<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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:
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<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
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<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
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<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 , 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 applied for listing on the Nasdaq National Market under the same
symbol. On March , 2000, the last reported sale price of our common stock was
$ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
---------------------
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<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,
I N C O R P O R A T E D
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
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PAGE
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<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
Business.................................................... 22
Management.................................................. 32
Executive Compensation...................................... 35
Principal Stockholders...................................... 39
Certain Transactions........................................ 40
Description of Securities................................... 42
Shares Eligible for Future Sale............................. 46
Underwriting................................................ 47
Elimination Of Director Liability........................... 50
Indemnification of Officers and Directors................... 50
Where You Can Find More Information......................... 51
Legal Matters............................................... 51
Experts..................................................... 51
Transfer Agent and Warrant Agent............................ 51
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.
Until (25 days after the date of this prospectus), all dealers
effecting transactions in the common stock, whether or not participating in this
distribution, may be required to deliver a prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
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.
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 2003.
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.
- 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.
5
<PAGE>
- 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
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<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 $27.2 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.
- pursue potential acquisitions.
- provide working capital for development of
outsourcing and co-marketing
opportunities.
- 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 $15 per share and
deduction of estimated underwriting discounts, commissions, and offering
expenses payable by us of $2.8 million, resulting in estimated net proceeds of
$27.2 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 $23,733
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 $44,298
======= =======
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 33,461
------- -------
Total liabilities and stockholders' equity................ $22,098 $44,298
======= =======
</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. This 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 $27.2 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 $4.1 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 $7
million).
- Repayment of debt and redemption of Series A preferred stock
(approximately $5 million).
- Expansion into additional domestic and international locations
(approximately $6 million).
- Capacity expansion for traditional audio, video, and data conferencing
bridges and ancillary telecommunications equipment (approximately $4
million).
- Potential acquisitions, development of outsourcing and co-marketing
relationships with major telecommunications providers, working capital,
and general corporate purposes (approximately $5 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 currently have no 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 (through February 29, 2000)................. 17.00 8.00
</TABLE>
On February 29, 2000, the last reported sale price of our common stock was
$15.00 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 $15 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(2)
-------- -----------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,533 $23,733
======= =======
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)(1)........................................... 11,378 38,577
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 33,461
------- -------
Total Capitalization........................................ $14,232 $36,432
======= =======
</TABLE>
- ------------------------
(1) 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) 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) 72,940 shares of common stock reserved for
purchase under our Employee Stock Purchase Plan.
(2) Adjusted to reflect estimated net proceeds of $27.2 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.
(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 $15 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 $32,004,713, or $4.85 per share. This
represents an immediate increase in pro forma net tangible book value of $3.74
per share to existing stockholders and an immediate dilution of $10.15 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.................................... $15.00
Net tangible book value per share at December 31, 1999...... $1.11
Increase attributable to the offering to existing
stockholders.............................................. $3.74
Net tangible book value per share after offering............ $ 4.85
------
Per Share dilution to investors in the offering............. $10.15
======
</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 $15 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 27.5% $ 2.48
New investors............. 2,000,000 30.3% 30,000,000 72.5% 15.00
--------- ---- ----------- ----
Totals.................. 6,595,947 100% $41,378,103 100% 6.27
========= ==== =========== ====
</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
(IN THOUSANDS)
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>
($000) 1997 1998 1999
- ------ -------- -------- --------
<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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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.
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
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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
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
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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.
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.
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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.
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.
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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 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
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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 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
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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.
- 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. 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
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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 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
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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, 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
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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.
31
<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 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
32
<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. and as one of our directors since
1991. She has been one of our directors since 1991. She has been employed with
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
33
<PAGE>
Medical, Inc., a medical implantable hearing systems company. He was president
and chief executive 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.
34
<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 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 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 $9.00 per share. These options vest at 25
percent per annum.
35
<PAGE>
STOCK OPTIONS
The following two tables set forth information concerning stock option
grants to our chief executive officer and our four most highly compensated
executive officers during 1999:
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN LAST PRICE EXPIRATION ---------------------
NAME GRANTED POSITION FISCAL YEAR ($/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 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 (value of $4.4625 per
share) or 10 percent (value of $4.675 per share) appreciation rate, 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 value.
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 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.
36
<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 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 David Holden's estate's ownership
of 40 percent of the subsidiary's shares, and other adjustments to operations.
We have the option to repurchase David 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
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 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.
37
<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.
38
<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 228,950 5.4% None 228,950 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)....................... 967,078 23.4% None 967,078 17.7%
</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.
39
<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
40
<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 "Description of Securities--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
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<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, 991,352 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 19,160 shares
available for issuance.
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 and Lease Transactions--R.C.C. Finance Group Ltd."),
and 109,912 1999 private placement warrants (See "Description of
Securities--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.
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<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 December 31,
1999, 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.
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<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 Junior Participating Stock.") 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
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<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 of 967,078 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.
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<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
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<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.
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- 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.
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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.
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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.
51
<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, 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 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
Private Placement and Warrants).
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, RCC Finance issued a $2 million lease commitment to us. We granted
RCC 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 NOL's......................... (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 domestic net operating loss carry forwards 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.......................... 8,000
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*.............................................. 92,650
--------
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 Form of Underwriting agreement
1.2 Form of Lock-up Agreement
1.3 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 Power of attorney (included in signature page)
27.1 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.
(B) FINANCIAL STATEMENT SCHEDULES
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.
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Golden, State of Colorado,
on March , 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>
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Gavin J. Thomson and Carolyn R. Van Eeckhout,
each or either of them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the tenth day of March, 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>
II-7
<PAGE>
INDEX OF EXHIBITS
All exhibits are filed electronically, unless incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<S> <C>
1 Underwriting agreement
1.2 Form of Lock-up Agreement
1.3 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
27.1 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.
(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.
<PAGE>
(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.
<PAGE>
FORM OF UNDERWRITING AGREEMENT
_______ ___, 2000
John G. Kinnard and Company, Incorporated
Kaufman Bros., LP
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
c/o John G. Kinnard and Company, Incorporated
Kinnard Financial Center
920 Second Avenue South
Minneapolis, MN 55402
Ladies and Gentlemen:
ACT Teleconferencing, Inc., a Colorado corporation (the "Company") proposes
to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you are acting as the representatives (the
"Representatives"), an aggregate of Two Million (2,000,000) shares (the "Firm
Shares") of Common Stock, without par value, of the Company (the "Common
Stock"), all of which shares will be sold by the Company. The respective amounts
of Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. In addition, the Company proposes,
subject to the terms and conditions stated herein, to grant to the Underwriters
an option to purchase an aggregate of up to 300,000 additional shares of Common
Stock upon the request of the Representatives solely for the purpose of covering
over allotments (the "Option Shares"). The Firm Shares and the Option Shares are
referred to herein collectively as the "Shares." The Company also proposes to
issue and sell to the Representatives, pursuant to a Representatives' Warrant
Agreement (the "Warrant Agreement"), warrants (the "Warrants") for the purchase
of an additional 200,000 shares of Common Stock.
As Representatives, you have advised the Company (i) that you are
authorized to enter into this Agreement on behalf of the Underwriters and (ii)
that the Underwriters are willing, acting severally and not jointly, to purchase
the number of Firm Shares, aggregating in total Two Million (2,000,000) shares,
set forth opposite their respective names in Schedule I hereto, plus their pro
rata portion of the Option Shares purchased if you elect to exercise the over
allotment option in whole or in part for the accounts of the Underwriters.
The Company hereby confirms the arrangements with respect to the purchase
of the Shares severally by each of the Underwriters. The Company has been
advised and hereby acknowledges that John G. Kinnard and Company, Incorporated
has been duly authorized to act as the representative of the Underwriters. As
used in this Agreement, the term "Underwriter" refers to any individual member
of the underwriting syndicate and includes any party substituted for an
Underwriter under Section 9 hereof.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
A. The Company represents and warrants to, and agrees with, each of the
several Underwriters as follows:
<PAGE>
i. A registration statement on Form S-1 (Registration No. 333-_______) with
respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") promulgated thereunder and has
been filed with the Commission under the Act. If the Company has elected to
rely upon Rule 462(b) under the Act to increase the size of the offering
registered under the Act, the Company will prepare and file with the
Commission a registration statement with respect to such increase pursuant
to Rule 462(b). Copies of the registration statement as amended to date
have been delivered by the Company to the Representatives. Such
registration statement, including a registration statement (if any) filed
pursuant to Rule 462(b) under the Act and the information (if any) deemed
to be part thereof pursuant to Rules 430A and 434(d) under the Act, and all
prospectuses included as a part thereof, all financial statements included
in such registration statement, and all schedules and exhibits thereto, as
amended at the time when the registration statement shall become effective,
are herein referred to as the "Registration Statement," and the term
"Prospectus" as used herein shall mean the final prospectus included as a
part of the Registration Statement on file with the Commission when it
becomes effective (except that if a prospectus is filed by the Company
pursuant to Rules 424(b) and 430A under the Act, the term "Prospectus" as
used herein shall mean the prospectus so filed pursuant to Rules 424(b) and
430A (including any term sheet meeting the requirements of Rule 434 under
the Act provided by the Company for use with a prospectus subject to
completion within the meaning of Rule 434 in order to meet the requirements
of Section 10(a) of the Act)). The term "Preliminary Prospectus" as used
herein means any prospectus used prior to the Effective Date (as defined in
Section 5(A) hereof) and included as a part of the Registration Statement,
prior to the time it becomes or became effective under the Act and any
prospectus subject to completion as described in Rules 430A or 434 under
the Act. Copies of the Registration Statement, including all exhibits and
schedules thereto, any amendments thereto and all Preliminary Prospectuses
have been delivered to you.
ii. The Registration Statement has been declared effective, and at all
times subsequent thereto up to each closing date, the Registration
Statement and Prospectus and all amendments thereof and supplements
thereto, will comply in all material respects with the provisions of the
Act and the Rules and Regulations. Neither the Commission nor any state
securities division has issued any order (i) preventing or suspending the
use of any Preliminary Prospectus, (ii) issuing a stop order with respect
to the offering of the Shares or (iii) requiring the recirculation of a
Preliminary Prospectus. The Registration Statement (as amended, if the
Company shall have filed with the Commission any post effective amendments
thereto) does not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each Preliminary Prospectus, at
the time of filing thereof, the Registration Statement as of the date
declared effective and at all times
2
<PAGE>
subsequent thereto up to each closing date, and the Prospectus (as amended
or supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) conformed and conforms in all
material respects to the requirements of the Act and the Rules and
Regulations and did not, does not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this Subsection
1(A)(ii) shall apply to statements in, or omissions from, the Registration
Statement or the Prospectus (or any amendment thereof or supplement
thereto) which are based upon and conform to information furnished to the
Company by the Underwriters, in writing specifically for use in the
preparation of the Registration Statement or the Prospectus or any such
amendment or supplement. There is no contract or other document of the
Company of a character required by the Act or the Rules and Regulations to
be described in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement that has not been described or
filed as required.
