As filed with the Securities and Exchange Commission on February 23, 1998
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
RSI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1767211
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7400 Metro Boulevard
Minneapolis, Minnesota 55439
(612) 896-3020
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Copies to:
Donald C. Lies Robert R. Ribeiro, Esq.
Chief Executive Officer Hinshaw & Culbertson
RSI Systems, Inc. 3300 Piper Jaffray Tower
7400 Metro Boulevard 222 South Ninth Street
Minneapolis, Minnesota 55439 Minneapolis, Minnesota 55402
(612) 896-3020 (612) 334-8025
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
Proposed Proposed
Title of Each Amount Maximum Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share* Offering Price* Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
($.01 par value) 1,881,266 2.750 $5,173,482 $1,784
========================================================================================================
</TABLE>
* Estimated solely for purposes of computing the registration fee and
based upon the average of the high and low sales prices for such Common
Stock on February 20, 1998, as reported on the Nasdaq Small Cap market
system.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to completion: dated February 23, 1998
<PAGE>
PROSPECTUS
RSI SYSTEMS, INC.
1,881,266 SHARES
OF
COMMON STOCK
($.01 PAR VALUE)
This Prospectus relates to an aggregate of 1,881,266 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of RSI
Systems, Inc., a Minnesota corporation ("RSI" or the "Company"), that may be
sold from time to time by the shareholders named herein (the "Selling
Shareholders"). See "Selling Shareholders." The Company will not receive any
proceeds from the sale of the Shares. The Company has agreed to pay the expenses
of registration of the Shares, including certain legal and accounting fees. The
Shares were purchased by the Selling Shareholders from the Company in January
1998 in a private placement at a price of $1.65 per share.
Any or all of the Shares may be offered from time to time in
transactions on the over-the-counter market, in brokerage transactions at
prevailing market prices or in transactions at negotiated prices. See "Plan of
Distribution."
The Shares offered hereby have not been registered under the blue sky
or securities laws of any jurisdiction, and any broker or dealer should assure
the existence of an exemption from registration or effectuate such registration
in connection with the offer and sale of the Shares.
The Common Stock is traded in the over-the-counter market and is quoted
on the Nasdaq SmallCap Market System under the symbol "RSIS." On February 20,
1998, the last reported sale price of the Common Stock as reported on the Nasdaq
SmallCap Market System was $2.750 per share.
FOR INFORMATION CONCERNING CERTAIN RISKS RELATED TO THIS
OFFERING, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities offered hereby in any jurisdiction in which
it is not lawful or to any person to whom it is not lawful to make any such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
The date of this Prospectus is ___________, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of the web site is http://www.sec.gov. In addition,
the Common Stock of the Company is quoted on the Nasdaq SmallCap Market System,
and reports, proxy statements and other information concerning the Company can
also be inspected at the offices of the National Association of Securities
Dealers, 1735 K. Street N.W., Washington, D.C. 20006. This Prospectus does not
contain all the information set forth in the Registration Statement and exhibits
thereto which the Company has filed with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), and to which reference is hereby
made.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
(a) the Annual Report on Form 10-KSB for the year ended June 30,
1997;
(b) the Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1997;
(c) the Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1997;
(d) the description of RSI's Common Stock contained in the
Company's Registration Statement filed pursuant to Section 12
of the Exchange Act and any amendment or report filed for the
purpose of updating any such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document all or part of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Mr. Donald C. Lies, RSI Systems, Inc., 7400 Metro Blvd., Suite 475,
Minneapolis, Minnesota 55439, telephone number (612) 896-3020.
