<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY ___, 2000
REGISTRATION NO. 333-32156
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
ACT TELECONFERENCING, INC.
(Exact name of registrant as specified in its charter)
COLORADO 7389 84-1132665
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification Number)
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:
WILLIAM J. CAMPBELL, ESQ. MELODIE R. ROSE, ESQ.
Faegre & Benson LLP ROBERT K. RANUM, ESQ.
370 Seventeenth Street, Suite 2500 Fredrikson & Byron, P.A.
Denver, Colorado 80202 1100 International Centre
Phone: (303) 820-0630 900 Second Avenue South
Fax: (303) 820-0600 Minneapolis, Minnesota 55402
Phone: (612) 347-7067
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-----------
<PAGE>
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. / /
-----------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of common stock no par value................... 750,000 $6.50 $4,875,000 $1,287(1)
Warrants to purchase one share of common stock(2) 187,500 $0.00 $0.00 $0.00
Warrant shares(3) 187,500 $7.15 $1,340,625 $354(4)
Total: $6,215,625 $1,641
</TABLE>
(1) A registration fee of $1,287 applies to the common stock offered at
$6.50 per share. Registrant paid a $9,335.70 registration fee with the
initial filing of this registration statement on March 10, 2000 based on
2,300,000 shares of common stock at a price of $15.375 per share, the
average bid and asked prices of our common stock on the Nasdaq SmallCap
Market on March 7, 2000.
(2) One warrant accompanies each four shares of common stock and is included
in the offering price of the common stock.
(3) Shares of common stock issuable upon exercise of the warrants at 110% of
the closing bid on the day preceding the effective date.
(4) A registration fee of $354 applies to the warrant shares. Registrant paid
a $9,335.70 registration fee with the initial filing of this registration
statement
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
ACT TELECONFERENCING, INC.
CROSS-REFERENCE SHEET BETWEEN
ITEMS OF FORM S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front Facing Page; Cross-Reference Sheet; Outside
Cover of Prospectus Front Cover Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page
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; Distribution
9. Legal Proceedings Not Applicable
10. Directors, Executive Officers, Promoters, and
Control Persons Executive Officers and Directors
11. Security Ownership of Beneficial Owners and Principal Stockholders; Shares Eligible for Future
Management Sale
12. Description of Securities Description of Securities
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Indemnification of Officers and Directors
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 Plan of Management's Discussion and Analysis of
Operation Financial Condition and Results of Operations
18. Description of Property Not Applicable
19. Certain Relationships and Related Transactions Certain Transactions; Management
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 about
market Risk Not Applicable
25. Changes in and Disagreements with Accountants
on Accounts and Financial Disclosure Not Applicable
</TABLE>
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. 750,000 Shares
187,500 Warrants
<PAGE>
SUBJECT TO COMPLETION DATED MAY 22, 2000
750,000 Shares of Common Stock
187,500 Warrants
------------
[Logo]
This is a public offering by ACT Teleconferencing, Inc. of 750,000
shares of common stock, 187,500 five year warrants to purchase one share of
common stock, and 187,500 warrant shares issuable upon the exercise of the
warrants. We will issue the shares and warrants separately and will issue one
warrant for each four shares of common stock. Each warrant will enable the
holder to purchase one share of common stock at 110 per cent of the closing
bid price of our common stock on the day preceding the effective date of this
prospectus.
Our common stock is quoted on the Nasdaq Small Cap Market under the
symbol ACTT. On May 22, 2000, the last reported sale price of our common stock
was $6.00 per share. Currently, there is no market for the warrants.
This is a best efforts offering. We may terminate the offering
and withdraw any unsold shares and warrants in our discretion.
-----------
Investing in our common stock involves risks. See "Risk Factors" on Page 8.
-----------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS PROCEEDS TO ACT(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share of common stock and one warrant for each
four shares of common stock........................ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Total................................................. $ $ $
</TABLE>
- -------------------
(1) Plus proceeds from the sale of the warrant shares upon exercise of the
warrants, to the extent exercised.
Delivery of the shares of common stock and the warrants will be made on
or about , 2000.
Neither the Securities Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
JOHN G. KINNARD AND COMPANY, INCORPORATED
-----------
This prospectus is dated , 2000
<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>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary.............................................................................. 4
Summary Consolidated Financial Data............................................................. 7
Risk Factors.................................................................................... 8
Forward-Looking Statements...................................................................... 13
Use of Proceeds................................................................................. 13
Price Range of Common Stock..................................................................... 14
Dividend Policy................................................................................. 14
Capitalization.................................................................................. 15
Dilution........................................................................................ 16
Selected Consolidated Financial Data............................................................ 17
Management's Discussion and Analysis of Financial Condition and Results of Operations........... 18
First Quarter Overview.......................................................................... 22
Business........................................................................................ 25
Management...................................................................................... 35
Executive Compensation.......................................................................... 37
Principal Stockholders.......................................................................... 40
Certain Transactions............................................................................ 41
Description of Securities....................................................................... 43
Shares Eligible for Future Sale................................................................. 47
Distribution.................................................................................... 48
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,
trade name, or service mark of any other company appearing in this prospectus
belongs to its holder.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS ONLY SELECTED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU BEFORE INVESTING IN OUR COMMON STOCK. TO UNDERSTAND THIS OFFERING FULLY,
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND
FINANCIAL STATEMENTS.
ACT Teleconferencing, Inc. is a leading full service provider of audio,
video, data, and Internet-based conferencing services to businesses and
organizations in North America, Europe, and Asia. Our conferencing services
enable our clients to conduct electronic meetings efficiently and cost
effectively by linking multiple participants in geographically dispersed
locations.
Currently, we have 11 operations centers and 13 sales offices in
Australia, Belgium, Canada, France, Germany, Hong Kong, the Netherlands, the
United Kingdom, and the United States. Our global presence and the rapid growth
in the conferencing services market have allowed us to build a quality client
base ranging from Fortune 500 companies to small business enterprises. Our
primary focus is on providing high value-added conferencing services to
organizations in information-intensive industries, such as accounting firms,
consulting firms, investment banks, high tech companies, law firms, investor
relations firms, and other multinational companies. Our customers include
premier names such as Ernst & Young, Concert Global Networks, Industrial Bank of
Japan, Philips Electronics, KLM, and British Petroleum.
OUR BUSINESS
Our services are designed to meet the growing teleconferencing needs of
a broad range of customers across a diverse range of information-intensive
industries. We provide services to clients on a global basis while aiming to
deliver unsurpassed excellence in quality of service. We use state-of-the-art
conferencing technology that allows us to accommodate as many as 1,000
participants in conference calls or Internet presentations at a level of quality
consistent with the highest business standards. We purchase best of class
equipment and services from leading suppliers, allowing us to deploy the latest
available technology.
We believe that our extensive range of value-added conferencing
services, combined with our global presence and emphasis on superior customer
service, provides significant competitive advantages that have enabled us to
become the provider of choice for numerous high volume users of teleconferencing
services. Our global presence enables us to serve our clients by operating in
local time zones, providing local language service, and staffing our operations
centers with country nationals. Attending to the global needs of our customers
has allowed us to grow from approximately 20,000 conferences in 1994 to over
250,000 in 1999, a compound annual growth rate exceeding 65 percent.
We market our services internationally through our direct sales force
as well as through outsourcing and co-marketing arrangements with leading
telecommunications providers, such as GTE and Concert, the worldwide joint
venture of AT&T and British Telecom. These arrangements allow our outsourcing
and co-marketing partners to market our teleconferencing services as a part of a
total telecommunications solution for their customers.
RECENT DEVELOPMENTS
During 1999, we initiated new product development efforts in
Internet-based conferencing opportunities. As a result, we recently announced:
- The acquisition of an Internet service provider to accelerate the
development and deployment of new Internet-based data
conferencing products and services for our clients.
4
<PAGE>
- An outsourcing agreement with INTERVU, Inc., authorizing us to
deliver their audio, video, and data streaming services. INTERVU
is a leading provider of streaming services over the Internet.
- Successful initial testing of a groundbreaking, full duplex
Internet telephony conferencing solution using Clarent
Corporation's gateway technology. Clarent is a leading developer
of technology that enables the conversion of Internet telephony
into conventional circuit-switched service. This service offering
is scheduled for beta testing with selected major
telecommunications providers in the first half of 2000, with full
introduction scheduled later in 2000.
- In April 2000, the addition of Microsoft-Registered Trademark-
technology and promotional support for our Internet
conferencing services, successful beta testing of our Internet
telephony conferencing service, and the successful launch of
our European Internet video streaming service.
MARKET OPPORTUNITY
Industry sources indicate that the total worldwide market for all types
of traditional teleconferencing services generated $1 billion in revenues in
1998. Market trends suggest that this market will grow to over $3 billion in
2004. This excludes the potential for Internet-based voice, video, and data
conferencing, which we expect to grow at a faster rate than the growth of
traditional conferencing services. Several factors are driving the rapid growth
in the teleconferencing services market, including:
- COST AND TIME ADVANTAGES: Teleconferencing allows clients to
conduct meetings, run training sessions, and share information
when face-to-face meetings would be too costly, impractical, or
inconvenient. In today's business environment, the speed of
obtaining information, efficient communication of that
information, and accelerated high quality decision-making are
increasingly recognized as competitive advantages.
- GLOBALIZATION AND CORPORATE DECENTRALIZATION: The increasing
number of companies with international subsidiaries has created a
growing demand for teleconferencing as a means of conducting
business meetings. The growing number of telecommuters who work
from home or who travel extensively have also increased the
demand for conferencing services.
- INTERNET APPLICATIONS: The emergence of the Internet as a
reliable communications medium is expected to reduce transmission
costs, stimulate usage, and generate new conferencing
applications such as voice over Internet and streaming of audio,
video, and data.
- DEREGULATION OF INTERNATIONAL TELECOMMUNICATIONS MARKETS: In
certain international markets, deregulation presents us with an
opportunity to enter new geographic markets with new value-added
teleconferencing services.
STRATEGY
Our objective is to become the world's leading single source provider
of audio, video, data, and Internet-based teleconferencing services. The key
elements of our strategy are to:
- Develop a full suite of Internet telephony teleconferencing
services.
- Capitalize on the global market for teleconferencing services by
growing our operations in major international markets and
expanding into others.
5
<PAGE>
- 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.
- Maintain and grow long-term relationships with our clients by
providing superior service, the most extensive set of global
operations, and the broadest possible range of services.
OTHER INFORMATION
We were incorporated under the laws of Colorado in 1989 and commenced
operations on January 2, 1990. Our headquarters are located at 1658 Cole
Boulevard, Suite 130, Golden, Colorado, 80401 and our telephone number is (303)
235-9000. Our web site address is www.acttel.com. Information contained on our
web site does not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by ACT...................................... 750,000 shares
Warrants offered by ACT.......................................... 187,500 five year warrants
Common stock to be outstanding after the offering, based on
shares outstanding on March 31, 2000.......................... 5,578,374 shares
Use of proceeds (after expenses)................................. We plan to use the net proceeds to:
- accelerate development and deployment of Internet-based
conferencing products and services.
- acquire equipment to expand our capacity.
- develop Internet streaming and other high speed digital
services.
- provide working capital for potential acquisitions,
development of outsourcing, and co-marketing
opportunities.
- fund general corporate purposes.
Nasdaq SmallCap Market symbol.................................... ACTT
</TABLE>
The 5,578,374 shares of common stock to be outstanding after this
offering is based on 4,828,374 shares outstanding on March 31, 2000, plus
750,000 shares offered in this prospectus, excluding:
- 2,089,300 shares of common stock issuable upon the exercise of
options and warrants outstanding as of March 31, 2000, at a
weighted average exercise price of $5.95 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.
- 187,500 shares reserved for issuance on exercise of the warrants
offered through this prospectus.
- 75,000 shares reserved for issuance on exercise of the agent's
warrants (See "Distribution").
The information in this prospectus assumes there is no exercise of the
warrants offered through this prospectus.
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 750,000 shares of common stock
that we are offering under this prospectus at an assumed offering price of
$6.50 per share and deduction of agent's commissions and offering expenses,
resulting in net proceeds of approximately $4 million. Pro forma data does
not reflect the exercise of the warrants described in this offering.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------- --------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Net revenues............................ $ 3,461 $ 6,220 $ 10,234 $ 19,010 $ 28,329 $ 6,842 $ 8,184
Cost of services........................ 1,961 3,605 4,727 10,882 14,798 3,789 4,072
Selling, general, and administrative
expense................................. 1,668 3,526 5,310 9,121 11,992 2,827 3,267
Interest expense........................ 19 13 99 532 848 173 239
Provision for income taxes.............. 133 165 333 402 415 118 222
Minority interest....................... 104 119 201 190 195 62 197
Net income (loss)....................... (424) (1,208) (436) (2,117) 81 (126) 188
Net income (loss) per share(1).......... $ (.21) $ (.41) $ (.14) $ (.58) $ .01 $ (0.03) $ 0.03
Weighted average shares
outstanding-basic....................... 2,057 2,911 3,204 3,647 4,394 4,027,655 4,780,413
Weighted average shares
outstanding-diluted..................... 2,057 2,911 3,204 3,647 4,656 4,027,655 5,971,935
</TABLE>
- --------------------------------------------
(1) Per basic and diluted shares
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
ACTUAL PRO FORMA
------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
Cash and cash equivalents...................... $ 1,533 $ 875 $ 4,875
Accounts receivable and other current assets... 7,583 8,791 8,791
Total equipment-net............................ 11,275 11,623 11,623
Goodwill and other non-current assets.......... 1,707 2,633 2,633
-------------- -------------- --------------
Total assets................................... $ 22,098 $ 23,922 $ 27,922
====== ====== ======
Accounts payable and other current liabilities. $ 7,546 $ 7,524 $ 7,524
Long term debt................................. 5,003 4,958 4,958
Preferred stock................................ 1,693 1,704 1,704
Deferred income taxes (United Kingdom)......... 320 315 315
Minority interest.............................. 968 1,448 1,448
Stockholders' equity........................... 6,568 7,973 11,973
-------------- -------------- --------------
Total liabilities and stockholders' equity..... $ 22,098 $ 23,922 $ 27,922
========= ========= =========
</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 material change in the telecommunications industry. The Internet
offers less expensive long distance transmission and greater flexibility
8
<PAGE>
in conferences that combine audio, video, and data. We offer no assurance
that our current business practices or our new initiatives in Internet
conferencing can address and exploit these developments, particularly since
the scope of change and the impact of change are not known to us at this
early stage of market development.
IF INTERNET TELEPHONY AND INTERNET INFRASTRUCTURE DO NOT CONTINUE TO DEVELOP AS
ANTICIPATED, OUR OPERATIONS WILL BE NEGATIVELY AFFECTED.
For Internet telephony and Internet-based conferencing services to be
commercially viable, the size of the network infrastructure, enabling
technologies, necessary performance improvements, and user security will need to
be upgraded and usage must increase substantially. If the Internet continues to
experience an increased number of users, increased frequency of use, or
increased bandwidth requirements, we can provide you no assurance that the
performance or reliability of the Internet will not be adversely affected. We
cannot assure you that the infrastructure or products or services necessary to
make the Internet a viable commercial marketplace for the long term will be
developed. The Internet has experienced a variety of outages and other delays as
a result of damage to portions of its infrastructure, and could face such
outages and delays in the future. These outages and delays could adversely
affect the level of Internet telephony usage, the level of traffic, and our
Internet-based teleconferencing services.
IF INTERNET TELEPHONY CONFERENCING DOES NOT GAIN MARKET ACCEPTANCE, OUR
POTENTIAL FOR GROWTH WILL BE ADVERSELY AFFECTED.
We cannot be certain that Internet telephone service will gain market
acceptance or prove to be a viable alternative to traditional telephone service.
If the Internet telephony market fails to develop or develops more slowly than
we expect, then our future revenues from conferencing over the Internet would be
adversely affected. TECHNOLOGICAL INNOVATIONS COULD RENDER OUR CURRENT SERVICES
OBSOLETE.
We expect technical innovations to stimulate new developments in
teleconferencing services. These range from the development of more
sophisticated computers, telephone sets, private branch exchanges,
customer-owned bridges, and centralized office switching equipment to Internet
telephony. Other competitive developments within the telecommunications
industry, such as low-priced long distance services and new uses for the
Internet, aside from the Internet-based services we are currently developing,
may lead the major telecommunications companies to offer low-cost
teleconferencing services as a strategy to obtain greater market share in other
product areas. These innovations and developments could render our current
service offerings obsolete or uneconomic.
WE MAY BE VULNERABLE TO TECHNICAL MALFUNCTIONS WHICH COULD ADVERSELY AFFECT OUR
OPERATIONS.
We depend upon our software systems, communications hardware, and
enhanced services platform to conduct our conferencing business. Our systems,
communications hardware, and platform are vulnerable to damage or interruption
from:
- Natural disasters.
- Power loss.
- Telecommunication failures.
- Loss of Internet access.
- Physical and electronic break-ins.
9
<PAGE>
- Hardware defects.
- Computer viruses.
- Intentional acts of vandalism and similar events.
If we experience substantial technical difficulties with our
teleconferencing bridges, hardware, or software, we may not succeed in routing
conferencing traffic effectively.
WE INCUR FINANCIAL RISKS IN OUR INTERNATIONAL OPERATIONS.
We incur financial risks associated with international operations and
related foreign currencies. International sales comprised approximately 55
percent of revenues in 1999 and we anticipate that international sales will
continue to account for a significant portion of our consolidated revenue. Our
international conferences that are initiated outside the United States are
denominated in local currency and are subject to foreign currency exchange
risks. The assets and liabilities in our international operations also are
denominated in each country's local currency and are subject to foreign currency
exchange risks.
IF WE ARE UNABLE TO EXPAND OUR INTERNATIONAL OPERATIONS WHEN WE IDENTIFY
OPPORTUNITIES AND BRING THEM TO A PROFITABLE OPERATION WITHIN A REASONABLE TIME,
WE MAY BE UNABLE TO COMPLETE OUR GLOBAL PLATFORM.
We cannot assure you that all our international offices will become and
remain profitable. Our international offices are in Canada, the United Kingdom,
France, Belgium, the Netherlands, Germany, Australia, and Hong Kong. We intend
to expand the scope of our international operations, which will require us to
open and staff new offices in additional countries, invest in more bridging
equipment, fund marketing expenses, and incur other start-up costs. We incur
these startup expenses when we open a new international office before we
generate any revenue from that office. We intend to continue opening new
international offices and view these expansion expenses as a necessary
investment in future revenue growth, but we need each of these offices to become
profitable within a reasonable time if we are to continue building our global
platform.
OUR PLANS TO EXPAND MAY BE DISCONTINUED IF WE ARE UNABLE TO OBTAIN SUFFICIENT
FINANCING.
We may not be able to fully implement our domestic and international
expansion plans with only the net proceeds from this offering, especially with
respect to our plans for Internet telephony conferencing. We may need additional
equity or debt financing, collaborative arrangements with corporate partners, or
funds from other sources for these purposes. Additional equity financings may be
dilutive to our stockholders and debt financing may impose restrictive covenants
on the way we operate our business. We may have difficulty obtaining these funds
on a timely basis and on acceptable terms, if at all. If we cannot obtain
adequate funds from operations or additional sources of financing, particularly
if obtaining or retaining a customer's business depends on the prompt expansion
of existing facilities or the opening of a new foreign office, we may experience
operational difficulties and the loss of customers. Our business, financial
condition, and results of operations will be materially and adversely affected
by the unavailability of capital when we need it.
THERE ARE FEW REGULATORY BARRIERS TO ENTRY INTO OUR CURRENT MARKETS AND NEW
COMPETITORS MAY ENTER AT ANY TIME.
There are few regulatory barriers to competition in our markets. Until
recently, local exchange carriers in the United States, including local
telephone companies, were prohibited from providing audio teleconferencing,
except in limited areas. Recent federal legislation allows local exchange
carriers to offer teleconferencing services.
10
<PAGE>
This legislation may result in additional competition if some or all of 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.
11
<PAGE>
These factors are in addition to significant price and volume
fluctuations in the securities markets that may be unrelated to our operating
performance.
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.
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 750,000 shares of
common stock and the 187,500 warrants in this offering will be $4 million after
deducting estimated commissions and expenses payable to the agent together with
other offering expenses. We have not included proceeds from exercise of the
warrants.
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 $1 million).
- Capacity expansion for traditional audio, video, and data
conferencing bridges and ancillary telecommunications equipment
(approximately $0.5 million).
- Development of Internet streaming and other high speed digital
services (approximately $0.5 million).
- Potential acquisitions, development of outsourcing and
co-marketing relationships with major telecommunications
providers, working capital, and general corporate purposes
(approximately $2 million).
While we consider potential acquisitions from time to time and have
recently completed one acquisition and the buy out of certain minority interests
in subsidiaries, we have not finalized commitments or agreements for any
acquisitions. Furthermore, we cannot guarantee that we will complete any other
acquisitions.
The amount of funds that we actually use for the above purposes will
depend on many factors, including revisions to our business plan, material
changes in our revenues or expenses, and other factors. Accordingly, our
management will have significant discretion over the use and investment of a
large portion of the net proceeds to us from the offering. See "Risk Factors-We
may not find the investment opportunities to optimize the use of proceeds
generated by this offering."
Prior to their eventual use, the net proceeds will be invested in high
quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities.