iii. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Colorado, with
full corporate power and authority, to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and Prospectus. The Company is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction in which the
ownership or lease of its properties, or the conduct of its business,
requires such qualification and in which the failure to be qualified or in
good standing would have a material adverse effect on the condition
(financial or otherwise), results of operations, shareholders' equity,
business, property or prospects of the Company. Except as set forth in
Exhibit 21.1 to the Registration Statement, the Company has no
subsidiaries, is not affiliated with, nor owns any stock or other equity
interest of, any other company or business entity.
iv. The Company has all necessary material authorizations, licenses,
approvals, consents, permits, certificates and orders of and from all
state, federal, foreign and other governmental or regulatory authorities to
own its properties and to conduct its business as described in the
Registration Statement and Prospectus, is conducting its business in
substantial compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business, and has received no
notice of nor has it knowledge of any basis for any proceeding or action
for the revocation or suspension of any such authorizations, licenses,
approvals, consents, permits, certificates or orders.
v. The Company is not in violation of or in default under (i) its Articles
of Incorporation or Bylaws, (ii) or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or
in any contract, license, indenture, bond mortgage, loan agreement, joint
venture or partnership
3
<PAGE>
agreement, lease, agreement or instrument to which the Company is a party
or by which the Company or any of its properties are bound, (iii) any law,
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, which violation
or default would have a material adverse effect on the condition (financial
or otherwise), results of operations, shareholders' equity, business,
property or prospects of the Company or the ability of the Company to
consummate the transactions contemplated hereby.
vi. The Company has full requisite power and authority to enter into this
Agreement and the Warrant Agreement. This Agreement and the Warrant
Agreement have each been duly authorized, executed and delivered by the
Company and will be a valid and binding agreement on the part of the
Company, enforceable in accordance with their respective terms, if and when
this Agreement shall have become effective in accordance with Section 8,
except as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance
and other equitable remedies, and except as the enforceability of the
indemnification or contribution provisions hereof may be affected by
applicable federal or state securities laws. The performance of this
Agreement and the Warrant Agreement and the consummation of the
transactions herein and therein contemplated will not result in a material
breach or violation of any of the terms and provisions of or constitute a
material default under (i) any bond, debenture, note or other evidence of
indebtedness, or any contract, license, indenture, mortgage, loan
agreement, joint venture or partnership agreement, lease, agreement or
other instrument to which the Company is a party or by which the property
of the Company is bound, (ii) the Company's Articles of Incorporation or
Bylaws, or (iii) any statute or any order, rule or regulation of any court,
governmental agency or body having jurisdiction over the Company. No
consent, approval, authorization or order of any court, governmental agency
or body is required for the consummation by the Company of the transactions
on its part herein contemplated or contemplated by the Warrant Agreement,
except such as may be required under the Act or under state or other
securities laws.
vii. There are no actions, suits or proceedings pending before any court or
governmental agency, authority or body to which the Company is a party or
of which the business or property of the Company is the subject which (i)
might result in any material adverse change in the condition (financial or
otherwise), shareholders' equity, results of operations, business or
prospects of the Company, (ii) materially and adversely affect its
properties or assets, or (iii) prevent consummation of the transactions
contemplated by this Agreement. To the best of the Company's knowledge, no
such actions, suits or proceedings are threatened.
viii. The Company has the duly authorized and outstanding capitalization
set forth under the caption "Capitalization" in the Prospectus. The
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, fully paid and nonassessable. The Shares and
the Warrants conform in all material
4
<PAGE>
respects to the description thereof contained in the Registration Statement
and Prospectus. The Shares to be sold by the Company hereunder and under
the Warrant Agreement have been duly authorized and, when issued and
delivered pursuant to this Agreement and the Warrant Agreement, will be
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus. No statutory preemptive
rights or similar rights to subscribe for or purchase shares of capital
stock of any security holders of the Company exist with respect to the
issuance and sale of the Shares or the Warrants by the Company. Except as
described in the Prospectus, the Company has no agreement with any security
holder which gives such security holder the right to require the Company to
register under the Act any securities of any nature owned or held by such
person in connection with the transactions contemplated by this Agreement.
Except as described in the Prospectus, there are no outstanding options,
warrants, agreements, contracts or other rights to purchase or acquire from
the Company any shares of its capital stock. Except as described in the
Prospectus, there are no agreements among the Company's executive officers
and directors and any other persons with respect to the voting or transfer
of the Company's capital stock or with respect to other aspects of the
Company's affairs. Upon payment for and delivery of the Shares to be sold
by the Company pursuant to this Agreement, the Underwriters will acquire
good and marketable title to such Shares, free and clear of all liens,
encumbrances or claims created by actions of the Company. Upon payment for
and delivery of the Shares to be sold by the Company pursuant to the
Warrant Agreement, the Representatives will acquire good and marketable
title to such Shares, free and clear of all liens, encumbrances or claims
created by actions of the Company. The certificates evidencing the Shares
will comply as to form with all applicable provisions of the laws of the
State of Colorado.
ix. The financial statements of the Company, together with the related
notes, included in the Registration Statement and Prospectus (the
"Financial Statements") fairly and accurately present the financial
position, the results of operations and changes in shareholders' equity and
cash flows of the Company at the dates and for the respective periods to
which such Financial Statements apply. The Financial Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have been
made, except as otherwise stated therein; and the supporting schedules
included in the Registration Statement present fairly the information
required to be stated therein. No other financial statements or schedules
are required to be included in the Registration Statement. The summary and
selected consolidated financial data included in the Registration Statement
present fairly the information shown therein on the basis stated in the
Registration Statement and have been compiled on a basis consistent with
the financial statements presented therein.
x. Ernst & Young, LLP, which has expressed its opinion with respect to the
financial statements filed with the Commission as part of the Registration
5
<PAGE>
Statement, are independent public accountants as required by the Act and
the rules and regulations thereunder.
xi. Since the respective dates as of which information is given in the
Registration Statement and Prospectus, (i) there has not been any material
adverse change, or any development, event or occurrence in the business of
the Company that, taken together with other developments, events and
occurrences with respect to such business, would have or would reasonably
be expected to have a material adverse effect on the condition (financial
or otherwise) of the Company or the management, shareholders' equity,
results of operations, business, property or prospects of the Company,
whether or not occurring in the ordinary course of business, (ii) there has
not been any transaction not in the ordinary course of business entered
into by the Company which is material to the Company, other than
transactions described or contemplated in the Registration Statement, (iii)
the Company has not incurred any material liabilities or obligations, which
are not in the ordinary course of business or which could result in a
material reduction in the future earnings of the Company, (iv) the Company
has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether
or not covered by insurance, (v) there has not been any change in the
capital stock of the Company (other than upon the exercise of options and
Warrants described in the Registration Statement) or any material increase
in the short-term or long-term debt (including capitalized lease
obligations) of the Company, (vi) there has not been any declaration or
payment of any dividends or any distributions of any kind with respect to
the capital stock of the Company, other than any dividends or distributions
described or contemplated in the Registration Statement, or (vii) there has
not been any issuance of warrants, options, convertible securities or other
rights to purchase or acquire capital stock of the Company.
xii. The Company has filed all necessary federal, state, local and foreign
income and franchise tax returns and paid all taxes shown as due thereon.
The Company has no knowledge of any tax deficiency which either has been or
might be asserted against it which would materially and adversely affect
the Company's business or properties.
xiii. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations
and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
xiv. The Company has good and marketable title to all of the property, real
and personal, described in the Registration Statement or Prospectus as
being owned by
6
<PAGE>
the Company, free and clear of all liens, encumbrances, equities, charges
or claims, except as do not materially interfere with the uses made and to
be made by the Company of such property or as disclosed in the Financial
Statements. The Company has valid and binding leases to the real and
personal property described in the Registration Statement or Prospectus as
being under lease to the Company, except as to those leases which are not
material to the Company or the lack of enforceability of which would not
materially interfere with the use made and to be made by the Company of
such leased property.
xv. There has been no unlawful storage, treatment or disposal of waste by
the Company at any of the facilities owned or leased thereby, except for
such violations which would not have a material adverse effect on the
condition, (financial or otherwise) or the shareholders' equity, results of
operation, business, properties or prospects of the Company. There has been
no material spill, discharge, leak, emission, ejection, escape, dumping or
release of any kind onto the properties owned or leased by the Company, or
into the environment surrounding those properties, of any toxic or
hazardous substances, as defined under any federal, state or local
regulations, laws or statutes, except for those releases either permissible
under such regulations, laws or statutes or otherwise allowable under
applicable permits or which would not have a material adverse effect on the
condition (financial or otherwise) or the shareholders' equity, results of
operation, business, properties or prospects of the Company.
xvi. Each employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) ("Employee
Benefit Plan"), and each bonus, retirement, pension, profit sharing, stock
bonus, thrift, stock option, stock purchase, incentive, severance, deferred
or other compensation or welfare benefit plan, program, agreement or
arrangement of, or applicable to employees or former employees of, the
Company or with respect to which the Company could have any liability
("Benefit Plans"), was or has been established, maintained and operated in
all material respects in compliance with all applicable federal, state, and
local statutes, orders, governmental rules and regulations, including, but
not limited to, ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"). No Benefit Plan is or was subject to Title IV of ERISA or
Section 302 of ERISA or Section 412 of the Code. The Company does not,
either directly or indirectly as a member of a controlled group within the
meaning of Sections 414(b), (c), (m) and (o) of the Code ("Controlled
Group"), have any material liability that remains unsatisfied or arising
under Section 502 of ERISA, Subchapter D of Chapter 1 of Subtitle A of the
Code or under Chapter 43 of Subtitle D of the Code. No action, suit,
grievance, arbitration or other matter of litigation or claim with respect
to any Benefit Plan (other than routine claims for benefits made in the
ordinary course of plan administration for which plan administrative
procedures have not been exhausted) is pending or, to the Company's
knowledge, threatened or imminent against or with respect to any Benefit
Plan, any member of a Controlled Group that includes the Company, or any
fiduciary within the meaning of Section 3(21) of ERISA with respect to a
Benefit Plan which, if determined adversely to the Company, would have a
7
<PAGE>
material adverse effect on the Company. Neither the Company nor any member
of a Controlled Group that includes the Company, has any knowledge of any
facts that could give rise to any action, suit, grievance, arbitration or
any other manner of litigation or claim with respect to any Benefit Plan.
xvii. No labor disturbance or dispute by the employees or consultants or
contractors of the Company exists or, to the Company's knowledge, is
threatened which could reasonably be expected to have a material adverse
effect on the conduct of the business or the financial condition (financial
or otherwise), results of operations, properties or prospects of the
Company.