RISK FACTORS
The following risk factors should be considered carefully in addition
to the other information contained in or incorporated by reference into this
Prospectus before purchasing the Common Stock offered hereby. This Prospectus,
including the information incorporated herein by reference, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements represent the Company's expectations or beliefs concerning
future events, including the following: any statements regarding future sales
and gross profit percentages, any statements regarding the continuation of
historical trends, any statements regarding the sufficiency of the Company's
cash balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. The Company cautions that
these statements are further qualified by important factors that could cause
actual results to differ materially from those projected in the forward-looking
statements as a result, in part, of the risk factors set forth below. In
connection with the forward-looking statements which appear in this Prospectus,
including the information incorporated herein by reference, prospective
purchasers of RSI Common Stock offered hereby should carefully review the
factors set forth below.
<PAGE>
OPERATING LOSSES, ACCUMULATED DEFICIT. The Company was formed in
December 1993 and has financed its operations to date through sales of its
Common Stock. As of December 31, 1997, the Company had an accumulated deficit of
$(13,900,717). There can be no assurance that the Company will generate
sufficient sales from the Video Flyer System or other products to achieve
positive cash flow or profitable operations.
QUOTATION BY NASDAQ. The Company's Common Stock is currently traded in
the national over-the-counter market and quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") SmallCap Market System.
NASDAQ has announced more stringent minimum listing requirements which
will become effective on February 23, 1998. These new requirements include a
minimum of $2 million in Net Tangible Assets or $35 million in market
capitalization or $500,000 in net income (in the latest fiscal year, or two of
the last three fiscal years). A minimum bid price of $1.00 per share for listed
stock also will be required. There can be no assurance that the Company will
continue to be able to meet such requirements. Any failure to meet such
requirements will result in delisting of the Company's common stock from the
NASDAQ SmallCap Market.
SUCCESS DEPENDENT ON MARKET ACCEPTANCE. The Company's ultimate success
will be highly dependent on its ability to capitalize on the currently existing
market opportunity for portable conference room and workgroup conferencing
systems and to successfully market its Video Flyer System. The Company believes
that the market leaders of portable conference room and workgroup conferencing
equipment will be determined during the next several years. To establish its
market presence during this period, the Company must convince a significant
number of business, education and government entities that the Video Flyer
System and other products which may be developed by the Company in the future
offer superior features at a reasonable price as compared to other group-type
conferencing systems which have been or will become available from the Company's
competitors. There can be no assurance that the Company will be able to obtain
sufficient acceptance of its products by individuals and organizations to
achieve profitable operations.
INTENSE COMPETITION. The group conferencing market and other segments
of the overall market for videoconferencing equipment are characterized by
intense competition. The Company's major competitors in the group conferencing
market in the United States presently include PictureTel, Vtel, Tandberg, Vcon,
Polycom and Sony. All offer standards-based systems. These and other companies
provide group conferencing systems that provide 128 and 384 KBPS quality video
and audio signal videoconferencing. In addition, the Company anticipates that
new competitors will attempt to enter the market and that existing or new
competitors will develop systems in the future that duplicate or improve on
various features of the Company's system. Many of the Company's competitors are
well established, better known, and significantly larger, with substantially
greater technical, manufacturing, marketing, and financial resources than the
Company. The greater financial as well as other resources of many of the
Company's present and potential competitors may permit such competitors to
respond more rapidly than the Company to changes in technology. The Company's
ultimate ability to compete in the market will depend upon a number of factors
including its success in generating market acceptance of the Video Flyer System
and the success of its marketing efforts. The Company intends to compete based
upon the quality, reliability, and the ease of use of its products. The Company
also intends to compete on value relative to the features its product offers.
However, if the Company is forced by competitive pressure to significantly
reduce prices the Company's revenues and profitability may be adversely
affected.
LIMITED HISTORY OF MARKETING, DISTRIBUTION, AND SALES. As of December
31, 1997, the Company has sold approximately $2.8 million of the Video Flyer
systems and related components. The Company's current marketing strategy is to
focus on larger businesses, schools and governmental entities which the Company
believes will provide the most significant opportunities for sales of its
system. The Company currently markets its system worldwide direct and through
distributors and dealers and is about to begin sales worldwide through an OEM
relationship with Philips North America. Although the Company's marketing
personnel have significant experience in marketing new products and services in
the industry, such
<PAGE>
personnel only have limited experience in marketing the Company's product. There
can be no assurance that the Company's marketing and distribution strategy will
be successful.
