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FORM 10-KSB
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-20999
CHADMOORE WIRELESS GROUP, INC.
Name of small business issuer in its charter
COLORADO 84-1058165
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4720 POLARIS STREET, LAS VEGAS, NEVADA 89103
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (702) 891-5255
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Securities registered under Section 12 (b) of the Exchange Act: NONE
Title of each class and name of each exchange on which registered:
NONE NONE
- ----------------------------- ----------------------------
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
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Check whether the issuer (1) filed all reports to be filed by Section 13 or 15
(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ 1,906,206
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. AS OF MARCH 17, 1996, THE AGGREGATE MARKET VALUE OF THE COMPANY'S COMMON
STOCK HELD BY NON-AFFILIATES WAS $22,897,806. State the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date. AS OF MARCH 17, 1996, 19,748,053 SHARES OF COMMON STOCK WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
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FORM 10-KSB
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INDEX
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. DESCRIPTION OF PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. PLAN OF OPERATION
ITEM 7. FINANCIAL STATEMENTS
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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FORM 10-KSB
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Chadmoore Wireless Group, Inc. (the "Company"), formerly CapVest International,
Ltd.("CapVest") is a development stage company, incorporated in the State of
Colorado in 1987. In February 1995, the Company entered into and reorganized
under an Agreement and Plan of Reorganization (the "Reorganization") with
Chadmoore Communications, Inc., a Nevada corporation ("CCI"). In the
Reorganization, CCI shareholders owning 85% of the outstanding shares of CCI
exchanged their shares for 89% of the shares of the Company, causing CCI to
become a majority-owned subsidiary of the Company. Also in February 1995, the
Board of Directors of CapVest resigned, new members were appointed to fill the
vacancies, and CCI management assumed responsibility for the Company's affairs.
As of April 21, 1995, the shareholders of the Company approved the change of
its corporate name to "Chadmoore Wireless Group, Inc." to reflect the primary
business operations of its newly acquired subsidiary.
In June 1996, the Company acquired and continues to own all of the issued and
outstanding stock of CMRS Systems, Inc. ("CMRS") and 800 SMR Network, Inc.
("800"), companies engaged in the business of constructing, managing and
operating Specialized Mobile Radio ("SMR") systems. (See GENERAL DEVELOPMENTS).
In addition, the Company does business through its subsidiary Chadmoore
Construction Services, Inc. ("CCSI"). The Company also does business through
its second-tier subsidiary Chadmoore Communications of Tennessee, Inc.,
("CCT"). The Company also has a second-tier subsidiary, Chadmoore
Communications of Memphis, Inc., which is non-operational.
The Company's publicly held common stock trades over-the-counter and is
reported on the Electronic Bulletin Board of the National Association of
Securities Dealers under the symbol "MOOR". The Company's principal executive
offices are located at 4720 Polaris Street, Las Vegas, NV, 89103, and its
telephone number at that address is (702) 891-5255.
GENERAL DEVELOPMENTS
The Company is engaged, through its subsidiaries CCI, CCT, CMRS and 800
(collectively, the "Subsidiaries") in the development, operation and
acquisition of SMR wireless communication services. SMR refers to the
Specialized Mobile Radio frequencies licensed by the Federal Communications
Commission (the "FCC") to provide two-way mobile communication services using
radio spectrum in the 800/900 MHz bands. The Subsidiaries own, manage and
operate analog SMR systems in Memphis, Tennessee, Little Rock, Pine Bluff and
Fayetteville, Arkansas (collectively, the "Operating Systems"). The Operating
Systems service approximately 2,300 subscriber units. In addition, the
Subsidiaries have options to acquire and management agreements in place
encompassing approximately 7,000 channels. (See OPTIONS TO ACQUIRE LICENSES AND
MANAGEMENT AGREEMENTS)
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FORM 10-KSB
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Since its Reorganization, the Company has concentrated its efforts on acquiring
interests in licenses in over 200 selected markets ("Proposed Operating
Territory"), located in smaller cities (having populations between 25,000 and
1,500,000), towns and rural areas. The Company is working to position itself to
provide SMR service in the Proposed Operating Territory. The Subsidiaries'
efforts to date have consisted primarily of entering into irrevocable,
exclusive five and ten-year options to acquire SMR channels in the Proposed
Operating Territory. In connection with each such option, the Subsidiaries
contemporaneously entered into like term management agreements with the license
holders to develop, maintain and operate the SMR channels. The Subsidiaries
have also constructed systems for certain channels either to meet FCC mandated
construction deadlines or to help in achieving the Subsidiaries' marketing
objectives.
The markets comprising the Proposed Operating Territory are located in 49
states and in the U.S. Territories of Puerto Rico and the Virgin Islands, and
have an aggregate population of in excess of fifty million (50,000,000) based
on the 1990 U.S. Census Metropolitan Statistical Area figures reported by Rand
McNally. This population number represents the number of people residing in the
Proposed Operating Territory and is not intended to be indicative of the number
of users or potential penetration rates as the Company establishes operating
SMR systems.
The Company's primary objectives are to continue operating and
developing analog SMR systems within the Proposed Operating Territory, and to
effectively deploy capital, become cash flow positive in the shortest time
possible and maximize return on investment, thereby increasing shareholders'
value. The Operating Systems use analog SMR technology to provide the Company's
subscribers with "dispatch" and "mobile telephone interconnect" services. (See
CURRENT OPERATING SYSTEMS - DISPATCH, AND - MOBILE TELEPHONE SERVICES) The
Company believes these analog SMR services are a flexible and low cost way to
meet the demands of its principal targeted market: businesses within the
Proposed Operating Territory having a need to communicate with numerous people
working outside a fixed office.
As an alternative to its analog technology systems, the Company has considered
but postponed implementing spectrum-efficient, feature-rich digital
infrastructures ("Advanced Mobile Networks"), such as the integrated Dispatched
Enhanced Network ("iDEN") system, manufactured by Motorola, Inc. ("Motorola").
In February 1996, the Company executed a purchase agreement with Motorola for
its iDEN product. The agreement was conditional upon the Company acquiring
acceptable financing. The Company had intended to obtain the required financing
through Motorola's financing division. However, the capital and other costs
associated with such digital SMR technology are substantially higher than the
costs associated with an analog system, and the Company believes that the
increasingly competitive nature of the wireless communications industry has
increased the risks associated with the higher costs of such digital technology
systems. The Company therefore did not consummate the Motorola agreement, and
conducted an in-depth engineering and operational analysis of the Company's
existing market positions and the impact of the greatly increased capital cost
associated with Advanced Mobile Networks. As a result of this analysis, the
Company determined that the most feasible way to construct and operate its
systems on the wide scale desired by the Company is to utilize advanced analog
SMR equipment, including, but not limited to, Motorola's Smartnet II radio
systems. The Company has therefore deferred implementation of Advanced Mobile
Networks until analog systems are unable to accommodate market demand. (See
MARKETING and TECHNOLOGY - BASIS FOR TECHNOLOGY IMPLEMENTATION).
The Company has several key personnel on its management team with extensive
experience in the wireless communications industry. Their experience ranges
from managing, operating and financing cellular systems, to engineering and
constructing SMR, broadband Personal Communication Services ("PCS") and
cellular systems, to participating in the finance and budgeting aspects of
these rapid growth industries. (See TECHNOLOGY). This management experience is
a key component in the Company's ability to successfully acquire, implement and
market SMR systems.
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FORM 10-KSB
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OVERVIEW OF THE WIRELESS COMMUNICATIONS INDUSTRY
The wireless communications industry provides high-quality, high-capacity
communications services to vehicle-mounted and hand-held portable telephones
and other two-way radio units. In 1974, the FCC created SMR when it reallocated
115 Megahertz ("MHz") of radio spectrum from the federal government and UHF
television in the 800/900 MHz bands to land mobile service use. Of such 115
MHz, the FCC allocated 50 MHz for cellular mobile telephone service and 46 MHz
for private radio services, including SMR. The SMR systems occupy a block of
radio spectrum immediately adjacent to the cellular frequencies. The FCC
divided the remaining 19 MHz among six different mobile radio services. Since
August 10, 1996, all providers offering interconnect services have been governed
by the Commercial Mobile Radio Services branch of the FCC, thereby placing all
such providers under similar regulatory regimes, although the FCC has not yet
released some of its rules pertaining to SMR. Prior to that date, the FCC had
regulated the cellular providers and SMR providers differently. The FCC still
awards only two licenses for cellular service in any specific geographic area,
where SMR is currently licensed on a site specific basis and is typically
reserved for the exclusive use of the licensees over an area of a 35 mile
radius.