xviii. Except as disclosed in the Prospectus:
a. The Company owns or possesses the full rights to use or is
licensed to use all patents, patent applications, inventions,
copyrights, trademarks, service marks, applications for registration
of trademarks and service marks, trade secrets, know-how and other
intellectual property proprietary information or know-how reasonably
necessary for the conduct of its present or intended business as
described in the Prospectus ("Proprietary Rights"); there are no
pending legal, governmental or administrative proceedings relating
to the Proprietary Rights to which the Company is a party or of
which any property of the Company is subject; and no such
proceedings are, to the best of the Company's knowledge, threatened
or contemplated against the Company by any governmental agency or
authority or by others;
b. The Company has not received notice of any material conflict or
claim with asserted intellectual property rights of any third
parties;
c. To the best of the Company's knowledge, the Company does not
infringe upon the rights or claimed rights of any person under or,
with respect to, any of the Proprietary Rights referred to in
Section 1(A) (xviii)(a) above; except as disclosed in the
Prospectus, the Company is not obligated nor is it under any
liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner of, licensor of, or other claimant to, any
Proprietary Rights, with respect to the use thereof or in connection
with the conduct of its business or otherwise; and to the best of
the Company's knowledge, the Company is not using any confidential
information or trade secrets of any other party in the conduct of
its business;
d. The Company has not entered into any consent, indemnification,
forbearance to sue or settlement agreement with respect to the
Proprietary Rights other than in the ordinary course of business;
e. To the best of the Company's knowledge, the Proprietary Rights
are valid and enforceable and no registration relating thereto has
lapsed,
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expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and are in good standing;
f. The Company is in compliance in all material respects with its
contractual obligations relating to the protection of any
Proprietary Rights used pursuant to licenses; and
g. The Company owns and/or has the unrestricted right to use all
trade secrets, including know-how, customer lists, inventions,
designs, processes, computer programs and any other technical data
or information necessary to the development, manufacture, operation
and sale of all products sold or proposed to be sold by it, free and
clear of any rights, liens and claims of others.
xix. The Company maintains insurance, which is in full force and effect, of
the types and in the amounts reasonably adequate for its business and, to
the best of its knowledge, consistent with coverage comparable to the
insurance maintained by similar companies or businesses.
xx. The Company has not sold any securities in violation of Section 5 of
the Act.
xxi. The conditions for use of a registration statement on Form S-1 for the
distribution of the Shares have been satisfied with respect to the Company.
xxii. The Company intends to apply the proceeds from the sale of the Shares
by it to the purposes and substantially in the manner set forth in the
Prospectus.
xxiii. No person is entitled, directly or indirectly, to compensation from
the Company or the Underwriters for services as a finder in connection with
the transactions contemplated by this Agreement.
xxiv. All material transactions between the Company and its shareholders
who beneficially own more than 5% of any class of the Company's voting
securities have been accurately disclosed in the Prospectus, and the terms
of each such transaction are fair to the Company and no less favorable to
the Company than the terms that could have been obtained from unrelated
parties.
xxv. The Company has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectus or the Prospectus or other
materials permitted by the Act to be distributed by the Company.
xxvi. The Company has not taken and will not take, directly or indirectly,
any action designed to, or which has constituted, or which might reasonably
be expected to cause or result in, stabilization or manipulation of the
price of the Common Stock.
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xxvii. The Company's shares are listed on the Nasdaq SmallCap Market and an
application for listing the Shares on the Nasdaq National Market has been
filed and the Company meets the listing requirements for the Nasdaq
National Market.
xxviii. To the Company's knowledge, none of the Company's officers,
directors or security holders has any affiliations with the National
Association of Securities Dealers, Inc., except as set forth in the
Registration Statement or as otherwise disclosed in writing to the
Representatives.
xxix. Written agreements, which are enforceable by the Representatives,
have been obtained from each officer and director of the Company that
provide that for 180 days following the Effective Date, such persons will
not, without the Representative's prior written consent, sell, transfer
or otherwise dispose of, or agree to sell, transfer or otherwise dispose
of, other than by gift to donees who agree to be bound by the same
restriction or by will or the laws of descent, any of his or her Common
Stock, or any options, warrants or rights to purchase Common Stock or any
shares of Common Stock received upon exercise of any options, warrants
or rights to purchase, which are beneficially held by such persons during
such 180-day period. Except as disclosed in the Registration Statement,
there is no person who holds 5% or more of the outstanding Common Stock of
the Company who is not also an officer or director of the Company.
xxx. The Company is not, and upon completion of the sale of the Shares
contemplated hereby will not be, required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
xxxi. The Company has complied and will comply with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, Laws of Florida). Neither
the Company, nor any affiliate thereof, does business with the government
of Cuba or with any person of affiliate located in Cuba.
xxxii. Other than as contemplated by this Agreement, the Company has not
incurred any liability for any finder's fee, broker's fee or other agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
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B. Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel to the Underwriters shall be deemed to be a
representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
A. On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each of the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase, at a purchase price equal to
____% of the per share price to public of $________ (the "Offering Price"),
the respective amount of Firm Shares set forth opposite such Underwriter's
name in Schedule I hereto, subject to adjustments in accordance with
Section 9 hereof. The Underwriters will collectively purchase all of the
Firm Shares if any are purchased.
B. On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company agree to sell to the Representatives for $1.00 the Warrants to
purchase 200,000 additional shares of Common Stock at a price per share
equal to 120 percent of the Offering Price and in accordance with the other
terms and conditions of the Warrant Agreement, and the Representatives
agree to purchase the Warrants. The Warrants will become exercisable on the
first anniversary of the Effective Date and will expire on the fifth
anniversary of the Effective Date.
C. On the basis of the representations and warranties herein contained, but
subject to the terms and conditions herein set forth, the Company hereby
grants an option to the Underwriters to purchase an aggregate of up to
300,000 Option Shares at the same purchase price as the Firm Shares for use
solely in covering any over allotments made by the Underwriters in the sale
and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the
Effective Date (as defined in Section 5(A) hereof) upon notice (confirmed
in writing) by the Representatives to the Company setting forth the
aggregate number of Option Shares as to which the Underwriters are
exercising the option and the date on which certificates for such Option
Shares are to be delivered. Option Shares shall be purchased severally for
the account of each Underwriter in proportion to the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto. The
option granted hereby may be canceled by the Representatives upon notice to
the Company as to the Option Shares for which the option is unexercised at
the time of expiration of the 30-day period.
D. The Company will deliver the Firm Shares and the Warrants to the
Representatives at the offices of ________________________________________,
unless some other place is agreed upon, at 10:00 a.m., Denver time, against
payment of the purchase price at the same place, on the third full business
day after trading of the Shares has commenced, or, if the offering
commences after 4:30 p.m., on the fourth full business day after
commencement of the offering, or such earlier time as may be agreed upon
between the Representatives and the Company, such time and place being
herein referred to as the "First Closing Date."
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<PAGE>
E. The Company will deliver the Option Shares being purchased by the
Underwriters to the Representatives at the above-referenced offices of
_____________________________, set forth in Section 2(D) above, unless some
other place is agreed, at 10:00 a.m., Denver time, against payment of the
purchase price at such place, on the date determined by the Representatives
and of which the Company has received notice as provided in Section 2(C),
which shall not be earlier than two nor later than five full business days
after the exercise of the option as set forth in Section 2(C), or at such
other time not later than ten full business days thereafter as may be
agreed upon by the Representatives and the Company, such time and date
being herein referred to as the "Second Closing Date."
F. Certificates for the Shares to be delivered will be registered in such
names and issued in such denominations as the Underwriters shall request
two business days prior to the First Closing Date or the Second Closing
Date, as the case may be. The certificates will be made available to the
Underwriters in definitive form for the purpose of inspection and packaging
at least twenty-four (24) hours prior to the respective closing dates.
G. Payment to the Company for the Shares sold and the Warrants shall be
made by wire transfer to an account designated by the Company or by
certified or official bank check or checks in Clearing House funds, payable
to the order of the Company.
3. UNDERWRITERS' OFFERING TO THE PUBLIC.
A. The Underwriters will make a public offering of the Shares directly to
the public (which may include selected dealers who are members in good
standing of the National Association of Securities Dealers, Inc. (the
"NASD") or foreign dealers not eligible for membership in the NASD but who
have agreed to abide by the interpretation of the NASD Board of Governor's
with respect to free-riding and withholding) as soon as the Underwriters
deem practicable after the Registration Statement becomes effective at the
Offering Price, subject to the terms and conditions of this Agreement and
in accordance with the Prospectus. Concessions from the Offering Price may
be allowed selected dealers who are members of the NASD as the Underwriters
determine and the Underwriters will furnish the Company with such
information about the distribution arrangements as may be necessary for
inclusion in the Registration Statement. It is understood that the Offering
Price and such concessions may vary after the public offering. The
Underwriters shall offer and sell the Shares only in jurisdictions in which
the offering of Shares has been duly registered or qualified, or is exempt
from registration or qualification, and shall take reasonable measures to
effect compliance with applicable state and local securities laws.
B. It is understood that the Representatives, individually and not as
representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for the Shares to be purchased by such
Underwriter or Underwriters. No such payment by the Representatives shall
relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
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<PAGE>
4. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees with each of the several
Underwriters as follows:
A. If the Company has elected to rely on Rule 430A under the Act, the
Company will prepare and file a Prospectus (or term sheet within the
meaning of Rule 434 under the Act) containing the information omitted
therefrom pursuant to Rule 430A under the Act with the Commission within
the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable, under the Act; if
the Company has elected to rely upon Rule 462(b) under the Act to increase
the size of the offering registered under the Act, the Company will prepare
and file a registration statement with respect to such increase with the
Commission within the time period required by, and otherwise in accordance
with the provisions of, Rule 462(b) under the Act; the Company will prepare
and file with the Commission, promptly upon the request of the
Representatives, any amendments or supplements to the Registration
Statement or Prospectus (including any term sheet within the meaning of
Rule 434 under the Act) that, in the opinion of the Representatives, may be
necessary or advisable in connection with distribution of the Securities by
Underwriters; and the Company will not file any amendment or supplement to
the Registration Statement or Prospectus (including any term sheet within
the meaning of Rule 434 under the Act) to which the Representatives shall
reasonably object by notice to the Company after having been furnished with
a copy a reasonable time prior to the filing.
B. The Company will advise the Representatives promptly of (i) any request
of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus, (iii) the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or (iv) the institution or threatening of any proceedings for
that purpose, and the Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus or suspending such qualification and to obtain as soon as
possible the lifting thereof, if issued.
