2002. These securities were issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance on Sections
4(2) and 4(6) of the Securities Act of 1933.
9. On July 1, 1999, we issued warrants to purchase 50,000 shares of common
stock to John Pfeiffer in consideration for corporate communications services
provided to us. The warrants are
II-2
<PAGE>
exercisable at $5.00 per share and expire on July 1, 2003. These securities were
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
10. On July 31, 1999, we issued a two-year convertible note to Compunetix,
Inc. in the amount of $500,000 bearing interest at 9 percent, payable on
July 31, 2001. This note will convert into 71,429 restricted shares of common
stock at the option of the holder, if it is not repaid by July 31, 2001. These
securities were issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities
Act of 1933.
11. On October 19, 1999, we issued 2,000 shares of Series A preferred stock
to GMN Investors II, L.P. for $2,000,000. The issuance of Series A was
accompanied by warrants to purchase 400,000 shares of common stock at $7.00 per
share. The warrants expire on October 19, 2006. These securities were issued in
a transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933 and Rule 506
thereunder.
12. On October 19, 1999, we issued warrants to purchase 20,000 shares of
common stock to Bathgate McColley Capital Group in consideration for services
rendered to us in identifying GMN Investors II, L.P. as an investor in 2,000
shares of Series A preferred stock. The warrants are exercisable at $7.00 and
expire on October 19, 2006. These securities were issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance on Sections
4(2) and 4(6) of the Securities Act of 1933.
13. On January 1, 2000, we acquired the 20 percent minority interest of our
Australian subsidiary, ACT Teleconferencing (Pty) Ltd. for $65,000 cash and
50,000 shares of our common stock from its managing director. These securities
were issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) of the Securities Act of 1933.
14. On January 1, 2000, we acquired a 16.7 percent minority interest in ACT
Business Solutions Limited, based in the United Kingdom by issuing 20,000 shares
of our common stock to its three minority owners. These securities were issued
in a transaction exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of the Securities Act of 1933.
15. On January 6, 2000, we issued 36,000 shares and paid $50,000 cash to
purchase the assets of Mueller Telecommunications, Inc.'s internet service
provider division. These securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on Sections 4(2) and
4(6) of the Securities Act of 1933.
16. On January 6, 2000, we issued 40,000 shares of common stock and warrants
to purchase 60,000 shares of common stock to Dinway Services, Ltd. in
consideration for consulting services. The warrants are exercisable at $10.00
per share and expire on January 6, 2003. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
17. On January 6, 2000, we issued 12,000 shares of common stock to the
Adizes Institute for consulting services. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1(9) Form of Underwriting agreement
1.2(9) Form of Lock-up Agreement
1.3(9) Form of Representatives' Warrant
3.1(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(3) Form of specimen certificate for common stock of ACT
5 Opinion of counsel
10.1(3) Stock option plan of 1991, as amended, authorizing 400,000
shares of common stock for issuance under the plan
10.2(3) Form of stock option agreement
10.3(3) Form of common stock purchase warrant
10.10(3) Split dollar insurance agreement dated March 1, 1990,
between ACT and Gerald D. Van Eeckhout
10.11(3) 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
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23 Consent of independent auditors
24(9) Power of attorney
27.1(9) Financial data schedule
</TABLE>
- ------------------------
(1) Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended September 30, 1999, Filed with the
Securities and Exchange Commission on November 12, 1999, File No. 0-27560.
(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 Securities
and Exchange Commission on May 15, 1996, File No. 0-27560.
(3) Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the Securities and Exchange
Commission on October 10, 1995, and amendments to our Form SB-2, File No.
33-97908-D.
II-4
<PAGE>
(4) Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the Securities and Exchange Commission 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 Securities and Exchange Commission 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 Securities and Exchange Commission 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
Securities and Exchange Commission on November 16, 1998, File 0-27560
(8) Incorporated by reference, attached as an exhibit of the same number to our
Form 10-KSB for the year ended December 31, 1999, filed with the Securities
and Exchange Commission on March 9, 2000, File No. 0-27560.
(9) Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
The following Schedule I Condensed Financial Information of ACT
Teleconferencing Inc. (Parent Only) is included. All other schedules have been
omitted because the information required to be set forth in the schedules is not
applicable or is shown in the consolidated financial statements or the notes
thereto.