An analog SMR system generally consists of between five and 20 SMR channels
which are trunked together to permit the system to automatically route calls to
the first open channel. Systems using non-trunked channels typically require a
user to wait until the channel for which its radio is programmed to become
available for use and cannot be efficiently loaded with as many customers per
channel. The signal emitted by a high power SMR repeater station transmitter
will generally cover a radius of approximately 20 to 35 miles from the
transmitter site. The exact distance is dependent upon the height of the tower,
the power output of the transmitter and the topography of the service area,
with terrain obstacles such as buildings and hills having an adverse effect on
signal strength. If a subscriber's needs span more than one SMR coverage area,
the subscriber may elect to have its units programmed to operate with multiple
stations to provide a broader service area, either through the same SMR
operator or from multiple SMR operators in the same or adjacent service areas.
The first commercial SMR system became operational in 1978, prior to commercial
cellular operation. By December 31, 1996, subscriber units for SMR services
were estimated at 2.3 million and the cellular telephone units were estimated
at 42.9 million. With the introduction of cellular service to the public in the
1980's, the wireless communications industry has grown significantly. The
Company believes this rapid growth has been fueled, in part, by the changing
lifestyles of the American public and by rapid advances in the miniaturization,
functionality and reliability of subscriber equipment. Industry growth
continues to be dominated by cellular service providers.
Until the late 1980's, the SMR industry primarily consisted of a widely
fragmented number of small operators, although Motorola had acquired a
significant number of SMR channels and SMR systems. Such small operators
principally provided push-to-talk communications ("dispatch") for companies
with the need to communicate with field-based personnel. This service permits
shorter duration communications than mobile telephone service, thereby placing
less demand on the system. This limited use of available technology was
primarily the result of FCC regulations in place at that time. Such
limitations, most notably the loading requirements imposed by the FCC, caused
SMR operators to focus on two-way fleet dispatch services. However, analog
technology, as well as FCC regulations for SMR systems, now allow for the
provision of a broad range of mobile communication services, including mobile
telephone, dispatch, paging, data transmission and telemetry services. In
addition, in the late 1980's, large companies other than Motorola began
acquiring a significant number of SMR channels and SMR systems.
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FORM 10-KSB
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In contrast to the restrictive FCC rules and regulations governing SMR systems,
the FCC rules and regulations governing cellular systems historically allowed
for the development of technologically advanced system architecture. The
cellular industry has therefore advanced rapidly and provides call clarity and
quality that have been historically superior to that of an analog SMR system.
However, the Company believes that call clarity and quality should be virtually
indistinguishable between an SMR system and a cellular system if each applies
similar technology and are governed by comparable FCC rules and regulations. The
Company therefore believes that the changing FCC regulatory environment, which
now subjects both SMR and cellular providers to comparable rules and
regulations, presents the Company with significant opportunities to market
mobile telephone services on a cost competitive basis to its target market in
the Proposed Operating Territory, especially in those markets where the Company
elects to employ state-of-the-art transmission technology.
Early in 1996, the first auction winners of PCS licenses began commercial
operation with products and services closely resembling those currently being
offered by cellular operators. PCS systems differ from analog cellular
telephone service principally in that PCS systems operate at a higher frequency
band (1850-1990 MHz radio spectrum), have more spectrum allotted and have
different license areas. The FCC has allocated 120 MHz of radio spectrum in the
1850 to 1900 MHz band, divided into six separate spectrum blocks, for licensed
PCS services. The FCC sponsored auctions for the A and B blocks that ended in
March 1995, and the FCC granted the A and B block licenses in June 1995. The
remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz), and F (10 MHz), are
allocated to the 492 Basic Trading Areas ("BTA's"). The auctions were concluded
in the fourth quarter of 1995.
BUSINESS STRATEGY
The business objective of the Company is to become a major provider of wireless
communication services to its targeted market in the Proposed Operating
Territory. To meet this goal, the Subsidiaries have entered into irrevocable,
exclusive five and ten-year options to acquire and management agreements for
approximately 7,000 SMR channels in the Proposed Operating Territory. In
selecting channels to acquire, the Company focused on cities within the
Proposed Operating Territory that have a population of 25,000 to 1,500,000 and
are linked by significant highway systems with high volumes of traffic. FCC
approval of all acquisitions is required. Where the Company is unable to
enhance its channel position in a particular market through the purchase of an
existing SMR system, the Company intends to pursue joint venture arrangements
with other SMR operators. The purpose of such a joint venture is to afford
increased customer capacity without the typical capital expenditures necessary
for growth. However, no assurance can be given that owners of SMR systems will
be willing to enter into such joint venture arrangements with the Company. In
addition, any joint ventures and purchases will be dependent on the negotiation
of terms acceptable to the parties involved. As a third alternative, the
Company will consider operating SMR systems through management arrangements
consistent with FCC rules, regulations and policies.
The Company prioritizes its markets considering the following criteria:
adequate channel densities, lack of current capacity with existing operators,
immediate distribution through existing SMR operators, and significant
population base within the service area.
Within each market, the Company identifies non-operating and operating SMR
systems and then determines which SMR systems are available either for
acquisition or a joint venture arrangement. Because of the attractiveness of
markets having more concentrated population, the Company focuses its efforts on
strong relationships in these markets and obtains channels therein or arranges
joint ventures as quickly as possible. The Company believes licenses for the
surrounding areas are in less demand than the licenses in larger cities in
the Proposed Operating Territory, due to the lower population densities, and
will be focused on once the primary market is in operation.
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FORM 10-KSB
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As SMR licenses are acquired, constructed or otherwise managed by the Company
within a particular market, the Company focuses on increasing the number of
subscribers for its SMR services, coupled with marketing efforts to retain
existing subscribers and to offer new features as they become available on the
Company's SMR system. With these anticipated programs, the Company's revenue
stream is expected to increase, however, no assurance can be given that the
Company's marketing efforts will be successful in view of the highly
competitive nature of the wireless communications industry. Assuming such
subscriber growth and revenue stream increase occurs, when an analog SMR system
approaches subscriber unit capacity, the Company intends to evaluate whether
to implement an Advanced Mobile Network offering increased capacity and
features.
The Company believes the foregoing acquisition and implementation strategy
allows it to form regional operating systems in the Proposed Operating
Territory. Such regional systems would then provide the Company with
operational economies. No assurance can be given, however, that the Company
will be able to make any or all of the acquisitions necessary to establish
regional operating systems and, in turn, to experience such economies. In
addition, the Company's operations could be adversely affected if it is unable
to implement Advanced Mobile Networks. Such an implementation would
significantly increase capacity and offer a wider range of communication
services than is now available on the Company's analog SMR systems. For
example, if the Company is unable to implement Advanced Mobile Networks, it may
lose market share if subscribers move to other operators who are able to offer
such expanded services, or the Company may prematurely reach system capacity
and then be unable to add more customers without sacrificing system quality.
CURRENT OPERATING SYSTEMS
The Company's Operating Systems are analog SMR systems encompassing Memphis,
Tennessee, Little Rock, Pine Bluff and Fayetteville, Arkansas. The Memphis
Operating Systems (the "Memphis SMR System") is comprised of 40 800 MHz SMR
stations licensed by the FCC for the Memphis area, an additional 20 channel 800
MHz SMR stations serving the greater Memphis area, certain 450 MHz Business
Radio license stations, and required equipment, and property. CCT managed the
Memphis SMR System from April 28, 1994 to March 8, 1996, pursuant to a letter
agreement with General Communications, Inc., a Tennessee corporation, and
related parties (collectively, "General Communications"), which letter
agreement also contemplated CCT's acquisition of the Memphis SMR System.