C. The Company will promptly prepare and file at its own expense with the
Commission any amendments of, or supplements to, the Registration Statement
and the Prospectus which may be necessary in connection with the
distribution of the Shares by the Underwriters. During the period when a
Prospectus relating to the Shares is required to be delivered under the
Act, the Company will promptly file any amendments of, or supplements to,
the Registration Statement and the Prospectus which may be necessary to
correct any untrue statement of a material fact or any omission to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
not file any amendment of, or supplement to, the Registration Statement or
Prospectus, after the Effective Date, which shall not previously have been
submitted to the Representatives and its counsel a reasonable time prior to
such proposed filing or to which the Representatives shall have reasonably
objected. In case any Underwriter is required to deliver a prospectus in
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<PAGE>
connection with sales of any Shares at any time nine months or more after
the Effective Date, upon the request of the Representatives but at the
expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as the Representatives may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act.
D. The Company will endeavor to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably
designate and the Company will file such consents to service of process or
other documents necessary or appropriate in order to effect such
qualification or registration. In each jurisdiction in which the Shares
shall have been qualified or registered as above provided, the Company will
continue such qualifications or registrations in effect for so long as may
be required for purposes of the distribution of the Shares and make and
file such statements and reports in each year as are or may be reasonably
required by the laws of such jurisdiction to permit secondary trading of
the same; provided, however, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to the service of
process in suits, other than those arising out of the offering or sale of
the Shares.
E. The Company will furnish to the Representatives, as soon as available,
copies of the Registration Statement and all amendments (two of which will
be signed and which shall include all exhibits), each Preliminary
Prospectus, if any, the Prospectus and any amendments or supplements to
such documents including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as the Representatives
may from time to time reasonably request. The Company specifically
authorizes the Underwriters and all dealers to whom any of the Shares may
be sold by the Underwriters to use and distribute copies of such
Preliminary Prospectuses and Prospectuses in connection with the sale of
the Shares as and to the extent permitted by the federal and applicable
state and local securities laws.
F. The Company will make generally available to its security holders an
earnings statement, in a form complying with requirements of Section 11(a)
of the Act and Rule 158 thereunder, as soon as practicable and in any event
not later than 45 days after the end of its fiscal quarter in which occurs
the first anniversary date of the Effective Date, meeting the requirements
of Section 11(a) of the Act covering a period of at least 12 consecutive
months beginning after the Effective Date, and will advise you in writing
when such statement has been so made available.
G. The Company will, for such period up to two years from the First Closing
Date, deliver to the Representatives copies of its annual report and copies
of all other documents, and information furnished by the Company to its
security holders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Exchange Act, or any state securities commission by the Company. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, if any, as that term is defined in the rules and
regulations under the Act, which are not consolidated in the Company's
financial statements.
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<PAGE>
H. The Company shall be responsible for and pay all costs and expenses
incident to the performance of its obligations under this Agreement
including, without limiting the generality of the foregoing, (i) all costs
and expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses, if any, the Prospectus and any amendments thereof
or supplements to any of the foregoing; (ii) the issuance and delivery of
the Shares and Warrants, including taxes, if any; (iii) the cost of all
certificates representing the Shares and Warrants; (iv) the fees and
expenses of the Transfer Agent for the Shares; (v) the fees and
disbursements of counsel for the Company; (vi) all fees and other charges
of the independent public accountants of the Company; (vii) the cost of
furnishing and delivering to the Underwriters and dealers participating in
the offering copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectuses, the Prospectus and any amendments of,
or supplements to, any of the foregoing; (viii) the NASD filing fee; (ix)
all fees and expenses of counsel for the Representatives incurred in
qualifying the Shares for sale under the laws of such jurisdictions
designated by the Representatives (including filing fees). In addition, the
Company shall pay to the Representatives as a non-accountable expense
allowance, an amount equal to one percent (1%) of the gross proceeds from
the sale of the Shares. In the event this Agreement is terminated pursuant
to Section 8 below, the Company shall remain obligated to pay the
Representatives their actual accountable out-of-pocket expenses, plus any
fees and expenses described in (ix) above, not to exceed $75,000.
I. The Company will not take, and will use its best efforts to cause each
of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares and will not effect
any sales of any security of the Company which are required to be disclosed
in response to Item 701 of Regulation S-X of the Commission which have not
been so disclosed in the Registration Statement.
J. Upon completion of this offering, the Company will use its best efforts
to maintain the listing of its Common Stock on the National Association of
Securities Dealers Automated Quotation System (Nasdaq) National Market or
SmallCap Market or any other national securities exchange.
K. The Company will apply the net proceeds from the sale of the Shares
substantially in the manner set forth in the Prospectus.
L. During the period ending on the final closing date, the Company agrees
that it will issue press releases, make public statements and respond to
inquiries of the press and securities analysts only after conferring with
its counsel and with the Representatives.
M. Prior to or as of either closing date, the Company shall have performed
each condition to closing required to be performed by the Company pursuant
to Section 5 hereof.
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<PAGE>
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS.
The respective obligations of the Underwriters to purchase and pay for the
Shares as provided herein shall be subject to the accuracy of the
representations and warranties of the Company, in the case of the Firm Shares as
of the date hereof and the First Closing Date (as if made on and as of the First
Closing Date), and in the case of the Option Shares, as of the date hereof and
the Second Closing Date (as if made on and as of the Second Closing Date), to
the performance by the Company of its obligations hereunder, and to the
satisfaction of the following additional conditions on or before the First
Closing Date in the case of the Firm Shares and on or before the Second Closing
Date in the case of the Option Shares:
A. The Registration Statement has been declared effective as of _________.m
Denver time on ____________, 2000 (the "Effective Date"). All filings
required by Rules 424, 430A and 434 under the Act shall have been timely
made. No stop order suspending the effectiveness thereof shall have been
issued and no proceeding for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, threatened by the
Commission or any state securities commission or similar regulatory body.
Any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Underwriters and their legal
counsel.
B. The Representatives shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to be
stated therein or is necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that this Section 5(B) shall not apply to statements in,
or omissions from, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto, which are based upon and conform
to written information furnished to the Company by any of the Underwriters
specifically for use in the preparation of the Registration Statement or
the Prospectus, or any such amendment or supplement.
C. Subsequent to the Effective Date, and except as contemplated or referred
to in the Prospectus, the Company shall not have incurred any direct or
contingent liabilities or obligations material to the Company, or entered
into any material transactions, except liabilities, obligations or
transactions in the ordinary course of business, or declared or paid any
dividends or made any distribution of any kind with respect to its capital
stock; and there shall not have been any change in the capital stock (other
than a change in the number of outstanding shares of Common Stock due to
the exercise of options or warrants described in the Registration Statement
and the Prospectus), or any change in the short-term debt or long-term debt
(including capitalized lease obligations) of the Company, or any issuance
of options, warrants, convertible securities or other rights to purchase
the capital stock of the Company or any change or any development involving
a prospective change in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in the judgment of the
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<PAGE>
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered.
D. The Representatives shall have received the opinion of Faegre & Benson
LLP, counsel for the Company, dated the First Closing Date or the Second
Closing Date, as the case may be, addressed to the Underwriters covering
certain corporate matters to the effect that:
i. The Company as been duly incorporated and is validly existing in
good standing under the laws of the State of Colorado; has the
corporate power to own, lease and operate its properties and conduct
its businesses as described in the Prospectus; and is duly qualified
to do business as a foreign corporation in good standing in all
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification and in which the
failure to be so qualified or in good standing would have a material
adverse effect on condition (financial or otherwise), shareholders'
equity, results of operations, business, properties or prospects of
the Company.
ii. The Company has the number of authorized and outstanding shares of
capital stock of the Company as set forth under the caption
"Capitalization" of the Prospectus, and all issued and outstanding
capital stock of the Company has been duly authorized and is validly
issued, fully paid and nonassessable. There are no statutory
preemptive rights, or to the best knowledge of such counsel, no
similar subscription or purchase rights of securities holders of the
Company with respect to issuance or sale of the Shares by the Company
pursuant to this Agreement, and no rights to require registration of
shares of Common Stock or other securities of the Company because of
the filing of the Registration Statement exist. The Shares conform as
to matters of law in all material respects to the description of such
made in the Prospectus, and such description accurately sets forth the
material legal provisions thereof required to be set forth in the
Prospectus.
iii. The Shares have been duly authorized and, upon delivery to the
Underwriters against payment therefor, will be validly issued, fully
paid and nonassessable.
iv. The Warrants have been duly authorized and issued and constitute
legal, valid and binding obligations of the Company enforceable in
accordance with their terms, except as enforceability thereof may be
limited by bankruptcy, insolvency, reorganization or similar laws
effecting creditors' rights generally or by general principles of
equity (regardless of whether enforcement is considered in a
proceeding in equity or at law). The Common Stock Isabel upon exercise
of the Warrants has been duly authorized and reserved by the Company
and when issued as provided for in the Warrant Agreement, will be duly
and validly issued, fully paid and non-assessable and will conform in
all material respects to the description thereof in the Prospectus.
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<PAGE>
v. The certificates evidencing the Shares comply as to form with the
applicable provisions of the laws of the State of Colorado.
vi. The Registration Statement has become effective under the Act and,
to the knowledge of such counsel, no stop orders suspending the
effectiveness of the Registration Statement have been issued and no
proceedings for that purpose have been instituted or are pending or,
to the knowledge of such counsel, contemplated under the Act.
vii. Upon payment for and delivery of the Shares to be sold by the
Company pursuant to this Agreement, the Underwriters will acquire good
and marketable title to such Shares, free and clear of all liens,
encumbrances or claims created by actions of the Company.
viii. To such counsel's knowledge, there are no material legal or
governmental proceedings, pending or threatened, before any court or
administrative body or regulatory agency, to which the Company or its
affiliates is a party or to which any of the properties of the Company
or its affiliates are subject that are required to be disclosed in the
Registration Statement or Prospectus that are not so described, or
statutes, regulations, or legal or governmental proceedings that are
required to be described in the Registration Statement or Prospectus
that are not so described.
ix. To such counsel's knowledge, there are no franchises, leases,
contracts, agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement or required to be
incorporated by reference into the Prospectus which are not disclosed
or filed or incorporated by reference, as required.
x. No authorization, approval or consent of any governmental
authority or agency is necessary in connection with the issuance
and sale of the Shares as contemplated under this Agreement, except
such as may be required under the Act or under state or other
securities laws in connection with the purchase and distribution of
the Shares by the Underwriters.
xi. The Registration Statement and the Prospectus and any amendments
thereof or supplements thereto (other than the financial statements
and schedules and supporting financial and statistical data and
information included or incorporated therein, as to which such counsel
need express no opinion) conform in all material respects with the
requirements of the Act and the Rules and Regulations, and the
conditions for use of a registration statement on Form S-1 for the
distribution of the Shares have been satisfied with respect to the
Company.