TECHNICAL OBSOLESCENCE. The telecommunications industry is undergoing,
and is expected to continue to undergo, rapid and significant technical
advances. While the Company believes that the Video Flyer System has certain
distinct advantages over other, currently available group conferencing systems,
the Company expects future technology to be superior to the technology currently
used in its system. Although the Video Flyer System has been designed to
assimilate future technical advances, there can be no assurance that any such
future advances or the development of new or competitive products by others will
not render the Company's system less competitive or obsolete.
AVAILABILITY AND ACCEPTANCE OF ISDN. The Company believes the growth of
the group conferencing market is dependent on the availability and acceptance of
Integrated Services Digital Network ("ISDN") telephone service. To provide ISDN
service to their customers, telephone companies must replace analog switches
with digital switches in their local offices. In 1994, approximately 75 percent
of all telephone circuits in the United States were capable of providing ISDN
service. Internationally, approximately 84 percent, 80 percent and 58 percent of
telephone circuits in Europe, Australia and Japan, respectively, are capable of
providing ISDN service. The monthly charge for ISDN service in the United States
ranges between $20 and $80 per month plus, in certain markets, per-minute
charges for usage in excess of minimum levels. Although the Company believes
ISDN service will become more available and less expensive in the United States,
the Company's sales of its products would be materially adversely affected if
ISDN service is not available to, or not accepted by, businesses and
individuals. The Video Flyer will also operate on existing Tl lines by spring of
1998.
FUTURE CAPITAL NEEDS. The Company believes that it has sufficient
working capital to meet its needs until it is cash flow positive. Nonetheless,
the Company's working capital requirements may vary substantially from those
planned depending on numerous factors, including a failure to generate
significant revenues in 1998, unexpected increases in expenses, and other
unplanned events. If the Company is unable to generate significant revenues from
sales, or if despite sufficient sales, the Company is unable to achieve its
targeted margins, it will require additional financing. In addition, higher than
anticipated expenses could cause the Company to require additional working
capital. The Company could also require additional capital to finance future
growth or for strategic acquisitions, although no such acquisitions are
currently planned. Required additional capital would be sought from a number of
sources and could include sales of additional shares of capital stock or other
securities or loans from banks or other sources. Any additional sales of capital
stock could be dilutive to investors in this offering. The Company's ability to
obtain additional funding will depend substantially on operating results in
future periods. The Company will be materially adversely affected and its
ability to continue in business could be jeopardized if it is not able to
achieve positive cash flow or profitability or if it is not able to obtain any
necessary financing on satisfactory terms.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on its key
management, technical and marketing personnel, particularly Donald C. Lies,
President and Chief Executive Officer of the Company. The Company's future
success will also depend in part upon its ability to attract and retain highly
qualified personnel and consultants. The Company competes for such personnel
with other companies, and there can be no assurance that the Company will be
successful in hiring or retaining qualified personnel or consultants. The loss
of key personnel or consultants or the inability to hire or retain qualified
personnel or consultants could have a material adverse effect on the Company.
The Company has entered into confidentiality, non-compete and employment
agreements with Mr. Lies.
<PAGE>
LIMITED PROPRIETARY PROTECTION. The Company currently relies on patent
and trademark protection for the Video Flyer System. The Company filed a utility
patent application for its peripheral videoconferencing system in the fall of
1994 and received a Notice of Allowance in August 1997. The Company also claims
the trademark Eris Video Flyer and has registered the trademark under federal
trademark statutes. The Company filed an application for its "intent to use" the
mark "Eris Video Flyer" as a trademark under federal trademark statutes and
intends to file its "statement of use" of that trademark once it is eligible to
do so under such statutes. The Company has also applied for patents for its
peripheral videoconferencing systems in foreign countries. The Company intends
to register its copyrights.