General Communications and CCT executed the definitive Asset Purchase Agreement
(the "Asset Purchase Agreement") on November 2, 1994. The Asset Purchase
Agreement originally provided that CCT's acquisition of the Memphis SMR System
was to have occurred through five separate phases over an unspecified period of
time. However, the Company re-negotiated the Asset Purchase Agreement and
acquired the Memphis SMR System, subject to approval by the FCC, on March 8,
1996, in exchange for cash, common stock of the Company and a 30-year
promissory note in the principal amount of $4,110,000. The note is subject to
annual adjustments based on the Consumer Price Index in years three through
thirteen.
CCT and General Communications submitted a joint application for approval of
the CCT acquisition of the Memphis SMR System to the FCC in March, 1996. The
Company anticipates the FCC will issue its order in the near future. Because
the application concerns the acquisition of an existing operating system, the
Company believes the application satisfies applicable FCC criteria, and
therefore anticipates the FCC will grant its approval. No assurance can be
given, however, that the FCC will in fact approve the acquisition.
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FORM 10-KSB
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The Subsidiaries may offer the following services on their existing analog SMR
systems:
Dispatch. Dispatch is a two-way wireless communication service for which the
subscriber uses a uniquely coded radio receiver for business users who have a
need to communicate between a central dispatch point and/or "in the field"
personnel, but do not require access to the Public Switched Telephone Network
("PSTN"). Users can choose to communicate to a group or only selected
individuals. Users of radio dispatch services typically include contractors,
service companies and delivery services that have significant field operations
and need to provide their personnel with the ability to communicate directly
with one another, or the central office, either on a one-to-one or one-to-many
basis.
Mobile Telephone Services. SMR operators are authorized to provide mobile
communications services to business and individual users, including
interconnection with the PSTN, which is similar to the access provided by
cellular mobile telephone service. Customers who subscribe to mobile telephone
service are issued a 10 digit telephone number and may make or receive
telephone calls from any location within the Company's service network to or
from any telephone number that is accessible through the local and long
distance wireline systems.
The Subsidiaries recognize revenue from monthly telephone interconnect and
dispatch services based on monthly access charges per radio. Additional revenue
is recognized by the Subsidiaries in the case of telephone interconnect service
based on air time charges as used. Revenue is also recognized from equipment
service upon acceptance by the customer of the work completed as well as from
the sale of equipment when delivered.
A mobile user may initiate either mobile telephone calls or dispatch calls from
its mobile equipment, depending on the equipment and particular packages they
choose. For telephone interconnect users, the Company provides service through
the PSTN. This service is similar to cellular mobile telephone service
("Cellular") in its ability to make or receive a call anywhere in the world
while in its service area. Mobile telephone users represent approximately 10%
of the users of the Memphis SMR System. Fleet dispatch service represents
approximately 90% of the users of the Memphis SMR System, and 450 MHz channels
combined.
As the Subsidiaries expand into the Proposed Operating Territory, they will
initially offer analog SMR service similar to that offered through the
Operating Systems. As market requirements dictate, the Subsidiaries plan to
implement Advanced Mobile Networks, which would allow them to significantly
increase their operational capacity and features.
OPTIONS TO ACQUIRE LICENSES AND MANAGEMENT AGREEMENTS
Options to Acquire Licenses. To achieve the Company's business objective of
becoming a major provider of wireless communication services to the targeted
market in the Proposed Operating Territory, the Company, through its Subsidiary
CCI, has entered into irrevocable, exclusive five-year options to acquire
approximately 1,700 SMR channels (the "CCI Options"). Each of the CCI Options
gives CCI the right to acquire certain 800 MHz SMR stations subject to FCC
rules, regulations and policies. However, any acquisition of an SMR station by
CCI pursuant to exercise of a CCI Option is subject, among other things, to the
station becoming operational within the time required by applicable FCC
regulations and to the subsequent approval of the acquisition by the FCC. The
majority of all the SMR stations subject to the CCI Options are currently
non-operating.
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FORM 10-KSB
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The Company paid $100 to $1,500 for each CCI Option, with the price depending
primarily on the size of the market in which the corresponding channel is
located. As of December 31, 1996, the Company had invested $3,202,347 in the
CCI Options. The total purchase price of the licenses subject to the CCI
Options, including commissions, was approximately $32.7 million and $43.0
million at December 31, 1996 and 1995, respectively. The CCI Options allow
the Company to purchase the licenses within a specified period after the option
agreement is signed in exchange for consideration of cash and/or Company common
stock. Between December 1995 and December 1996, the Company made down payments
on approximately 495 licenses and issued 859,560 restricted shares of its
common stock as payment of the full option price, which is equal to 40% of the
purchase price of the licenses under the CCI Options. The Company satisfied the
full option price obligation of $4,297,800 with the issuance of common stock
with an estimated fair value of $1,714,996, during 1996.
Certain CCI Options required down payments in January 1996. The Company
submitted an amendment to the option holders which would increase the down
payment and move the date to September 9, 1996. Of the options the Company
desired to amend, approximately 94% of the option holders executed the
amendments. On September 6, 1996, the Company submitted a second amendment for
the CCI Option holders which would change the down payment amounts to a series
of $100 quarterly payments instead of one lump sum. The first series payment
was sent on September 9, 1996, and amounted to $116,000. The second series
payment was sent on December 18, 1996, and amounted to $99,200. Approximately
96% of the CCI Option holders executed the second amendment. With respect to
the remaining CCI Options on which a holder has not executed an amendment, the
Company is in default of the terms thereof. The holders of such options have
not yet, however, elected to terminate the options based on this default.
Notwithstanding this failure to act, such holders may at any time terminate
their options or exercise other remedies with respect thereto, unless the
amendment is executed or the Company meets its monetary obligations
thereon.
Once an SMR station is operating, CCI may exercise its CCI Option to acquire
the license at any time prior to the expiration of the CCI Option. The Company,
through CCI, presently intends to exercise all CCI Options, but such exercise
is subject to certain contingencies. These contingencies include constructing a
station for the corresponding channel within the time allotted by the FCC,
maintaining the station once constructed, having the financial ability to
purchase the license and the FCC approval of the transfer. Subject to certain
exceptions, the average construction period allowed by the FCC for an SMR
system is one year from the date the license is issued to the third party
owner. (See GOVERNMENT REGULATIONS). In general, construction is completed
within 10 days from commencement of the construction.
The Company, through CCI, may elect not to exercise a CCI Option for various
business reasons, including the Company's inability to acquire other stations
in a given market, making it economically unfeasible for the Company to offer
an SMR system in such market. If CCI does not exercise a CCI Option, its
grantor may retain the consideration previously paid by the Company. Moreover.
if CCI defaults in its obligations under a CCI Option, the grantor may retain
the consideration previously paid by the Company as liquidated damages.
Further, if the SMR system is devalued by CCI's direct action, CCI is also
liable under the CCI Option for the full option price, provided the grantor
gives timely notice.
The CCI Options also authorize a court to order specific performance in favor
of CCI if a grantor fails to transfer the license in accordance with the CCI
Option.
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On June 14, 1996, the Company acquired all of the outstanding stock of 800 and
CMRS (collectively, the "Management Companies"). The Management Companies have
entered into management agreements (collectively, the "Management Agreements")
with certain companies (collectively, the "Companies"). The respective
shareholders of the Companies have granted to the Management Companies options
to acquire all of the stock of the Companies (collectively, the "Options"), at
such time as all conditions of such transfer of control have been met, as set
forth in the FCC rules, regulations and policies and as required by ss.310 of
the Communications Act of 1934, as amended, 47 U.S.C. ss. 151, et seq.
(including the rules and regulations of the FCC promulgated thereunder, the
"Communications Act").
The total consideration for the acquisition of the stock of the Management
Companies was valued at $32,459,589 and was paid with a combination of cash,
restricted stock and options to acquire Company common stock. Based on an
independent consultant's appraisal of the fair market value of the assets
exchanged, the Company has allocated $9,737,877 of the combined consideration
to the Options.
The exercise price under the Options is payable by the Management Companies
with an amount of their own stock equal to 10% of the then issued and
outstanding stock. Such Management Companies' stock is to be issued and
allocated on a pro-rata basis to the licensees based on their individual
license percentage of the total. No cash consideration is payable upon exercise
of the Options by either the Company or the Management Companies.