xii. The statements (i) in the Prospectus under the caption "RISK
FACTORS -Provisions of our articles of incorporation could delay or
prevent a change of control," "BUSINESS - Regulation" -- Facilities,"
"MANAGEMENT - Executive Compensation," "--key employee agreements,"
"-- key employee
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<PAGE>
insurance," "-- Stock options," "CERTAIN TRANSACTIONS," "DESCRIPTION
OF SECURITIES," "SHARES ELIGIBLE FOR FUTURE SALE" "INDEMNIFICATION OF
OFFICERS AND DIRECTORS," and "LEGAL PROCEEDINGS" insofar as such
statements constitute a summary of statutes, legal and governmental
proceeding, contracts and other documents, are accurate summaries and
fairly present the information called for with respect to such
matters.
xiii. Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or
the Prospectus which are not so filed or described as required, and
does not know of any amendment to the Registration Statement required
to be filed that has not been filed; and insofar as any statements in
the Registration Statement or the Prospectus constitute summaries of
any contract, agreement, document or instrument to which the Company
is a party, such statements are accurate summaries and fairly present
the information called for with respect to such matters.
xiv. To such counsel's knowledge, there are no defects in title or
leasehold interests, or any liens, encumbrances, equities, charges or
claims, not disclosed in the Registration Statement or Prospectus
which would materially affect the present occupancy or use of any of
the real or personal property owned or leased by the Company.
xv. The Company has the corporate power and authorization to enter
this Agreement and to authorize, issue and sell the Shares as
contemplated hereby. This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may
be limited by the application of bankruptcy, insolvency, moratorium or
similar laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and other equitable
remedies and except as the enforceability of indemnification or
contribution provisions hereof may be limited by action of a court
interpreting or applying federal or state securities laws or equitable
principles.
xvi. The performance of this Agreement and the consummation of the
transactions described herein will not result in a violation of or
default under, the Company's Articles of Incorporation, Bylaws or
other governing documents. To the best of such counsel's knowledge,
(a) the Company is not in violation of, or in default under, its
Articles of Incorporation, Bylaws or other governing documents; and
(b) the performance of this Agreement and the consummation of the
transactions described herein will not result in a material violation
of, or a material default under, the terms or provisions of (A) any
bond, debenture, note, or other evidence of indebtedness or any
contract, license, indenture, mortgage, loan agreement, joint venture
or partnership agreement, lease, agreement or instrument to which the
Company is a party or by which the Company or any of its properties is
bound, or (B) any law, order, rule, regulation, writ, injunction, or
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decree known to such counsel of any government, governmental agency or
court having jurisdiction over the Company or any of its properties.
xvii. To such counsel's knowledge, sales of unregistered securities by
the Company prior to the Effective Date were exempt from registration
requirements of the Act and are not required to be integrated, under
Rule 502(a) of Regulation D of the Act, with the public offering
contemplated hereby.
xviii. The Company is not, and immediately upon completion of the sale
of the Shares contemplated hereby will not be required to register as
an "investment company" under the Investment Company Act of 1940, as
amended.
xix. To the best of such counsel's knowledge, the Company is not
engaged in any negotiations regarding any form of business combination
with another entity.
xx. To such counsel's knowledge, there is no pending or threatened
claim, action or proceeding by any person or governmental agency which
challenges the rights of the Company with respect to any material
intellectual property of the Company, except as provided in the
Prospectus.
xxi. Such counsel has performed certain trademark searches, but has
conducted no patent searches nor reviewed patentability issues on
behalf of the Company. To such counsel's knowledge, and based solely
upon such searching and review, the Company's current products,
services and processes do not infringe on any intellectual property
rights of any third parties, except as set forth in the Prospectus.
xxii. To the knowledge of such counsel, and based solely on the
searching and review identified above, the Company's trademark
registrations which have been issued by the United States Patent and
Trademark Office have been fully maintained and are in full force and
effect. Such counsel gives no opinion, however, as to whether any
third party could successfully challenge the validity or
enforceability of any of such trademark registrations.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, and
opinions of other legal counsel to the Company, provided that copies of all such
certificates and opinions are attached to the opinion.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that, although such counsel cannot guarantee the
accuracy, completeness or fairness of any of the statements contained in the
Registration Statement or Prospectus, in connection with such counsel's
representation, investigation and due inquiry of the Company in the preparation
of the Registration Statement and Prospectus, such counsel has no reason to
believe that, (i) as of its Effective Date, the Registration Statement or any
further amendment thereto (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion) made by the
Company prior to the First Closing Date or the Second Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading, or (ii), as of its date, the Prospectus or any further amendment or
supplement thereto (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) made by the Company
prior to the First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading or (iii), as of the First Closing Date or
the Second Closing Date, as the case may be, either the Registration Statement
or the Prospectus or any further amendment or supplement thereto (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) made by the Company prior to the First Closing Date or
the Second Closing Date, as the case may be, contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
E. The Representatives shall have received from Thelen Reid & Priest LLP,
its counsel, such opinion or opinions as the Representatives may reasonably
require, dated the First Closing Date or the Second Closing Date, as the
case may be, with respect to the sufficiency of corporate proceedings and
other legal matters relating to this Agreement and the transactions
contemplated hereby, and other related matters as the Representatives may
reasonably request; and the Company and its counsel shall have furnished to
said counsel such documents as they may have reasonably requested for the
purpose of enabling them to pass upon such matters. In connection with such
opinion, as to matters of fact relevant to conclusions of law, such counsel
may rely, to the extent that they deem proper, upon representations or
certificates of public officials and of responsible officers of the
Company.
F. The Representatives and the Company shall have received letters, dated
the date hereof and the First Closing Date and the Second Closing Date, as
the case may be, from Ernst & Young, to the effect that they are
independent public accountants with respect to the Company within the
meaning of the Act and the related rules and regulations, stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the
related rules and regulations, and containing such other statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
G. The Representatives shall have received from the Company a certificate,
dated as of each Closing Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that as of the First Closing
Date and the Second Closing Date:
i. The representations and warranties of the Company in this Agreement
are true and correct as if made on and as of each Closing Date. The
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at, or prior to,
each such Closing Date.
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ii. No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceeding for that purpose has been
instituted or is pending or to the best knowledge of such officers
contemplated under the Act.
iii. Neither the Registration Statement nor the Prospectus nor any
amendment thereof or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading, and,
since the Effective Date, there has occurred no event required to be
set forth in an amended or supplemented prospectus which has not been
so set forth; provided, however, that such certificate does not
require any representation concerning statements in, or omissions
from, the Registration Statement or Prospectus or any amendment
thereof or supplement thereto, which are based upon and conform to
written information furnished to the Company by any of the
Underwriters specifically for use in the preparation of the
Registration Statement or the Prospectus or any such amendment or
supplement.
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
contemplated or referred to in the Prospectus, the Company has not
incurred any direct or contingent liabilities or obligations material
to the Company, or entered into any material transactions, except
liabilities, obligations or transactions in the ordinary course of
business, or declared or paid any dividend or made any distribution of
any kind with respect to its capital stock, and there has not been any
change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the exercise of options or
warrants described in the Registration Statement and the Prospectus)
and there has not been any material adverse change in the capital
stock, short-term debt, or long-term debt (including capitalized lease
obligations) of the Company, or any material adverse change or any
development involving a prospective material adverse change (whether
or not arising in the ordinary course of business) in or affecting the
general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, shareholders' equity or results of
operations of the Company.
v. Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, the Company has not
sustained any material loss of, or damage to, its properties, whether
or not insured.
vi. Except as is otherwise expressly stated in the Registration
Statement and Prospectus there are no material actions, suits or
proceedings pending before any court or governmental agency, authority
or body, or, to the best of such officer's knowledge, threatened, to
which the Company is a party or of which the business or property of
the Company is the subject.
H. The Representatives shall have received, dated as of each Closing Date,
from the Secretary of the Company a certificate of incumbency certifying
the names, titles and signatures of the officers authorized to execute the
resolutions of the Board of Directors
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of the Company authorizing and approving the execution, delivery and
performance of this Agreement, a copy of such resolutions to be attached to
such certificate, certifying such resolutions and certifying that the
Articles of Incorporation and the Bylaws of the Company have been validly
adopted and have not been amended or modified, except as described in the
Prospectus.
I. The Representatives shall have received a written agreement, enforceable
by the Representatives, from each of officer and director of the Company,
that for 180 days following the Effective Date, such person will not,
without the Representatives' prior written consent, sell, transfer or
otherwise dispose of, or agree to sell, transfer or otherwise dispose of,
other than by gift to donees who agree to be bound by the same restriction
or by will or the laws of descent, any of his or her Common Stock, or any
options, warrants or rights to purchase Common Stock or any shares of
Common Stock received upon exercise of any options, warrants or rights to
purchase Common Stock, all of which are beneficially held by such persons
during the 180 day period.
J. The Shares shall have been duly listed on either the Nasdaq SmallCap
Market or the Nasdaq National Market.
K. The Company shall have furnished to the Underwriters, dated as of the
date of each Closing Date, such further certificates and documents as the
Underwriters shall have reasonably required.
L. All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Representatives and their legal counsel. All statements
contained in any certificate, letter or other document delivered pursuant
hereto by, or on behalf of, the Company shall be deemed to constitute
representations and warranties of the Company.
M. The Representatives may waive in writing the performance of any one or
more of the conditions specified in this Section 5 or extend the time for
their performance.
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N. If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriters hereunder may be canceled
at, or at any time prior to, each closing date by the Representatives. Any
such cancellation shall be without liability of the Underwriters to the
Company or to any other party, and shall not relieve the Company of its
obligations under Section 4(H) hereof. Notice of such cancellation shall be
given to the Company at the address specified in Section 11 hereof in
writing, or by facsimile or telephone and confirmed in writing.
6. INDEMNIFICATION.
A. The Company hereby agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or each such controlling person
may become subject, under the Act, the Exchange Act, the common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of, or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Preliminary Prospectus or the Prospectus
including any amendment thereof, or (ii) the omission or alleged omission
to state in the Registration Statement, any Preliminary Prospectus or
Prospectus including any amendment thereof a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to quality the Shares under, or exempt the Shares or the sale thereof
from qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and the Company will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or controlling person (subject to the
limitation set forth in Section 6(D) hereof, in connection with
investigating or defending against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of, or is based upon, any
untrue statement, or alleged untrue statement, omission or alleged
omission, made in reliance upon and in conformity with information
furnished to the Company by, or on behalf of, any Underwriter in writing
specifically for use in the preparation of the Registration Statement or
any such post effective amendment thereof, any such Preliminary Prospectus
or the Prospectus or any such amendment thereof or supplement thereto; and
provided further, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated, remedied or corrected in the Prospectus (or any
amendment or supplement thereto) such indemnity agreement shall not inure
to the benefit of any Underwriter (or to the benefit of any person who
controls such Underwriter), if the person asserting any loss, claim,
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<PAGE>
damage or liability as a result of such untrue statement or omission
purchased the Shares from such Underwriter and was not sent or given a copy
of the Prospectus with, or prior to, the written confirmation of the sale
of such Shares to such person by such Underwriter unless such failure to
deliver the Prospectus (as amended or supplemented) was the result of
noncompliance by the Company with Section 4(C). This indemnity agreement is
in addition to any liability which the Company may otherwise have.