There can be no assurance that the Company's measures to protect its
intellectual property will be successful, that it will be granted any patents in
the future, or that any patents that may be granted will be of value to the
Company. In the absence of meaningful intellectual property protection, the
Company may be vulnerable to competitors who could lawfully attempt to copy the
Company's products. Moreover, there can be no assurance that other competitors
may not independently develop the same or similar technology. Similarly, while
the Company believes that it has all rights necessary to market and sell its
system without infringement of intellectual property rights held by others, the
Company has not conducted a formal infringement search and there can be no
assurance that such conflicting rights do not exist. The Company could incur
substantial legal costs in seeking enforcement of its intellectual property
rights against infringement or the unauthorized use of its proprietary
technology by others or in defending itself against similar claims of others.
There can be no assurance that the Company will have sufficient funds to enforce
or defend its intellectual property rights.
NO CUMULATIVE VOTING; CONTROL. There is no cumulative voting for the
election of directors of the Company. Accordingly, the owners of a majority of
the Company's outstanding voting stock may elect all the directors, if they
choose to do so, and the owners of the remaining shares will not be able to
elect any directors. Officers and directors of the Company currently own
approximately 28 percent of the outstanding shares of Common Stock.
APPLICABILITY OF "PENNY STOCK RULES." Although the Company's Common
Stock is listed on the NASDAQ SmallCap Market, there can be no assurance that
such listing will be maintained. If the Company's Common Stock is delisted for
failure to meet the NASDAQ listing maintenance requirements, the Common Stock
would be subject to the rules promulgated under the Securities Exchange Act of
1934 relating to "penny stocks." These rules require brokers who sell securities
subject to such rules to persons other than established customers and
"institutional accredited investors" to complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning the risks of trading in the security. These rules may
restrict the ability of brokers to sell the Company's Common Stock and may
affect the ability of purchasers in this offering to sell such Company Stock in
the secondary market.
<PAGE>
ANTI-TAKEOVER PROVISIONS. The Board of Directors is authorized to issue
up to 5,000,000 undesignated shares and to fix the rights, preferences,
privileges and restrictions, including voting rights of those shares without any
further vote or action by the Company's shareholders. The rights of the holders
of the Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any undesignated shares that may be issued in the
future. Although there is no current intention to do so, the issuance of such
shares by the Company could deprive the Company's shareholders of opportunities
to sell their shares of the Common Stock at a premium. Additionally, the Company
could adopt in the future one or more additional anti-takeover measures, such as
a shareholder rights plan, without first seeking shareholder approval, which
measures could also make a change in control of the Company more difficult. The
Company is also subject to provisions of the Minnesota Business Combination Act
and the Minnesota Control Share Acquisition Act that make certain business
combinations more difficult.
NO CASH DIVIDENDS. The Company has never paid or declared any cash
dividends on its Common Stock and does not intend to pay dividends on its Common
Stock in the foreseeable future.
LIMITATION OF DIRECTOR LIABILITY. The Company's Restated Articles of
Incorporation and Bylaws provide for indemnification of directors to the full
extent permitted by the Minnesota Business Corporation Act and to the extent
permitted by such law, eliminate or limit the personal liability of directors to
the Company and its shareholders of monetary damages for certain breaches of
fiduciary duty. Such indemnification may be available for liabilities arising in
connection with this Offering. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed 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.
<PAGE>
RSI SYSTEMS, INC.
GENERAL
The Company designs, develops, manufactures and markets
telecommunications products for video conferencing. The Company's first product,
the ERIS(TM) Visual Communications System (the "ERIS"), was a self-contained
peripheral firmware and software device that attached directly to personal
computers, Macintosh computers and laptop computers. It provided quality desktop
video conferencing over ISDN lines between any ITU H.320 standards-based system.