13
<PAGE>
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended December 31, 1997
First Quarter.............................................................................................. $5.00 $2.88
Second Quarter............................................................................................. 7.50 4.99
Third Quarter.............................................................................................. 13.05 8.25
Fourth Quarter............................................................................................. 9.13 4.50
Fiscal year ended December 31, 1998
First Quarter.............................................................................................. 10.00 5.88
Second Quarter............................................................................................. 11.63 8.00
Third Quarter.............................................................................................. 10.63 6.50
Fourth Quarter............................................................................................. 7.25 5.25
Fiscal year ended December 31, 1999
First Quarter.............................................................................................. 5.63 4.63
Second Quarter............................................................................................. 6.63 4.00
Third Quarter.............................................................................................. 9.63 5.00
Fourth Quarter............................................................................................. 9.00 6.00
Fiscal year ended December 31, 2000
First Quarter.............................................................................................. 17.00 8.00
</TABLE>
On May 22, 2000, the last reported sale price of our common stock was
$6.00 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 March 31, 2000, and as adjusted to reflect the net proceeds of our
sale of 750,000 shares of common stock and 187,500 warrants in this offering at
an assumed public offering price of $6.50 per share (with one warrant
accompanying each four shares) and the application of the estimated net
proceeds. 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>
ACTUAL AS ADJUSTED(1)
------ -------------
AS OF AS OF
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current maturities........................................ $5,003 $4,958 $4,958
Minority interest................................................................ 968 1,448 1,448
Preferred stock, non-voting, 1,000,000 shares authorized; 2,000 shares of
Series A redeemable preferred outstanding..................................... 1,693 1,704 1,704
Common stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized; 4,595,947 shares
issued and outstanding at December 31, 1999, and 4,828,374 shares at March
31, 2000 (5,578,374 shares as adjusted)(2).................................... 11,378 12,767 16,767
Additional paid-in capital....................................................... 100 120 120
Accumulated deficit.............................................................. (4,809) (4,661) (4,661)
Accumulated other comprehensive loss............................................. (100) (253) (253)
------ ------ ------
Total common stockholders' equity................................................ 6,568 7,973 11,973
------ ------ ------
Total capitalization............................................................. $14,233 $16,083 $20,083
====== ====== ======
</TABLE>
- -----------
(1) Adjusted to reflect estimated net proceeds of $4 million from our sale of
750,000 shares of common stock and 187,500 warrants in this offering.
(2) Excludes: (i) options and warrants outstanding on March 31, 2000, to
purchase 2,089,300 shares of our common stock at a weighted average
exercise price of $5.95 per share; (ii) as of March 31, 2000, an additional
5,080 shares of common stock reserved for issuance in connection with
future stock options under our Stock Option Plans of 1991 and 1996; (iii)
as of March 31, 2000, an additional 72,940 shares of common stock reserved
for purchase under our Employee Stock Purchase Plan; (iv) warrants for the
purchase of 187,500 shares that accompany the shares of common stock
offered through this prospectus and that are exercisable at 110 percent
of the closing bid price per share on the day preceding the effective
date of this prospectus; and (v) agent's warrants to purchase 75,000
shares at 120 percent of the closing bid price per share on the day
preceding the effective date to be issued to our agent in this transaction.
15
<PAGE>
DILUTION
Our net tangible book value at March 31, 2000, was $5,503,549 or $1.14
per share of common stock. 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 750,000
shares of common stock accompanied by 187,500 warrants in this offering at an
assumed offering price of $6.50 per share and after deducting estimated
commissions and offering expenses, our pro forma net tangible book value as of
March 31, 2000, would have been $9,503,549 or $1.70 per share. This represents
an immediate increase in pro forma net tangible book value of $0.56 per share to
existing stockholders and an immediate dilution of $4.80 per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Per share offering price............................................................... $6.50
Net tangible book value per share at March 31, 2000.................................... $1.14
Increase attributable to the offering to existing stockholders......................... $0.56
Pro forma tangible book value per share after offering................................. $1.70
Per share dilution to investors in the offering........................................ $4.80
</TABLE>
The following table summarizes, as of March 31, 2000, 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 $6.50 per share, before agent's commissions and other
offering expenses:
<TABLE>
<CAPTION>
AVERAGE PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----------------
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 4,828,374 86.6% $12,767,168 72.4% $2.64
New investors................ 750,000 13.4% 4,875,000 27.6% 6.50
Totals.................... 5,578,374 100% 17,642,168 100% $3.16
========= === ========== ===
</TABLE>
These calculations assume the issuance of 750,000 shares of common
stock to be sold in this offering, but do not give effect to 2,089,300 shares of
common stock reserved for issuance upon the exercise of outstanding various
warrants and options under our Stock Option Plan of 1991 and our Stock Option
Plan of 1996; 72,940 shares to be issued under our Employee Stock Purchase Plan;
187,500 warrants to be issued in conjunction with the issuance of 750,000 shares
in this offering; and 75,000 agent's warrants to be issued to our agent in this
offering. See "Shares Eligible for Future Sale" and "Distribution."
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
---- ---- ---- ----
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues.............................. $3,461,204 $6,219,946 $10,234,403 $19,009,645
Costs and expenses:
Cost of services....................... 1,961,434 3,604,729 4,727,236 10,881,556
Selling, general, and administrative
expense............................. 1,668,200 3,526,164 5,309,444 9,121,235
Interest expense, net.................. 18,576 12,702 99,496 532,322
---------- ------------ ---------- ------------
Total costs and expenses.................. $3,648,210 $7,143,595 $10,136,176 $20,535,113
Income (loss) before income taxes and
minority interest...................... (187,006) (923,649) 98,227 (1,525,468)
Provision for income taxes................ (133,364) (164,591) (332,566) (401,762)
Income (loss) before minority interest.... (320,370) (1,088,340) (234,339) (1,927,230)
Minority interest......................... (103,690) (119,867) (202,469) (189,895)
---------- ------------ ---------- ------------
Net income (loss)......................... $(424,060) $(1,208,107) $(436,808) $(2,117,125)
========== ============ ========== ============
Net income (loss) per share-basic and
diluted................................ $(0.21) $(0.41) $(0.14) $(0.58)
========== ============ ========== ============
Weighted average basic shares outstanding. 2,056,940 2,911,187 3,204,747 3,647,188
========== ============ ========== ============
Weighted average diluted shares outstanding 2,056,940 2,911,187 3,204,747 3,647,188
========== ============ ========== ============
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term investments........... $288,345 $621,742 $451,434 $369,407
Net working capital....................... 24,203 697,151 512,982 (1,257,904)
Total assets.............................. 2,662,804 4,085,269 7,929,711 15,326,200
Total liabilities, preferred stock, and
minority interest...................... 1,589,018 2,317,312 4,551,778 12,821,635
Stockholders' equity...................... 1,073,786 1,767,957 3,377,933 2,504,565
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
(unaudited)
1999 1999 2000
---- ---- ----
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues.............................. $28,328,791 $6,842,467 $8,183,767
Costs and expenses:
Cost of services....................... 14,797,606 3,788,894 4,071,656
Selling, general, and administrative
expense............................. 11,991,913 2,827,166 3,266,610
Interest expense, net.................. 848,014 172,800 238,555
----------- ---------- ----------
Total costs and expenses.................. $27,637,533 $6,788,860 $7,576,821
Income (loss) before income taxes and
minority interest...................... 691,258 53,607 606,946
Provision for income taxes................ (414,866) (117,942) (222,286)
Income (loss) before minority interest.... 276,392 (64,335) 384,660
Minority interest......................... (194,967) (62,136) (196,735)
----------- ---------- ----------
Net income (loss)......................... $81,425 $126,471 $187,925
=========== ========== ==========
Net income (loss) per share-basic and
diluted................................ $0.01 $(0.03) $0.03
=========== ========== ==========
Weighted average basic shares outstanding. 4,393,963 4,027,655 4,780,413
=========== ========== ==========
Weighted average diluted shares outstanding 4,655,501 4,027,655 5,971,935
=========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term investments........... $1,532,551 $ 1,568,509 $ 874,150
Net working capital....................... 1,569,332 990,317 2,141,933
Total assets.............................. 22,098,343 19,147,675 23,922,034
Total liabilities, preferred stock, and
minority interest...................... 15,529,686 13,557,973 15,949,472
Stockholders' equity...................... 6,568,657 5,589,702 7,972,562
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
GENERAL. We are a full-service provider of audio, video, data and
Internet-based teleconferencing services to businesses and organizations in
North America, Europe and Asia. Our conferencing services enable our clients
to cost-effectively conduct remote meetings by linking participants in
geographically dispersed locations. We have 11 operations centers and 13
sales offices in 9 countries. Our primary focus is to provide high value
added conferencing services to organizations such as accounting firms,
consulting firms, investment banks, high tech companies, law firms, investor
relations firms, and other multinational companies.
We were incorporated in December 1989 and began offering audio
teleconferencing services at our Denver location in January 1990. In 1992 we
invested in an audio teleconferencing facility in the United Kingdom and in
1995 we invested in a similar operation in the Netherlands. In 1997 we
announced a major international capacity expansion plan intended to grow the
company from its then 3 locations in 3 countries (United States, United
Kingdom and Netherlands) to the current 13 offices in 9 countries offering a
full range of audio, video, and internet-based data conferencing services.
The rationale for this expansion plan is the rapidly growing market for
teleconferencing services worldwide, the expansion of Internet-based
conferencing services, and an increasing demand for additional services by
certain of our multi-national clients.
We completed our capacity expansion in 1999, after successful entry
into the markets of Canada, France, Belgium, Germany, Australia and Hong
Kong. During 1999 we also entered the rapidly growing field of Internet-based
teleconferencing products and applications. We now offer data conferencing
services in-house, and offer audio, video and data streaming applications
over the Internet to our clients with a nationally recognized provider of
broadcast streaming products.
During 1999, our operating performance improved significantly. We
were assisted by large volume increases in all the countries in which we have
operations but especially in the United States, which grew conference call
volumes by over 100%. As a consequence, net income improved by over $2
million.
The following table shows revenues by major product sector over the
past 3 years:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CONFERENCING SERVICES....................................................................
Audio conferencing services.............................................................. $9,493 $14,627 $25,133
Video, data and Internet-based services.................................................. 561 1,296 1,717
-------- -------- -------
10,054 15,923 26,850
GROWTH RATES %........................................................................... 69% 58% 69%
Equipment sales.......................................................................... 180 3,087 1,479
-------- -------- -------
Total.................................................................................... $10,234 $19,010 $28,329
-------- -------- -------
GROWTH RATES %........................................................................... 65% 86% 49%
</TABLE>
18
<PAGE>
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.
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%.
19
<PAGE>
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.
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.
20
<PAGE>
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.
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.
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.
21
<PAGE>
FIRST QUARTER OVERVIEW
During the three months ending March 31, 2000, we achieved continued
growth in teleconferencing revenues in all of our operations worldwide as well
as introducing new enhanced services in video, data, and Internet conferencing.
In addition to satisfactory profit improvements, our first quarter of 2000
included the following highlights:
- Revenues grew by 20% for the first quarter to March 31, 2000.
- Excluding the sale of video conferencing services and equipment,
growth in our core audio conferencing services business was 37%
for the first quarter.
- Operating efficiencies enabled us to improve gross margin from
45% to 50%.
- Operating income improved by 273%.
- Successful testing and development of a voice over Internet
telephony conferencing product.
- The introduction of video and data streaming services outsourced
to INTERVU.
- The acquisition of an Internet service provider in January 2000
to accelerate the introduction of Internet-based and data
conferencing services over the Internet.
- 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.
The following table shows revenues by major product sector:
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
-----------------------
2000 1999 1998
---- ---- ----
(AMOUNTS IN THOUSANDS)
(unaudited)
<S> <C> <C> <C>
CONFERENCING SERVICES
Audio conferencing services.............................................. $7,710 $5,614 $3,247
Video, data and Internet-based services.................................. 335 389 259
------ ------ ------
8,045 6,003 3,506
GROWTH RATES %........................................................... 34% 71% 68%
Equipment and other sales................................................ 139 838 587
------ ------ ------
Total.................................................................... $8,184 $6,843 $4,093
====== ====== ======
GROWTH RATES %........................................................... 20% 67% 93%
</TABLE>
The following table outlines certain items in our income statement as a
percentage of sales:
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
-----------------------
2000 1999 1998
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Sales................................................................... 100% 100% 100%
Cost of sales........................................................... (50) (55) (48)
---- ---- ----
Gross profit............................................................ 50 45 52
Selling, general and administrative expense............................. (40) (41) (48)
---- ---- ----
Operating income........................................................ 10 4 4
Interest expense........................................................ (3) (3) (1)
---- ---- ----
Net income before taxes and minority interest........................... 7 1 3
Minority interest and income taxes...................................... (5) (3) (7)
---- ---- ----
Net income (loss)....................................................... 2 (2) (4)
==== ==== ====
</TABLE>
22
<PAGE>
RESULTS OF OPERATIONS
FIRST QUARTER ENDING MARCH 31, 2000, COMPARED TO FIRST QUARTER ENDING MARCH 31,
1999
NET REVENUES. Net revenues increased 20% to $8.2 million for the
quarter ending March 31, 2000, compared to $6.8 million for the same period in
1999, primarily due to ongoing sales volume growth in our audio conferencing
business, which grew by 37%. Audio conferencing operations accounted for 94% of
the total revenue.
Revenues from videoconferencing services declined by 16% due to the
loss of a customer as well as video bridging installation delays experienced in
our Dallas videoconferencing center as well as the lack of a full-featured video
bridging system in that location. In February 2000, we took the decision to
invest an additional $100,000 in video bridging equipment in Dallas to make our
service more feature-competitive and during April 2000 this decision began to
yield some initial success with improved revenues in video conferencing starting
to be achieved.
Our data streaming operations, outsourced to INTERVU, have met with
immediate initial success and appear to have rapid growth prospects. Testing of
our Internet telephony conferencing services, although successful, are not yet
revenue-generating.
GROSS PROFIT. Gross profit increased by 35% to $4.1 million for the
quarter ending March 31, 2000, compared to $3.1 million for the quarter ending
March 31, 1999. Gross profit percentage improved to 50% of sales from 45% for
the same period last year, mainly due to improved efficiencies and higher
traffic volumes over a fixed cost base. Our audioconferencing product mix is
shifting in favor of increased automated and outsourced volumes, which yield
improved margins and higher efficiencies.
SELLING, GENERAL, AND ADMINISTRATIVE COSTS. Selling, general, and
administrative costs for the first quarter of 2000 were $3.3 million and
accounted for 40% of revenue, compared to $2.8 million or 41% of revenue for the
same period last year. The 16% increase in such expenses resulted from an
ongoing increase in sales focus in the United States as well as ongoing
marketing efforts in the new international business units.
OPERATING INCOME (LOSS). Operating income improved by 273% from
$226,407 to $845,501 due to volume efficiencies gained as well as a 35%
improvement in gross profits compared to the 16% increase in selling, general
and administrative costs.
NET INTEREST EXPENSE. Net interest for the quarter ending March 31,
2000 was $238,555 compared to $172,800 for the same period last year, a 38%
increase. This increase was due to the increase in interest bearing debt taken
on in order to finance our capital expansion and working capital requirements.
This debt is carried at various interest rates at a weighted average cost of
approximately 12%.
NET INCOME BEFORE TAXES AND MINORITY INTEREST. Net income before taxes
and minority interest improved by $553,339 to $606,946 for the first quarter of
2000, compared to $53,607 for the first quarter in 1999. This improvement was
mainly due to revenue growth and operational efficiencies resulting in higher
gross profit margins as well as slower growth in selling, general, and
administrative costs.
TAXES ON INCOME AND MINORITY INTEREST. Taxes on income and minority
interest amounted to $419,021 for the first quarter of 2000, compared to
$180,078 for the first quarter of 1999, a 133% increase. This increase is due to
an increased contribution to consolidated net income by our 60% majority-owned
United Kingdom operation, which pays full tax.
NET INCOME. Net income reported for the quarter ending March 31, 2000
was $187,925, compared to a net loss of $126,471 for the quarter ending March
31, 1999. This improvement of $314,396 can be attributed to continued revenue
growth, improved operating efficiencies resulting in higher gross profit margins
and slower growth in selling, general, and administrative expenses.
23
<PAGE>
EARNINGS (LOSS) PER COMMON SHARE. Earnings per share improved from a
loss of $0.03 per share during the first quarter in 1999, to earnings of $0.03
per share for the first quarter in 2000. Earnings per share data are calculated
based on the weighted average number of fully-diluted of 5,971,935 shares. A
quarterly preferred dividend of $40,000 is deducted from net income in order to
calculate earnings per share.
SUBSEQUENT EVENT. In May 2000, we released from escrow
previously-issued shares and warrants to a vendor in connection with a
consulting agreement and, accordingly, a non-cash charge of approximately
$235,000 was rendered to fully reflect this transaction.
LIQUIDITY AND CAPITAL RESOURCES (FOR THE THREE MONTHS ENDING MARCH 31, 2000)
As of March 31, 2000, we had $874,150 in cash and cash equivalents. We
plan to continue to grow our business and 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 three months ended March
31, 2000 was $401,783. Net cash used in operating activities consisted primarily
of increases in accounts receivable and a reduction in accounts payable,
partially offset by increases in accrued expenses.
Net cash used in investing activities consisted of additions to
telecommunications and bridging equipment as well as various acquisitions and
investments into software. Net cash used in investing activities was $820,650.
Net cash provided by financing activities was $717,343 and was achieved
via a combination of additional common stock issued, and the utilization of
various lines of bank and supplier credit.
We anticipate that our available funds are sufficient to meet our needs
for working capital and capital expenditures in the near term. We will need to
raise additional funds as, for example, we intend to pursue additional
acquisitions, undertake new product developments and expand capacity. 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.
If we should generate $15 million or more in proceeds from a public
offering of our common stock, we will be required, by a provision in the terms
of our Series A preferred stock, to redeem our Series A for $2 million. We have
no plans at this time for such an offering, but may develop such plans in the
future. 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.
24
<PAGE>
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 rental. The Frost & Sullivan
25
<PAGE>
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 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.
26
<PAGE>
OUR STRATEGY
Our objective is to become the world's leading independent provider of
global teleconferencing services. Our strategy is to:
- DEVELOP A FIRST-TO-MARKET INTERNET TELEPHONY CONFERENCING
SOLUTION. A significant portion of the global telecommunications
infrastructure is expected to shift to the Internet over time. We
intend to be first to market with an Internet telephony
conferencing solution developed in conjunction with Clarent
Corporation.
- CAPITALIZE ON THE GLOBAL MARKET FOR TELECONFERENCING THROUGH A
LOCAL PRESENCE. We use local operations centers staffed by
country nationals. We operate in local time zones and provide
local language services. We employ local management and staff to
develop customer loyalty and improve local market penetration.
Our network of local centers provides our multinational
conference customers with knowledgeable and consistent service,
regardless of the continent or time zone.
- DEVELOP AND LEVERAGE OUR PRESENT DISTRIBUTION CHANNELS THROUGH
MAJOR THIRD- PARTY OUTSOURCE RELATIONSHIPS. Our outsourcing
arrangement with Concert and our co-marketing relationship with
GTE allow us to concentrate on additional volume delivery to
their major customers while they promote our conferencing
services as part of an overall product portfolio. We intend to
leverage these two major opportunities and seek similar
arrangements with other telecommunications providers.
- PURSUE ACQUISITIONS. Having built the base of our
teleconferencing platform in key markets worldwide, we are
positioned to expand our infrastructure and obtain additional
market size through acquisitions. We will consider acquisitions
that increase our service offerings, expand our customer base,
and broaden our geographic coverage. We will also utilize
acquisitions to broaden our technical expertise and enlarge our
pool of management talent.
- ADAPT AND IMPLEMENT STATE OF THE ART AND BEST PRACTICES
TECHNOLOGY. Rather than invest in expensive research and
development, we take advantage of technological advances by
third-party vendors. We buy best-of-class equipment to deliver
audio, video, and data conferencing over the public
circuit-switched telephone network and through the Internet
telephony gateway. This allows us to leverage high technology
development efforts of third parties and provide our customers
with reliable conventional teleconferencing as well as innovative
voice over Internet conferencing applications.
- FOSTER AND MAINTAIN LONG-TERM RELATIONSHIPS WITH OUR CUSTOMERS.
We train our people to be committed to the delivery of superior
service through our proprietary customer care and service quality
training programs. Our quality standards and solid customer
relationships generate large amounts of repeat business and
frequent referrals from satisfied clients. Our long-term
relationships with our customers are enhanced by our extensive
global operations and our broad range of services.
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.
27
<PAGE>
AUDIO CONFERENCING SERVICES. Our ActionCall-SM- audio conferencing services
include full service-attended conferencing, reservationless unattended
conferencing, and a comprehensive suite of enhanced audio conferencing services.
We generate revenues by charging clients a fee per minute for bridging,
attendant call management, and various enhanced conferencing services, as well
as charges related to long distance transmission costs.
In a full service-attended conference, our conference coordinators
either will call each participant (a dial-out conference) or provide
participants with a toll free or local number for them to call at a certain time
(a dial-in conference). In an unattended conference, we provide the customer
with a dial-in telephone number and a code to allow the customers to arrange
their own conferences on our bridging equipment. We connect audio conference
participants to a high quality conference call from their office, at home, at a
project site, in their car, or on any mobile phone.
Our enhanced audio conferencing services, which are available on
request, include:
- Continuous monitoring and operator access.
- Security codes.
- Blast dial-out.
- Participant volume control and muting.
- Conference recording, translation, and transcription.
- Digital replay.
- Network management and fault reporting.
- Broadcast faxes, pre-notification fax, email, and participant
notification.
- Question and answer and polling services for large investor
relations calls.
- Customized billing.
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.
28
<PAGE>
Our video bridging services enable us to provide video conferences that
link from two to 48 locations. Although we can accommodate higher numbers by
linking several video bridges, most video conferences, as a practical matter,
involve three to ten locations. Technical features of our multipoint control
units enable us to display all parties on one screen or select only certain
parties as needed during a conference. Similar to a television interview,
participants from two locations can be on screen while other locations are in a
viewing-only mode.
We generate revenues from video conferencing in the same manner as
audio conferencing, but at higher per-minute rates. Recent decreases in
per-minute rates for bridging and long distance transmission, driven by improved
technology and competition among the long distance companies, have stimulated
the market for video conferencing and are expected to continue to do so.