B. Each Underwriter severally, but not jointly, agrees to indemnify and
hold harmless the Company, each of the Company's directors, each of the
Company's officers who has signed the Registration Statement and each
person who controls the Company within the meaning of the Act against any
losses, claims, damages or liabilities to which the Company or any
director, officer, or controlling person may become subject, under the Act,
the Exchange Act, the common law, or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out
of, or are based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any Preliminary
Prospectus or Prospectus, including any amendment thereof, (ii) the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus or Prospectus including any amendment thereof a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company or by any Underwriter and filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares or
the sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; in each of the above cases to
the extent, but only the extent, that such untrue statement, alleged untrue
statement, omission or alleged omission, was made in reliance upon and in
conformity with information furnished to the Company by, or on behalf of,
any Underwriter in writing specifically for use in the preparation of the
Registration Statement or any such post effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement executed by
the Company or by any Underwriter and filed in any jurisdiction; and each
Underwriter will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer or controlling person in
connection with investigating or defending against any such loss, claim,
damage, liability or action as such expenses are incurred. This indemnity
agreement is in addition to any liability which the Underwriters may
otherwise have.
C. Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action or proceeding (including any
governmental investigation), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 6, notify in writing the indemnifying party of the commencement
thereof. The failure to so notify the indemnifying party will not relieve
such party from any liability under this Section 6 as to the particular
item for which indemnification is then being sought, unless such failure so
to notify prejudices the
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indemnifying party's ability to defend such action. In case any such action
is brought against any indemnified party and the indemnified party notifies
an indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel who shall be reasonably
satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that if, in the reasonable judgment of the indemnified party, it
is advisable for such parties and controlling persons to be represented by
separate counsel, any indemnified party shall have the right to employ
separate counsel to represent it and all other parties and their
controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters
against the Company or by the Company against the Underwriters hereunder,
in which event the fees and expenses of such separate counsel shall be
borne by the indemnifying party; provided, however, if the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, or the
indemnified and indemnifying parties may have conflicting interests which
would make it inappropriate for the same counsel to represent both of them,
the indemnified party shall have the right to select separate counsel to
assume such defense and to otherwise participate in the defense of such
action on behalf of such indemnified party and all other parties and their
controlling persons. Any such indemnifying party shall not be liable to any
such indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
7. CONTRIBUTION.
A. If the indemnification provided for in Section 6 is unavailable or
insufficient to hold harmless any indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the offering of
the Shares. In the event that the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute in such proportion as is appropriate to
reflect not only the relative benefits referred to above but also the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
Company and the Underwriters agree that contribution determined by per
capita allocation (even if the Underwriters were considered a single
person) would not be equitable. The respective relative benefits received
by the Company on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion (a) in the case of the Company as
the total price paid to the Company for the Shares by the Underwriters (net
of underwriting discount received but before
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deducting expenses) bears to the aggregate Offering Price of the Shares,
and (b) in the case of the Underwriters, as the aggregate underwriting
discount received by them bears to the aggregate Offering Price of the
Shares, in each case as reflected in the Prospectus. The relative fault of
the Company and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. Notwithstanding the
provisions of this Section 7, (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to
pay by reason of any untrue or alleged untrue statement or omission or
alleged omission in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto. The Underwriters'
obligation to contribute pursuant to this Section 7 is several and not
joint. No person guilty of fraudulent misrepresentation (within the meaning
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
7, each person who controls an Underwriter within the meaning of the Act or
the Exchange Act shall have the same rights to contribution as such
Underwriter, each person who controls the Company within the meaning of the
Act or the Exchange Act shall have the same rights to contribution as the
Company and each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company.
B. Promptly after receipt by a party to this Agreement of notice of the
commencement of any action, suit, or proceeding, such person will, if a
claim for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party of the
commencement thereof, but the failure to so notify the Contributing Party
will not relieve the Contributing Party from any liability which it may
have to any party other than under this Section 7, unless such failure to
so notify prejudices the Contributing Party's ability to defend such
action. Any notice given pursuant to Section 6 hereof shall be deemed to be
like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party of
the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
C. The obligations of the Company under this Section 7 shall be in addition
to any liability which the Company may otherwise have, and the obligations
of the Underwriter under this Section 7 shall be in addition to any
liability which the Underwriters may otherwise have.
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8. EFFECTIVE DATE AND TERMINATION.
A. This Agreement shall become effective at the later of (i) the day upon
which this Agreement shall have been executed and delivered by the parties
hereto, or (ii) at 10:00 a.m. Denver time, on the first full business day
following the Effective Date, or at such earlier time after the Effective
Date as the Representatives in its discretion shall first release the
Shares for offering to the public. For purposes of this Section 8, the
Shares shall be deemed to have been released to the public upon release by
the Representatives of the publication of a newspaper advertisement
relating to the Shares or upon release of a telegram or a letter offering
the Shares for sale to securities dealers, whichever shall first occur.
B. The Representatives shall have the right to terminate this Agreement by
giving notice to the Company as hereinafter specified at any time prior to
the First Closing Date, and the option referred to in Section 2(C), if
exercised, may be canceled at any time by the Representatives by giving
such notice to the Company at any time prior to the Second Closing Date, if
(i) the Company shall have failed, refused or been unable, at or prior to
the First Closing Date, to perform any material agreement on its part to be
performed hereunder; (ii) any other condition of the Underwriters'
obligations hereunder is not fulfilled; (iii) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the
Nasdaq Stock Market shall have been suspended, or minimum or maximum prices
for trading shall have been required or established by the Commission or by
any such exchange or the Nasdaq Stock Market; (iv) a banking moratorium
shall have been declared by federal, New York or Colorado authorities; (v)
there shall have been such a material adverse change in general economic,
monetary, political or financial conditions, or the effect of international
conditions on the financial markets in the United States shall be such as,
in the judgment of the Representatives, makes it impracticable or
inadvisable to proceed with the completion of the sale of and payment for
the Shares; (vi) there shall have been the enactment, publication, decree
or other promulgation of any federal or state statute, regulation, rule or
order of any court or other governmental authority, which in the judgment
of the Representatives materially and adversely affects or will materially
and adversely affect the business or operations of the Company; or (vii)
there shall be an outbreak of major hostilities (or an escalation thereof)
in which the United States is involved or a formal declaration of war by
the United States of America shall have occurred or any other substantial
national or international calamity or any other event or occurrence of a
similar character shall have occurred since the execution of this Agreement
that, in the judgment of the Representatives, makes it impracticable or
inadvisable to proceed with the completion of the sale of and payment for
the Shares. Any such termination shall be without liability of any party to
any other party, except as provided in Sections 6 and 7 hereof; provided,
however, that the Company shall remain obligated to pay costs and expenses
to the extent provided in Section 4(H) hereof.
C. If the Representatives elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 8, it
shall notify the Company promptly by telecopy or telephone, confirmed by
letter sent to the address specified in Section 11 hereof. If the Company
shall elect to prevent this Agreement from becoming
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effective, it shall notify the Representatives promptly by telecopy or
telephone, confirmed by letter sent to the address specified in Section 11
hereof.
D. If the Company shall fail at the First Closing Date to sell and deliver
the number of Shares which it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any
Underwriter. No action taken pursuant to this Section 8(D) shall relieve
the Company from liability, if any, in respect of such default.
9. DEFAULT OF UNDERWRITER.
If on the First Closing Date or the Second Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your best efforts to procure
within 36 hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company such amounts as may be agreed upon, and upon the
terms set forth herein, of the Firm Shares or Option Shares, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (i) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase or (ii) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except for expenses to be borne by the Company
and the Underwriters as provided in Section 4(H) hereof and the indemnity and
contribution agreements in Sections 6 and 7 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the First
Closing Date or Second Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as you, as Representatives, may determine
in order that the required changes, not including a reduction in the number of
Firm Shares, in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. SURVIVAL.
The respective indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 6 and 7, respectively, the representations
and warranties of the Company set forth in Section 1 hereof and the covenants of
the Company set forth in Section
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4 hereof shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Underwriters, the Company, any of
its officers and directors or any controlling person referred to in Sections 6
and 7 and shall survive the delivery of and payment for the Shares. The
aforesaid indemnity and contribution agreements shall also survive any
termination or cancellation of this Agreement. Any successor of any party or of
any such controlling person, or any legal representative of such controlling
person, as the case may be, shall be entitled to the benefit of the respective
indemnity and contribution agreements.
11. NOTICES.
All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Representatives
or any of the Underwriters, shall be mailed, delivered, or telecopied and
confirmed, to John G. Kinnard and Company, Incorporated, 920 Second Avenue
South, Minneapolis, Minnesota 55402, Attention: Marc McIntosh, with a copy to J.
Michael Parish, Esq., Thelen Reid & Priest LLP, 40 West 57th Street, New York,
New York 10019; or, if sent to the Company, shall be mailed, delivered, or
telegraphed, and confirmed, to ACT Teleconferencing, Inc., 1658 Cole Boulevard,
Suite 130, Golden, Colorado 80401, Attention: Gavin J. Thompson, with a copy to
William J. Campbell, Esq., Faegre & Benson LLP, 370 Seventeenth Street, Suite
2500, Denver, Colorado 80202.
12. INFORMATION FURNISHED BY THE UNDERWRITERS.
The statements under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitute the only information furnished by,
or on behalf of, the Underwriters in writing specifically for use with reference
to the Underwriters referred to in Section 1(A)(ii) and Section 6 hereof.
13. PARTIES.
This Agreement shall inure to the benefit of and be binding upon each of
the Underwriters and the Company, their respective successors and assigns and
the officers, directors and controlling persons referred to in Sections 6 and 7.
Nothing expressed in this Agreement is intended or shall be construed to give
any person or corporation, other than the parties hereto, their respective
successors and assigns and the controlling persons, officers and directors
referred to in Sections 6 and 7 any legal or equitable right, remedy or claim
under, or in respect of, this Agreement or any provision herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors, assigns and such controlling
persons, officers and directors, and for the benefit of no other person or
corporation. No purchaser of any Shares from the Underwriters shall be construed
to be a successor or assign merely by reason of such purchase.
14. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the laws
of the State of Minnesota, without regard to conflict of law provisions.