The Company was incorporated under the laws of Minnesota on December
21, 1993. Following the establishment of a business infrastructure, which
included the further development of the ERIS System and implementation of
marketing strategies, the first beta unit of the Company's ERIS System was
produced in October, 1994 and the first production unit was shipped in February,
1995.
On July 25, 1995, the Company conducted a public offering of its common
stock, par value $0.01 per share (the "Common Stock"). With the net proceeds
from the public offering, including net proceeds from the exercise of the
underwriter's overallotment option (approximately $7,400,000), the Company has
funded further research and development related to the enhancement of the ERIS
System.
In July, 1996, the Company brought in a new management team which
redesigned the ERIS System into a small television-based workgroup system. In
addition, the management team accelerated the Company's development of a second
generation, high performance mobile workgroup video conferencing system product
- -- the Video Flyer(TM). In September, 1996, the Company completed a private
placement of 1,500,000 shares of Common Stock, resulting in proceeds to the
Company of approximately $3,942,892, net of offering costs.
The first beta units of the Video Flyer came to the market in January,
1997. Limited production and customer shipments began in March, 1997. The system
went into full production for worldwide distribution in July, 1997. The Video
Flyer is a self-contained, high performance video conferencing peripheral
component engine. The system is available in two models: The Video Flyer 384
("384") and the Video Flyer Rocket ("Rocket"). The Video Flyer 384 can
communicate simultaneously over three ISDN lines to provide a high quality
signal of up to 30 frames per second. The Rocket incorporates the same chassis,
software, external shell and electronic components as the 384 except that it
connects to only a single ISDN line and provides business quality video
conferencing of up to 15 frames per second. Both systems are designed to connect
to any size TV, projection system, PC, MAC or laptop (properly configured) and
can support most of the popular industry cameras and recording, playback and
communication devices.
To achieve connectivity, the Company built the Video Flyer on a single
motherboard that incorporated all of the primary and secondary electronic
components to conduct high quality video conferencing through a variety of
devices and connections. By connecting an
<PAGE>
interchangeable single daughter card to the motherboard, the system can be made
to connect to a single ISDN line using the Video Flyer Rocket, or up to three
ISDN lines to conduct 384 calls using the Video Flyer 384. The Company is
currently developing additional daughter cards that will provide connectivity to
V.35/RS449 devices.
Both Video Flyer Rocket and Video Flyer 384 guarantee ease of operation
and utilize universal TV-like infrared remote controllers. The Company wrote all
of the Video Flyer software to dramatically simplify the calling, in-call and
hang-up process. Recent published evaluations of the system indicated that it
may be the easiest to use, professional quality video conferencing system
currently available.
The system's software architecture has already allowed a number of
significant new features to be added on to products in the field without any
inconvenience to the user. The software resides entirely in flash memory
eliminating the need for a hard drive and computer diskettes to perform software
updates or new add-on features. Such capabilities as near and far-end remote
camera control, extended alpha/numeric phone book, multiple language screen
faces, PowerPoint(R) connectivity and BONDING have already been added to systems
installed worldwide merely by offering unattended downloading of these new
capabilities via the ISDN connection. Customers have said this dramatically
eliminates the inconvenience and hassle associated with updating a computer-type
product.
Valuable economies have been achieved in the manufacturing and assembly
of the product because of the thoughtful and forward-thinking design and
engineering of the product. The Video Flyer Rocket (128Kbps) was introduced with
a list price in North America of $4,995. For comparison purposes, with the
addition of a high performance Sony pan/tilt/zoom camera (Model EVI-G20), the
system lists for $5,995. A recognized comparable product from the industry's
largest manufacturer of video conferencing products carries a suggested list
price of $8,995. At list price, the Video Flyer Rocket carries a lower price of
over 33%.
The Video Flyer 384 carries a North American list price of $8,995.