II-5
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE I
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Current assets............................................ $ 1,470,901 $ 212,891
Intercompany receivable................................... 9,524,348 5,115,274
----------- -----------
Total current assets...................................... 10,995,249 5,328,165
Equipment (net of accumulated depreciation of $126,000 and
$64,000)................................................ 245,837 535,396
Deferred loan placement fees.............................. 250,420 205,975
Investment in subsidiaries................................ 2,909,345 1,160,694
----------- -----------
Total assets................................................ $14,400,851 $ 7,230,230
=========== ===========
Liabilities and shareholders'equity
Current liabilities:
Current portion of debt................................... $ 485,198 $ 569,314
Accrued liabilities....................................... 396,005 801,707
Intercompany payable...................................... 2,129,347 959,482
----------- -----------
Total current liabilities............................... 3,010,550 2,330,503
Long term debt.............................................. 3,128,438 2,395,162
Preferred stock, no par value, 1,000,000 shares authorized;
2,000 issued.............................................. 1,693,006 --
Shareholders' equity
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............................. 11,378,103 7,463,931
Additional paid in capital................................ 99,900 --
Accumulated deficit....................................... (4,909,146) (4,959,366)
----------- -----------
Total shareholders' equity................................ 6,568,857 2,504,565
----------- -----------
Total liabilities and shareholders' equity.................. $14,400,851 $ 7,230,230
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Selling, general and administration expense.............. $ 1,181,353 $ 1,191,308 $ 569,083
Interest expense, net.................................... 423,340 305,313 2,255
Equity in undistributed earnings of subsidiaries......... 1,686,118 (620,504) 134,530
Net loss for the year.................................... $ 81,425 $(2,117,125) $(436,808)
</TABLE>
II-6
<PAGE>
SCHEDULE I (CONTINUED)
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
OPERATING ACTIVITIES ----------- ----------- -----------
<S> <C> <C> <C>
Net loss............................................... $ 81,425 $(2,117,125) $ (436,808)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation......................................... 62,541 50,671 10,004
Changes in orperating assets and liabilities, net of
effects of business combinations:
Current assets..................................... (118,378) (166,442) (11,095)
Intercompany receivable............................ (4,409,074) (2,006,761) (1,734,839)
Accrued liabilities................................ (68,346) 421,716 (14,349)
Intercompany payable............................... 1,169,865 539,273 390,738
----------- ----------- -----------
Net cash used for operating activities............. (3,281,967) (3,278,668) (1,796,349)
INVESTING ACTIVITIES
Property and equipment purchases....................... 227,018 (422,396) (66,458)
Short term notes redeemed.............................. (24,000) 11,000 (26,000)
Sale of marketable securities.......................... -- 50,000 --
Investment in subsidiaries............................. (1,748,651) 493,173 (250,828)
Cash paid for acquisitions net of cash acquired........ -- (249,298) (101,257)
----------- ----------- -----------
Net cash provided by (used for) investing activities... (1,545,633) (117,521) (444,543)
FINANCING ACTIVITIES
Net proceeds from the issuance of debt................. 311,804 2,848,749 455,674
Net proceeds from the issuance of common stock......... 4,014,072 628,521 1,688,334
Net proceeds from the issuance of preferred stock...... 1,693,006 -- --
Deferred loan issuance costs........................... (44,445) (205,975) --
----------- ----------- -----------
Net cash provided by financing activities.............. 5,974,437 3,271,295 2,144,008
Effect of exchange rate changes on cash (31,204) -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 1,115,633 (124,894) (96,884)
Cash and cash equivalents, beginning of year........... -- 124,894 221,778
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 1,115,633 $ -- $ 124,894
=========== =========== ===========
</TABLE>
II-7
<PAGE>
SCHEDULE I (CONTINUED)
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation--The financial statements of ACT
Teleconferencing, Inc., the Company, reflect the investments in their
wholly-owned subsidiaries under the equity method.
Consolidated Financial Statements--Reference is made to the Consolidated
Financial Statements and related Notes of ACT Teleconferencing, Inc. included
elsewhere herein for additional information.
Debt and Guarantees--Information on the debt of the Company is disclosed in
Note 2 of the Notes to Consolidated Financial Statements of ACT
Teleconferencing, Inc. included elsewhere herein. Certain subsidiaries of the
Company have guaranteed debt of $2,500,000 which is due on March 31, 2003. The
Company's ability to transfer assets from these subsidiaries is restricted under
the loan agreement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by a
director, officer, or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Golden, State of Colorado, on May 2, 2000.