30
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterpart of this Agreement,
whereupon it will become a binding agreement between the Company and each of the
several Underwriters in accordance with its terms.
Very truly yours,
ACT TELECONFERENCING, INC.
By:
----------------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted by us
for ourselves and as Representatives of the Underwriters referred to in the
foregoing Agreement as of the date first above written.
JOHN G. KINNARD AND COMPANY, INCORPORATED
KAUFMAN BROS., LP
By: JOHN G. KINNARD AND COMPANY, INCORPORATED
By:
-----------------------------------
Name:
Title:
31
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Name of Underwriter Number of Firm Shares
- ------------------- ---------------------
<S> <C>
John G. Kinnard and Company, Incorporated.........................
Kaufman Bros., LP.................................................
[OTHERS]
Total..............................................2,000,000
==========
</TABLE>
S-1
<PAGE>
SCHEDULE II
SCHEDULE OF SHAREHOLDERS REQUIRED TO EXECUTE LOCK-UP AGREEMENTS
<TABLE>
<CAPTION>
Name of Shareholder Number of Shares
- ------------------- ----------------
<S> <C>
Total.......................................................
</TABLE>
- ----------
(1) Represents shares held jointly.
S-II
<PAGE>
FORM OF
LOCK-UP AGREEMENT
_____________, 2000
John G. Kinnard and Company, Incorporated
Kaufman Bros., LP,
As representatives of the several Underwriters
Listed in Schedule I to the Underwriting
Agreement
c/o John G. Kinnard and Company, Incorporated
Kinnard Financial Center
920 Second Avenue South
Minneapolis, MN 55402
Re: ACT TELECONFERENCING, INC.
Ladies and Gentlemen:
The undersigned understands that you, as representative of the several
Underwriters, propose to enter into an Underwriting Agreement (the "UNDERWRITING
AGREEMENT") with ACT Teleconferencing, Inc., a Colorado corporation (the
"COMPANY"), providing for the public offering (the "PUBLIC OFFERING") by the
several Underwriters named in Schedule I to the Underwriting Agreement (the
"UNDERWRITERS"), of 2,000,000 shares (the "SHARES") of common stock, no par
value, of the Company (the "COMMON STOCK").
In consideration of the Underwriters' agreement to purchase and make the
Public Offering of the Shares, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of John G. Kinnard and Company,
Incorporated, as representative of the several Underwriters, the undersigned
will not, during the period ending 180 days after the date of the final
prospectus relating to the Public Offering (the "PROSPECTUS"), (1) offer,
pledge, announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly (other than by gift, by will, or by the
laws of descent and distribution to a person who agrees to be bound by the
terms of this agreement), any shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for Common Stock
(including without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and securities which
may be issued upon exercise of a stock option or warrant) or (2) enter into
any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. In addition,
the undersigned agrees that, without the
<PAGE>
prior written consent of John G. Kinnard and Company, Incorporated, as
representative of the several Underwriters, the undersigned will not, during the
period ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
In furtherance of the foregoing, the Company, and any duly appointed transfer
agent for the registration or transfer of the securities described herein, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this lock-up agreement.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this lock-up agreement. All authority herein
conferred or agreed to be conferred and any obligations of the undersigned shall
be binding upon the successors, assigns, heirs or personal representatives of
the undersigned.
The undersigned understands that if the Underwriting Agreement does not become
effective, or if the Underwriting Agreement (other than the provisions thereof
of which survive termination) shall terminate or be terminated prior to payment
for and delivery of the Common Stock to be sold thereunder, the undersigned
shall be released from all obligations under this lock-up agreement.
The undersigned understands that the Underwriters are entering into the
Underwriting Agreement and proceeding with the Public Offering in reliance upon
this lock-up agreement.
[Remainder of page intentionally left blank]
2
<PAGE>
This lock-up agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
Very truly yours,
-----------------------------
By:
--------------------------
Name:
Title:
Accepted as of the date first set forth above:
JOHN G. KINNARD AND COMPANY,
INCORPORATED
KAUFMAN BROS., LP, Acting severally on behalf of themselves and the several
Underwriters named on Schedule I to the Underwriting Agreement
By: JOHN G. KINNARD AND COMPANY,
INCORPORATED
By:
--------------------------
Name:
Title:
3
<PAGE>
This lock-up agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
Very truly yours,
-----------------------------
Accepted as of the date first set forth above:
JOHN G. KINNARD AND COMPANY,
INCORPORATED
KAUFMAN BROS., LP, Acting severally on behalf of themselves and the several
Underwriters named on Schedule I to the Underwriting Agreement
By: JOHN G. KINNARD AND COMPANY,
INCORPORATED
By:
-----------------------------
Name:
Title:
3
<PAGE>
FORM OF REPRESENTATIVES' WARRANT
Option to Purchase 200,000
Shares of Common Stock
REPRESENTATIVES' WARRANT
------------------------
Dated: __________, 2000
THIS CERTIFIES THAT John G. Kinnard and Company, Incorporated and Kaufman
Bros., L.P. (herein sometimes called the "Holders" or the "Representatives") are
entitled to purchase from ACT Teleconferencing, Inc., a Colorado corporation
(the "Company"), at the price and during the period as hereinafter specified, up
to 200,000 shares (the "Shares") of common stock, no par value per share (the
"Common Stock"), at a purchase price of $____ per share (120% of the public
offering price) subject to adjustment as described below, at any time during the
four-year period commencing one (1) year from the effective date of the
Registration Statement (as defined herein) (the "Effective Date").
This Representatives' Warrant (the "Representatives' Warrant") is issued
pursuant to an Underwriting Agreement between the Company and John G. Kinnard
and Company, Incorporated and Kaufman Bros., L.P., as Representatives of the
several Underwriters set forth in Schedule I to said Underwriting Agreement, in
connection with a public offering, through the Representatives, of 2,000,000
shares of Common Stock as therein described (and up to 300,000 additional shares
of Common Stock covered by an over-allotment option granted by the Company to
the Underwriters), and in consideration of $1.00 received by the Company for the
Representatives' Warrant. Except as specifically otherwise provided herein, the
Shares issued pursuant to the Representatives' Warrant shall bear the same terms
and conditions as described under the caption "Description of Securities-
Common Stock" in the Registration Statement on Form S-1, File No.
333-___________ (the "Registration Statement") except that the Holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Representatives' Warrant and the Shares issuable pursuant thereto as
more fully described in paragraph 6 herein.
1. The rights represented by the Representatives' Warrant shall be
exercised at the price, set forth in the first paragraph hereof subject to
adjustment in accordance with Section 8 hereof (the "Exercise Price"), and
during the periods as follows:
(a) During the period from the Effective Date to and through __________,
2001 (the "First Anniversary Date"), inclusive, the Holder shall have no right
to purchase any Shares hereunder, except that in the event of any merger,
consolidation or sale of substantially all the assets of the Company as an
entirety prior to the First Anniversary Date (other than (i) a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification or reorganization of any outstanding shares
of Common Stock or (ii) any sale/leaseback, mortgage or other financing
transaction), the Holder shall have the right to exercise the Representatives'
Warrant concurrently with such event and into the kind and amount
<PAGE>
of shares of stock and other securities and property (including cash) receivable
by a holder of the number of Shares into which the Representatives' Warrant were
exercisable immediately prior thereto.
(b) Between _____________, 2001 and 2005, (five (5) years from the
Effective Date, i.e. the "Expiration Date") inclusive, the Holder shall have the
option to purchase Shares hereunder at the Exercise Price.
(c) After the Expiration Date, the Holder shall have no right to
purchase any Shares hereunder.
2. (a) The rights represented by the Representatives' Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Representatives' Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of Shares specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the person(s) designated in the
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Representatives' Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Representatives' Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for the Shares shall
be issuable upon such exercise shall become the holder or holders of record of
such Shares at that time and date. The Shares and the certificates for the
Shares so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) business days, after the rights represented by this
Representatives' Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Representatives' Warrant in whole or
in part by receiving Shares equal to the value (as determined below) of this
Representatives' Warrant, or any part hereof, upon surrender of the
Representatives' Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of Shares computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of Shares to be issued to the Holder;
Y = the number of Shares issuable upon exercise of this
Representatives' Warrant;
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Representatives' Warrant;
2
<PAGE>
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock the average of the closing prices of the
Common Stock sold on the principal national securities exchanges on which the
Common Stock is at the time admitted to trading or listed, or, if there have
been no sales on any such exchange on such day, the average of the highest bid
and lowest ask price on such day as reported by NASDAQ, or any similar
organization if NASDAQ is no longer reporting such information, either (i) on
the date which the form of election is deemed to have been sent to the Company
(the "Notice Date") or (ii) over a period of five (5) trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
If on the date for which current fair market value is to be determined the
Common Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the current fair market value of Common
Stock shall be the highest price per share which the Company could then obtain
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless prior to such date
the Company has become subject to a binding agreement for a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving party,
in which case the current fair market value of the Common Stock shall be deemed
to be the value to be received by the holders of the Common Stock for each share
thereof pursuant to the Company's acquisition.
3. The Representatives' Warrant shall not be sold, transferred, assigned,
or hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder to any members of
the selling group and/or the officers or partners thereof during such period.
This Representatives' Warrant must be executed immediately upon its transfer at
any time after one year from the Effective Date, and if not so executed, shall
lapse. Any such assignment shall be effected by the Holder by (i) executing the
form of assignment at the end hereof and (ii) surrendering the Representatives'
Warrant for cancellation at the office or agency of the Company referred to in
paragraph 2 hereof, accompanied by a certificate (signed by an officer of the
Holder if the Holder is a corporation) stating that each transferee is a
permitted transferee under this paragraph 3; whereupon the Company shall issue,
in the name or names specified by the Holder (including the Holder), a new
Representatives' Warrant or Warrants of like tenor and representing in the
aggregate rights to purchase the same number of Shares as are purchasable
hereunder at such time.
4. The Company covenants and agrees that all Shares which may be purchased
hereunder will, upon issuance and delivery against payment therefor of the
requisite purchase price, be duly and validly issued, fully paid and
nonassessable. The Company further covenants and agrees that, during the periods
within which the Representatives' Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of the Representatives' Warrant.
5. The Representatives' Warrant shall not entitle the Holder to any voting
rights or other rights, including without limitation notice of meetings of other
actions or receipt of dividends, as a stockholder of the Company.