DATA AND INTERNET-BASED CONFERENCING SERVICES. An outgrowth of the Internet
is the use of data conferencing to broadcast data for viewing by participants
during an audio or video meeting. We enhance the audio or video conference by
simultaneously transmitting data through our ActionData-SM- suite of services
over the Internet or a corporate intranet to personal computers of
participants. While not interactive, Internet streaming broadcasts are
especially useful in large conferences to enhance the audio or video
interaction. These services enable:
- Interactive audio or video conferences with simultaneous data
streaming.
- Collaborative revision of data by participants equipped with
appropriate software.
- Viewing of whiteboard illustrations, slide presentations, or
drawings.
Until the introduction of advanced Internet gateway technology that
enables simultaneous two-way, or full duplex, voice transmission at acceptable
quality and reliability levels, Internet technology did not allow effective,
high quality interactive conferencing, in comparison with the existing public-
switched telephone network. While reasonable voice quality is available on
internal intranets or virtual private networks for companies only wishing to
conduct in-house conference calls, the development of gateway technology opens
the market for us to begin providing high quality Internet telephony
conferencing involving more than one company. We selected Clarent Corporation's
technology in January 2000 in order to test, develop, and introduce the gateway
and command center that will enable the delivery of a first-ever full duplex
Internet telephony conferencing service.
We plan to implement the new solution, which we are initially calling
Action VOIP-SM- , a voice over Internet protocol service, using our own
combination of bridging equipment and software, in a beta test with selected
telecommunications companies. We believe the potential market for Internet
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.
29
<PAGE>
Currently, we provide the following data and Internet-based services:
- ActionCast-SM--one-way audio streaming for up to 5,000 passive
participants, for example, stockholders listening to analysts.
- ActionCastPlus-SM--audio streaming plus a PowerPoint-Registered
Trademark- presentation.
- ActionVideo-SM--audio and video streaming over the Internet.
- ActionEmail-SM--broadcast email services.
- WebRez-SM--teleconference reservations accessed by Internet.
- ActionConnect-SM--a web-based unattended conferencing service.
We will continue to provide these services as we roll out our Action
VOIP-SM- conferencing service.
SERVICE QUALITY AND CUSTOMER CARE
We train all employees in the principles of customer care management,
which include continuous service quality monitoring and the development of
positive relationships with clients. We pursue a philosophy of continuous
performance improvement, meaning we consistently measure our performance and
endeavor to improve it.
We actively monitor, analyze, and control all facets of a conference
call, including reservation, call execution, billing, and follow up with
customer satisfaction surveys. We believe our commitment to quality and customer
satisfaction is among the strongest in the industry.
We also review our performance with our customers on a regular basis,
continually set specific performance improvement goals, and modify our
operations accordingly. Feedback from our customers indicates that these factors
contribute to our high customer retention rate.
SALES AND MARKETING
Over 60 percent of our annual growth results from additional demand by
existing customers. Our sales and marketing strategy is based on two main
tenets: we attract customers through multiple distribution channels and, once
the relationship has been established, we cross sell multiple services
throughout the customer's organization worldwide.
We attract our customers through direct and indirect sales efforts such
as customer referrals, telemarketing, trade show promotions, and advertising.
Our direct sales force focuses on multinational and mid-market accounts. We also
leverage outsourcing relationships with large telecommunications providers, such
as Concert and GTE. Our range of service offerings allows us to cross sell our
services once we have initially established an account.
We have built a customer base of approximately 2,000 established
accounts. Our records indicate that over 5,000 schedulers, administrative staff,
and managers employed by these customers are 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.
30
<PAGE>
We have targeted the following customer groups for our conferencing
services and applications:
- Major multinational companies, investment banks, and professional
services firms within the Fortune 1000 (GLOBAL ACCOUNTS).
Selected global customers using our audio, video, data, or
Internet conferencing services include Ernst & Young, Industrial
Bank of Japan, British Petroleum, ABN Amro Bank, Philips
Electronics, and KLM.
- Medium-to-large-sized domestic companies, associations, and
governmental organizations (MIDMARKET ACCOUNTS), such as the
American Electronics Association, the State of Colorado, and a
number of universities.
- Customers of major telecommunications providers such as Concert
and GTE, which we access through outsourcing and co-marketing
arrangements (OUTSOURCED AND CO-MARKETING RELATIONSHIPS).
GLOBAL ACCOUNTS. Our global account managers based in New York, London,
Amsterdam, and Paris are responsible for some 30 multinational accounts
comprising 60 percent of our international business. We focus on the home
country or headquarters of these multinationals as a base for developing our
global business relationships. Each account manager deals with the customer's
home country office or headquarters when establishing global service.
MIDMARKET ACCOUNTS. Our direct sales staff targets medium to large companies
with a high volume of teleconferencing, as well as smaller companies with lower
demand for our services. As in any business, purchasers of higher volume sales
benefit from volume discounts. While we continue to promote sales to our global
accounts, we seek situations in which we can provide competitive services to
mid-sized companies at higher margins. Our direct sales effort manages each of
our midmarket accounts through contacts with our customers' upper management and
also with their administrative staff who are responsible for scheduling and
travel budgets. Once we have become a repeat provider of services for a
customer, we stress personal contact with the call organizers, conference
chairpersons, and members of senior management within our customers'
organizations.
OUTSOURCED AND CO-MARKETING RELATIONSHIPS. Outsourced and co-marketing
relationships with major telecommunications companies are a relatively new
development within our company. Our independence from other network providers
allows us to serve their customers without concern that we would compete for
their customers' other telecommunication business.
- CONCERT. On January 1, 2000, Concert became the vehicle for an
international joint venture between AT&T and British Telecom. Our
initial services to Concert involved the delivery of services for
Concert's internal conferencing. We are now phasing into the
delivery of services to Concert's customers. Revenues from the
Concert agreement will depend on usage and pricing.
- GTE. In July 1999, GTE Corporation designated us as a major
supplier of teleconferencing services to all subsidiaries and
divisions of GTE, the only independent teleconferencing provider
so designated by GTE. We sell and cooperatively market our
services directly to GTE's customers in conjunction with GTE on
large volume telecommunications bids. Revenues from GTE customers
depend on usage and pricing.
- INTERVU. In March 2000, we announced an agreement to work
together with INTERVU, Inc., a leading provider of audio and
video streaming over the Internet, as one of our co-marketing
partners. We expect definitive arrangements to be completed
during the second quarter of 2000. Revenues will depend on usage
and pricing. INTERVU has announced that it has signed a merger
agreement with Akamai Technologies, Inc. which is subject to
shareholder and regulatory approvals.
- OTHER OUTSOURCING AND CO-MARKETING OPPORTUNITIES. We believe our
role as an independent full-service teleconferencing provider
will continue to drive our growth in this sector, because, while
teleconferencing is an essential part of a telecommunications
provider's portfolio of services, it can often be provided
effectively on an outsource basis. For example, we are currently
negotiating an international teleconferencing services agreement
with a major long-distance carrier. None of our outsource
relationships are on an exclusive basis, and our revenues are
dependent upon our delivery of high quality service at
competitive prices.
31
<PAGE>
INTELLECTUAL PROPERTY
We seek to protect our proprietary information and business practices
as trade secrets. We have developed customized copyrighted software, which we
consider proprietary, for our service and quality control functions, and have
also developed in-depth technical know-how with respect to the operation of
telecommunications equipment and the coordination of large volume conference
calls. We require each of our employees to execute a nondisclosure agreement for
the protection of our confidential information. We hold no patents.
Our United Kingdom subsidiary has a British trademark for "CONFERCALL,"
and we own British trademarks for "ACT" and "ACTIONCALL," which we license to
our United Kingdom subsidiary. "ACT Teleconferencing" is trademarked in the
Benelux countries. "ACT" is not trademarked in the United States since a wide
variety of companies use "ACT" in their corporate name or advertising. However,
we believe we are the only enterprise currently using "ACT" in the
teleconferencing industry. We claim a number of service marks that use "ACT" or
"Action" in the mark. Nevertheless, other enterprises' usage of "ACT" makes
registered trademark protection prohibitively expensive.
SUPPLIERS
We are not dependent on any single carrier or supplier for any of the
services we sell. We have negotiated volume discounts with our primary long-
distance carriers, and believe we could negotiate similar arrangements at
similarly competitive prices with one or more other carriers should our current
carriers be unable to continue to provide service at competitive prices.
The equipment we purchase for use in our operations is also available
from a variety of suppliers, some of which compete in the teleconferencing
services business. We have chosen to purchase most of our audio bridging
equipment from Compunetix, a supplier based in Pittsburgh, Pennsylvania.
According to Compunetix, it accounts for approximately 30 percent of the
worldwide market for conferencing bridges. Compunetix is a supplier of
conferencing platforms to U.S. government agencies such as the National
Aeronautics and Space Administration, the Federal Aviation Administration
emergency management platform, and the U.S. Department of Defense, as well as
major telecommunications providers. We recently added Outreach Technologies,
Spectel, Videoserver, Accord, and Clarent Corporation to our list of equipment
suppliers.
OUR COMPETITION
We compete with major long distance companies, independently owned
teleconferencing companies, and in-house services such as company-operated
bridges and private branch exchange equipment.
The principal competitive factors in the teleconferencing market are
service, quality, reliability, price, name recognition, and available capacity.
The location of an operations center can also be a 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.
32
<PAGE>
Despite their large share of the teleconferencing services market,
teleconferencing is not a primary focus of the major long distance carriers. We
have been able to compete with the conferencing divisions of the long distance
companies on the basis of quality of service for the large volume business of
prestigious companies such as investment banks, accounting and consulting firms,
and law firms. Excess long-distance line capacity enables the long distance
companies to offer discounted prices to high-volume conferencing customers, but
they generally charge higher prices to smaller and medium volume customers. This
creates a pricing structure that enables us and others to compete on a price-
and-service basis for the teleconferencing business of the medium and smaller
businesses.
There are few regulatory barriers in the countries in which we operate,
but new entrants into the teleconferencing business will face various economic
barriers. The complex planning, installation, and operation of a global
teleconferencing platform involving multiple facilities and office locations
such as ours, together with the implementation of network technology and
coordination of operations, would likely take extensive funding to replicate.
Some companies own and operate their own conferencing bridges, but many
companies find that the costs of operating their own bridge outweigh the
benefits and prefer to outsource their teleconferencing services. Technology is
available to enhance private branch exchange conferencing capability (usually up
to six calls), but private branch exchange-handled conference calls typically
have poor sound quality and each additional line weakens the overall sound
volume. Additional competition may also develop from more sophisticated
telephone sets and other centralized switching devices. These alternative
techniques may enable our customers to conduct some of their own conferences,
but we believe they will continue to outsource their larger conferences,
particularly if their distance meetings require a collaboration of audio, video,
data, and Internet conferencing techniques.
FACILITIES
Our development of local facilities serves the dual purpose of
providing local language, local currency, and local time zone services to the
areas served by each operations center, as well as backup and overflow capacity
among other centers in the event all or part of a conference needs to be
rerouted from an operations center that is at full capacity.
We currently lease office and operations space at our locations in
Denver, Holmdel, Dallas, Toronto, Ottawa, London, Amsterdam, Brussels, Paris,
Frankfurt, Sydney, Adelaide, and Hong Kong, 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>
LOCATION COUNTRY DESCRIPTION YEAR 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>
33
<PAGE>
All operations are in office locations close to the city center or in
nearby suburbs. These leases expire or are renegotiable within the next five
years and are adequate for our expansion plans. Forward lease commitments are
not significant in relation to total ongoing operating expenses and all lease
costs are consistent with generally available market rentals. We believe we
could obtain comparable facilities at similar market rates if necessary.
Our operations centers provide us with a high degree of redundancy. We
can reroute most of our conferences to other centers if necessary. By networking
our operations centers in different time zones, we use idle evening and
nighttime capacity in one center to fulfill daytime demand at another center.
Each of our operations centers includes at least one audio or video
bridge. Our capacity is measured in ports, with one port needed for each
conference participant. Our audio conferencing call centers operate more than
3,000 ports worldwide. This enables us to handle conferences of varying sizes by
linking the port capacity of our operation centers together. Although we can
network our ports to handle 1,000 or more participants and have handled
conferences of this size, the low demand for such a large conference and the
logistics of handling multiple conferences during the business day make it
unlikely that large conferences will exceed 500 participants. Weekday mornings
and early afternoons are peak conferencing times. Our video conferencing
capacity includes over 300 ports operated from Dallas, London, Paris, and
Amsterdam. Our data conferencing capacity includes 192 ports operated from four
bridges-two in the United States, one in Canada, and one in Australia. We
outsource our overflow to other teleconferencing companies in the event we have
temporary capacity limitations. We also provide outsourced services to certain
of our competitors when they have similar capacity constraints.
REGULATION
Although the telecommunications industry has been subject to extensive
regulation, government regulation or licensing has no material impact on the
delivery of teleconferencing services in the countries where we now conduct our
business.
EMPLOYEES
We have an employee base of 290 worldwide. There are 134 employees in
our North American operations, 120 in our European operations, and 36 in our
Asia Pacific operations. Of the total worldwide employees, approximately 60
percent are in teleconferencing operations, 20 percent are in sales and
marketing, and 20 percent are 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.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Officers receive salaries agreed upon by the officer and the board and
are eligible for performance incentives determined from time to time by the
board.
Our executive officers and directors since the beginning of the 1999
fiscal year are as follows:
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ---- ---- --------
<S> <C> <C>
Gerald D. Van Eeckhout............... 59 Chairman of the Board; Chief Executive Officer
Gavin J. Thomson..................... 42 Chief Financial and Planning Officer, Secretary and Treasurer
Gene Warren.......................... 48 Regional Managing Director, North America
Thierry Bignet....................... 44 Regional Managing Director, Europe
Peter Eeles.......................... 44 Regional Managing Director, Asia Pacific
David L. Holden...................... 39 Managing Director, ACT Teleconferencing Limited, UK
Charles T. Stout..................... 53 Director of Global Projects, Assistant Secretary and Assistant Treasurer
Carolyn R. Van Eeckhout.............. 61 Vice President, Human Resources, and Director
James F. Seifert..................... 72 Director
Ronald J. Bach....................... 66 Director
Donald L. Sturtevant................. 62 Director
</TABLE>
- -----------
* Age is as of March 31, 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
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).
35
<PAGE>
PETER EELES currently our regional managing director of Asia-Pacific
operations, joined us in February 1997. From 1994 to 1997, he was director of
CSG Systems, a telecommunications systems company based in Sydney, Australia.
Prior to 1994, he worked for Telstra, an Australian telecommunications company,
in various technical, sales, and marketing functions. He is a telecommunications
engineer and holds a degree in electronics.
DAVID L. HOLDEN has been the managing director of ACT Teleconferencing
Limited since 1992. Immediately before joining us, he was employed for seven
years with British Telecommunications as general manager of its audio
teleconferencing service business in London. Mr. Holden received a bachelor of
science degree in business administration from the University of Wales.
CHARLES T. STOUT has held the position of director of global
projects since 1998. He was also our treasurer from 1991 until 1996, and
served as vice president of finance for U.S. operations from 1996 to 1998. In
1998, he became assistant secretary and assistant treasurer. From 1985 to
1990, Mr. Stout was vice president of finance for ConferTech International,
Inc., an audio teleconferencing service and manufacturing company. From 1991
to 1992, Mr. Stout held an accounting management position with Capital
Associates International, Inc., and from 1992 to 1995, the Resolution Trust
Corporation engaged Mr. Stout as an accountant. He holds a bachelor's degree
and a master's degree in accounting and management science from the
University of Colorado.
CAROLYN R. VAN EECKHOUT, one of our founders, serves as vice
president of human resources for ACT Teleconferencing, Inc. She has been one
of our directors since 1991 and has been employed by us since our inception.
From 1985 to 1989, she was a self-employed consultant to various health
professionals and the Denver Public Schools. She received her bachelor's
degree in education from Pennsylvania State University. Her current term as a
director ends 2002.
JAMES F. SEIFERT, one of our directors since 1991, has been chairman
and chief executive officer of James F. Seifert & Sons LLC since 1993. Mr.
Seifert was previously chairman and chief executive officer of Grafton Group,
Inc., doing business as Seifert's, a women's apparel chain that operated up
to 234 stores. Mr. Seifert received his bachelor of science degree in
commerce from the University of North Dakota in 1950. He is a former
president of the University of North Dakota Foundation. His current term as a
director ends in 2000.
RONALD J. BACH, a director since 1992, is a certified public
accountant who was employed continuously by the firm of Deloitte and Touche
from 1955 until his retirement in 1991 at which time he was partner in charge
of its Bloomington, Minnesota office. He holds a bachelors degree in business
administration from the University of Minnesota, and serves as a director of
a number of privately held companies in which he has an ownership interest.
His current term as a director ends in 2001.
DONALD L. STURTEVANT was elected as one of our directors in 1996.
His current term as a director ends in 2002. Since 1996, he has been the
chief operating officer and a director of St. Croix Medical, Inc., a medical
implantable hearing systems company. He was president and chief executive
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.
36
<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>
FISCAL SECURITIES ALL OTHER
NAME YEAR SALARY BONUS UNDERLYING OPTIONS(1) COMPENSATION
------ ------ ----- --------------------- ------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout 1999 $160,000 $36,320 $18,771(2)(3)
1998 120,000 87,752 50,000(4) 18,771(2)(3)
1997 120,000 54,816 150,000(5)
Gavin J. Thomson 1999 140,000 5,091 10,000(6) 4,800(3)
1998 120,000 3,616 4,800(3)
1997 100,000 100,000(7)
Gene Warren 1999 145,000 173,982 20,000(6) 6,418(3)
1998 120,000 43,342
1997 96,081 39,835 100,000(8)
Thierry Bignet 1999 140,000 30,599 5,000(6) 6,000(3)
1998 120,000 4,898 50,000(9) 6,000(3)
David L. Holden 1999 112,000 27,600 17,280(3)
1998 106,000 20,343 15,500(10)
1997 80,000 51,320 45,000(10)
</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 $9.00 per share. These options vest at 25 percent per
annum.
37
<PAGE>
STOCK OPTIONS
The following two tables set forth information concerning stock option
grants to our chief executive officer and our four most highly compensated
executive officers during 1999:
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN LAST PRICE EXPIRATION
NAME GRANTED POSITION FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------------- ----------- --------- ---- -- ---
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout... none 0% n/a n/a n/a n/a
Gene Warren.............. 20,000(1) 9.8% $4.25 June 10, 2002 n/a n/a
Gavin J. Thomson......... 10,000(1) 4.9% $4.25 June 10, 2002 n/a n/a
Thierry Bignet........... 5,000(1) 2.5% $4.25 June 10, 2002 n/a n/a
David L. Holden.......... none 0% n/a n/a n/a n/a
</TABLE>
- -----------
(1) This option grant becomes valid only if the closing bid price of our
common stock is $20 or more for a minimum of ten consecutive days
before June 10, 2002. No value will be realizable at a 5 percent
appreciation rate (value of $4.4625 per share) or 10 percent
appreciation rate (value of $4.675 per share), because the grant will
not be effective until the $20 closing bid price condition is
satisfied. In the quarter these options become valid, we will incur a
compensation charge for the difference between the exercise price and
the fair market value of the underlying shares.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
---------------- ------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout. - - 137,500 62,500 $607,875 $235,125
Gene Warren............ - - 62,500 57,500 259,375 128,125
Gavin J. Thomson....... - - 48,000 60,000 177,500 187,500
Thierry Bignet......... - - 25,000 30,000 50,000 50,000
David L. Holden........ - - 38,625 21,375 170,625 60,750
</TABLE>
Through December 31, 1999, the total increase in stock options granted
in 1999 to the above executive officers, net of forfeiture and exercise,
amounted to 35,000. The total number of stock options granted during 1999 was
221,700, bringing the total outstanding to 1,106,352.
DIRECTORS' FEES
We have adopted a compensation plan for our three non-executive
directors which provides for payment of directors' fees in the form of stock
options or stock grants. Under this plan, we granted stock options for a total
of 15,000 shares in 1997, or 5,000 options for each of our three non-executive
directors, at an exercise price of $5.00 per share; for a total of 15,000 shares
in 1998 at an exercise price of $9.00 per share; for a total of 15,000 shares in
1999 at an exercise price of $5.25 per share; and for a total of 15,000 shares
at an exercise price of $8.00 per share in 2000. All options vest one year from
the date of grant and expire ten years from the date of grant. In 2000, we made
stock grants of 500 shares to each of our non-executive directors at a grant
price of $8.00 per share.
38
<PAGE>
KEY EMPLOYEE INSURANCE
We maintain a key-employee life insurance policy on the lives of all of
our senior executives in amounts ranging from $500,000 to $1.8 million; the
major portion of proceeds are payable to us with the balance to the executive's
estate. The intended purpose of these policies is to assist us in replacing
these executives and in making other adjustments in operations in the event of
their death. Our United Kingdom subsidiary holds an additional life insurance
policy on the life of David L. Holden, its managing director, in the amount of
(pound)1,090,000, payable to the subsidiary. The proceeds are for the purpose of
recruiting a successor, acquiring a portion of Mr. Holden's estate's ownership
of 40 percent of the subsidiary's shares, and other adjustments to operations.
We have the option to repurchase Mr. Holden's shares upon his death or
disability.
KEY EMPLOYEE AGREEMENTS
Our board adopted executive agreements with Gerald D. Van Eeckhout,
Gene Warren, and Gavin J. Thomson as of April 1, 1999, as amended on July 26,
1999. If any person that is not our affiliate takes control of us, the takeover
triggers the effective date of the executive agreements. Each executive
agreement provides that the executive is entitled to a three-year employment
agreement commencing on the effective date at the executive's regular salary and
bonus. If the executive is dismissed without cause or leaves for good reason as
defined under the agreement, the executive is entitled to three years' salary
and a bonus that is determined according to the board of directors' bonus
policy. Our board of directors has determined that the average compensation of
these executives historically has been less than the compensation received for
comparable responsibilities in other companies. Accordingly, our board has
decided that actual compensation under these executive agreements may exceed
limitations imposed by the Internal Revenue Code on "parachute payments" if such
compensation is triggered before April 1, 2002, and, therefore, these payments
may not be fully deductible and to the extent they are not fully deductible,
they will be subject to a 20 percent excise tax. If such compensation is
triggered on or after April 1, 2002, the amount will be limited to three times
the average total compensation for each person over the preceding five years in
accordance with Section 280G of the Code and will be deductible and not subject
to the 20 percent excise tax.