<TABLE>
<S> <C> <C>
ACT TELECONFERENCING, INC
Registrant
By: /s/ GERALD D. VAN EECKHOUT
-----------------------------------------
Gerald D. Van Eeckhout
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the second day of May, 2000 by
the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GERALD D. VAN EECKHOUT
------------------------------------------- Chairman and Chief Executive Officer
Gerald D. Van Eeckhout (Principal Executive Officer)
/s/ GAVIN J. THOMSON
------------------------------------------- Chief Financial Officer and Secretary
Gavin J. Thomson (Principal Financial and Accounting Officer)
/s/ JAMES F. SEIFERT*
------------------------------------------- Director
James F. Seifert
/s/ DONALD L. STURTEVANT*
------------------------------------------- Director
Donald L. Sturtevant
/s/ RONALD J. BACH*
------------------------------------------- Director
Ronald J. Bach
/s/ CAROLYN R. VAN EECKHOUT
------------------------------------------- Director
Carolyn R. Van Eeckhout
</TABLE>
* By Gavin J. Thomson, under power of attorney dated March 10, 2000
II-9
<PAGE>
INDEX OF EXHIBITS
All exhibits are filed electronically, unless incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<S> <C>
1(9) Underwriting agreement
1.2(9) Form of Lock-up Agreement
1.3(9) Form of Representatives' Warrant
3.1(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(3) Form of specimen certificate for common stock of ACT
5 Opinion of counsel
10.1(3) Stock option plan of 1991, as amended, authorizing 400,000
shares of common stock for issuance under the plan
10.2(3) Form of stock option agreement
10.3(3) Form of common stock purchase warrant
10.10(3) Split dollar insurance agreement dated March 1, 1990,
between ACT and Gerald D. Van Eeckhout
10.11(3) 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
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23 Consent of independent auditors
24(9) Power of Attorney
27.1(9) Financial data schedule
</TABLE>
- ------------------------
(1) Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended September 30, 1999, Filed with the
Securities and Exchange Commission on November 12, 1999, File No. 0-27560.
(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 Securities
and Exchange Commission on May 15, 1996, File No. 0-27560.
(3) Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the Securities and Exchange
Commission on October 10, 1995, and amendments to our Form SB-2, File No.
33-97908-D.
<PAGE>
(4) Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the Securities and Exchange Commission 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 Securities and Exchange Commission 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 Securities and Exchange Commission 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
Securities and Exchange Commission on November 16, 1998, File 0-27560
(8) Incorporated by reference, attached as an exhibit of the same number to our
Form 10-KSB for the year ended December 31, 1999, filed with the Securities
and Exchange Commission on March 9, 2000, File No. 0-27560.
(9) Previously filed.
<PAGE>
Exhibit 5
[Faegre & Benson LLP letterhead]
Opinion of Counsel
May 2, 2000
ACT Teleconferencing, Inc.
Suite 130
1658 Cole Boulevard
Golden, Colorado 80401
RE: Registration on Form S-1
Ladies and Gentlemen:
You have requested our opinion as counsel for ACT Teleconferencing, Inc., a
Colorado corporation, in connection with your registration statement on Form S-1
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated under the Securities Act, for an offering of 2,000,000 shares of ACT
common stock, no par value.
We have examined ACT's Form S-1 filed with the Securities and Exchange
Commission on or about March 9, 2000 and Amendment No. 1 thereto filed on or
about May 2, 2000. We have also examined the amended and restated articles of
incorporation of ACT as on file with the Secretary of State of the State of
Colorado, the amended and restated bylaws and the minute book of ACT, various
exhibits filed in connection with the registration statement, and other
documents as we have deemed necessary to provide a basis for the opinion
expressed in this opinion. We have also consulted with officers and directors
of ACT to clarify, confirm, or supplement the foregoing documentation.
Based on the foregoing, it is our opinion that the shares of common stock,
when issued as contemplated in the registration statement, will be legally and
validly issued, will be fully paid and non-assessable, and all of the necessary
corporate action on the part of ACT will have been taken to authorize the sale
of the shares.
We consent to the filing of this opinion as an exhibit to the registration
statement and consent to the use of our name under the caption "Legal Matters"
in the prospectus.
Very truly yours,
/s/ FAEGRE & BENSON LLP
Faegre & Benson LLP
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 8, 2000, with respect to the
consolidated financial statements of ACT Teleconferencing, Inc. included in
Amendment No. 1 to the Registration Statement on Form S-1 and related
Prospectus of ACT Teleconferencing, Inc. for the registration of 2,000,000
shares of its common stock.
We also consent to the incorporation of the financial statement schedule
listed in item 16(b) of ACT Teleconferencing, Inc. included in Amendment No.
1 to the Registration Statement on Form S-1 of ACT Teleconferencing, Inc. for
the registration of 2,000,000 shares of its common
stock.
/s/ Ernst & Young LLP
Denver, Colorado
May 2, 2000