3
<PAGE>
6. (a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Representatives' Warrant or has exercised the
Representatives' Warrant and holds Shares, by written notice at least four
weeks prior to the filing of any new registration statement thereto under the
Act, or the filing of a notification on Form 1-A under the Act for a public
offering of securities, covering any securities of the Company, for its own
account or for the account of others, except for any registration statement
filed on Form S-4 or S-8 (or other comparable form), and will, during the
five (5) year period from the Effective Date, upon the request of the Holder,
include in any such new registration statement (or notification as the case
may be) such information as may be required to permit a public offering of,
all or any of the Shares underlying the Representatives' Warrant (the
"Registrable Securities"). For so long as the Warrants remain outstanding and
as long as required by the Act (so long as the Holder's ability to exercise
any Warrant is not adversely affected), the Company will file post-effective
amendments to the Registration Statement (or any new registration statement
filed by the Company) setting forth or otherwise incorporating certain
information contained in the then most recent quarterly report on Form 10-Q
or annual report on Form 10-K filed by the Company (each such post-effective
amendment, a "Quarterly Amendment"). The parties hereby agree that if at any
time during such five (5) year period the Company receives written notice
from the Holder at least two weeks prior to the filing of any such Quarterly
Amendment indicating such Holder's intention to offer Registrable Securities
in such Quarterly Amendment, the Company will include in such Quarterly
Amendment such information as may be required to permit a public offering of
such Registrable Securities. The delivery by the Holder of any such notice
shall not constitute a demand made pursuant to Section 6(b). The Company
shall supply prospectuses and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register
and qualify any of the Registrable Securities for sale in such states (i) as
such Holder designates and (ii) with respect to which the Company obtained a
qualification in connection with its public offering; and do any and all
other acts and things which may be necessary or desirable to enable such
Holder to consummate the public sale or other disposition of the Registrable
Securities, all at no expense to the Holder or the Representatives (other
than sales commissions, underwriting discounts or commissions, or other
expenses of such sale), and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification
as set forth in paragraph 7.
(b) At any time during the four (4) year period beginning one (1) year
after the Effective Date, a 50% Holder (as defined below) may request, on two
occasions, that the Company register under the Act any and all of the
Registrable Securities held by such 50% Holder, once at the Company's expense
and on the second occasion, at the 50% Holder's expense. Upon the receipt of any
such notice, the Company will promptly, but no later than four weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use reasonable
efforts to cause such registration to become and remain effective (including the
taking of such reasonable steps as are necessary to obtain the removal of any
stop order) within 120 days after the receipt of such notice, provided, that
such Holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% Holder may,
at its option, request the registration of any of the Shares
4
<PAGE>
underlying the Representatives' Warrant in a registration statement made by the
Company as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Shares issuable upon
exercise of the Representatives' Warrant. The 50% Holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Representatives' Warrant and/or the Shares
and such registration rights may be exercised by the 50% Holder prior to or
subsequent to the exercise of the Representatives' Warrant. Within ten days
after receiving any such notice pursuant to this subsection (b) of paragraph 6,
the Company shall give notice to any other Holders of the Representatives'
Warrant, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein the Shares
underlying that part of the Representatives' Warrant held by the other Holders,
provided that they shall furnish the Company with such appropriate information
(relating to the intentions of such Holders) in connection therewith as the
Company shall reasonably request in writing. All costs and expenses of the
post-effective amendment or new registration statement shall be borne by the
Company, except that the Holder(s) shall bear the fees of their own counsel and
any other advisors retained by them and any underwriting discounts or
commissions applicable to any of the securities sold by them. The Company will
use its best efforts to maintain such registration statement or post-effective
amendment current under the Act for a period of at least 180 days from the
effective date thereof. The Company shall supply prospectuses, and such other
documents as the Holder(s) may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states (i) as such Holder(s) designate and (ii) with respect to which the
Company obtained a qualification in connection with its public offering and
furnish indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any Registrable
Securities which in the opinion of counsel to the Company (which opinion is
reasonably acceptable to counsel to the Representatives) would be saleable
immediately without restriction under Rule 144 (or its successor) if the
Representatives' Warrant was exercised pursuant to paragraph 2(b) herein.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Representatives' Warrant and/or the Shares
underlying the Representatives' Warrant (considered in the aggregate).
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to any Shares issued upon exercise of the Representatives' Warrant is filed
under the Act, amended or supplemented, the Company will indemnify and hold
harmless each Holder of the securities covered by such registration statement,
amendment or supplement (such Holder being hereinafter called the "Distributing
Holder"), and each person, if any, who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement as declared
effective or any final
5
<PAGE>
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse the Distributing Holder or
such controlling person or underwriter for any legal or other expense reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof and provided further, that the indemnity agreement provided
in this Section 7(a) with respect to any preliminary prospectus shall not inure
to the benefit of any Distributing Holder, controlling person of such
Distributing Holder, underwriter or controlling person of such underwriter from
whom the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, and each person, if any,
who controls the Company (within the meaning of the Act) against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities, or actions
in respect thereof, arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus, said
final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
6
<PAGE>
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement hereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of the Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock (other than
issuance of Common Stock pursuant to antidilution provisions set forth in the
Registration Statement), (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
enter into any transaction whereby the outstanding shares of Common Stock of the
Company are at any time changed into or exchanged for a different number or kind
of shares or other security of the Company or of another corporation through
reorganization, merger, consolidation, liquidation or recapitalization, then
appropriate adjustments in the number of Shares (or other securities for which
such Shares have previously been exchanged or converted) subject to this
Representatives' Warrant shall be made and the Exercise Price in effect at the
time of the record date for such dividend or distribution or of the effective
date of such subdivision, combination, reclassification, reorganization, merger,
consolidation, liquidation or recapitalization shall be proportionately adjusted
so that the Holder of this Representatives' Warrant exercised after such date
shall be entitled to receive the aggregate number and kind of shares of Common
Stock which, if this Representatives' Warrant had been exercised by such Holder
immediately prior to such date, he would have been entitled to receive upon such
dividend, distribution, subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization. For
example, if the Company declares a 2 for 1 stock distribution and the Exercise
Price hereof immediately prior to such event was $______ per Share and the
number of Shares issuable upon exercise of this Representatives' Warrant was
_________ , the adjusted Exercise Price immediately after such event would be
$_________ per Share and the adjusted number of Shares issuable upon exercise of
this Representatives' Warrant would be ________. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of rights
or warrants to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or securities convertible into Common Stock)
at a price (the "Subscription Price") (or having a conversion price per share)
less than the Exercise Price on a per share basis (the "Per Share Exercise
Price") on such record date, the Exercise Price shall be adjusted so that the
same shall equal the price determined by multiplying the number of Shares by the
Per Share Exercise
7
<PAGE>
Price in effect immediately prior to the date of issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock then
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Per Share Exercise
Price in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
or distributions and dividends or distributions referred to in Subsection (a)
above) or subscription rights or warrants (excluding those referred to in
Subsection (b) above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the number of Shares by the Per
Share Exercise Price in effect immediately prior thereto, multiplied by a
fraction, the numerator of which shall be the total number of shares of Common
Stock then outstanding multiplied by the current market price per share of
Common Stock (as defined in Subsection (e) below), less the fair market value
(as determined by the Company's Board of Directors) of said assets, or evidences
of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Representatives' Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Shares purchasable upon exercise of this Representatives'
Warrant shall simultaneously be adjusted by multiplying the number of Shares
issuable upon exercise of this Representatives' Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.
(e) For the purpose of any computation under Subsection (c) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices of the Common Stock for 30 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted
8
<PAGE>
to trading or listed, or, if not listed or admitted to trading on such exchange,
the average of the highest reported bid and lowest reported asked prices as
reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors as set forth in Section 2(b) herein.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which may by reason of
this Subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal income tax
liability to the holders of the Common Stock or securities convertible into
Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of the Representatives'
Warrant to be mailed to the Holder, at its address set forth herein, and shall
cause a certified copy thereof to be mailed to the Company's transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this Section 8, the Holder of the Representatives'
Warrant thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of the Representatives' Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of Minnesota without regard to conflict of laws provision.
IN WITNESS WHEREOF, the Company has caused this Representatives' Warrant to
be signed by its duly authorized officers under its corporate seal, and this
Representatives' Warrant to be dated ____________, 2000.
ACT TELECONFERENCING, INC.
9
<PAGE>
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- ------------------------------
Name:
-------------------------
Title:
------------------------
10
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Representatives' Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _______________ Shares of Common Stock,
no par value per share (the "Shares") ACT Teleconferencing, Inc., payment of
$_______ therefor, and requests that the certificates for the Shares issued in
the name(s) of, and delivered to ________________________, whose address(es) is
(are):
Dated: _______________, ____
By:
--------------------------------
-----------------------------------
-----------------------------------
Address
11
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of Representatives' Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase Shares represented by
the foregoing Representatives' Warrant to the extent of __________ Shares, and
appoints _________________________ attorney to transfer such rights on the books
of _________________ ____________, with full power of substitution in the
premises. The undersigned believes that each transferee is a permitted
transferee under Section 3 of the Representatives' Warrant.
Dated: _______________, ____
By:
--------------------------------
-----------------------------------
-----------------------------------
Address
In the presence of:
12
<PAGE>
Exhibit 5
[Faegre & Benson LLP letterhead]
Opinion of Counsel
March 9, 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. 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 the Registration
Statement on Form S-1 and related Prospectus of ACT Teleconferencing, Inc. for
the registration of common stock.
Ernst & Young LLP
Denver, Colorado
March 8, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 1,532,551 369,407 451,434
<SECURITIES> 0 0 50,000
<RECEIVABLES> 6,760,318 4,327,860 2,885,125
<ALLOWANCES> (153,677) (32,644) (18,992)
<INVENTORY> 129,519 269,796 136,116
<CURRENT-ASSETS> 847,021 5,506,016 3,726,348
<PP&E> 14,638,731 10,046,316 3,467,063
<DEPRECIATION> (3,363,484) (1,969,428) (1,094,938)
<TOTAL-ASSETS> 22,098,343 15,326,200 7,929,711
<CURRENT-LIABILITIES> 7,546,400 6,763,920 3,213,366
<BONDS> 0 0 0
0 0 0
1,693,006 0 0
<COMMON> 11,478,003 7,463,931 6,158,584
<OTHER-SE> (4,809,176) (4,846,194) (2,729,069)
<TOTAL-LIABILITY-AND-EQUITY> 22,098,343 15,326,200 7,929,711
<SALES> 28,328,791 19,009,645 10,234,403
<TOTAL-REVENUES> 28,328,791 19,009,645 10,234,403
<CGS> 14,797,606 10,881,556 4,727,236
<TOTAL-COSTS> 26,789,520 20,002,791 10,036,680
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 848,013 532,322 99,496
<INCOME-PRETAX> 691,258 (1,525,468) 98,227
<INCOME-TAX> (414,866) (401,762) (332,566)
<INCOME-CONTINUING> 81,425 (2,117,125) (436,808)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 81,425 (2,117,125) (436,808)
<EPS-BASIC> .01 (0.58) (0.14)
<EPS-DILUTED> .01 (0.58) (0.14)
</TABLE>