One of our founders, Gerald D. Van Eeckhout, also has executed a
five-year employment agreement dated July 1, 1999, at a salary and bonus no less
than the amount in effect upon execution of the agreement, which includes
covenants prohibiting competition with us following the termination of his
employment. This employment agreement ensures that the services of Mr. Van
Eeckhout will be available to us, as determined by the board of directors, and
will prohibit Mr. Van Eeckhout from engaging in activities on behalf of a
competitor for two years following termination of his employment. Compensation
under his agreement is reviewed annually by the compensation committee of the
board of directors and includes medical insurance and other benefits available
to employees generally. If a change in control occurs, as defined in the
executive agreement, Mr. Van Eeckhout's executive agreement will prevail over
the terms of his employment agreement, except that his benefits and spousal
benefits for his wife, Carolyn R. Van Eeckhout, including medical coverage, will
continue for the balance of the five year term, and he will receive a minimum of
two years compensation under the employment agreement.
Our United Kingdom subsidiary has a service agreement with its managing
director, David L. Holden, which may be terminated by the employer or employee
on six months' notice. Under this agreement, Mr. Holden receives a base salary,
currently (pound)85,000 (US $140,000) per year, and a performance-related bonus
as determined by the subsidiary's board from time to time.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us
regarding beneficial ownership of our common stock as of March 31, 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 March 31, 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 750,000 shares of common stock we are offering for sale in this
offering. The percentage of beneficial ownership for the following table is
based on 4,828,374 shares of common stock outstanding as of March 31, 2000, and
5,578,374 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 TO
MATERIAL BE SOLD
NAME AND ADDRESS OF RELATIONSHIP WITH IN THE
BENEFICIAL OWNER ACT NUMBER PERCENTAGE OFFERING NUMBER PERCENTAGE
- ---------------- --- ------ ---------- -------- ------ ----------
SHARES OF COMMON STOCK SHARES BENEFICIALLY OWNED
BENEFICIALLY OWNED PRIOR TO AFTER
THE OFFERING THE OFFERING
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Officers and
Gerald D. and Carolyn R. Van Eeckhout(1) Directors 611,000 15.4% None 611,000 13.3%
James F. Seifert(1) (2)................ Director 231,250 5.6% None 231,250 4.9%
Nikos Moschos(3)....................... Stockholder 466,236 9.7% None 466,236 8.4%
Katerina Scordou(4).................... Stockholder 307,440 6.4% None 307,440 5.5%
Katerina Kopsida(5).................... Stockholder 358,100 7.4% None 358,100 6.4%
Alexandros Makris(6)................... Stockholder 240,000 5.0% None 240,000 4.3%
All Directors and executive officers as
a group (11 persons)................ 998,838 28.1% None 998,838 24.7%
</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.
40
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE EQUITY, LEASE, AND SUBORDINATED DEBT TRANSACTIONS
We have obtained financing for our expansion and operations through
several private equity, debt, or lease transactions that involved the issuance
of securities in reliance on exemptions from the Securities Act of 1933.
SIRROM CAPITAL CORPORATION AND EQUITAS, L.P. In 1998, we issued subordinated
notes in the amount of $1,610,000 and $890,000, or a total of $2,500,000, in
favor of Sirrom Capital Corporation and Equitas, L.P., under a subordinated loan
and security agreement. The subordinated notes bear interest at 13.5 percent,
payable monthly, are due on March 31, 2003, and are secured by a subordinated
security interest in our accounts receivable, inventory, intangibles, equipment,
and other personal property as well as our pledge of 100 percent of our voting
shares in our subsidiary, ACT Teleconferencing Services, Inc., and our 60
percent ownership interest in the outstanding shares of ACT Teleconferencing
Limited, a United Kingdom company, collectively, the collateral. The
subordinated notes became subject to an intercreditor and subordination
agreement dated May 20, 1999, between Sirrom Investments, Inc. (assignee of
Sirrom) and Equitas and our commercial lender, Coast Business Credit, in which
Sirrom Investments, Inc. and Equitas agreed to subordinate their rights in the
collateral to a $2,000,000 line of credit that Coast Business Credit made
available to ACT Teleconferencing Services, Inc.
When we issued the subordinated notes, we also issued warrants to
Sirrom as of March 31, 1998 for the purchase of 183,853 shares of common stock
at an exercise price of $7.00 per share, expiring on April 30, 2003. If the
subordinated notes are not fully paid on the second, third, or fourth
anniversaries of issuance, the number of shares subject to the Sirrom warrants
will increase to 216,802 shares on the second anniversary, 269,702 shares on the
third anniversary, and 360,495 shares on the fourth anniversary. We issued
identical warrants to Equitas for the purchase of 147,114 shares of common
stock, the Equitas warrants. If the subordinated notes to Equitas are not fully
paid on the second, third, or fourth anniversary dates, the number of shares
subject to the Equitas warrants will increase to 173,832 shares on the second
anniversary, 200,825 shares on the third anniversary, and 228,410 shares on the
fourth anniversary.
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 these warrants were exercised in the first quarter of 2000 on a
cashless basis.
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 was
comprised of one share of common stock and a warrant, the 1999 private placement
warrants, to purchase one share of common stock at an exercise price of $7.00
and expiring on December 31, 2003. See "Certain Transactions-Private Equity,
Lease, and Subordinated Debt Transactions-1999 Private Placement." The following
officers and directors of ACT participated:
41
<PAGE>
<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.
42
<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. The warrants include
customary anti-dilution provisions. 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. 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 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.
43
<PAGE>
STOCK OPTIONS
As of December 31, 1999, we had a total of 1,106,352 stock options
outstanding that we had granted under two similar plans.
We adopted the Stock Option Plan of 1991, the 1991 Plan, in order to
attract, retain, and motivate key employees and consultants by providing them a
means of acquiring an ownership interest in us. The 1991 Plan covers incentive
stock options within the meaning of section 422 of the Internal Revenue Code, as
amended, and nonstatutory (sometimes called nonqualified) stock options. This
plan was amended as of April 28, 1995, to reserve a total of 400,000 shares of
common stock for this purpose.
We adopted the Stock Option Plan of 1996, the 1996 Plan, at the 1997
annual meeting of stockholders. At our 1998 annual meeting, we increased the
number of shares subject to options under the 1996 Plan from 400,000 to 800,000.
The 1996 Plan was adopted for the same purposes as was the 1991 Plan, and
likewise covers incentive stock options and nonstatutory stock options.
The personnel and compensation committee of the board of directors
administers the plans. The term of options under the plans may not exceed ten
years from the date of grant. The plans also provide that the purchase price of
the shares covered by incentive stock options may not be less than the fair
market value of the shares on the date the option is granted and that the
exercise price of a nonstatutory option shall not be less than 85 percent of
such fair market value.
As a general rule, our incentive stock options vest at the rate of 25
percent per year. The committee determines the length of each option at the time
of grant with both plans providing a maximum term of ten years (five years for
holders of ten percent of our outstanding shares). The employee may exercise the
options granted under the plans only during his or her employment and, under
specified circumstances, for three months following termination of employment.
In the event the employee dies while holding options, the employee's personal
representative has twelve months, or until the expiration date of the options,
whichever is earlier, to exercise the options. The number of shares purchasable
and the purchase price under both plans are subject to antidilution provisions
and adjustments upon the occurrence of specified events. The committee has power
to establish the exercise price of nonstatutory options granted.
As of December 31, 1999, there were 1,106,352 options outstanding under
the plans, and 76,100 options had been exercised. Of the 1,106,352 outstanding
options, 961,352 were incentive stock options with exercise prices ranging from
$2.00 to $9.00 per share and expiration dates between August 15, 2003, and
December 12, 2009. As of December 31, 1999, we had options for 17,548 shares
available for issuance. As of March 31, 2000, an additional 24,591 stock options
were exercised reducing the total outstanding under the plans to 997,948 shares.
On March 31, 2000, we had options for 5,080 shares available for granting.
WARRANTS
PREVIOUSLY-ISSUED WARRANTS. We have issued various common stock
purchase warrants from time to time, collectively, the warrants, which, as of
December 31, 1999, entitled the holders to purchase a total of 1,022,539
shares of common stock. The warrants include 400,000 GMN warrants (See
"Description of Securities-Preferred Stock-Series A"), 10,000 R.C.C. warrants
(See "Description of Securities-Private Equity, Lease, and Subordinated Debt
Transactions-R.C.C. Finance Group Ltd."), and 109,912 1999 private placement
warrants (See "Certain Transactions-Private Equity, Lease, and Subordinated
Debt Transactions-1999 Private Placement"). As of March 31, 2000, all R.C.C.
warrants for R.C.C. Finance Group had been exercised on a cashless basis.
44
<PAGE>
The above warrants expire at various dates from March 31, 2003, to
October 19, 2006. See Note 5 of Notes to Consolidated Financial Statements.
WARRANTS OFFERED THROUGH THIS PROSPECTUS. The warrants issued in
this offering may be exercised at any time on or before five years following
the effective date of this offering. Each warrant entitles the holder to
purchase one share of our common stock at an exercise price equal to 110
percent of the closing bid price for our common stock on the Nasdaq SmallCap
Market on the day preceding the effective date of this offering.
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 March 31,
2000, our employees had purchased 27,060 shares of common stock under the plan.
ANTI-TAKEOVER PROVISIONS
STAGGERED TERMS FOR DIRECTORS. Our articles of incorporation set the
maximum number of directors at nine, with the actual number of seats filled
determined by the board from time to time. Each class is elected for a term
expiring at the annual meeting of stockholders in the third year after the
election. The board has established the size of the board at six members, which
consists of three classes of two members each. Currently, there are five members
and one vacancy. Election of the board by classes strengthens the position of
the board in dealing with takeover attempts. By making it difficult to unseat
the entire board at one annual meeting, it is intended that the board as a whole
will have more bargaining power in the event a potential acquiring person
proposes a takeover.
BUSINESS COMBINATIONS. A provision of our articles of incorporation
regarding business combinations imposes substantial conditions on third parties
who might attempt to acquire control of us through a two-tiered pricing strategy
in which a premium price is paid to obtain a majority of the voting stock and a
less desirable consideration, sometimes in the form of bonds or other securities
is paid to other stockholders. These conditions include approval of such
proposals by holders of two-thirds of the outstanding shares unless (1) the
board of directors as constituted prior to receipt of the proposals approve, or
(2) the proposal involves a merger, consolidation, exchange of shares, or sale
of all or substantially all our assets and the cash per share the stockholders
will receive is not less than the highest per share price any person pays,
including the person's affiliates, whose beneficial ownership of the common
stock, in the aggregate, equals or exceeds 20 percent of the outstanding voting
power. The effect of these conditions is to discourage new stockholders from
replacing incumbent directors with new directors solely for the purpose of
obtaining approval of a tender offer and to require that the same consideration
per share be paid to all stockholders that an acquiring person, who would be
willing to pay a premium to obtain a 20 percent or more position in our common
stock, would pay. The amendment discourages two-tiered pricing proposals and
strengthens the board of directors' position in dealing with potential takeover
proposals.
However, the conditions imposed on third parties attempting to take us
over and the potential benefits of the classification of directors are offset,
in part, by the possibility that a corporate suitor might be discouraged from
making a takeover offer, thereby depriving stockholders of an opportunity to
sell their shares at an attractive price. On balance, it is our management's
belief that its strengthened position in dealing with suitors will enable it to
bargain more effectively with all potential business partners, including those
desiring a takeover.
45
<PAGE>
RIGHTS AND PREFERENCES OF PREFERRED STOCK. The board of directors will
determine the rights and limitations of the preferred stock. Stockholder
approval will not be required for the issuance of such shares. Such shares of
preferred stock could have rights that are senior to the rights of the holders
of shares of common stock, e.g., preferred liquidation rights, cumulative
dividends, or voting and conversion rights that could adversely affect the
voting power or dividend rights of the holders of common stock and delay, defer,
or prevent a change in control of us.
AGREEMENTS WITH CERTAIN OFFICERS. We entered executive agreements dated
April 1, 1999, as amended July 26, 1999, with Gerald D. Van Eeckhout, Gavin J.
Thomson, and Gene Warren. The executive agreements provide that in the event of
a change in our control, as defined in the agreements, any termination without
cause or resignation with good reason, generally defined as a significant change
in employment duties, will trigger payment of a special termination payment
equal to three times the executive's then-current base salary and bonus. We also
entered a five year employment agreement with Gerald D. Van Eeckhout dated July
1, 1999. If a change in control occurs, the terms of Mr. Van Eeckhout's
executive agreement will prevail over the terms of the employment agreement,
with certain exceptions. See "Executive Compensation-Key Employee Agreements."
SHARE RIGHTS PLAN. On November 18, 1999, our board of directors adopted
a share rights plan, commonly known as a "poison pill." Each right entitles the
holder, upon payment of the exercise price of $80.00 per right, to purchase
1/100th of a share of Series B Junior Participating Preferred (See "Description
of Securities-Preferred Stock-Series B") Each share of Series B is entitled to
receive a dividend when, as, and if declared by the by the board of directors
out of funds legally available for this purpose, payable quarterly in cash at
the rate of $1.00 per share (one cent per 1/100th share) or 100 times the cash
or non-cash dividends payable to holders of shares of common stock. Our board
declared a dividend of one right for each share of common stock. The rights were
issued to stockholders of record on and following December 10, 1999. These
rights are not exercisable or transferable separately from shares of common
stock until 15 days after the ownership of our common stock by any person or
group of persons acting together as acquiring person exceeds 20 percent of our
outstanding common stock or 15 days after a tender offer that would result in
beneficial ownership of at least 20 percent of our common stock. We can redeem
the rights before an acquiring person's ownership of our common stock exceeds 20
percent, subject to an exception for persons who inadvertently cross the 20
percent threshold and promptly divest to a level below 20 percent. The rights
expire in ten years and are subject to extension.
Instead of exercising the right to acquire Series B, the holder of the
right may exercise the right, following expiration of the redemption period, to
purchase the number of shares of common stock, priced at its then market value,
which is equal to twice the exercise price. For example, if the market price of
common stock is $16 per share, the holder of one right could purchase 10 shares
for each right ($80 times 2 divided by $16 per share). This is called a "Flip-in
Right" and has the effect of substantially diluting the acquiring person's
ownership of our common stock because the acquiring person or group is
ineligible to exercise this right. The Flip-in Right also entitles the board to
issue common stock of the same economic value to rights holders had they
exercised their rights, unless the acquiring person holds at least 50 percent of
the outstanding shares of common stock. The rights also become exercisable for
the common stock of a surviving or acquiring corporation with market values of
twice the exercise paid, called a "Flip-over Right."
Our board has broad authority to amend the plan prior to the
exercisability of the rights and to amend the plan after the rights are
exercisable if the amendments do not adversely affect the interests of rights
holders.
The rights plan discourages hostile takeover bids by the potentially
dilutive effect of the exercise of the rights on the acquiring person. The
purpose of the rights plan is to provide our board with a stronger hand in
negotiating the sale of our company, should that opportunity be presented. The
board 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. Our agent in this
offering, John G. Kinnard and Company, Incorporated, provided us investment
banking advice in conjunction with our consideration of the rights plan.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market
following the offering could adversely affect the market price of the common
stock and adversely affect our ability to raise capital at a time and on terms
favorable to us.
As of December 31, 1999, we had 4,595,947 shares of common stock issued
and outstanding, together with warrants to purchase a total of 1,022,539 shares
of common stock at a weighted average purchase price of $6.95 per share. See
"Description of Securities-Warrants." We also had a total of 1,106,352 options
outstanding under the Stock Option Plan of 1991, and the Stock Option Plan of
1996, as amended, at a weighted average purchase price of $4.93 per share. See
"Description of Securities-Stock Options."
If all the warrants and options were to be exercised, the number of
outstanding shares of common stock would increase from 4,595,947 shares as of
December 31, 1999, to 6,724,838 shares; however, 544,515 stock options are
subject to vesting restrictions and 400,000 warrants are subject to lock-up
restrictions. All of the shares optioned under the Stock Option Plans of 1991
and 1996 are the subject of effective registration statements. Holder of the
warrants can request registration under their demand or piggy-back registration
rights. All of the options outstanding and certain of the warrants outstanding
may be exercised by the surrender of options or warrants outstanding at the
value per option that is equal to the excess of the market price per share over
the exercise price on the date of exercise, a cashless exercise, or through a
combination of cashless exercise and payment. In a cashless exercise, the
dilutive effect on existing stockholders of our issuance of shares underlying
the warrants and options is lessened because the shares underlying the
surrendered warrants or options do not become outstanding shares.
Of the 4,595,947 shares outstanding on December 31, 1999, 1,254,930
shares or 27.3 percent are "restricted securities" as defined in Rule 144 under
the Securities Act. Holders of restricted securities are eligible to resell such
securities under the provisions of Rule 144. Generally, Rule 144 requires a
one-year holding period, compliance with certain volume limitations, and the
filing of Form 144 with the Securities and Exchange Commission before sales can
be effected. However, Rule 144(k) allows persons, who have held restricted
securities for at least two years and who have not been "affiliates" for the
three months prior to such sale, to sell shares without complying with Rule 144.
"Affiliates," generally, are persons who are in a position of control such as
executive officers, directors, and principal stockholders. Restricted securities
are those shares issued to our founders and other investors prior to our initial
public offering in February 1996, shares issued in private placements since our
initial public offering, or stock grants. Excluding affiliates' ownership at
February 29, 2000, of 998,108 shares that continue to be restricted, the
required holding period under Rule 144(k) for non-affiliates has now been
satisfied for all shares issued prior to February 28, 1998. In addition,
1,022,539 shares underlying warrants, when issued, will be deemed restricted
securities unless included in an effective registration statement. Holders of
405,967 of these warrants have the right to purchase shares through a cashless
exercise. The Securities and Exchange Commission has indicated that holders of
restricted shares purchased through a cashless exercise are permitted to sell
those restricted shares through Rule 144 procedures, assuming the warrants have
been held for one year and all the requirements of Rule 144 are satisfied.
As of March 31, 2000, an additional 24,591 stock options were exercised
and 75,000 warrants were exercised on a cashless basis. This reduced the total
number of options and warrants outstanding at March 31, 2000, to 2,029,300 with
a weighted average exercise price of $5.83 per share.
47
<PAGE>
DISTRIBUTION
Our agent, John G. Kinnard and Company, Incorporated has agreed to
represent us in the offer and sale of 750,000 shares of our common stock,
accompanied by one warrant for each four shares sold, a total of 187,500
warrants.
The agent is acting on a best efforts basis and has no obligation to
purchase the shares itself.
The agency agreement provides that the obligations of the agent to
obtain purchasers 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
receipt of a comfort letter from our independent accountants, the continuing
correctness of our representations, the continued listing of the common stock
for quotation on the Nasdaq SmallCap Market, and no occurrence of an event
that would have a material adverse effect on us. We have not granted our
agent an over-allotment option. The agent may sell less than the 750,000
shares offered; accordingly, with our concurrence the offering may be
terminated at any time and any unsold shares and warrants withdrawn from
registration.
The agreement contains covenants of indemnity between the agent 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.
We will pay the agent a commission equal to seven percent of the gross
proceeds of all shares sold in this offering. We will reimburse the agent's
out-of-pocket expenses in connection with this offering as currently structured,
which are estimated to be less than $20,000. In addition, we have agreed to pay
approximately $125,000 in legal and other expenses incurred by the agent as
underwriter in an earlier version of this offering that was suspended due to
material changes in market conditions.
Upon completion of this offering, we will sell to the agent for $1 a
warrant to purchase up to 75,000 shares of common stock (ten percent of shares
sold). The agent's 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
closing bid price on the day preceding the effective date of this prospectus
and will expire five years from the effective date of this offering. The
agent's 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 the agent's officers and partners.
During the exercise period, holders of the agent's warrant are entitled to
certain demand and incidental registration rights with respect to the shares
of common stock issuable upon exercise of the agent's warrant. The common
stock issuable on exercise of the agent's warrant is subject to adjustment in
certain events to prevent dilution.
The agent does not have any material relationship with us, except for
its effort to underwrite an earlier version of this offering and 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."
48
<PAGE>
The following table summarizes the compensation and estimated expenses
which we will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Agent's commissions and expense allowance.. $________ $________
Our expenses............................... $450,000
</TABLE>
Other than in the United States, no action has been taken by the agent
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.
49
<PAGE>
ELIMINATION OF DIRECTOR LIABILITY
Our articles eliminate the personal liability of our directors to the
company and to our stockholders for monetary damages for breach of fiduciary
duty, except in the instances described below. The Colorado Business Corporation
Act authorizes the elimination of personal liability and is designed, among
other things, to encourage qualified individuals to serve as directors of
Colorado corporations by permitting Colorado corporations to limit or eliminate
directors' liability for monetary damages for breach of the duty of care.
Directors remain liable for breaches of their duty of loyalty to us and
our stockholders, as well as for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law and for
transactions from which a director derives improper personal benefit. The
articles do not eliminate director liability under a separate provision of the
Colorado Business Corporation Act that makes directors personally liable for
unlawful payments of dividends, unlawful stock repurchases or redemptions,
unlawful distributions of assets during liquidation, and unlawful loans or
guarantees to a director. The Colorado Business Corporation Act expressly sets
forth a negligence standard with respect to such liability.
The provisions that eliminate liability as described above will apply
to our officers only if they are our directors and are acting in their capacity
as directors and will not apply to our officers who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Colorado Business Corporation Act contains provisions permitting
and, in some situations, requiring Colorado corporations to provide
indemnification to their officers and directors for losses and litigation
expense incurred in connection with their service to the corporation. Our
Articles and Bylaws contain provisions requiring our indemnification of our
directors and officers and other persons acting in their corporate capacities.