Again, the largest video conferencing manufacturer markets a comparable system
in feature and video/audio quality (incorporating a similar chip set and
echo-cancellation as the Video Flyer 384 and Rocket) with a suggested list price
of $22,000 to $27,000, a price differential of at least 55%. Over time, the
Company expects the prices of many of the systems in the roll-about market
segment to decline. The Company believes that the Video Flyers are outstanding
values that will be difficult for both existing and new video conferencing
buyers to ignore.
The Video Flyer is manufactured in Minnesota by Altron, Inc., an ISO
9002 facility that has been regionally recognized as a provider of high quality,
component-type assembly products. Currently all product development for the
Video Flyer continues to be performed in-house. A significant number of
no-charge and for-fee new features are in development. The Company's management
believes these will keep the Video Flyer current in the evolving
<PAGE>
technological marketplace and continue to enhance its price performance and
value as a hedge against price point erosion.
RECENT DEVELOPMENTS
On December 19, 1997, the Company entered into an agreement with
Philips North American Corporation, a subsidiary of Philips Electronics NV,
pursuant to which the Company will supply videoconferencing systems to Philips
for resale worldwide under the Philips' brand. The videoconferencing systems are
based on the Company's high performance 384 and 128 Kbps technology sold under
its Video Flyer brand. The initial purchase order to RSI covers $900,000 in
sales. Initial shipments under the agreement will begin in February, 1998. The
Company will continue to market its videoconferencing products under its own
brand names.
In January 1998, the Company completed a private placement of 1,671,255
shares of Common Stock, resulting in proceeds to the Company of approximately
$2,522,000, net of offering costs.
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information as to the maximum
number of Shares that may be sold by each of the Selling Shareholders pursuant
to this Prospectus.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
SHARES TO BE OWNED AFTER
NUMBER OF SHARES NUMBER OF SHARES OWNED AFTER THE COMPLETION
NAME OWNED PRIOR TO OFFERING SHARES OFFERED HEREBY OFFERING(6) OF OFFERING
- ---- ----------------------- --------------------- -------- -----------
<S> <C> <C> <C>
Jeffrey D. Rahm & Susan D. Rahm JT TEN 5,000 5,000 0 *
Rosemary Tuite 50,000 50,000 0 *
A.J. Kamps 10,000 10,000 0 *
Mark J. Lies Trust, Mark J. Lies TTEE (1) 5,000 5,000 0 *
Robert McGuire 25,000 25,000 0 *
Ronald G. Cornwell 100,000 100,000 0 *
Austin Chapman 60,000 60,000 0 *
Kenneth B. Sanville 7,500 7,500 0 *
Walter W. Faster 10,000 10,000 0 *
Richard F. Craven (2) 816,500 130,000 686,500 11.9%
Craig Campbell 15,000 15,000 0 *
Robert G. Allison 20,000 20,000 0 *
Richard C. Perkins 15,000 15,000 0 *
Piper Jaffray as Custodian
FBO Bradley Allen Erickson 10,000 10,000 0 *
David J. Lies 50,000 50,000 0 *
Byron G. Shaffer (3) 316,500 121,000 195,500 4.6%
Twin City Carpenters Pension Fund 30,000 30,000 0 *
Union Bank & Trust
James R. Wingate & Junell A. Wingate JT TEN 30,303 30,303 0 *
Paul J. Pettinger 30,000 30,000 0 *
<PAGE>
Kenneth K. Cheng TOD 100,000 100,000 0 *
Gary T. Alkire 10,000 10,000 0 *
Timothy A. Gagner 20,000 20,000 0 *
Jon Nelson 3,500 3,500 0 *
Elaine Millard 15,000 15,000 0 *
David E. Riviere 4,500 4,500 0 *
William F. Reimer Rev. Trust
William F. Reimer & Dolores L. Reimer TTEES 60,000 60,000 0 *
VBS General Partnership 40,000 40,000 0 *
Attn: Peter Verhalen
Stephen G. Shaffer Rev Trust 25,000 25,000 0 *
Stephen G. Shaffer TTEE
Donald C. Lies & Patricia J. Lies JT/WROS (4) 42,075 21,725 20,350 *
John Collins & Bonnie Collins JT/WROS 20,000 20,000 0 *
David W. Stassen (5) 40,000 25,000 15,000 *
Okabena Partnership K 272,727 272,727 0 *
c/o Kohler Capital Mgt.