Management Agreements. In addition to the Memphis SMR System, for which CCT has
filed for transfer with the FCC, the Company, through its subsidiary CCI,
manages analog SMR systems licensed to third parties. Each of these management
agreements (collectively, the "CCI Management Agreements") have been executed
by CCI in connection with each of the CCI Options. Therefore, in the case of
each such CCI Management Agreement, CCI has also an option to acquire the
managed SMR systems. In general, the terms of the CCI Management Agreements are
for five years, plus an additional five years at the option of CCI.
The Company, through CCI, is obligated under the CCI Management Agreements to
complete the construction of the SMR system for those stations which have not
been constructed. In this role CCI acts under the direction and ultimate
control of the license holder and in accordance with FCC rules and regulations.
The CCI Management Agreement provides that CCI's construction costs are
reimbursed to it from the revenues generated by the SMR system until the
corresponding CCI Option is exercised. CCI also has responsibility for the
day-to-day operations of the SMR system, subject to the supervision of the
license holder. This responsibility includes, among other things, maintaining
the minimum number of mobile units on the SMR system as required by the FCC,
billing the subscribers of the systems, collecting all the revenues and paying
for all expenses after the SMR system becomes operational. After costs,
including reimbursement for construction costs, the fee for such management
services is a percentage of any profits from the SMR system.
The Management Companies intend to engage in the business of constructing and
managing mobile radio stations ("Stations"). Pursuant to the Management
Agreements CMRS or 800, as the case may be, has agreed in accordance with
applicable FCC rules, regulations, and policies to construct and manage all of
the Stations for which the Companies have received licenses from the FCC. Based
on an independent consultant's estimate of the fair market value of the assets
exchanged, the Company has allocated $22,721,712 of the combined consideration
to the Management Agreements. The Company will begin amortizing the cost
allocated to the Management Agreements over the useful lives commencing upon
the underlying Station being placed in service not to extend past June 2006.
Because a substantial majority of the SMR stations subject to the CCI
Management Agreements and the Management Agreements are not operational, the
Subsidiaries have recognized minimal revenues from the CCI Management
Agreements and Management Agreements.
9
<PAGE> 11
FORM 10-KSB
===============================================================================
To the extent the CCI Management Agreements or the Management Agreements remain
in place, no assurance can be given that they will continue to be accepted by
the FCC or will continue in force. In accordance with FCC regulations, the
license owner maintains control over the license. The Company believes that the
Subsidiaries are currently in compliance with all Management Agreements and
except as noted above, with all CCI Management Agreements. The Company also
believes that its and CCI's relations with license owners are good.
The FCC recently adopted several decisions concerning management agreements
which will require commercial mobile radio service providers to use management
agreements that meet criteria found acceptable for common carriers. The CCI
Management Agreements and Management Agreements meet such criteria as currently
known.
MARKETING
The Company is focusing its marketing efforts on businesses located in the
Proposed Operating Territory that have numerous people working outside of a
fixed office. In order to effectively complete their tasks, such people require
frequent communications with each other and with their office as well as with
other individuals or work groups. The Company offers as a solution two-way
radio dispatch services among the individuals/vehicles, as well as periodic
mobile telephone interconnect services and combinations of both services.
Although recent FCC rule changes now would allow Cellular or PCS providers to
offer this combination of services, they do not currently do so. Moreover, to
the Company's knowledge, no Cellular or PCS provider has chosen to implement
the dispatch ("one to many") functionality available on the Company's analog
dispatch service. (See CURRENT OPERATING SYSTEMS - DISPATCH, and - MOBILE
TELEPHONE SERVICES). The Company believes that its subscribers can realize
significant cost savings by obtaining both dispatch and periodic mobile
telephone interconnect services through the Company. The Company also offers to
its the subscribers the option of using the Company's two-way dispatch service
to contact other Company subscribers without accessing the PSTN, thereby
avoiding PSTN interconnect charges and resulting in costs lower than telephone
interconnect services.
The Company employs its own sales staff to market its services for the Memphis
and Little Rock Operating Systems directly to potential subscribers and to
create marketing campaigns using a variety of media, such as newspaper, yellow
pages and advertising circulars. For individual subscribers, the Company
markets its mobile telephone service, similar to cellular, by focusing on the
market segment that has a monthly cellular bill in excess of $100 and typically
uses dispatch services as well. The Company attracts these mobile telephone
users by offering service at a cost 20% to 25% below that of traditional
cellular. When a sale is completed, the subscriber units are typically
installed, if necessary, and are maintained for a fee by the Company's in-house
service staff. This staff is also responsible for maintaining both the
Company's analog SMR system and several systems for other operators and
government agencies for a fee.
10
<PAGE> 12
FORM 10-KSB
===============================================================================
As additional markets become commercially operational, the Company has chosen
as its main means of distribution the use of existing dealers to market its
services. The Company believes that there are benefits as well as disadvantages
to using this method of distribution. In the early stages of its growth, the
Company believes that the benefits greatly outweigh the disadvantages. The
primary benefit to using existing dealers for distribution is the greatly
reduced capital and operational costs necessary to commercially offer the
Company's services. The reduction of capital needed to market the systems,
should correspondingly shorten the time necessary for each market to become
cash flow positive. Using existing dealers as the primary method of
distribution, the Company typically will not have to lease office space,
purchase testing and installation equipment, and expects to greatly reduce its
staffing requirements, if additional staff is required at all. The Company
believes that the primary disadvantage of using dealers is the potential
reduction in the amount of control the Company will have over the quality and
quantity of sales and sales follow up. In light of the foregoing challenge, the
Company plans to actively and aggressively work with and creatively provide the
dealers with incentives to insure the highest level of customer satisfaction
and that the growth objectives of the Company are consistently met. However,
there can be no assurance that the Company will be able to identify or conclude
satisfactory terms and conditions with dealers in a particular market within
the Proposed Operating Territory, or attract dealers of the quality and
quantity needed to service such a market. If the Company decides to offer its
services in a market in which satisfactory dealers cannot be retained, it will
be necessary for the Company to deploy its own in-house sales and support
staff. There can be no assurance that the Company will be able to attract sales
and support staff of the quality and quantity which it may require to service
such a market.
As the Company continues to grow and acquires directly and/or manages an SMR
system through a joint venture, it believes that it can add subscribers at a
relatively low incremental cost through the use of creative marketing efforts
of its in-house staff. The primary focus of the in-house staff is to direct the
efforts of the network of dealers in its operational markets. In addition, the
Company plans to implement ongoing programs designed to increase the average
revenue per subscriber and strengthen customer loyalty. The Company believes
this will result in increased profitability with relatively small increases in
the capital improvements to the system being acquired or managed.
COMPETITION
The Company's success depends on its ability to compete with numerous wireless
service providers in each of its existing and proposed markets, including
Cellular operators, PCS service providers, digital SMR service providers, and
other analog SMR operators. Since the late 1980s, larger SMR companies such as
NexTel Communications Inc. ("NexTel") have been acquiring a large number of SMR
channels and SMR networks which offer analog telephone, dispatch and paging
services. The large SMR companies are focused on implementing a conversion from
analog SMR technology to Advanced Mobile Networks, especially iDEN. Both
Cellular and PCS are also incurring substantial capital costs as they implement
digital transmission protocols on their systems. Cellular and PCS and, to a
lesser degree the providers of digital SMR service, are focused on customers
who want or need to place a majority of their calls through the PSTN. The
integration of dispatch and interconnected calls on one system is currently
being met by analog SMR and digital SMR providers.
The key factors relevant to competition by an operator in the wireless
communication industry are the size of the coverage area, the pricing of each
service, the quality of the communications (e.g., clarity, lack of
interference), and the reliability and availability of the service (e.g.,
waiting time for a "clear channel", absence of busy signals, absence of
transmission "disconnects" or failures) and the price of the subscriber units.
11
<PAGE> 13
FORM 10-KSB
===============================================================================
The Operating Systems each compete with two (2) established cellular operators
and six (6) potential PCS auction winners/service providers, and in most cases
NexTel and local/regional analog SMR operators. All such service providers
offer services similar in function to the mobile telephone service now offered
on the Company's analog SMR system, but only NexTel and any local/regional
analog SMR operators currently provide the added functionality of dispatch
communications. The Cellular operators have operated for a number of years and
have a substantial subscriber base and mature distribution channels, as well as
a more advanced system architecture. The PCS operators are beginning to
construct their systems or have just commenced commercial operations and are
beginning to develop their distribution channels. Analog SMR providers will
provide services that are indistinguishable from those the Company will
provide. While the products and services that they provide are similar, in many
cases they do not have sufficient reserves of capacity to be aggressive in
their marketing. While the competition for customers needing just mobile
telephone service will be aggressive, the Company believes that the
competition for customers needing the combination of services it will offer
will be much less aggressive.