The Colorado Business Corporation Act permits indemnification of a
director of a Colorado corporation, in the case of a third-party action, if the
director:
- Conducted himself or herself in good faith,
- Reasonably believed that (a) in the case of conduct in his or her
official capacity, his or her conduct was in the corporation's
best interest, or (b) in all other cases, his or her conduct was
not opposed to the corporation's best interest, and
- In the case of any criminal proceeding, had no reasonable cause
to believe that his or her conduct was unlawful.
The Act further provides for mandatory indemnification of directors and
officers who are successful on the merits or otherwise in litigation. The
statute limits the indemnification that a corporation may provide to its
directors in a derivative action in which the director is held liable to the
corporation, or in any proceeding in which the director is held liable on the
basis of his improper receipt of a personal benefit.
In addition, we may enter into agreements with our directors providing
contractually for indemnification consistent with the Articles and Bylaws.
Currently, we have no such agreements. The Colorado Business Corporation Act
also authorizes us to purchase insurance for our directors and officers insuring
them against risks as to which we may be unable lawfully to indemnify them. We
have obtained limited insurance coverage for our officers and directors as well
as insurance coverage to reimburse us for potential costs of our corporate
indemnification of officers and directors.
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.
50
<PAGE>
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 agent by Fredrikson and Byron, P.A., Minneapolis, Minnesota.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999 as set forth in their report, which
is included in this prospectus and elsewhere in this registration statement. Our
consolidated financial statements are included in this prospectus in reliance on
their report, given on their authority as experts in accounting and auditing.
TRANSFER AGENT AND WARRANT AGENT
Our stock transfer agent and warrant agent is American Securities
Transfer and Trust, Inc., 12039 West Alameda Parkway, Suite Z-2, Lakewood, CO
80228.
52
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................................................................. F-2
Consolidated Balance Sheets at December 31, 1999 and 1998................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999..................... F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1999........... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999..................... F-6
Notes to Consolidated Financial Statements.................................................................................. F-7
Unaudited Consolidated Balance Sheet at March 31, 2000...................................................................... F-18
Unaudited Consolidated Statements of Operation for the three months ended March 31, 2000 and 1999........................... F-19
Unaudited Statements of Cash Flows for the three months ended March 31, 2000 and 1999....................................... F-21
Notes to Unaudited Consolidated Financial Statements........................................................................ F-22
</TABLE>
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. Our audit also
included the 1999 financial statement schedule listed in Item 16(b) of Part II
of this registration statement. These financial statements and schedules 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. Also, in our opinion, the related 1999
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
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 $153,677 and $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 liabilities................................................................... 7,546,400 6,763,920
Long-term debt................................................................................. 3,778,614 3,940,867
Capital lease obligations 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 subsidiary..................... (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 OTHER
-----------------
COMMON STOCK COMPREHENSIVE
------------ -------------
SHARES VALUE ACCUMULATED 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)
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 120,444 553,537 553,537
option.......................
Additional paid in
capital-warrant issue........ 99,900 99,900
Preferred dividend.............. (44,407) (44,407)
Comprehensive income
Net income................... 81,425 81,425
Other comprehensive loss, net
of tax....................
Foreign currency translation. 13,202 13,202
Total comprehensive income...... $94,627
======
Balance at December 31, 1999.... 4,595,947 $11,478,003 $(4,809,176) $(99,970) $6,568,857
</TABLE>
F-5
<PAGE>
ACT Teleconferencing, Inc Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................................ $81,425 $(2,117,125) $(436,808)
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation.......................................................... 1,394,056 874,489 358,382
Amortization of goodwill.............................................. 80,377 57,920 18,054
Deferred income tax................................................... 17,967 184,691 76,416
Minority interest..................................................... 161,040 199,275 202,469
---------- ----------- ----------
Cash flow before changes in operating assets and liabilities:......... 1,734,865 (800,750) 218,513
Changes in operating assets and liabilities (net of effect of business
combinations):
Accounts receivable................................................... (2,287,387) (1,324,560) (1,310,000)
Inventory............................................................. 140,277 (133,680) 73,276
Prepaid expenses and other assets..................................... (275,424) (364,794) (124,612)
Accounts payable...................................................... (425,438) 1,471,474 288,217
Income tax payable.................................................... 373,771 (84,506) 136,243
Accrued liabilities................................................... (322,495) 994,452 356,356
---------- ----------- ----------
Net cash used for operating activities................................... (1,061,831) (242,364) (362,007)
INVESTING ACTIVITIES
Property and equipment purchases......................................... (4,592,415) (5,268,971) (1,618,359)
Short term notes redeemed................................................ (24,037) 11,776 (26,739)
Sale of marketable securities............................................ - 50,000 -
Cash paid for acquisitions net of cash acquired.......................... - (249,298) (101,257)
---------- ----------- ----------
Net cash used for investing activities................................... (4,616,452) (5,456,493) (1,746,355)
FINANCING ACTIVITIES
Net proceeds from the issuance of debt................................... 1,178,071 5,255,875 258,985
Net proceeds from issuance of common stock............................... 4,014,072 628,521 1,688,334
Net proceeds from issuance of preferred stock............................ 1,680,526
Deferred loan issuance costs............................................. (44,445) (205,975) -
---------- ----------- ----------
Net cash provided by financing activities................................ 6,828,224 5,678,421 1,947,319
Effect of exchange rate changes on cash.................................. 13,202 (61,590) (9,265)
---------- ----------- ----------
Net increase (decrease) in cash and cash equivalents..................... 1,163,143 (82,026) (170,308)
Cash and cash equivalents, beginning of year............................. 369,408 451,434 621,742
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR................................... $1,532,551 $369,408 $451,434
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
F-6
<PAGE>
ACT Teleconferencing, Inc. Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
ACT Teleconferencing, Inc. (the Company) is engaged in the business of
providing high quality audio, video and data conferencing products and services
to business clients worldwide. The Company operates principally in the United
States, Canada, the United Kingdom, France, the Netherlands, Belgium, Germany,
Australia, and Hong Kong.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc, its wholly-owned domestic and worldwide subsidiaries ACT
Teleconferencing Services Inc, ACT Videoconferencing Inc, ACT Research Inc, ACT
Teleconferencing Canada Inc, ACT Teleconferencing Limited (United Kingdom), ACT
Business Solutions Limited (United Kingdom), ACT Teleconferencing France SA, ACT
Teleconferencing BV (Netherlands), ACT Teleconferencing Gmbh (Germany), ACT
Teleconferencing Belgium SA, ACT Teleconferencing (Pty) Limited (Australia), and
ACT Teleconferencing Hong Kong Limited. With the exception of ACT
Teleconferencing Limited (UK), which is 60% held, and ACT Teleconferencing (Pty)
Limited (Australia) and ACT Business Solutions Limited, both of which are 80%
held, ACT owns 100% of all of its subsidiaries.
REVENUE RECOGNITION
Revenue is recognized upon completion of conferencing services or
delivery of equipment.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES
Video and audio equipment inventories are stated at the lower of cost
or market, on a first-in, first-out ("FIFO") basis. Equipment is priced using
specific unit costs consisting of materials, labor, and related manufacturing
overhead, but exclusive of research and development, selling, and general and
administrative expenses, which are charged to operations as incurred.
EQUIPMENT AND DEPRECIATION
Equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of five years for office
furniture and five or ten years for telecommunications equipment. Depreciation
expense includes capital lease amortization charges.
GOODWILL
Goodwill represents the excess of purchase price over tangible assets
acquired less liabilities assumed arising from acquisitions and is being
amortized on a straight-line basis over an estimated useful life of fifteen (15)
years.
F-7
<PAGE>
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>
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>
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>
<CAPTION>
<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>
The aggregate minimum annual commitments for operating and capital
leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------ ------
<S> <C> <C>
2000...................................................................... $1,568,365 $807,685
2001...................................................................... 1,294,032 716,823
2002...................................................................... 1,100,143 418,740
2003...................................................................... 700,730 222,435
2004 and thereafter....................................................... 576,048 5,257
---------- ----------
Total minimum lease payments.............................................. $5,239,318 $2,170,940
---------- ----------
---------- ----------
Less amounts representing interest........................................ (338,069)
----------
Present value of net minimum capital leases payments...................... $1,832,871
Less capital lease obligations due within one year........................ (609,076)
----------
Capital lease obligations due after one year.............................. $1,223,795
----------
----------
</TABLE>
During 1999 and 1998, the Company incurred capital lease obligations of
$422,336 and $1,714,690 respectively, in connection with lease agreements to
acquire equipment.
4. SHAREHOLDERS' EQUITY
Our authorized capital stock consists of 10,000,000 shares of common
stock, no par value, and 1,000,000 shares of non-voting preferred stock, no par
value.
PREFERRED STOCK
SERIES A. On October 19, 1999 we issued 2,000 shares of Series A 8%
preferred stock to GMN Investors II, L.P. for $2,000,000. This transaction was
accompanied by the issuance of 400,000 warrants to purchase shares of common
stock at $7.00 per share (see Warrants Outstanding below). The holders of Series
A are entitled to dividends compounded quarterly, payable no later than the
redemption date. Redemption of the Preferred stock is mandatory on October 19,
2004. We have the right to redeem this instrument for any reason prior to
October 19, 2004 by payment of $2,000,000 plus any outstanding dividends. At
December 31, 1999, the preferred stock had a value of $1,693,006, net of
deferred placement cost of $306,994 which is accreted to redemption value
through October 19, 2004, and we recognized $31,927 for ordinary dividends and
$12,480 for accretion of discount.
COMMON STOCK
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters on which stockholders are entitled or
permitted to vote.
During 1999 we increased our issued share capital from 3,755,633 shares
outstanding to 4,595,947. Our share capital was increased by warrant conversions
as well as a private placement of shares, both described more fully below (see
1999 Private Placement and Warrant Conversions). ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements December 31, 1999 and 1998
F-11
<PAGE>
4. SHAREHOLDERS' EQUITY
1999 PRIVATE PLACEMENT
In February 1999, the Company completed a private offering of
109,212 units, each comprised of one share of common stock at $5.50 per share
and one warrant to purchase one share of common stock. The private placement
raised net capital of $592,505. The warrants are exercisable at $7.00 and
expire December 31, 2003. The shares and the shares underlying the warrants
entitle the holder to piggyback registration rights from June 30, 1999,
through December 31, 2003.
WARRANT CONVERSIONS
On February 2, 1999 a total of 549,154 warrants, or 77% of the total
publicly held 1996 warrants, which were issued pursuant to our initial public
offering were exercised at a conversion price of $5 per share raising cash
proceeds to our company, net of expenses, of $2,619,890.
Pursuant also to our initial public offering, we had granted a unit
purchase option to the underwriter. Each unit contained the right to obtain
one share of common stock for $4.20 per share and a three-year warrant for
the purchase of a share at $5.00 per share. The unit purchase option granted
the holder the right to purchase up to 71,250 units or 142,500 shares at an
average price of $4.60 via the exercise of the unit. In August 1999, 60,222
unit purchase options were exercised resulting in the issuance of 120,444
shares at an average exercise price of $4.60 per unit, raising $553,537 in
net proceeds to the Company.
WARRANTS OUTSTANDING
On March 31, 1998, in conjunction with the issuance of its $2.5
million subordinated promissory notes, the Company issued stock purchase
warrants for the purchase of 330,967 shares of common stock at an exercise
price of $7.00 per share to Sirrom Capital Corp. and Equitas L.P. If the
notes are not fully paid on the second, third, or fourth anniversary dates
from the above date, the number of shares subject to these warrants will
increase to 390,634, 470,527, and 588,905 shares, respectively, retaining the
same strike price of $7.00 per share. The warrants expire on March 31, 2003.
In February 1999 we issued 109,212 warrants in connection with our
private placement at a $7.00 exercise price and an expiration date of
December 31, 2003. On October 19, 1999, in association with the issue of
preferred stock, we issued 400,000 warrants to GMN Investors II at a $7.00
exercise price and an expiration date of October 19, 2006.
In 1998, R.C.C. Finance issued a $2 million lease commitment to us.
We granted R.C.C. 75,000 warrants at an exercise price of $8.00 per share and
an expiration date of April 3, 2003.
During 1999 we issued 95,000 warrants at an average strike price of
$5.95 for consulting services for work to be done for the company in investor
relations, global business development, and the identification of new
partners and acquisitions in new markets.
We have 21,660 warrants remaining at an average strike price of
$6.39 per share, 11,660 of which were pursuant to the underwriter's unit
purchase option not yet exercised at $5.00 per share.
All warrants were issued at or above market price on the day of the
grant. All warrants are also subject to customary anti-dilution provisions
and to adjustment in the event of stock splits, stock dividends,
consolidations,
F-12
<PAGE>
and the like. Holders of shares issued upon the exercise of these warrants
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>
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
-------------------- --------- ----------------- -----------------
<S> <C> <C> <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 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.
F-14
<PAGE>
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>
The reconciliation of income tax attributable to continuing
operations computed at the U.S. federal statutory tax rates to actual income
tax expense is:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected rate at 35%............................... $241,940 $(533,914) $ 34,379
Effect of permanent difference..................... 41,567 38,172 26,163
Utilization of NOLs................................ (40,339) - -
Foreign taxes...................................... (38,692) (47,024) (17,194)
Valuation allowance................................ 210,390 944,528 289,238
--------- --------- ---------
$414,866 $401,762 $332,586
========= ========= =========
</TABLE>
Taxes of $0, $279,008, and $118,989 were paid during 1999, 1998, and
1997, respectively. The total domestic net operating loss carry forward of
approximately $4.7 million will begin to expire in the year 2005. The Company
has not provided for any taxes on undistributed foreign earnings as the
Company intends to permanently reinvest these earnings in the future growth
of the business and there are no unremitted, cumulative foreign earnings.
7. BUSINESS SEGMENT ANALYSIS
The Company offers a broad range of audio, video, and data
teleconferencing services and products to corporate business clients and
institutions, and these products and services are considered one line of
business. The Company's management makes decisions on resource allocation and
assesses performance based on the market potential of each operating
location. Each of the locations offers the same products and services, has
similar customers and teleconferencing equipment, and is managed directly by
the Company's executives, allowing all locations to be aggregated under the
guidelines of FAS 131 resulting in one reportable line of business. Audio
conferencing services presently comprise approximately 90% of total services.
Video, data, and Internet conferencing are presently services which are
offered together with the audio product offering and their revenues are
approximately 10% of total revenues. The following is a summary of the
significant geographic markets:
FOR THE YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
-------------- ----------- ------------ -----------
<S> <S> <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
FOR THE YEAR ENDED DECEMBER 31, 1998:
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
-------------- ----------- ------------ -----------
<S> <S> <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
FOR THE YEAR ENDED DECEMBER 31, 1997:
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC TOTAL
-------------- ----------- ------------ -----------
<S> <S> <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.
F-16
<PAGE>
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>
ACT TELECONFERENCING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 874,150 $ 1,532,551
Accounts receivable (net of allowance for doubtful accounts
of $167,559 and $153,677 in 2000 and 1999 respectively) 7,385,865 6,606,641
Prepaid expenses 1,266,107 847,021
Inventory 139,664 129,519
------------ ------------
Total current assets 9,665,786 9,115,732
Equipment:
Telecommunications equipment 7,856,148 8,254,966
Office equipment 7,559,992 6,383,765
Less: accumulated depreciation (3,792,989) (3,363,484)
------------ ------------
Total equipment - net 11,623,151 11,275,247
Other Assets:
Goodwill (net of accumulated amortization of $291,079 and
$247,980 in 2000 and 1999 respectively) 2,469,016 1,456,944
Deferred loan placement fees 164,081 250,420
------------ ------------
Total assets $23,922,034 $22,098,343
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 2,428,643 $ 2,313,454
Accounts payable 2,130,336 2,541,822
Accrued liabilities 1,726,154 1,492,382
Capital lease obligations due in one year 637,452 609,076
Income taxes payable 601,268 589,666
------------ ------------
Total current liabilities 7,523,853 7,546,400
Long-term debt 3,765,497 3,778,614
Capital lease obligations due after one year 1,193,418 1,223,795
Preferred stock, no par value, 1,000,000 shares authorized;
2,000 issued (net of deferred placement cost of $295,230
and 306,944 in 2000 and 1999 respectively) 1,703,770 1,693,006
Deferred income taxes (United Kingdom) 315,356 320,112
Minority interest 1,447,578 967,559
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized
4,828,374 and 4,595,947 shares issued and outstanding
in 2000 and 1999 respectively 12,767,168 11,378,103
Additional paid in capital 119,925 99,900
Accumulated deficit (4,661,250) (4,809,176)
Accumulated other comprehensive loss (253,281) (99,970)
------------ ------------
Total Shareholders' equity 7,972,562 6,568,857
------------ ------------
Total liabilities and shareholders' equity $23,922,034 $22,098,343
============ ============
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
ACT TELECONFERENCING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $ 8,183,767 $ 6,842,467
Cost of Services (4,071,656) (3,788,894)
------------ ------------
Gross Profit 4,112,111 3,053,573
Selling, general and administration expense (3,266,610) (2,827,166)
------------ ------------
Operating Income 845,501 226,407
Interest expense (238,555) (172,800)
------------ ------------
Income (loss) before income taxes and minority interest 606,946 53,607
Provision for income taxes (222,286) (117,942)
------------ ------------
Income (loss) before minority interest 384,660 (64,335)
Minority interest in earnings of consolidated subsidiary (196,735) (62,136)
------------ ------------
Net income (loss) $ 187,925 $ (126,471)
============ ============
Net income (loss) per share-basic and fully diluted $ 0.03 $ (0.03)
============ ============
Weighted average number of shares outstanding-basic 4,780,413 4,027,655
============ ============
Weighted average number of shares outstanding-fully diluted 5,971,935 4,027,655
============ ============
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
ACT TELECONFERENCING, INC
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 187,925 $ (126,471)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation 429,504 311,604
Amortization of goodwill 102,745 32,105
Deferred preferred stock issuance cost 10,764
Deferred loan issuance costs 14,453 13,203
Deferred income tax (4,756) (8,684)
Minority interest 178,029 30,591
------------ ------------
Cash flow before changes in operating assets
and liabilities: 918,664 252,348
Changes in operating assets and liabilities
(net of effect of business combinations):
Accounts receivable (756,989) (1,749,991)
Inventory (10,145) 41,857
Prepaid expenses and other assets (347,200) (169,822)
Accounts payable (451,487) 413,856
Income tax payable 11,602 105,625
Accrued liabilities 233,772 351,242
------------ ------------
Net cash used for operating activities (401,783) (754,885)
INVESTING ACTIVITIES
Property and equipment purchases (690,409) (1,058,500)
Short term notes redeemed - (9,999)
Cash paid for acquisitions net of cash acquired (130,241) -
------------ ------------
Net cash used for investing activities (820,650) (1,068,499)
FINANCING ACTIVITIES
Net proceeds from the issuance of debt 100,072 (156,293)
Net proceeds from issuance of common stock 617,271 3,345,682
Deferred Loan Issuance Costs (32,829)
------------ ------------
Net cash provided by financing activities 717,343 3,156,560
Effect of exchange rate changes on cash (153,311) (134,074)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (658,401) 1,199,102
Cash and cash equivalents, beginning of year 1,532,551 369,408
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 874,150 $ 1,568,510
============ ============
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
ACT TELECONFERENCING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three-month period ending March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the financial
statements and footnotes included in our annual report on Form 10-KSB for the
year ended December 31, 1999 and its amendments.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 quarterly
financial statement presentation in order to conform to the 2000 presentation.
SUBSEQUENT EVENT
In May 2000, we released from escrow shares and warrants
previously-issued to a vendor in connection with a consulting agreement and,
accordingly, a non-cash charge of approximately $235,000 was rendered to fully
reflect this transaction.
F-21
<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>
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
agent's 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 listing fees........................................... 5,000
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*................................................ 145,650
Total...................................................... $450,000
</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.
II-1
<PAGE>
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 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 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.
II-2
<PAGE>
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.
() EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 Form of Agency Agreement
1.3 Form of Agent's Warrant
1.4 Form of Warrant Agreement
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
10.26(7) Agreement for videoconferencing equipment and services (GTE
Telephone Operating Companies) dated October 1, 1998
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23 Consent of independent auditors
24(9) Power of attorney
27.1(9) Financial data schedule
</TABLE>
- -----------
(1) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ended September 30, 1999, Filed with
the Securities and Exchange Commission on November 12, 1999, File No.
0-27560.
(2) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ended March 31, 1996, Filed with the
Securities and Exchange Commission on May 15, 1996, File No. 0-27560.
II-4
<PAGE>
(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.
(5) Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the Securities and Exchange Commission on April
15, 1998, File No. 0-27560.
(6) Incorporated by reference, attached an exhibit of the same number to
our Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998,
filed with the Securities and Exchange Commission on August 24, 1998
(originally filed under cover of Form SE on August 14, 1998) File
0-27560.
(7) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ending September 30, 1998, filed with
the Securities and Exchange Commission on November 16, 1998, File
0-27560
(8) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-KSB for the year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 9, 2000, File No. 0-27560.
(9) Previously filed.