Douglas R. Sandahl 10,000 10,000 0 *
Richard Jansen 10,000 10,000 0 *
JMG Capital Partners, L.P. 75,000 75,000 0 *
Triton Capital Investments, Ltd. 75,000 75,000 0 *
Everett Jensen Rev Trust 7,500 7,500 0 *
Everett Jensen TTEE dtd 3/7/95
Dr. Robert A. Kay IRA Rollover 30,000 30,000 0 *
<PAGE>
First Trust Nat'l Assoc. TTEE
Arthur M. Horwitz 25,000 25,000 0 *
Ray G. Ostrom 25,000 25,000 0 *
Kenneth R. Parker 55,000 55,000 0 *
Dr. Lee S. Chapman TTEE 17,500 17,500 0 *
FBO Lee S. Chapman PA Profit-
Sharing Plan & Trust DTD 5/6/70
Thomas Coradetti 10,011 10,011 0 *
Alan C. Phillips & Delores V. Phillips, TTEE 200,000 200,000 0 *
Alan C. Phillips Rev. Trust
--------- --------- -------
2,798,616 1,881,266 917,350
</TABLE>
- ---------------------------
* Less than 1 percent.
(1) Mr. Lies is the father of Donald C. Lies, President and CEO of the
Company.
(2) Mr. Craven is a director of the Company.
(3) Mr. Shaffer is a director of the Company.
(4) Mr. Donald Lies is the President and CEO of the Company.
(5) Mr. Stassen is a director of the Company.
(6) Assumes all shares being registered in this offering will be sold.
However, to the Company's knowledge, the holders of such securities
have no commitment to anyone to sell all or part of the securities
being registered.
<PAGE>
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholders for
their own accounts. The Company will not receive any proceeds from the sale of
the Shares pursuant to this Prospectus. The Company has agreed to pay the
expenses of registration of the Shares, including a certain amount of legal and
accounting fees.
The Selling Shareholders may offer and sell the Shares from time to
time in transactions on the over-the-counter market, in brokerage transactions
at prevailing market prices or in transactions at negotiated prices. Sales may
be made to or through brokers or dealers who may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders or
the purchasers of Shares for whom such brokers or dealers may act as agent or to
whom they may sell as principal, or both. As of the date of this Prospectus, the
Company is not aware of any agreement, arrangement or understanding between any
broker or dealer and the Selling Shareholders.
The Selling Shareholders and any brokers or dealers acting in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit realized by them on the resale
of Shares as principals may be deemed underwriting compensation under the
Securities Act.
EXPERTS
The consolidated financial statements contained in the Company's Annual
Report on Form 10-KSB incorporated by reference in this Prospectus have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, as
indicated in their report with respect thereto, and incorporated herein by
reference in reliance upon the authority of such firm as experts in accounting
and auditing in giving said report.
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company by Hinshaw & Culbertson, 222 South Ninth Street, Minneapolis, Minnesota
55402.
<PAGE>
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company, any Selling
Shareholder or any other person. This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy to any person in any jurisdiction in
which such offer or solicitation would be unlawful or to any person to whom it
is unlawful. Neither the delivery of this Prospectus nor any offer of sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or that the information contained
herein is correct as of any time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................................................ 2
RISK FACTORS.............................................................. 3
RSI SYSTEMS, INC.......................................................... 10
SELLING SHAREHOLDERS...................................................... 12
PLAN OF DISTRIBUTION...................................................... 13
EXPERTS ................................................................. 14
LEGAL MATTERS............................................................. 14
1,881,266 Shares
RSI SYSTEMS, INC.