Although the Company believes it will be able to provide service ranging from
two-way dispatch to telephone service comparable to analog Cellular mobile
telephone and PCS services, there are certain differences. For example,
Cellular and PCS mobile telephones are generally sold at lower prices than the
mobile radios currently being sold by the Company. This is due to heavy
subsidies from the service providers on the subscriber equipment. Both systems
permit an automatic "hand-off" of ongoing calls from cell to cell, which
generally prevents the interruption of a call. The Company's current SMR
systems do not offer this feature, although a single SMR system's coverage area
is typically larger than a single cell and the Company's subscribers can
reinitiate calls as they move into another of the Company's SMR systems. In
addition, the wireless telephone transmissions on cellular and PCS systems are
generally perceived to be of better quality than that on an analog SMR system.
Cellular systems, and to a limited degree digital SMR and PCS systems,
generally provide extensive automatic roaming capability, which will not be
available for the Company's customers unless the Company implements an Advanced
Mobile Network. Even then, roaming would be available only in the areas covered
by an Advanced Mobile Network, or possibly in areas served by another company
deploying similar technology with which the Company is able to negotiate a
favorable roaming arrangement. Currently, roaming can be available only to the
extent that the Company negotiates reciprocal customer access arrangements with
other providers of similar SMR services.
The Company also faces competition from existing SMR systems and, to a lesser
extent, from one-way paging services. The competition for analog SMR
subscribers within the Proposed Operating Territory is generally limited to
small- to mid-sized SMR operators with limited additional customer capacity and
capital availability. It is anticipated, however, that one or more of the
larger SMR operators, such as NexTel and other companies, will enter the
Company's markets. NexTel is pioneering the implementation of iDEN nationwide,
beginning in the larger metropolitan areas. By implementing iDEN, NexTel plans
to transform its current analog SMR systems into Advanced Mobile Networks
capable of providing services similar in quality and function to Cellular
service with the additional functionality of short messaging and dispatch
communications. As a leading SMR operator throughout the United States, NexTel
will be a significant competitor in all or many of the markets the Company
plans to operate.
12
<PAGE> 14
FORM 10-KSB
===============================================================================
The Company intends to compete based on its accumulation of system capacity
through the exercise of the Options and CCI Options to acquire a large number
of channels in markets throughout the Proposed Operating Territory, and by
developing a series of regional networks linking core areas within the Proposed
Operating Territory. The Company believes that its lower capital costs for
infrastructure, will permit the Company to compete based on lower service
charges and superior local customer service compared to digital SMR, Cellular,
and PCS service providers. In addition, Cellular and PCS operators have only
recently been granted authority from the FCC to provide dispatch or paging
services. To the Company's knowledge, none has modified its system architecture
to begin to offer dispatch service. The Company intends to compete with other
analog SMR operators in its Proposed Operating Territory on price, customer
capacity, market coverage and a local service presence.
TECHNOLOGY
The Company may also face competition from other technologies and services
introduced in the future. The continued acceptance of analog SMR services may
be affected by the development of new technology. Such technologies may be
believed to be superior to analog SMR services and may be superior to the
Advanced Mobile Networks technology that the Company may eventually implement.
For example, the Company will face competition from PCS. PCS is a digital
wireless communication system that uses small lightweight units for a variety
of mobile and portable services and technologies. These services include
advanced voice paging and portable, two-way voice and data services. Since
March 1995, the FCC has been auctioning frequencies for PCS use. For purposes
of the PCS licensing, the FCC has divided the nation into 51 Metropolitan
Trading Areas and 492 Basic Trading Areas. As a result, it is possible that up
to six (6) PCS licenses could become operational in each proposed market.
In addition, the Company believes the technology for the wireless
communications industry will continue to evolve. In anticipation of such
evolution, the FCC has reallocated 220 MHz of radio spectrum for use by
"emerging technologies", such as PCS, low-earth orbit satellites and mobile
satellite systems. With respect to the latter system, the FCC has authorized a
consortium of communication companies to provide mobile satellite systems and
allocated the spectrum therefor.
Basis for Technology Implementation. The Company spent the 18 months prior to
June 1996 researching and examining new digital SMR procedures and
technologies. Each product and technology was rated on the following criteria:
Technology
o System Quality
o Features and Functionality
o Stage Implementation
o Spectrum Efficiency
Financial
o Return on Investment
o Capital Requirements
o Future Cash Flow Generation
Vendor
o Credibility
o Reasonable Financing
o Fit with Company Goals
o Commitment to Development Schedule
13
<PAGE> 15
FORM 10-KSB
===============================================================================
The Company expects that new and innovative technological solutions will be
introduced in the near future. As new concepts and solutions are introduced,
the Company will continue to evaluate their feasibility to further enhance
either the Company's ability to achieve its marketing objectives or to increase
its return on investment. If at any time the Company decides to implement a new
technological solution, it intends to carefully monitor its system performance
so that the ability to serve its current customers is not impeded.
Implementation of Technology. On an on-going basis, the Company will evaluate
and revise, as necessary, the anticipated implementation schedule as
circumstances may change. The ability and/or necessity of the Company to
construct and implement an Advanced Mobile Network depends on several factors,
including capacity constraints, site procurement, customer demand for advanced
features, sufficient marketplace demand to generate a suitable return on
investment and availability of necessary capital. In addition, the Company
intends to continue to review and revise its construction and implementation
plans to permit the Company to prioritize the use of its capital and human
resources to the areas requiring the greatest need, based on the market
potential. The Company can give no assurance that it will be able to support
the implementation of an Advanced Mobile Network or that it will not readjust
its priorities so that construction or implementation is delayed in certain
markets.
ADVANCED MOBILE NETWORKS
Advanced Mobile Networks now in service typically employ "Time Division
Multiple Access" technology, which is software whose use is expected to result
in a three to six-fold increase in the capacity of each channel deployed. In
addition, capacity may be increased further through the use of low power sites
enabling frequency re-use similar to cellular. It is anticipated that the most
efficient Advanced Mobile Networks will employ low-power, multi-site
transmitter configurations that would permit frequency re-use. Consistent with
current technology as well as Advanced Mobile Networks, each site would be
connected by microwave, fiber optic or conventional telephone lines to a
switching center that would control the automatic switching of transmissions as
a mobile unit travels from one transmitter service area to another as well as
facilitate the connection to the PSTN.
DEPENDENCE UPON CUSTOMERS/SUPPLIERS
No customer of the Operating Systems accounted for more than 10% of the net
revenues of the Company for the 12 months ended December 31, 1996. The loss of
any one or more customers on the Operating Systems would not have a materially
adverse effect on the Company. Seasonal factors do not materially affect the
Operating Systems.
The Company's principal suppliers of analog SMR equipment are Motorola, Uniden
and E. F. Johnson. The Company does not believe the loss of any one provider of
analog SMR equipment would have a material adverse effect on its operations as
compatible equipment for analog services is available from other suppliers and
manufacturers. With respect to the equipment for the potential implementation
of an Advanced Mobile Network, the Company would be dependent upon a single
manufacturer. The equipment for Advanced Mobile Networks may not be compatible
with equipment infrastructures offered by other manufacturers. The Company does
not use substantial amounts of raw materials in its business.
In the past two fiscal years the Company has not incurred, and does not expect
to incur, significant research and development expenses in connection with the
equipment for its existing analog SMR systems or the potential implementation
of an Advanced Mobile Network.
14
<PAGE> 16
FORM 10-KSB
===============================================================================
GOVERNMENT REGULATION
The Company's operations are subject to regulation primarily by the FCC. The
licensing, operation, assignment and acquisition of 800 MHz SMR stations are
regulated under the Communications Act. The rules and regulations governing the
operation of SMR stations are set forth in Part 90 of the FCC's rules, 47
C.F.R. ss.ss. 90.1, et seq. In May, 1993, the FCC began revising its rules
relating to the licensing and operation of 800 MHz SMR stations. Since that
time, the FCC has adopted new rules converting interconnected SMR service from
a private radio service to a Commercial Mobile Radio Service ("CMRS") and has
proposed other new rules allowing operational flexibility and mandating future
licensing by competitive bidding.