() FINANCIAL STATEMENT SCHEDULES
The following Schedule I Condensed Financial Information of ACT
Teleconferencing Inc. (Parent Only) is included. All other schedules have been
omitted because the information required to be set forth in the schedules is not
applicable or is shown in the consolidated financial statements or the notes
thereto. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
II-5
<PAGE>
SCHEDULE I
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
---- ----
DECEMBER 31
-----------
<S> <C> <C>
Assets
Current assets:
Current assets............................................................................. $1,470,901 $212,891
Intercompany receivable.................................................................... 9,524,348 5,115,274
----------- ----------
Total current assets....................................................................... 10,995,249 5,328,165
Equipment (net of accumulated depreciation of $126,000 and $64,000)........................ 245,837 535,396
Deferred loan placement fees............................................................... 250,420 205,975
Investment in subsidiaries................................................................. 2,909,345 1,160,694
----------- ----------
Total assets.................................................................................. $14,400,851 $7,230,230
----------- ----------
Liabilities and shareholders' equity
Current liabilities:
Current portion of debt.................................................................... $485,198 $569,314
Accrued liabilities........................................................................ 396,005 801,707
Intercompany payable....................................................................... 2,129,347 959,482
----------- ----------
Total current liabilities............................................................... 3,010,550 2,330,503
Long term debt................................................................................ 3,128,438 2,395,162
Preferred stock, no par value, 1,000,000 shares authorized; 2,000 issued...................... 1,693,006 -
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized 4,595,947 and 3,755,633 shares
issued and outstanding in 1999 and 1998, respectively................................... 11,378,103 7,463,931
Additional paid in capital................................................................. 99,900 -
Accumulated deficit........................................................................ (4,909,146) (4,959,366)
----------- ----------
Total shareholders' equity................................................................. 6,568,857 2,504,565
----------- ----------
Total liabilities and shareholders' equity.................................................... $14,400,851 $7,230,230
----------- ----------
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
YEAR ENDED DECEMBER 31
----------------------
<S> <C> <C> <C>
Selling, general and administration expense................................. $1,181,353 $1,191,308 $569,083
Interest expense, net....................................................... 423,340 305,313 2,255
Equity (loss) in undistributed earnings of subsidiaries..................... 1,686,118 (620,504) 134,530
---------- ----------- ---------
Net income (loss) for the year.............................................. $81,425 $(2,117,125) $(436,808)
========== =========== =========
</TABLE>
II-6
<PAGE>
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OPERATING ACTIVITIES 1999 1998 1997
---- ---- ----
YEAR ENDED DECEMBER 31
----------------------
<S> <C> <C> <C>
Net income (loss)........................................................ $81,425 $(2,117,125) $(436,808)
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation.......................................................... 62,541 50,671 10,004
Changes in operating assets and liabilities, net of effects of business
combinations:
Current assets..................................................... (118,378) (166,442) (11,095)
Intercompany receivable............................................ (4,409,074) (2,006,761) (1,734,839)
Accrued liabilities................................................ (68,346) 421,716 (14,349)
Intercompany payable............................................... 1,169,865 539,273 390,738
------------ ------------ ------------
Net cash used for operating activities............................. (3,281,967) (3,278,668) (1,796,349)
INVESTING ACTIVITIES
Property and equipment purchases......................................... 227,018 (422,396) (66,458)
Short term notes redeemed................................................ (24,000) 11,000 (26,000)
Sale of marketable securities............................................ - 50,000 -
Investment in subsidiaries............................................... (1,748,651) 493,173 (250,828)
Cash paid for acquisitions net of cash acquired.......................... - (249,298) (101,257)
------------ ------------ ------------
Net cash used for investing activities................................... (1,545,633) (117,521) (444,543)
FINANCING ACTIVITIES
Net proceeds from the issuance of debt................................... 311,804 2,848,749 455,674
Net proceeds from the issuance of common stock........................... 4,014,072 628,521 1,688,334
Net proceeds from the issuance of preferred stock........................ 1,693,006 - -
Deferred loan issuance costs............................................. (44,445) (205,975) -
------------ ------------ ------------
Net cash provided by financing activities................................ 5,974,437 3,271,295 2,144,008
Effect of exchange rate changes on cash (31,204) - -
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents..................... 1,115,633 (124,894) (96,884)
Cash and cash equivalents, beginning of year............................. - 124,894 221,778
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR................................... $1,115,633 $- $124,894
------------ ------------ ------------
</TABLE>
II-7
<PAGE>
ACT TELECONFERENCING, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation-The financial statements of ACT
Teleconferencing, Inc., the Company, reflect the investments in their
wholly-owned subsidiaries under the equity method.
Consolidated Financial Statements-Reference is made to the
Consolidated Financial Statements and related Notes of ACT Teleconferencing,
Inc. included elsewhere herein for additional information.
Debt and Guarantees-Information on the debt of the Company is
disclosed in Note 2 of the Notes to Consolidated Financial Statements of ACT
Teleconferencing, Inc. included elsewhere herein. Certain subsidiaries of the
Company have guaranteed debt of $2,500,000 which is due on March 31, 2003.
The Company's ability to transfer assets from these subsidiaries is
restricted under the loan agreement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions referenced
in Item 14 of this Registration Statement or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by a director, officer, or controlling
person in connection with the securities being registered hereunder, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Golden, State of Colorado, on May 22, 2000.
ACT TELECONFERENCING, INC
Registrant
By:
Gerald D. Van Eeckhout
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 22nd day of May, 2000 by
the following persons in the capacities indicated:
SIGNATURE TITLE
--------- -----
Gerald D. Van Eeckhout Chairman and Chief Executive Officer
(Principal Executive Officer)
Gavin J. Thomson Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
James F. Seifert* Director
Donald L. Sturtevant* Director
Ronald J. Bach* Director
Carolyn R. Van Eeckhout Director
* By Gavin J. Thomson, under power of attorney dated March 10, 2000
II-9
<PAGE>
INDEX OF EXHIBITS
All exhibits are filed electronically, unless incorporated by
reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1 Form of Agency Agreement
1.3 Form of Agent's Warrant
1.4 Form of Warrant Agreement
3.1(1) Restated articles of incorporation of ACT April 15, 1996,
as amended October 18, 1999
3.2(2) Bylaws of ACT, amended as of April 15, 1996
4.1(3) Form of specimen certificate for common stock of ACT
5 Opinion of counsel
10.1(3) Stock option plan of 1991, as amended, authorizing 400,000
shares of common stock for issuance under the plan
10.2(3) Form of stock option agreement
10.3(3) Form of common stock purchase warrant
10.10(3) Split dollar insurance agreement dated March 1, 1990,
between ACT and Gerald D. Van Eeckhout
10.11(3) Service agreement dated April 10, 1992 between David Holden
and ACT Teleconferencing Limited
10.19(4) Stock option plan of 1996, as amended
10.20(5) Employee stock purchase plan
10.22(6) Loan and security agreement dated March 31, 1998 and form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
10.23(6) Loan agreement with Key Bank, N.A.
10.24(7) Lease commitment and warrant with R.C.C. Finance Group Ltd.
10.25(7) Contract for the supply of conferencing services design
development and information signed July 14, 1998 between
ACT Teleconferencing Services, Inc. and Concert Global
Networks Limited
10.26(7) Agreement for the supply of conferencing services signed
July 14, 1998 between ACT Teleconferencing Services, Inc.
and Concert Global Networks Limited
10.27(7) Agreement for videoconferencing equipment and services
(GTE Telephone Operating Companies) dated October 1, 1998
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23 Consent of independent auditors
24(9) Power of Attorney
27.1(9) Financial data schedule
</TABLE>
- -----------
(1) Incorporated by reference, attached as an exhibit of the same number
to our Form 10-QSB for the quarter ended September 30, 1999, Filed
with the Securities and Exchange Commission on November 12, 1999,
File No. 0-27560.
<PAGE>
(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.
(5) Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the Securities and Exchange Commission on April
15, 1998, File No. 0-27560.
(6) Incorporated by reference, attached an exhibit of the same number to
our Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998,
filed with the Securities and Exchange Commission on August 24, 1998
(originally filed under cover of Form SE on August 14, 1998) File
0-27560.
(7) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ending September 30, 1998, filed with
the Securities and Exchange Commission on November 16, 1998, File
0-27560
(8) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-KSB for the year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 9, 2000, File No. 0-27560.
(9) Previously filed.
<PAGE>
Exhibit 1.1
ACT TELECONFERENCING, INC.
750,000 SHARES COMMON STOCK
AND
WARRANTS TO PURCHASE 187,500 SHARES
($__,000,000)
AGENCY AGREEMENT
----------------
May __, 2000
John G. Kinnard & Company, Incorporated
920 Second Avenue South
Minneapolis, MN 55402
Gentlemen and Ladies:
The undersigned, ACT Teleconferencing, Inc., a Colorado corporation (the
"COMPANY"), confirms its agreement with you, John G. Kinnard & Company,
Incorporated (the "AGENT"), subject to the terms and conditions stated herein,
to act as its exclusive agent with respect to the offer and sale (the
"OFFERING") of shares of the Company's Common Stock, without par value (the
"Shares") and Warrants to purchase shares of the Company's Common Stock (the
"WARRANTS") as follows:
1. DESCRIPTION OF OFFERING. The Company proposes to issue and sell
through the Agent, on a "best efforts" basis up to 750,000 Shares and Warrants
to purchase up to 187,500 Shares, provided that the Shares and Warrants shall be
offered together at the ratio of a Warrant to purchase one Share for each four
Shares purchased. The Shares, the Warrants, the Agent's Warrant (as defined
below) and the shares of Common Stock issuable upon exercise of the Warrants and
the Agent's Warrant are collectively referred to herein as the "SECURITIES."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with the Agent, as to the following:
(a) A registration statement on Form S-1 (Registration No. 333-32156) 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 Agent. Such registration statement, including a registration statement (if
any) filed pursuant to Rule 462(b) under the Act and the information (if
<PAGE>
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.
(b) When 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
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 section 2(b) 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 Agent, 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.
<PAGE>
(c) 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.
(d) 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.
(e) 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 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.
(f) The Company has full requisite power and authority to enter into this
Agreement and the Agent's Warrant. This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement on
the part 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 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 (collectively, the "ENFORCEABILITY LIMITATIONS"). The Agent's
Warrant has been duly authorized and upon execution and delivery by the Company
at the closing of the transactions contemplated by this Agreement, will be a
valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, subject to the Enforceability Limitations. The
performance of this Agreement and the Agent's
<PAGE>
Warrant 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.
(g) 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.
(h) 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 respects to the description thereof contained in the
Registration Statement and Prospectus. The Shares to be sold by the Company
hereunder and under the Warrants and the Agent's Warrant have been duly
authorized and, when issued and delivered pursuant to this Agreement, the
Warrants and the Agent's Warrant, 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 or
the Agent's Warrant 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 and Warrants to be sold by the Company pursuant to
this Agreement, the purchasers will acquire good and marketable title to such
Shares and Warrants, 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 Warrants and the Agent's
Warrant, the holders of such Warrants will acquire good and marketable title
to such Shares, free and clear of all liens, encumbrances or claims created
by actions of the
<PAGE>
Company. The certificates evidencing the Shares will comply as to form with
all applicable provisions of the laws of the State of Colorado.
(i) 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.
(j) Ernst & Young, LLP, which has expressed its opinion with respect to
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
rules and regulations thereunder.
(k) 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.
(l) 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
<PAGE>
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.
(m) 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.
(n) 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 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.
(o) 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.
(p) 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
<PAGE>
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 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.
(q) 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.
(r) Except as disclosed in the Prospectus:
(i) 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;
(ii) The Company has not received notice of any material conflict or
claim with asserted intellectual property rights of any third parties;
(iii) 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 2 (r)(i)
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;
<PAGE>
(iv) 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;
(v) To the best of the Company's knowledge, the Proprietary Rights
are valid and enforceable and no registration relating thereto has lapsed,
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;
(vi) 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
(vii) 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.
(s) 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.
(t) The Company has not sold any securities in violation of Section 5 of
the Act.
(u) 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.
(v) The Company intends to apply the proceeds from the sale of the Shares
and Warrants by it to the purposes and substantially in the manner set forth in
the Prospectus.
(w) No person is entitled, directly or indirectly, to compensation from
the Company or the Agent for services as a finder in connection with the
transactions contemplated by this Agreement.
(x) 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.
(y) 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
<PAGE>
Prospectus or the Prospectus or other materials permitted by the Act to be
distributed by the Company.
(z) 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.
(aa) The Company's shares are listed on the Nasdaq SmallCap Market.
(bb) 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 Agent.
(cc) 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.
(dd) 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.
(ee) 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.
Any certificate signed by any officer of the Company and delivered to the
Agent or counsel to the Agent shall be deemed to be a representation and
warranty of the Company to the Agent as to the matters covered thereby.
3. REPRESENTATIONS AND WARRANTIES OF THE AGENT.
The Agent represents that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota with all requisite corporate
power to carry on its business as set forth in the Memorandum.
(b) It is licensed as a broker-dealer, authorized to conduct offerings of
the sort contemplated hereby by the Commission and the Blue Sky authorities of
each state in which the Company and the Agent have agreed or will agree to offer
the Shares and is a member in good
<PAGE>
standing of the National Association of Securities Dealers, Inc., and, to the
best of the Agent's knowledge, no proceedings are pending or threatened to
revoke or limit any such status.
(c) This Agreement has been duly authorized and executed by the Agent and
is a legal, valid and binding agreement of the Agent enforceable in accordance
with its terms, except as enforceability may be limited by the Enforceability
Limitations.
(d) The Agent will provide each of its offerees of Shares a copy of the
Prospectus during the course of the Offering.
(e) Prior to the closing of the Offering, if any event affecting the
Company or the Agent should occur which the Company or its counsel or the Agent
or its counsel believe should be set forth in a supplement or amendment to the
Prospectus, the Agent will promptly distribute such supplement or amendment to
persons who have previously received a copy of the Prospectus from the Agent and
who continue to be interested in the Offering and further will include such
supplement or amendment in all further deliveries of the Prospectus. The Company
shall, at its own expense, promptly prepare and furnish to the Agent a
reasonable number of copies of that supplement or amendment for such
distribution.
4. BEST EFFORTS OFFERING OF THE SHARES AND THE WARRANTS.
(a) On the basis of the representations, warranties and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
appoints the Agent as its exclusive agent to effect sales of the Shares and
Warrants on a "best efforts, all or none" basis with respect to, for the account
and risk of the Company, at a price of $___ per Share (with accompanying
Warrants to purchase one share for each four shares purchased) and upon the
other terms and conditions set forth in the Prospectus. The Agent agrees to use
its best efforts as such agent to procure purchasers for the Shares and Warrants
during a period commencing with the date of this Agreement and ending with the
Termination Date (as defined below) of the Agreement. The Agent may, in its sole
discretion, use the services of other brokers or dealers in connection with the
offer and sale of the Shares and pay any portion of the Agent's Commission (as
defined below) to such brokers or dealers who are members of the NASD.
(b) The Company will pay the Agent, as compensation for its services
hereunder, a cash commission of 7% of the aggregate gross proceeds received
from sales of Shares and Warrants in the Offering (the "AGENT'S COMMISSION").
The Agent's Commission with respect to particular Shares and Warrants shall
be paid to the Agent by wire transfer on the Closing Date with respect to
such Shares.
(c) Unless the Agreement is extended, or earlier terminated as provided
herein, in the event that the offering is not completed on or before June 30,
2000, unless such date is extended by mutual agreement of the Company and the
Agent, the Agreement shall terminate and neither party to this Agreement shall
have any future obligation to the other hereunder, except as set forth in
Section 11.
<PAGE>
5. AGENT'S WARRANT. The Company shall sell to the Agent for $1 a
five-year warrant to purchase a number of shares of the Common Stock equal to
10% of the number of Shares sold in the Offering (the "AGENT'S WARRANT"). The
Agent's Warrant shall be dated as of the Termination Date, shall be issued as
soon as practicable thereafter, and shall be exercisable beginning one year
after the effective date of the Offering at a price equal to 120% of the
closing bid price per share of the Company's common stock as reported by
Nasdaq for the day preceding the effective date of the Offering. The Agent's
Warrant shall contain such further terms as those provided in and be
substantially similar to that of EXHIBIT A. The shares of Common Stock
issuable upon exercise of the Agent's Warrant are referred to herein as the
"AGENT'S WARRANT SHARES."
6. BLUE SKY QUALIFICATIONS. The Offering will be qualified for sale under
the Blue Sky Laws of such states as the Agent and the Company may agree, it
being understood that the Agent may refuse to go forward with the Offering if,
in its judgment, the Offering is not qualified in such states as the Agent deems
necessary to reasonably complete the Offering. The necessary legal work for such
qualifications will be performed by counsel for the Agent at the expense of the
Company.
7. FURTHER AGREEMENTS OF THE COMPANY. The Company further covenants and
agrees with the Agent as to the following:
(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 Agent, 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 Agent, may be necessary or advisable in
connection with the offer of the Securities by the Agent; 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 Agent 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 Agent 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.
<PAGE>
(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 offer of the Shares
and Warrants by the Agent. During the period when a Prospectus relating to the
Shares and Warrants 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 Agent and its counsel a reasonable
time prior to such proposed filing or to which the Agent shall have reasonably
objected. In case the Agent is required to deliver a prospectus in connection
with sales of any Shares or Warrants at any time nine months or more after the
Effective Date, upon the request of the Agent but at the expense of the Agent,
the Company will prepare and deliver to the Agent as many copies as the Agent
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act.
(d) The Company will endeavor to qualify or register the Shares for sale
or obtain appropriate exemptions from such qualification or registration so as
to permit sale of the Shares and Warrants under the securities laws of such
jurisdictions as the Agent 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 Agent, 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 Agent may from time to time reasonably request. The
Company specifically authorizes the Agent 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.
<PAGE>
(g) The Company will, for such period up to two years from the Closing
Date, deliver to the Agent 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 Agent
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.
(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 Agent 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 Agent incurred in
qualifying the Shares for sale under the laws of such jurisdictions
designated by the Agent (including filing fees). In addition, the Company
shall reimburse the Agent's out-of-pocket expenses in connection with the
Offering as currently structured as well as the expenses incurred by the
Agent as underwriter for the proposed, but uncompleted public offering which
preceded the current Offering. Reimbursable expenses shall include reasonable
legal fees incurred by the Agent. In the event this Agreement is terminated
pursuant to Section 13 below, the Company shall remain obligated to pay the
Agent its actual accountable out-of-pocket expenses, plus any fees and
expenses described in (ix) above.
(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 Warrants 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.
<PAGE>
(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 Agent.
(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 8 hereof.
8. CONDITIONS TO THE AGENT'S OBLIGATIONS. The Agent's obligation to
sell the Shares and close hereunder shall be subject to the condition that all
representations and warranties and other statements herein of the Company are
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed prior to the sale of the
Shares and closing hereunder, and the following additional conditions:
(a) The Registration Statement has been declared effective by the
Commission (and the date of effectiveness shall be referred to herein as 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 Agent, 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 Agent and its legal counsel.
(b) The Agent 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 8(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 the Agent
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
<PAGE>
contemplated in the Prospectus, the effect of which, in the judgment of the
Agent makes it impracticable or inadvisable to proceed with the offering or
the delivery of the Shares being delivered.
(d) The Agent shall have received the opinion of Faegre & Benson LLP,
counsel for the Company, dated the Closing Date, addressed to the Agent 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 and the Warrants 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 and the Warrants 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
Agent 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 issuable upon exercise of the Warrants has been duly
authorized and reserved by the Company and when issued as provided for in
the Warrants, 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.
(v) The certificates evidencing the Shares comply as to form with the
applicable provisions of the laws of the State of Colorado.
<PAGE>
(vi) The Agent's Warrant has been duly authorized and issued and
constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its 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 issuable upon exercise of the Agent's Warrant
has been duly authorized and reserved by the Company and when issued as
provided for in the Agent's Warrant, 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.
(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 and Warrants to be
sold by the Company pursuant to this Agreement, the purchasers will acquire
good and marketable title to such Shares and Warrants, 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 offer and sale of the Shares and Warrants by the Agent.
(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
<PAGE>
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
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 and Warrants 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
<PAGE>
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 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.
<PAGE>
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 Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact 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
Closing Date, 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
Closing Date, 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 Agent shall have received from Fredrikson & Byron, P.A., its
counsel, such opinion or opinions as the Agent may reasonably require, dated the
Closing Date, 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 Agent 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 Agent and the Company shall have received letters, dated the
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 agents with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) The Agent shall have received from the Company a certificate, dated as
of the Closing Date, of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that as of the Closing Date:
<PAGE>
(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.
(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 the Agent 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,
<PAGE>
threatened, to which the Company is a party or of which the business or
property of the Company is the subject.
(h) The Agent shall have received, dated the 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 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 Shares shall have been duly listed on either the Nasdaq SmallCap
Market or the Nasdaq National Market.
(j) The Company shall have furnished to the Agent, dated as of the date of
the Closing Date, such further certificates and documents as the Agent shall
have reasonably required.
(k) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Agent and its 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.
(l) The Agent may waive in writing the performance of any one or more of
the conditions specified in this Section 8 or extend the time for their
performance.
(m) If any of the conditions specified in this Section 8 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Agent hereunder may be canceled at, or at
any time prior to, the Closing Date by the Agent. Any such cancellation shall be
without liability of the Agent to the Company or to any other party, and shall
not relieve the Company of its obligations under Section 7(h) hereof. Notice of
such cancellation shall be given to the Company at the address specified in
Section 17 hereof in writing, or by facsimile or telephone and confirmed in
writing.
9. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the Agent and
each person, if any, who controls the Agent within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Agent 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
<PAGE>
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 the Agent and each such controlling person for any legal
or other expenses reasonably incurred by the Agent or controlling person
(subject to the limitation set forth in Section 9(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, the
Agent 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 the Agent (or to the benefit of any person who controls the Agent),
if the person asserting any loss, claim, damage or liability as a result of such
untrue statement or omission was solicited by the Agent 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 the Agent unless such failure to
deliver the Prospectus (as amended or supplemented) was the result of
noncompliance by the Company with Section 7(c). This indemnity agreement is in
addition to any liability which the Company may otherwise have.
(b) The Agent 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 the Agent 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
<PAGE>
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, the Agent 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 the Agent and filed in any jurisdiction; and the Agent 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 Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 9 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 9,
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 9 as to the particular item for which
indemnification is then being sought, unless such failure so to notify
prejudices the 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 9 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 Agent against the
Company or by the Company against the Agent 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.