Common Stock
--------------
PROSPECTUS
--------------
_____________, 1998
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 1,784
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 5,000
Miscellaneous 2,000
-------
Total $11,284
All fees and expenses other than the SEC registration fee are
estimated. The expenses listed above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
The Restated Articles of Incorporation and Bylaws of RSI provides that RSI shall
indemnify officers and directors to the extent permitted by Section 302A.521 as
now enacted or hereafter amended.
RSI also maintains an insurance policy or policies to assist in funding
indemnification of directors and officers for certain liabilities.
ITEM 16. LIST OF EXHIBITS
5 Opinion of Hinshaw & Culbertson regarding legality.
23.1 Consent of independent auditors.
23.2 Consent of Hinshaw & Culbertson (included in Exhibit 5 to this
Registration Statement).
24 Power of Attorney.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof which,
individually or in the aggregate, represent a fundamental
change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
under the Securities Act if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change in the
information set forth in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
Insofar as indemnification for liabilities arising Under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, 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
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against 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 such director, officer or controlling person in connection with the
securities being registered, 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 Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on December 20, 1996.
RSI SYSTEMS, INC.
By /s/ Donald C. Lies
-----------------------------------------------
Donald C. Lies
Chief Executive Officer, President and Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
By /s/ Donald C. Lies
---------------------------------------------- Dated: February 23, 1998
Donald C. Lies
Chief Executive Officer, President and Director
(principal executive officer) (principal financial officer)
(principal accounting officer)
By *
---------------------------------------------
Richard F. Craven Dated: February 23, 1998
Director
By *
---------------------------------------------
Byron G. Shaffer Dated: February 23, 1998
Director
By *
---------------------------------------------
David W. Stassen Dated: February 23, 1998
Director
By *
---------------------------------------------
Manfred D. Haiderer Dated: February 23, 1998
Director
* By /s/ Donald C. Lies
-------------------------------------------
Donald C. Lies Dated: February 23, 1998
As Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
5 Opinion of Hinshaw & Culbertson regarding legality .........
23.1 Consent of Independent Auditors ............................
24 Power of Attorney ..........................................
Exhibit 5
(Hinshaw & Culbertson Letterhead)
February 20, 1998
RSI Systems, Inc.
7400 Metro Blvd.
Minneapolis, Minnesota 55439
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to RSI Systems, Inc., a Minnesota corporation
(the "Company") in connection with a Registration Statement on Form S-3 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the sale of
up to 1,881,266 shares of common stock of the Company, par value $.01 per share
("Common Stock"), of which all such shares will be sold from time to time by the
Selling Shareholders named in the Registration Statement, on the
over-the-counter market or otherwise, directly or through underwriters, brokers
or dealers.
We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
Based on the foregoing, we are of the opinion that the shares of Common
Stock to be sold by the Selling Shareholders pursuant to the Registration
Statement have been duly authorized by all requisite corporate action and are
validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ Hinshaw & Culbertson
Hinshaw & Culbertson
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
RSI Systems, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 20, 1998
Exhibit 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald C. Lies, his or her true and lawful
attorney-in-fact and agent with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign the
Registration Statement on Form S-3 of RSI Systems, Inc. (the "Company") relating
to an aggregate of 1,871,266 shares of Company Common Stock that may be sold
from time to time by certain shareholders of the Company, and any or all
amendments or post-effective amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and to file the same with such state
commissions and other agencies as necessary, granting unto each such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that each such attorney-in-fact fund
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 23rd
day of February, 1998, by the following persons.
/s/ Byron G. Shaffer
----------------------------------
/s/ Richard F. Craven
----------------------------------
/s/ David W. Stassen
----------------------------------
/s/ Manfred D. Haiderer
----------------------------------