Federal Regulation. All SMR and CMRS licenses are issued as conditional
licenses. The conditional licenses become licenses without condition only upon
timely and proper completion of construction. If a licensee fails to complete
construction of a station timely and properly, the license for that station
cancels automatically, without any further action by the FCC.
Prior to imposition of CMRS regulation, the FCC issued SMR licenses for five
year terms. Since January 2, 1995, CMRS licenses are to be issued for ten-year
terms. All of the licenses managed by CMRS and 800 are issued for five year
terms. Over ninety percent of the stations managed by CCI are licensed for
five-year terms. Each license may be renewed at the end of the license term
upon application to the FCC. Assuming timely completion of construction, all of
the licenses issued to the Subsidiaries and managed by the Subsidiaries expire
after January 1, 1998. While the FCC generally grants renewal of SMR licenses
in routine fashion and the Company sees no reason why CMRS licensees will not
be entitled to a similar renewal expectancy, there can be no assurance that the
FCC will continue its current renewal practices or extend them to CMRS.
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corp. (collectively, "NDD/Metropolitan"), traded in the selling
of SMR application preparation and filing services to the general public. Most
of the purchasers in these activities had no experience in the wireless
communications industry. Based on evidence that NDD/Metropolitan had been
unable to fulfill their construction and operation obligations to over 4,000
applicants who had received FCC licenses, the Federal Trade Commission ("FTC")
filed suit against NDD/Metropolitan in January, 1993, in the Federal District
Court for the Southern District of New York ("District Court").
The District Court appointed a receiver, Daniel R. Goodman, to preserve the
assets of NDD/Metropolitan. In the course of the receiver's duties, Mr.
Goodman, together with a licensee, Dr. Robert Chan, who had received several
FCC licenses through NDD/Metropolitan's services, filed a request to extend the
construction period for each of over 4,000 SMR stations. At that time,
licensees of most of the stations included in the waiver request ("Receivership
Stations") were subject to an eight month construction period. On May 24, 1995,
the FCC granted the request for extension. The FCC reasoned that the
Receivership Stations were subject to regulation as CMRS stations, but had not
been granted the extended construction period to be awarded all CMRS licensees.
In fairness, the FCC granted an additional four months in which to construct
and place the Receivership Stations in operation. The grant of the Goodman/Chan
Waiver is to become effective upon publication in the Federal Register. As of
this date, the Goodman/Chan Waiver has not been published in the Federal
Register.
15
<PAGE> 17
FORM 10-KSB
===============================================================================
The FCC has never released a list of stations it considers to be Receivership
Stations. Nonetheless, on the basis of general descriptions of the Receivership
Stations contained in FCC communications, the Company believes that many of the
stations CCI manages are Receivership Stations. In cooperation with each
licensee, CCI is proceeding with the construction of the Receivership Stations
it manages. Because the FCC will not release a list of Receivership Stations,
no assurance can be given that any of the stations managed by CCI are
Receivership Stations or that the construction of all of the stations managed
by CCI will be timely constructed. Only a portion of the stations managed by
CCI are implicated in or involved with the receivership.
Pending Approvals/Denials. On June 16, 1995, CCI filed a request for approval
of an extended implementation plan, concerning the construction of over two
thousand SMR stations, with the FCC. On December 15, 1995, the FCC denied that
request. On January 21, 1996, CCI timely appealed the adverse decision to the
U.S. Court of Appeals for the District of Columbia Circuit (the "Court").
Briefs were filed and oral argument was heard on November 5, 1996. Based on
relevant precedent, the Company believes there is substantial basis for the
appeal. It cannot predict when the Court will issue an opinion, or whether that
opinion will be favorable to the Company. If the Court denies the appeal, the
licenses for a small number of the stations managed by CCI will be
automatically canceled. Licenses for other stations included in the extended
implementation plan have been preserved by the Goodman/Chan Waiver or are
otherwise timely constructed and so are not subject to cancellation if the
appeal is decided adversely to CCI.
The Company's subsidiaries, 800 and CMRS, manage over five hundred multi-channel
trunked SMR stations representing over 5,000 channels and licensed to
thirty-three corporations. The stations managed by 800 and CMRS Systems are
included in a five-year Extended Implementation Plan granted by the FCC on March
31, 1995, under Section 90.629 of the FCC's rules, 47 C.F.R. ss. 90.629. Under
the Extended Implementation Plan, as granted, the stations must be constructed
in accord with a five-year construction plan. On December 15, 1995, the FCC
requested that all licensees included in a Section 90.629 Extended
Implementation Plan file documents rejustifying the extended construction
period. A rejustification of the Extended Implementation Plan including the
stations managed by 800 and CMRS was timely filed. While the Company believes
that the FCC will grant at least two years to complete construction of the
stations managed by 800 and CMRS, it cannot predict what the FCC's evaluation of
the rejustification will yield. In any event, even if the FCC finds the
rejustification to be meritless, under Section 90.629(e) of the FCC's rules, 47
C.F.R. ss. 90.629(e), 800 and CMRS will be given six months from the date of
such determination to complete construction of the stations managed by 800 and
CMRS.
Finder's Preferences. The Company's subsidiary, CCI, filed a number of Finder's
Preference Requests targeting stations in the Southeastern United States. In
January, 1997, the FCC granted nine (9) of CCI's Finder's Preference Requests,
awarding CCI preferences for stations operating an aggregate of forty-one (41)
frequency channels. The only granted Finder's Preference Request which was
appealed involved a five-channel trunked 800 MHz SMR station, in Memphis,
Tennessee. Eight (8) Finder's Preference Request were denied by the FCC. The
Company has petitioned for reconsideration of those denials. The Company is
unable to predict what action the FCC will take with respect to the appeal of
the grant of the Finder's Preference Request or CCI's Petitions for
Reconsideration.
CCI also filed a Finder's Preference targeting one hundred ninety-five (195)
discrete frequency channels reused throughout a seven-state area in the
Southeastern United States ("Wide-Area Finder's Preference"). On January 31,
1997, the FCC asked Nextel, as successor in interest in Transit Communications
Corp., the targeted licensee in the Wide-Area Finder's Preference, to respond
to the allegations set forth in CCI's Wide-Area Finder's Preference. The
response was filed by Nextel at the FCC on March 18, 1997. CCI expects to file
its reply to Nextel's filing by the required filing date. The Company is unable
to predict what action the FCC will take with respect to the Wide-Area Finder's
Preference.
The FCC periodically has various dockets under consideration which could result
in changes to the FCC's rules, regulations and policies. Any rule, regulation or
policy change has the potential to, from time to time, impact the operations and
financial standing of the Company.
16
<PAGE> 18
FORM 10-KSB
===============================================================================
Regulation of Radio Towers. The transmitters for SMR stations typically are
located on towers. The towers are regulated by both the FCC and the Federal
Aviation Administration ("FAA"). The regulations concern geographic location,
height, construction and lighting standards and maintenance. Failure to comply
with tower regulations can result in assessment of fines against the tower
owner or operator and has, historically, resulted in fines assessed against
individual licensees located on an offensive tower. The owners of towers are
responsible for compliance with FCC and FAA regulations. The Company does not
own any towers, but serves as manager for two towers in Memphis, Tennessee. The
Company conducts periodic inspections of the towers it manages. The Company
maintains appropriate liability insurance, in amounts customary in the
industry, to protect it from third-party claims arising from operation of its
SMR stations and from towers it manages.
Other Federal Regulations. The Company and its Subsidiaries are generally
subject to the jurisdiction of various federal agencies and instrumentalities
in addition to the FCC and the FAA. While the Company believes that it and its
Subsidiaries are operating in conformity with all applicable rules and
regulations, policy and rule changes, and other actions of these agencies,
could impact the operations and financial standing of the Company.