<PAGE>
10. CONTRIBUTION.
(a) If the indemnification provided for in Section 9 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
Agent 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 Agent 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 Agent agree
that contribution determined by per capita allocation (even if the Agent were
considered a single person) would not be equitable. The respective relative
benefits received by the Company on the one hand, and the Agent, 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 and the Warrants (net of
Agent's commission payable but before deducting expenses) bears to the aggregate
Offering Price of the Shares, and (b) in the case of the Agent, as the aggregate
Agent's commission 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 Agent 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 Agent 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 10, (i) no Agent 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 the Agent 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. 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
10, each person who controls an the Agent within the meaning of the Act or the
Exchange Act shall have the same rights to contribution as the Agent, 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
<PAGE>
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 10, unless such failure to so
notify prejudices the Contributing Party's ability to defend such action. Any
notice given pursuant to Section 9 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 10 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Agent under this Section 10 shall be in addition to any
liability which the Agent may otherwise have.
11. SURVIVAL. The respective indemnity and contribution agreements of the
Company and the Agent contained in Sections 9 and 10, respectively, the
representations and warranties of the Company set forth in Section 2 hereof and
the covenants of the Company set forth in Section 7 hereof shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Agent, the Company, any of its officers and directors or
any controlling person referred to in Sections 9 and 10 and shall survive the
delivery of and payment for the Shares and the Warrants. 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.
12. CLOSING AND DELIVERY OF SHARES. At each closing (a "CLOSING"), the
Company will deliver to the Agent certificates representing the Shares sold to
purchasers pursuant to the Offering as instructed by the Agent against payment
therefor. The initial Closing shall be held as soon as practicable. Thereafter,
additional Closings may be held as agreed upon by the Company and the Agent. The
times and dates of each Closing are herein collectively referred to as a
"CLOSING DATE."
13. EFFECTIVE DATE OF THE AGREEMENT AND TERMINATION.
(a) This Agreement is effective as of the date first written above.
(b) This Agreement shall terminate on June 30, 2000, unless extended by
mutual agreement of the Company and the Agent. In addition, this Agreement
may be terminated at any time by agreement of the parties, or by the Agent
upon written or telegraphic notice to the Company if:
(i) the market value of securities in general or political, financial
or economic conditions shall have so materially changed as in the Agent's
judgment to render it impractical or inadvisable to proceed with the best
efforts offering of the Shares;
<PAGE>
(ii) there shall be a material outbreak of hostilities or material
escalation and deterioration in the political and military situation
between the United States and any foreign power or a formal declaration of
war by the United States of America shall have occurred;
(iii) trading in securities on the New York Stock Exchange or the
American Stock Exchange shall have been suspended or minimum or maximum
prices shall have been established in either exchange by action of such
exchange, the Commission or other governmental or regulatory authority; or
(iv) any other restrictions (including, without limitation, any
banking moratorium) on transactions in securities materially affecting the
free market for securities or the payment for such securities shall have
been established by either exchange, by the Commission, by any other
federal or state agency, by action of the Congress or by Executive Order.
This Agreement may also be terminated by either party upon 15 days written or
telegraphic notice to the other. The date on which this Agreement is terminated
is referred to herein as the "TERMINATION DATE."
14. INFORMATION FURNISHED BY THE AGENT. The statements under the caption
"Distribution" in any Preliminary Prospectus and in the Prospectus constitute
the only information furnished by, or on behalf of, the Agent in writing
specifically for use with reference to the Agent referred to in Section 2(b) and
Section 11 hereof.
15. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of Minnesota without regard to its choice of law
provisions.
16. PARTIES. This Agreement shall be binding upon, and inure solely to the
benefit of, the Agent and the Company and the officers and directors of the
Company and each person who controls the Company or the Agent and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares through the Agent, or any other
party, shall be deemed a successor or assign by reason merely of such purchase.
17. NOTICES. All notices or communications hereunder, except as herein
otherwise provided shall be in writing and if to be given to the Agent, shall be
mailed, delivered, or telegraphed and confirmed to:
John G. Kinnard & Company, Incorporated
920 Second Avenue South
Minneapolis, MN 55402
Attention: Roger Jones
<PAGE>
with a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Attention: Robert K. Ranum
or if to be given 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. Thomson
with a copy to:
Faegre & Benson LLP
370 Seventeenth Street, Suite 2500
Denver, Colorado 80202
Attention: William J. Campbell
18. ENTIRE AGREEMENT; CONSTRUCTION. This Agreement and Letter Agreement,
together with any addenda thereto, represent the only agreements among the
parties concerning the subject matter hereof. In the event of a conflict or
inconsistency between this Agreement and the Letter Agreement, the terms of this
Agreement shall control.
19. EXECUTION. This Agreement may be executed by any one or more of the
parties hereto, in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts, when delivered, shall together
constitute one and the same instrument.
If the foregoing is in accordance with your understanding as the Agent,
please sign and return to the Company a counterpart hereof, and upon the
acceptance hereof by you, this Agreement and such acceptance shall constitute a
binding agreement by and between you, as the Agent, and the Company.
Very truly yours,
ACT Teleconferencing, Inc.
By
--------------------------------------------
Its
------------------------------------------
<PAGE>
Accepted and agreed to this
___ day of May, 2000.
John G. Kinnard & Company, Incorporated
By
--------------------------------------------
Its
------------------------------------------
<PAGE>
Exhibit 1.3
FORM OF AGENT'S WARRANT
Option to Purchase 187,500
Shares of Common Stock
AGENT'S WARRANT
------------------------
Dated: __________, 2000
THIS CERTIFIES THAT John G. Kinnard and Company, Incorporated (herein
sometimes called the "Holder") is entitled to purchase from ACT
Teleconferencing, Inc., a Colorado corporation (the "Company"), at the price and
during the period as hereinafter specified, up to _________ shares (the
"Shares") of common stock, no par value per share (the "Common Stock"), at a
purchase price of $____ per share (120% of the closing bid price of the
Company's Common Stock on the day preceding the effective date of the
Registration Statement as defined herein (the "Effective Date")) subject to
adjustment as described below, at any time during the four-year period
commencing one (1) year from the Effective Date.
This Agent's Warrant (the "Agent's Warrant") is issued pursuant to an
Agency Agreement between the Company and John G. Kinnard and Company,
Incorporated as agent of the company in connection with a best efforts public
offering shares of Common Stock as therein described which are accompanied by
187,500 warrants and in consideration of $1.00 received by the Company for the
Agent's Warrant. Except as specifically otherwise provided herein, the Shares
issued pursuant to the Agent's Warrant shall bear the same terms and conditions
as described under the caption "Description of Capital Stock-Common Stock" in
the Registration Statement on Form S-1, File No. 333-32156 (the "Registration
Statement") except that the Holder shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Agent's Warrant and the
Shares issuable pursuant thereto as more fully described in paragraph 6 herein.
1. The rights represented by the Agent's 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 Agent's Warrant
concurrently with such event and into the kind and amount of shares of stock and
other securities and property (including cash) receivable by a holder of the
number of Shares into which the Agent's Warrant were exercisable immediately
prior thereto.
<PAGE>
(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 Agent's Warrant may be exercised at
any time within the periods above specified, in whole or in part, by (i) the
surrender of the Agent's 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
Agent's 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
Agent's 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 Agent's Warrant shall have
been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Agent's Warrant in whole or in part
by receiving Shares equal to the value (as determined below) of this Agent's
Warrant, or any part hereof, upon surrender of the Agent's 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 Agent's
Warrant;
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Agent's Warrant;
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
2
<PAGE>
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 Agent's 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 Agent's 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 Agent's 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 Agent's 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 Agent's 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 Agent's Warrant.
5. The Agent's 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.
6. (a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Agent's Warrant or has exercised the Agent's
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,
3
<PAGE>
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 Agent's Warrant (the "Registrable Securities"). For
so long as the Agent's 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 currently intends to 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 underlying the
Agent's 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 Agent's
Warrant. The 50% Holder may, at its option, request such post-effective
amendment or new registration statement
4
<PAGE>
during the described period with respect to the Agent's 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 Agent's 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 Agent's 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 Agent's 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 Agent) would be saleable
immediately without restriction under Rule 144 (or its successor) if the
Agent's 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 Agent's Warrant and/or the Shares underlying
the Agent's Warrant (considered in the aggregate).
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to any Shares issued upon exercise of the Agent's 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 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 as such expenses
are incurred;
5
<PAGE>
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 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, due to the fault of the Distributing
Holder, controlling person of such Distributing Holder, underwriter, or
controlling person of such underwriter that is seeking indemnification.
(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
as such expenses are incurred.
(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.
(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
6
<PAGE>
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. The
indemnified party shall be entitled to its own counsel in the event the
indemnifying party's counsel has a conflict of interest in representing the
interest of the indemnified party.
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 Agent's 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 Agent's Warrant exercised
after such date shall be entitled to receive the aggregate number and kind of
shares of Common Stock which, if this Agent's 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 Agent's 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 Agent's
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 Per Share Exercise 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
7
<PAGE>
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 Per Share
Exercise Price in effect immediately prior thereto, 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 Agent's
Warrant is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Shares purchasable upon exercise of this Agent's Warrant shall simultaneously be
adjusted by multiplying the number of Shares issuable upon exercise of this
Agent's 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 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,
8
<PAGE>
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 Agent's 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 Agent's 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 Agent's 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 Agent's Warrant to be
signed by its duly authorized officers under its corporate seal, and this
Agent's Warrant to be dated ____________, 2000.
ACT TELECONFERENCING, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
- ------------------------------
9
<PAGE>
Name:
-------------------------
Title:
------------------------
10
<PAGE>
PURCHASE FORM
-------
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Agent's 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 Agent's Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase Shares represented by
the foregoing Agent's 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 Agent's Warrant.
Dated: _______________, ____
By:
--------------------------------
-----------------------------------
-----------------------------------
Address
In the presence of:
12
<PAGE>
Exhibit 1.4
WARRANT AGREEMENT
DATE: May ___, 2000
PARTIES: ACT Teleconferencing, Inc. American Securities Transfer & Trust, Inc.
1658 Cole Boulevard 12039 West Alameda Parkway
Suite 130 Lakewood, Colorado 80228
Golden, Colorado 80604
RECITALS:
A. ACT Teleconferencing, Inc., a Colorado corporation (the "Company"),
proposes to issue 187,500 common stock purchase warrants (the "Warrants")
evidencing the right to purchase an aggregate of 187,500 authorized but
previously unissued shares of common stock, no par value, of the Company (the
"Common Stock"). The Warrants would be issued in connection with the Company's
issuance of 750,000 shares of Common Stock in connection with the Company's
offering described in its Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 10, 2000 and amended on May 2, 2000
and May ___, 2000 (the "Offering").
B. The Company desires American Securities Transfer & Trust, Inc. (the
"Warrant Agent") to act on its behalf, and the Warrant Agent desires so to act,
in connection with the issuance, registration, transfer, exchange, and exercise
of the Warrants.
AGREEMENT:
The Company and the Warrant Agent, each intending to be legally bound,
hereby covenant and agree under this Warrant Agreement (this "Agreement") as
follows:
ARTICLE I.
WARRANT AGENT AND CERTIFICATES
SECTION 1.1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as the agent for the Company, and the Warrant Agent hereby
accepts the agency established in this Agreement and agrees to perform its
agency duties under the terms and conditions of this Agreement.
SECTION 1.2. WARRANT CERTIFICATES. The Company shall execute and deliver to
the Warrant Agent certificates which the Company has authorized to represent the
Warrants (the "Certificates"). The Certificates shall be substantially as
provided in Exhibit A to this Agreement and may have the legends, summaries, or
endorsements printed as the Company may deem appropriate or as may be required
to comply with any law or with any rule or regulation relating to listing of the
Warrants on the NASDAQ system, including the Nasdaq SmallCap or National Market,
on any stock exchange, or to conform to usage. The Certificates shall be dated
with the date of their issuance.
<PAGE>
SECTION 1.3. EXECUTION OF WARRANT CERTIFICATES. The Certificates shall be
executed on behalf of the Company by a duly authorized officer of the Company,
either manually or by facsimile signature. The Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. Any Certificate may be signed on behalf of the Company by the
person who at the actual date of the signing of the Certificate was the proper
officer of the Company, although at the date of issuance of the Certificate any
person has ceased to be the officer of the Company.
ARTICLE II.
EXERCISE OF WARRANTS
SECTION 2.1. EXERCISE. Any or all of the Warrants represented by each
Certificate may be exercised by the holder on or before 5:00 p.m., Denver time,
on May ___, 2005 unless extended by the Company, by surrender of the Certificate
with the Purchase Form, which is printed on the reverse of the Certificate (or a
reasonable facsimile of the Certificate), duly executed by the holder, to the
Warrant Agent at its principal office in Lakewood, Colorado, accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company, in an amount equal to the product of the number of shares of Common
Stock issuable upon exercise of the Warrant represented by the Certificate,
multiplied by the exercise price of $__________, as adjusted under the
provisions of Article III of this Agreement (the price as so adjusted is called
the "Purchase Price"). The holder shall be entitled to receive the number of
fully paid and nonassessable shares of Common Stock, as so adjusted, at the time
of the exercise.
SECTION 2.2. TIME OF EXERCISE. Each exercise of Warrants shall be deemed to
have been effective immediately before the close of business on the business day
on which the Certificate relating to the Warrants shall have been surrendered to
the Warrant Agent as provided in Section 2.1, and at the time the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon the exercise as provided in Section 2.3
shall be deemed to have become the holder(s) of record.
SECTION 2.3. COMMON STOCK ISSUANCE; NO FRACTIONAL SHARES. As soon as
practicable after the exercise of any Warrant or within ten (10) days after
receipt by the Company of the notice of exercise under Section 2.1, the Company
at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the holder or as the holder
(upon payment by the holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which the holder shall be entitled
upon the exercise plus, instead of any fractional share to which the holder
would otherwise be entitled, an amount in cash equal to the fraction
multiplied by the then current value of a share of Common Stock. The
current value to be determined as follows:
(i) if the Common Stock shall be listed or admitted to unlisted
trading privileges on any single national securities exchange, then
the current value shall be computed on the basis of the last reported
sale price of the Common Stock on the
-2-
<PAGE>
exchange on the last business day before the date of the exercise of
the Warrant upon which a sale shall have been effected;
(ii) if the Common Stock shall not be so listed or admitted to
unlisted trading privileges and bid and asked prices therefor in the
over-the-counter market shall be reported by NASDAQ, including the
Nasdaq SmallCap or National Market, then the current value shall be
computed on the basis of the last reported sale valuation method or,
if the method is not then used by NASDAQ, the average of the closing
bid and asked prices on the last business day before the date of the
exercise of the Warrant as so reported;
(iii) if the Common Stock shall be listed or admitted to unlisted
trading privileges on more than one national securities exchange or
one or more national securities exchanges and in the over-the-counter
market, then the current value shall be deemed to be the higher number
calculated, if different as a result of calculation under the
applicable method(s) described above in this Section; or
(iv) if the Common Stock shall not be so listed or admitted to
unlisted trading privileges and the bid and asked prices shall not be
so reported, then the current value shall be computed on the basis of
the book value of Common Stock as of the close of business on the last
day of the month immediately preceding the date upon which the Warrant
was exercised as determined by the Company; and
(b) in case the exercise includes only part of the Warrants
represented by any Certificate, a new Certificate or Certificates of like
tenor, calling in the aggregate on the face or faces of the Certificates
for the number of shares of Common Stock equal (without giving effect to
any adjustment therein) to the number of the shares called for on the face
of the Certificate minus the number of the shares designated by the holder
for the exercise as provided in Section 2.1. Warrants represented by a
properly assigned Certificate may be exercised by a new holder without
first having a new Certificate issued.
SECTION 2.4. EXTENSION OF EXERCISE PERIOD; CHANGE OF EXERCISE PRICE. The
Company may, upon notice given to the Warrant Agent, and without the consent of
the holders of the Certificates, (a) reduce the Purchase Price during all or any
portion of the originally stated exercise period or (b) extend the period over
which the Warrants are exercisable beyond May ___, 2005 and increase or decrease
the Purchase Price for any period the Warrant exercise period is extended. If
there is an extension of the exercise period or a change in the Purchase Price,
the Company must provide the Warrant Agent and the Warrant holders of record
notice of the extension of the exercise period, specifying the time to which the
exercise period is extended or specifying the new Purchase Price and the periods
for which the new Purchase Price is in effect, within a reasonable time before
the date the extension or new Purchase Price is to take effect. The reasonable
time shall be commercially reasonable and consistent with applicable securities
laws and regulations.
-3-
<PAGE>
ARTICLE III.
ANTIDILUTION PROVISIONS
SECTION 3.1. PURCHASE PRICE ADJUSTMENT.
(a) The Purchase Price will be adjusted if:
(i) the Company pays any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into Common
Stock;
(ii) the Company subdivides its then outstanding shares of Common
Stock into a greater number of shares; or
(iii) the Company combines outstanding shares of Common Stock, by
reclassification or otherwise;
then, the Purchase Price in effect immediately before the event (until
adjusted again under this Agreement) shall be adjusted immediately after
the event to a price (calculated to the nearest full cent) determined by
dividing (A) the number of shares of Common Stock outstanding
immediately before the event, multiplied by the then existing Purchase
Price, by (B) the total number of shares of Common Stock outstanding
immediately after the event (including the maximum number of shares of
Common Stock issuable in respect of any securities convertible into
Common Stock). The resulting quotient shall be the adjusted Purchase
Price per share.
(b) No adjustment of the Purchase Price shall be made if the amount
of the adjustments shall be less than $.05 per share. However, any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustment(s) carried
forward, shall amount to not less than $.05 per share.
SECTION 3.2. SHARE ADJUSTMENT. Upon each adjustment of the Purchase Price
pursuant to Section 3.1 above, the registered holder of each Warrant shall
(until another adjustment) be entitled to purchase at the adjusted Purchase
Price the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in the Warrant (as adjusted as a
result of all adjustments in the Purchase Price in effect before the adjustment)
by the Purchase Price in effect before the adjustment and dividing the product
so obtained by the adjusted Purchase Price.
SECTION 3.3. ADJUSTMENT NOTICE. Upon any adjustment of the Purchase Price
and an increase or decrease in the number of shares of Common Stock purchasable
upon the exercise of the Warrants, then the Company shall within ten (10) days
after the effective date of the adjustment give written notice of the
adjustment, by first class mail, postage prepaid, addressed to each registered
Warrant holder at the address of the Warrant holder as shown on the books of the
Company. The notice shall state the adjusted Purchase Price and the increased or
decreased
-4-
<PAGE>
number of shares purchasable upon the exercise of the Warrants, providing
reasonable detail of the method of calculation and the facts upon which the
calculation is based.
SECTION 3.4. REORGANIZATION, RECLASSIFICATION, MERGER, ETC. If at any time
while any Warrant is outstanding, there is any capital reorganization or
reclassification of the capital stock of the Company (other than the issuance of
any shares of Common Stock in subdivision of outstanding shares of Common Stock
by reclassification or otherwise and other than a combination of shares provided
for in Section 3.1 of this Agreement); any consolidation or merger of the
Company with another corporation; or any sale, conveyance, lease, or other
transfer by the Company of all or substantially all of its property to any other
corporation, the holder of any Warrant, during the remainder of the period the
Warrant is exercisable, shall be entitled to receive, upon payment of the
Purchase Price, the number of shares of stock or other securities or property of
the Company, or of the successor corporation resulting from the consolidation or
merger, or of the corporation to which the property of the Company has been
sold, conveyed, leased, or otherwise transferred to which the Common Stock (and
any other securities and property) of the Company would have been entitled upon
the capital reorganization, reclassification of capital stock, consolidation,
merger, sale, conveyance, lease, or other transfer if the Warrant had been
exercised immediately before the capital reorganization, reclassification of
capital stock, consolidation, merger, sale, conveyance, lease, or other
transfer. An appropriate adjustment (as determined by the board of directors of
the Company) shall be made consistent with the provisions in this Agreement
regarding the rights and interests of the Warrant holders (including the
adjustment of the Purchase Price and the number of shares issuable upon the
exercise of the Warrants) as near as may be reasonably practicable, in relation
to any shares or other property deliverable upon the exercise of the Warrants as
if the Warrants had been exercised immediately before the capital
reorganization, reclassification of capital stock, consolidation, merger, sale,
conveyance, lease, or other transfer and the Warrant holders had carried out the
terms of the exchange as provided for by the capital reorganization,
reclassification, consolidation, or merger. The Company shall not effect any
capital reorganization, consolidation, merger, or transfer unless, upon or
before the consummation, the successor corporation or the corporation to which
the property of the Company has been sold, conveyed, leased, or otherwise
transferred shall assume by written instrument the obligation to deliver to the
holder of each Warrant the shares of stock, securities, cash, or property
consistent the foregoing provisions.
SECTION 3.5. PRIOR NOTICE. If at any time:
(a) the Company pays any dividend upon its Common Stock payable in
stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company offers for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or any other
rights;
(c) there is any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with, or sale, conveyance, lease, or other transfer of all or substantially
all of its assets to, another corporation; or
-5-
<PAGE>
(d) there is a voluntary or involuntary dissolution, liquidation, or
winding up of the Company;
then the Company shall give prior written notice, by first class mail, postage
prepaid, addressed to each registered Warrant holder at the address of the
Warrant holder as shown on the books of the Company, of the date on which (x)
the books of the Company shall close or a record shall be taken for the stock
dividend, distribution, or subscription rights or (y) the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up shall take place. The notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in the dividend,
distribution, or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up. The written notice shall be given at least twenty
(20) days before the event and not less than twenty (20) days before the record
date or the date on which the Company's transfer books are closed.