State Regulations. Currently state and local governments cannot regulate the
rates charged by SMR operators. Such governments may, however, exercise
regulatory powers over health, safety, consumer protection, taxation and zoning
regulations with respect to SMR stations. Currently, the Operating Systems are
not subject to any state or local regulatory restraint (other than generally
applicable laws and regulations). However, SMR systems in states included in
the Proposed Operating Territory other than those in which the Operating
Systems are located may be subject to the respective state's regulatory
authorities.
Regulatory Developments. In March, 1996, the Telecommunications Act of 1996
("Telecom Act") went into effect. The Telecom Act effected significant change
in regulation and market entry for communications service providers. Despite
the Telecom Act's effect on the telecommunications industry as a whole, the
Company does not anticipate any material adverse effect on its business arising
from the Telecom Act.
Legislation or materially different rules may be proposed and enacted at any
time and may materially adversely affect the operations of the Company and its
affiliates. At this time, the Company is unaware of any pending legislation or
rule-making proceedings which would have a material adverse impact on the
current operations of the Company or its affiliates.
EMPLOYEES
At December 31, 1996, the Company had 39 full-time employees. None of the
Company's employees are covered by a collective bargaining agreement and the
Company believes its relationship with its employees is good.
17
<PAGE> 19
FORM 10-KSB
===============================================================================
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's corporate office is located at 4720 Polaris Street, Las Vegas,
Nevada. The Company leases an office at this address which consists of 6,865
square feet of space at a monthly rental of $5,561 under a two-year lease with
renewal and escalation provisions. The lease on this property expired on March
15, 1996, and was extended to June 15, 1996. The Company has entered into a
lease, effective the latter of the availability for occupancy or April 1, 1997,
subject to occupation, for a new corporate office and warehouse facilities
located at 2875 East Patrick Lane, Suites B-H, Las Vegas, Nevada. The new
facility consists of 15,756 square feet at a monthly rental of $16,331 under a
five-year lease with annual escalation provisions. At the completion of the
Asset Purchase Agreement with General Communications, the Company, through its
subsidiary, also owns an 8,000 square foot sales and service facility in
Memphis, Tennessee. In addition, the Company leases a sales facility in Little
Rock, Arkansas which consists of 1,000 square feet at a monthly rental of $875
under a one-year lease expiring in October, 1997. As the Company enters new
markets with SMR services, it intends to lease additional sales and services
facilities on a limited basis.
The Company, through its Subsidiaries, leases antenna sites for the
transmission of its SMR services. These sites are located primarily on roof
tops or free standing facilities. The terms of these leases range from month to
month to 5 years, with options to renew. Most of the leases provide a
termination period of 30 to 60 days by the Company or the site owner. The
Company believes it is more economical to lease antenna sites rather than own
the sites. The Company also recognizes that it may not be able to execute a
lease for all sites and in the cases in which a lease can not be executed, the
Company will construct and own sites.
ITEM 3. LEGAL PROCEEDINGS
On June 16, 1995, CCI filed a request for approval of an extended implementation
plan for the construction of over two thousand SMR stations with the FCC. On
December 15, 1995, the FCC denied that request. On January 21, 1996, CCI
appealed the denial to the U.S. Court of Appeals for the District of Columbia
Circuit. Briefs were filed and oral argument was heard on November 5, 1996. The
Court has not issued an opinion. Based on relevant precedent, the Company
believes there is substantial basis for the appeal. It cannot predict when the
Court will issue an opinion, or whether that opinion will be favorable to the
Company. If the Court denies the Appeal, the licenses for a small number of the
stations CCI manages may be automatically canceled. Licenses for other stations
CCI manages have been preserved by the Goodman/Chan Waiver or are otherwise
timely constructed and not subject to the above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE> 20
FORM 10-KSB
===============================================================================
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock has been listed on the NASD
Electronic Bulletin Board since July 1995. The Company's Common Stock currently
trades under the symbol "MOOR". As of March 17, 1997, there were 351 holders of
record of Common Stock, including brokerage accounts. The transfer agent for the
Common Stock is American Securities Transfer and Trust, Inc., Lakewood, CO
80215-5513.
The following table sets forth, on a per share basis, the closing high and
closing low sale prices for the Company's Common Stock as reported by Tradeline
International.
<TABLE>
<CAPTION>
Fiscal Year 1995 High Ask Low Bid
- ---------------- --------- -------
<S> <C> <C>
Third Quarter (from July 17, 1995) $5 1/2 $2 1/2
Fourth Quarter $7 1/8 $1 1/8
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1996 High Ask Low Bid
- ---------------- --------- -------
<S> <C> <C>
First Quarter $6 3/8 $2 3/4
Second Quarter $7 $3 5/8
Third Quarter $5 1/4 $2 1/4
Fourth Quarter $3 11/16 $1 1/4
</TABLE>
On December 31, 1996, the closing ask and bid price, on a per share basis, of
the Company's Common Stock was $3 1/4 and $2 7/8, respectively. The above prices
may not reflect actual transactions and represent prices between broker-dealers
and do not include retail mark-ups or mark-downs or any commissions to the
broker-dealer.
Dividend Information. The Company has paid no cash dividends to date. The
Company anticipates that in the foreseeable future its earnings, if any, will
be retained for use in its business and that no cash dividends will be paid on
the Common Stock. In addition, provisions of the Motorola Guarantee and
Security Agreement restrict the Company from paying dividends.
19
<PAGE> 21
FORM 10-KSB
===============================================================================
ITEM 6. PLAN OF OPERATION
PLAN OF OPERATION
The Company's objectives over the next 12 months are to construct systems for,
and bring into operation, channels in selected markets, establish distribution,
institute its marketing plan and increase recurring revenues through the
addition of subscribers. Through acquisition and management of the Operating
Systems and construction of additional SMR stations, the Company will seek to
increase its customer base and corresponding revenues within each market. The
plan is to select markets within the Proposed Operating Territory with adequate
available channel density, population base and pent-up demand from lack of
channel capacity to prove the Company's operating capability and generate
sufficient revenues to become cash flow positive in the shortest time possible.
To date, the Company's activities have been limited to raising capital for
operations and acquisitions, hiring a core team of employees and managing and
acquiring the Operating Systems. In March 1996, the Company acquired its first
Operating System in Memphis, Tennessee. In the third and fourth quarter of
1996, the Company began operations in 3 additional markets. In June of 1996, the
Company completed the transaction to acquire all of the issued and outstanding
stock of CMRS and 800. CMRS and 800 collectively held irrevocable 10 year
Options to Acquire and Management Agreements in excess of 5,500 channels. The
Company is working to positioning itself to provide SMR service to its targeted
market in cities within the Proposed Operating Territory, which has an
aggregate population in excess of fifty million (50,000,000) based on 1990 U.S.
Census Metropolitan Statistical Area figures reported by Rand McNally. This
population number represents the number of people residing in the aggregate
markets and is not intended to be indicative of the number of users or
potential penetration rates as the Company establishes operating SMR systems.
The Company currently offers two types of wireless communication services on
its Operating Systems: SMR dispatch (two-way) and telephone interconnect. (See
CURRENT OPERATING SYSTEMS - DISPATCH, and - MOBILE TELEPHONE SERVICES). Both
services are provided using analog SMR technology. The Company also sells
analog SMR equipment to subscribers and provides the system and services on
which customers can use their equipment.
The Company has entered into binding five and ten year Options to Acquire and
Management Agreements for over 7,000 channels licensed by the FCC, in the
Proposed Operating Territory. The Company has also formed dealer agreements
with independent SMR operators, and has begun to construct and market its SMR
services. The Company plans to offer wireless communication services ranging
from two-way dispatch, and telephone interconnect, to services comparable in
quality to those provided by current cellular telephone operators. In addition,
the Company plans to offer in a single handset, services and combinations of
services currently not available from cellular or PCS service providers. These
services will include combined mobile telephone, dispatch and data
transmission. If market demands dictate the future conversion to an Advanced
Mobile Network, such a conversion would allow the Company to dramatically
expand existing system capacity and provide advanced features, call clarity,
and call security to its subscribers. The Company plans to use leased
facilities on existing towers wherever possible to avoid the capital cost of
tower and shelter construction. The Company believes that this approach should
expedite and simplify the construction process and avoid delays associated with
local zoning and permit issues. In the cases where construction is necessary,
the Company will be required to bear the costs of constructing a site, which
may include access road development, land acquisition, shelter costs,
foundation and tower construction. Over the next 12 months, the marketing
objective is to actively market the Company's services on the systems it brings
into operation and position the Company as a leader in the wireless
communications industry. Motorola is a principal supplier to the Company, and
the Company believes that Motorola's brand name recognition, combined with the
Company's targeted marketing approach, will assist in developing customer
interest in the wireless services offered. The strategy is to increase Company
revenues with the smallest possible incremental marketing expense.