SECTION 3.6. COMPANY OBLIGATIONS. The Company will not, by amendment of its
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Certificates, but will at all times in good
faith assist in the carrying out of all the terms. Without limiting the
generality of the foregoing, the Company (a) will take all action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of the stock upon the exercise of all
Warrants from time to time outstanding, and (b) will not (i) transfer all or
substantially all of its properties and assets to any other person or entity, or
(ii) consolidate with or merge into any other entity where the Company is not
the continuing or surviving entity, or (iii) permit any other entity to
consolidate with or merge into the Company where the Company is the continuing
or surviving entity but, in connection with the consolidation or merger, the
Common Stock then issuable upon the exercise of the Warrants shall be changed
into or exchanged for shares or other securities or property of any other entity
unless the other entity acquiring the properties and assets, continuing or
surviving after the consolidation or merger, or issuing or distributing the
shares or other securities or property shall expressly assume in writing and be
bound by all the terms of this Agreement and the Certificates.
SECTION 3.7. RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the exercise
of the Warrants, all shares of Common Stock issuable upon the exercise of the
Warrants. All the shares shall be authorized and validly issued, fully paid, and
nonassessable. The Company, at its expense, will list on the NASDAQ system,
including the Nasdaq SmallCap or National Market and on each national securities
exchange on which any Common Stock may at any time be listed, subject to
official notice of issuance, and will maintain the listing of the shares of
Common Stock issuable upon the exercise of the Warrants.
SECTION 3.8. REGISTRATION OR EXEMPTION. At all times the Warrants are
exercisable, the Company will use its best efforts, although there can be no
assurance that the Company will be able to do so, (a) to maintain an effective
registration statement under the Securities Act of 1933,
-6-
<PAGE>
as amended (the "Act"), covering Common Stock issuable upon exercise of the
Warrants, (b) to amend or supplement the prospectus contained in the
registration statement to the extent necessary to comply with applicable law,
(c) to qualify for exemption from the registration requirements of the Act
the Common Stock issuable upon exercise of the Warrants, and (d) to maintain
exemptions or qualifications in those jurisdictions in which the original
registration statement relating to the Warrants was initially qualified. The
Warrant Agent shall have no responsibility for the maintenance of the
exemptions or qualifications or for liabilities arising from the exercise or
attempted exercise of Warrants in jurisdictions where exemptions or
qualifications have not been maintained or are otherwise unavailable.
ARTICLE IV.
RIGHTS OF WARRANT HOLDERS
SECTION 4.1. NO RIGHTS AS SHAREHOLDERS. The Certificates shall be issued in
registered form only. No Certificate shall entitle the holder to any of the
rights of a holder of shares of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to receive any notice of, or to attend meetings of holders of Common Stock or
any other proceedings of the Company.
SECTION 4.2. LOSS, THEFT, DESTRUCTION, OR MUTILATION OF WARRANT
CERTIFICATES. Upon receipt by the Warrant Agent of evidence reasonably
satisfactory to the Warrant Agent of the loss, theft, destruction, or mutilation
of any Certificate, and (a) in the case of any loss, theft, or destruction, upon
delivery to the Warrant Agent of an indemnity bond in form and amount, and
issued by a bonding company, reasonably satisfactory to the Company, or (b) in
the case of any mutilation, upon surrender to and cancellation by the Warrant
Agent of the Certificate, the Company at its expense will execute and cause the
Warrant Agent to countersign and deliver a new Certificate of like tenor.
SECTION 4.3. TRANSFER AGENT; CANCELLATION OF WARRANT CERTIFICATES;
UNEXERCISED WARRANTS. American Securities Transfer & Trust, Inc. (and any
successor), as transfer agent (the "Transfer Agent"), is hereby irrevocably
authorized and directed at all times to reserve the number of authorized and
unissued shares of Common Stock as shall be sufficient to permit the exercise in
full of all Warrants from time to time outstanding. The Company will keep a copy
of this Agreement on file with the Transfer Agent. The Warrant Agent, and any
successor, is hereby irrevocably authorized to requisition from the Transfer
Agent certificates for shares of Common Stock required for exercise of Warrants.
The Company will supply the Transfer Agent with duly executed certificates for
shares of Common Stock and will make available any cash required in settlement
of fractional share interests. All Certificates surrendered upon the exercise or
redemption of Warrants shall be cancelled by the Warrant Agent and shall be
delivered to the Company. The cancelled Certificates, with the Purchase Form on
the reverse duly filled in and signed, shall constitute conclusive evidence of
the numbers of shares of Common Stock which were issued upon exercises of
Warrants. After the last day on which the Warrants are exercisable (provided in
Section 2.1 above), the Warrant Agent shall promptly certify to the Company the
aggregate number of Warrants then outstanding and unexercised. No shares of
Common Stock
-7-
<PAGE>
shall be reserved for Warrants not exercised before the time and date
identified in Section 2.1 above, the last time and date at which Warrants may
be exercised.
ARTICLE V.
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
SECTION 5.1. WARRANT REGISTER; TRANSFER OR EXCHANGE OF WARRANT
CERTIFICATES. The Warrant Agent shall keep at its principal office a register
(the "Warrant Register") in which, under the reasonable regulations as the
Company may prescribe, provisions shall be made for the registration of
transfers and exchanges of Certificates. Upon surrender for transfer or exchange
of any Certificates, properly endorsed, to the Warrant Agent, the Warrant Agent
at the Company's expense will issue and deliver to or upon the order of the
holder a new Certificate or Certificates of like tenor, in the name of the
holder or as the holder (upon payment by the holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces of the
Certificate for the number of shares of Common Stock called for on the face of
the Certificate so surrendered. Any Certificate surrendered for transfer or
exchange shall be cancelled by the Warrant Agent and shall be delivered to the
Company.
SECTION 5.2. IDENTITY OF WARRANT HOLDERS. Until a Certificate is
transferred in the Warrant Register, the Company and the Warrant Agent may treat
the person in whose name the Certificate is registered as the absolute owner and
of the Warrants represented by the Certificate for all purposes, despite any
notice to the contrary, except that, if and when any Certificate is properly
assigned in blank, the Company and the Warrant Agent may (but shall not be
obligated to) treat the bearer as the absolute owner of the Certificate and of
the Warrants represented by the Certificate for all purposes, despite any notice
to the contrary.
ARTICLE VI.
WARRANT AGENT
SECTION 6.1. TAXES. The Company will promptly pay to the Warrant Agent, or
make provision satisfactory to the Warrant Agent for the payment of, all taxes
and charges that may be imposed by the United States or any State upon the
Company or the Warrant Agent upon the transfer or delivery of shares of Common
Stock upon the exercise of Warrants. However, the Company shall not be obligated
to pay any tax imposed in connection with any transfer involved in the delivery
of a certificate for shares of Common Stock in any name other than that of the
registered holder of the Certificate surrendered in connection with the purchase
of the Certificate.
SECTION 6.2. WARRANT AGENT REPLACEMENT.
(a) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities under this Agreement after giving thirty
(30) days notice in writing to the Company. Shorter notice may be given if
the Company agrees in writing. The Company may discharge the Warrant Agent
at any time with or without reason, effective upon thirty (30) days written
notice to the Warrant Agent or a shorter period if the Warrant Agent agrees
in writing. If the office of Warrant Agent becomes vacant by resignation,
discharge, incapacity to act, or otherwise, the Company shall appoint in
writing a new
-8-
<PAGE>
Warrant Agent, which maintains an office in Colorado. If the Company
fails to make the appointment within a period of thirty (30) days after
it has been notified in writing of the resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the holder of a
Certificate, then the holder of any Certificate may apply to any court
of competent jurisdiction for the appointment of a new Warrant Agent.
Any new Warrant Agent, whether appointed by the Company or by a court,
shall be a corporation organized and doing business under the laws of
the United States or one of its states, of good standing, and maintains
an office in Colorado, which is authorized under the laws to exercise
corporate trust powers and is under the supervision or examination by
federal or state authority. Any new Warrant Agent appointed under this
Agreement shall execute, acknowledge, and deliver to the Company an
instrument accepting the appointment under this Agreement. The new
Warrant Agent without any further act or deed shall become vested with
all the rights, powers, duties, and responsibilities of the Warrant
Agent under this Agreement as if it had been named as the previous
Warrant Agent. However, if for any reason it becomes necessary or
expedient to have the former Warrant Agent execute and deliver any
further assurance, conveyance, act or deed, the same shall be done and
shall be legally and validly executed and delivered by the former
Warrant Agent. Not later than the effective date of any appointment, the
Company shall file notice with the former Warrant Agent. The Company
shall promptly give notice of any appointment to the holders of the
Certificates by mail to their addresses as shown in the Warrant
Register. Failure to file or give the notice, or any defect in the
notice, shall not affect the legality or validity of the appointment of
the successor Warrant Agent.
(b) Any company resulting from any merger, conversion, or
consolidation to which the Warrant Agent shall be a party, shall be the
successor Warrant Agent under this Agreement without any further act;
provided that if the company would not be eligible for appointment as a
successor Warrant Agent under the provisions of paragraph (a) of this
Section 6.2 the Company shall appoint a new Warrant Agent consistent with
this Section. Any successor Warrant Agent may adopt the prior
countersignature of any predecessor Warrant Agent and deliver Certificates
countersigned and not delivered by the predecessor Warrant Agent or may
countersign Certificates either in the name of any predecessor Warrant
Agent or the name of the successor Warrant Agent.
SECTION 6.3. WARRANT AGENT REMUNERATION. The Company will pay the Warrant
Agent reasonable remuneration for its services as Warrant Agent under this
Agreement and will reimburse the Warrant Agent upon reasonable demand for all
expenditures that the Warrant Agent may reasonably incur in the execution of its
duties under this Agreement.
SECTION 6.4. WARRANT AGENT LIMITATION OF LIABILITIES.
(a) Whenever, in the performance of its duties under this Agreement,
the Warrant Agent determines it is necessary or desirable that any matter
be proved or established, or that any instructions regarding the
performance of its duties under this Agreement be given, before taking any
action under this Agreement, the matter (unless other evidence is
specifically prescribed) may be deemed to be conclusively proved and
-9-
<PAGE>
established, or the instructions may be given, by a certificate or
instrument signed by an officer of the Company and delivered to the Warrant
Agent; and the certificate or instrument shall be full authorization to the
Warrant Agent for any action taken in good faith by it under the provisions
of this Agreement in reliance upon the certificate or instrument. However,
in its discretion the Warrant Agent may instead accept other evidence of
the matter or may require further or additional evidence as it may deem
reasonable.
(b) The Warrant Agent shall be liable under this Agreement only for
its own negligence or willful misconduct. The Warrant Agent shall act under
this Agreement solely as agent, and its duties shall be determined solely
by the provisions of this Agreement. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all liabilities,
including judgments, costs, and counsel fees, for anything done or omitted
by the Warrant Agent in the execution of this Agreement except as a result
of the Warrant Agent's negligence or willful misconduct.
(c) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Certificates (except its countersignature) or be required to verify the
same, but all the statements and recitals are and shall be deemed to have
been made by the Company only.
(d) The Warrant Agent shall not be under any responsibility regarding
the validity or execution of any Certificate (except its countersignature);
nor shall it be responsible for any breach by the Company of any covenant
or condition contained in this Agreement or in any Certificate; nor shall
it be responsible for the making of any adjustment in the Purchase Price,
or number of shares issuable upon exercise of the Certificates or
responsible for the manner, method, or amount of any adjustment or the
facts that would require any adjustment; nor shall it by any act under this
Agreement be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued
under this Agreement or any Certificate or as to whether any shares of
Common Stock or other securities are or will be validly authorized and
issued and fully paid and nonassessable.
SECTION 6.5. AMENDMENT AND MODIFICATION. The Warrant Agent may, without the
consent or concurrence of the holders of the Certificates, join with the Company
in making any changes or corrections in this Agreement that they shall have been
advised by their counsel (a) are required to cure any ambiguity or to correct
any defective or inconsistent provision or clerical omission or mistake or
manifest error contained in this Agreement, (b) add to the obligations of the
Company in this Agreement or surrender any right or power reserved to or
conferred upon the Company in this Agreement, or (c) do not or will not
adversely affect, alter, or change the rights, privileges, or immunities of the
holders of Certificates not provided for under this Agreement; provided,
however, that any term of this Agreement or any Certificate may be changed,
waived, discharged, or terminated by an instrument in writing signed by each
party against which enforcement of the change, waiver, discharge, or termination
is sought, or by which the same is to be performed or observed.
-10-
<PAGE>
ARTICLE VII.
MISCELLANEOUS
SECTION 7.1. SUCCESSORS AND ASSIGNS. All the covenants and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties.
SECTION 7.2. FURTHER ASSURANCES. The parties will perform, exercise,
acknowledge, and deliver or cause to be performed, executed, acknowledged, and
delivered all further and other acts, instruments, and assurances as may
reasonably be required by the parties to carrying out or perform the obligations
under this Agreement.
SECTION 7.3. NOTICES. Any notice or demand authorized by this Agreement to
be given by the Warrant Agent or the holder of any Certificate to the Company
shall be sufficiently given or made if sent by first class or registered mail,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
ACT TELECONFERENCING, INC.
1658 Cole Boulevard
Suite 130
Golden, Colorado 80604
Attention: Chief Financial Officer
Any notice or demand authorized by this Agreement to be given by the holder
of any Certificate or by the Company to the Warrant Agent shall be sufficiently
given or made if sent by first class or registered mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
American Securities Transfer & Trust, Inc.
12039 West Alameda Parkway
Lakewood, Colorado 80228
SECTION 7.4. GOVERNING LAW. This Agreement and the Certificates are being
delivered in the State of Colorado and shall be construed and enforced
consistent with and governed by the laws of the State.
SECTION 7.5. NO BENEFITS CONFERRED. Nothing in this Agreement expressed or
implied is intended or shall be construed to confer upon any person or
corporation other than the Company, the Warrant Agent, and the holders of the
Certificates including any right, remedy, or claim under this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
ACT TELECONFERENCING, INC.
By
----------------------------------------
Its
---------------------------------------
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By
----------------------------------------
Its
---------------------------------------
-12-
<PAGE>
EXHIBIT A
THIS WARRANT CERTIFICATE MAY BE TRANSFERRED SEPARATELY FROM THE COMMON STOCK
CERTIFICATE WITH WHICH IT IS INITIALLY ISSUED
EXERCISABLE ON OR BEFORE, AND VOID AFTER,
5:00 P.M. DENVER TIME, May ___, 2005
No. W - ________ Certificate for ________ Warrants
-----------------------------
WARRANT CUSIP
-----------------------------
WARRANTS TO PURCHASE COMMON STOCK OF
ACT TELECONFERENCING, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
THIS CERTIFIES that ___________________________________________ or assigns,
is the owner of the number of Warrants provided above, each of which represents
the right to purchase from ACT TELECONFERENCING, INC., a Colorado corporation
(the "Company"), at any time on or before 5:00 p.m., Denver time, May ___,
2005,
upon compliance with and under the conditions in this Certificate and in the
Warrant Agreement, one share (that may be adjusted as referred to below) of the
Common Stock of the Company (the "Shares"), by surrendering this Warrant
Certificate (this "Certificate"), with the Purchase Form on the reverse side
duly executed, at the principal office of American Securities Transfer & Trust,
Inc., or its successor, as warrant agent (the "Warrant Agent"), and by paying in
full, in cash or by certified or official bank check payable to the order of the
Company, the purchase price of $________ per share.
Upon any exercise of less than all the Warrants evidenced by this
Certificate, there shall be issued to the holder a new Certificate for the
Warrants as to which this Certificate was not exercised.
Upon the surrender for transfer or exchange of this Certificate, properly
endorsed, to the Warrant Agent, the Warrant Agent at the Company's expense will
issue and deliver to the order of the holder of this Certificate a new
Certificate(s) of like tenor, in the name of the holder or as the holder (upon
payment by the holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face of this Certificate.
The Certificates are issued only as registered Warrant Certificates. Until
this Certificate is transferred in the Warrant Register, the Company and the
Warrant Agent may treat the person in whose name this Certificate is registered
as the absolute owner of this Certificate and of the Warrants represented by
this Certificate for all purposes, despite any notice to the contrary.
This Certificate is issued under the Warrant Agreement dated as of May ___,
2000, between the Company and the Warrant Agent and is governed under the terms
and provisions contained in the Warrant Agreement, to all of which terms and
provisions the registered holder of this Certificate consents by acceptance of
this Certificate. Copies of the Warrant Agreement are on file at the principal
office of the Warrant Agent in Denver, Colorado, and may be obtained by writing
to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants
represented by this Certificate and the purchase price per share may be adjusted
upon the occurrence of events specified in the Warrant Agreement (which
provisions are contained in Article III of the Warrant Agreement and are hereby
incorporated by reference).
A-1
<PAGE>
No fractional Shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on the exercise, the Company shall pay a cash adjustment instead of the
issuance of any fractional Share.
This Certificate shall not entitle the holder of this Certificate to any of
the rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Certificate shall be void and the Warrants and any rights represented
by this Certificate shall cease unless exercised on or before 5:00 P.M. Denver
time on May ___, 2005, unless extended by the Company.
This Certificate shall not be valid for any purpose until it shall have
been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized officers.
Dated: ACT TELECONFERENCING, INC.
----------------------------
By
----------------------------------
Its
---------------------------------
Attested to:
- ---------------------------------------
Secretary
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER &
TRUST, INC., as Warrant Agent
By
-------------------------------------
Authorized Signature
A-2
<PAGE>
[REVERSE OF WARRANT CERTIFICATE]
The articles of incorporation of the corporation grant to the board of
directors the power to establish more than one class or series of shares and to
fix the relative rights and preferences of any such different class or series.
The corporation will furnish to any shareholder upon request and without charge
a full statement of the designations, preferences, limitations, and relative
rights of the shares of each class or series authorized to be issued, so far as
they have been determined, and the authority of the board to determine the
relative rights and preferences of subsequent classes or series.
THE HOLDER OF THIS WARRANT CERTIFICATE WILL BE ABLE TO EXERCISE THE
WARRANTS ONLY IF A CURRENT PROSPECTUS RELATING TO THE SHARES UNDERLYING THE
WARRANTS IS THEN IN EFFECT AND ONLY IF THE SHARES ARE QUALIFIED FOR SALE OR
EXEMPT FROM QUALIFICATION UNDER THE APPLICABLE SECURITIES LAWS OF THE STATES IN
WHICH THE HOLDER OF THIS WARRANT CERTIFICATE RESIDES. ALTHOUGH THE COMPANY WILL
USE ITS BEST EFFORTS TO MAINTAIN THE EFFECTIVENESS OF A CURRENT PROSPECTUS
COVERING THE SHARES UNDERLYING THE WARRANTS, THERE CAN BE NO ASSURANCE THAT THE
COMPANY WILL BE ABLE TO DO SO, OR TO GET ANY REQUIRED AMENDMENTS DECLARED
EFFECTIVE BY FEDERAL OR STATE AUTHORITIES IN A TIMELY MANNER. THE COMPANY WILL
BE UNABLE TO ISSUE SHARES TO THOSE PERSONS DESIRING TO EXERCISE THEIR WARRANTS
IF A CURRENT PROSPECTUS COVERING THE SHARES ISSUABLE UPON THE EXERCISE OF THE
WARRANTS IS NOT KEPT EFFECTIVE OR IF SUCH SHARES ARE NOT QUALIFIED NOR EXEMPT
FROM QUALIFICATION IN THE STATES IN WHICH THE HOLDERS OF THE WARRANTS RESIDE.
A-3
<PAGE>
TO: ACT TELECONFERENCING, INC.
c/o American Securities Transfer & Trust, Inc.
Warrant Agent
PURCHASE FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE WARRANT CERTIFICATES)
The undersigned hereby irrevocably elects to exercise _____________* of the
Warrants represented by the Warrant Certificate, purchase for cash the Shares
issuable upon the exercise of the Warrants, makes payment of $__________ , and
requests that certificates for such Shares shall be issued in the name of
_________________________.
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
REGISTERED HOLDER OF CERTIFICATE
- -------------------------
- -------------------------
-----------------------------------------
(Print Name)
-----------------------------------------
(Address)
-----------------------------------------
Dated: Signature(s)
----------------------- ----------------------------
----------------------------
- ------------------------
* Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion being
exercised), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
A-4
<PAGE>
ASSIGNMENT FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER TO TRANSFER WARRANT CERTIFICATES)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
____________________** of the Warrants represented by this Warrant Certificate
unto __________________________________________.
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
-----------------------------------------
(Print Name)
-----------------------------------------
(Address)
-----------------------------------------
and does hereby irrevocably constitute and appoint______________________________
attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
Dated: Signature(s)
----------------------- ----------------------------
----------------------------
Signature(s)
Guaranteed:
------------------------------
- ------------------------
** Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial assignment, the portion being
assigned), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
NOTICE
THE SIGNATURE(S) TO THE PURCHASE FORM OR THE ASSIGNMENT FORM MUST
CORRESPOND TO THE NAME(S) AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
A-5
<PAGE>
2500 REPUBLIC PLAZA, 370 SEVENTEENTH STREET
DENVER, COLORADO 80202-4004
TELEPHONE 303-592-9000
FACSIMILE 303-820-0600
May 22, 2000
ACT Teleconferencing, Inc.
1658 Cole Boulevard, Suite 130
Golden, CO 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 750,000 shares of ACT
common stock, no par value; 187,500 warrants, each of which entitles the holder
to purchase one share of common stock; and the warrant shares underlying the
warrants.
We have examined ACT's Form S-1 filed with the Securities and Exchange
Commission on or about March 9, 2000, Amendment No. 1 thereto filed on or about
May 4, 2000, and Amendment No. 2 filed on or about May 22, 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
and the warrant shares, 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. In addition, the
warrants, when issued as contemplated in the registration statement, will be
legally and validly issued, and all corporate action by ACT will have been taken
to authorize their issuance.
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,
Faegre & Benson LLP
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
use of our report dated February 8, 2000, with respect to the consolidated
financial statements and financial statements schedule of ACT
Teleconferencing, Inc. included in Amendment No. 2 to the Registration
Statement on Form S-1 and related Prospectus of ACT Teleconferencing, Inc.
for the registration of 750,000 shares of common stock and 187,500 warrants.
ERNST & YOUNG LLP
Denver, Colorado
May 19, 2000