20
<PAGE> 22
FORM 10-KSB
===============================================================================
The Company's recurring revenues will consist primarily of subscriber network
usage revenues, which consist of monthly access fees per unit, incremental
charges based on minutes of use, and lease revenues from site operations where
the Company owns or manages a transmission facility and leases space to a third
party. Lease revenues, while not a primary source of revenue, offer increased
cash flow opportunities for little additional cost. From time to time, changes
in the Company's plans may dictate that facilities, originally acquired to be
included in an operating system, will be sold, traded or used in partnership
with existing service providers in a particular market to provide either
additional cash flow for growth or to begin or strengthen specific strategic
alliances.
The Company has elected to develop two channels of distribution: dealers and
independent agents. The Company's main method of distribution during the next 12
months is expected to be existing dealers. The dramatic reduction in capital
required by maximizing the use of dealers makes the use of this marketing
channel an extremely attractive method of distribution. In markets in which the
Company operates, but where a suitable dealer or independent agent is not
available, the Company will establish its own marketing presence. In those
markets the Company will open a sales office. Each sales office is planned to
have a minimal retail presence for walk-in customer traffic. In addition, the
Company's management team recognizes that additional staff will be required to
properly support marketing, sales, engineering and accounting to achieve its
1997 marketing objectives. However, the Company's business plan is not based on
significant additions of employees as it relates to the number of potential
markets in its Proposed Operating Territory.
LIQUIDITY AND CAPITAL RESOURCES
During the next 12 months, the Company will require access to sufficient
capital to enable it to act quickly on opportunities that present themselves in
the Proposed Operating Territory. The Company believes that in the next 12
months it will require approximately $10.6 million for capital expenditures
associated with the capital assets necessary for the construction of systems.
In addition, the Company expects to require $6.9 million to meet operating
expenses. However, if the Company is unable to obtain, in part or in whole, the
capital necessary to fully implement its business plan, the Company has a
modified business plan which substantially scales back construction of SMR
stations and reflects the Company's ability to meet its current obligations
through 1997.
The Company's sources of capital have been the proceeds from the sale of common
stock from private placements, vendor financing, convertible preferred stock,
debt or convertible debt and cash from proceeds from the exercise of the
Company's options. No Company convertible preferred stock remains outstanding.
On October 25, 1996, the Company's subsidiary CCI signed a purchase agreement
with Motorola to purchase approximately $10.0 million of Motorola's radio
communications equipment, including a Smartnet II trunked radio system. The
agreement requires that the equipment be purchased within 30 months of the
effective date of the agreement.
In connection with this purchase agreement, CCI entered into a financing and
security agreement with Motorola for the equipment stated above. This agreement
allows CCI to borrow up to a total of $5.0 million (the "Loan Facility"). The
Loan Facility is available for draw downs during the effective term of the
purchase agreement. The Loan Facility allows no more than one draw down per
month. Each of the draw downs will be evidenced by a promissory note (the
"Promissory Note"). Principal and interest on the Promissory Note are payable
in arrears monthly from the date of each funding for a period of 36 months from
the fund date. The Loan Facility agreement closed on October 25, 1996, and is
subject to certain pledges, representations, warrants and covenants. As a part
of the financing provided pursuant to the purchase agreement between CCI and
Motorola, the Company executed a guaranty and security agreement with Motorola,
pursuant to which the Company unconditionally and irrevocably guarantees the
obligations of CCI under the purchase agreement. The guaranty and security
agreement contains various financial and other covenants of the Company. As of
December 31, 1996, the Company is indebted for $270,651 under the Loan
Facility.
21
<PAGE> 23
FORM 10-KSB
===============================================================================
In February 1997, the Company executed a Securities Placement Agreement to place
a minimum of $1.0 million and maximum of $4.0 million of the Company's three
year, 8%, Convertible Debentures. Principal and interest are convertible into
shares of the Company's common stock. The Securities Purchase Agreement calls
for the issuance of 75,000 warrants to purchase shares of the Company's common
stock at an exercise price of $2.50 per share. The warrants are exercisable for
three years from date of grant. On February 19, 1997, the Company placed $1.0
million of the 8% Convertible Debentures and received $860,000, net of $140,000
of placement fees. The Company granted 75,000 warrants in connection with the
placement. On February 24, 1997, the Company placed an additional $750,000 of
the 8% Convertible Debentures and received $670,000, net of $80,000 in placement
fees. The Company granted 56,250 warrants in connection with the placement.
Principal and accrued interest are convertible at a conversion price for each
share of common stock equal to the lesser of (a) $1.37 or (b) a discount of 25%
for principal and accrued interest held up to 90 days from the closing date, a
discount of 27-1/2% for principle and accrued interest held for 91 to 130 days
from the closing date or a discount of 30-1/2% for principal and accrued
interest held for more than 131 days. The discount will apply to the average
closing bid price for the 5 trading days ending on the date before the
conversion date, as represented by the National Association of Securities
Dealers Electronic Bulletin Board.
The Company expects to fund approximately $2.0 million of the $10.6 million
required for the construction of SMR systems over the next 12 months through the
Loan Facility with Motorola. In addition, the Company expects to fund $3.0
million of the $6.9 million required for operating expenses over the next 12
months with a combination of cash on hand and the additional net proceeds
expected from placing the remaining $2.2 million 8% Convertible Debentures. This
requires the Company to raise approximately $12.5 million to effectively
implement its business plan over the next 12 months.
The Company intends to do one or more of the following in fiscal 1997: (i) an
offering of long-term promissory notes, (ii) an offering of its preferred stock
and/or (iii) operating or capital leasing.
Accordingly, based on the plans and intentions set forth above, the Company
anticipates that through the establishment of operational SMR systems in
conjunction with the ability to provide both short-term funding of operations
and long-term acquisition and development activities, the Company expects to
emerge from the development stage and establish normal operations in 1997.
However, there can be no assurance that the Company will achieve the objectives
discussed herein (including a placement of any of the foregoing financing
facilities), or of the overall profitability of the Company's operations once
its development stage has ended.
During 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 121 (accounting for the impairment of long
lived assets and for the long lived assets to be disposed of) and Statement of
Financial Accounting Standard No. 123 (accounting for stock based
compensation). During 1996, the FASB issued Statement of Financial Accounting
Standards No. 128 (accounting for earnings per share). Management believes
these recently issued Standards will not have a material effect on the
financial statements.
ITEM 7. FINANCIAL STATEMENTS
The audited Financial Statements of the Company for the year ended December 31,
1996, are located beginning at page F-1 following this page of the Company's
Annual Report on Form 10-KSB.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE:
None.
22
<PAGE> 24
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
===============================================================================
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and
1995 and for the period from January 1, 1994 through December 31, 1996 F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996 and 1995 and for the period from January 1,
1994 through December 31, 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and
1995 and for the period from January 1, 1994 through December 31, 1996 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 25
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
===============================================================================
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Chadmoore Wireless Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Chadmoore
Wireless Group, Inc. and Subsidiaries (formerly Capvest Internationale, Ltd.), a
development stage company, (the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the two-year period ended December 31, 1996
and for the period from January 1, 1994 through December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Chadmoore Wireless
Group, Inc. and Subsidiaries (formerly Capvest Internationale, Ltd.), a
development stage company, as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1996 and the period from January 1, 1994 through
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Las Vegas, NV
March 19, 1997 F-2
<PAGE> 26
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1996 and 1995
===============================================================================
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,463,300 $ 188,029
Amounts held for shares issued (note 3) -- 675,000
Stock subscription receivable (note 4) -- 287,000
Accounts receivable 266,520 --
Inventory 197,476 --
Due from General Communications, Inc. -- 76,252
Prepaid property management rights (note 9) 81,563 117,813
Deposits 124,624 16,742
Other 32,020 7,813
- ------------------------------------------------------------------------------------------------------------
Total current assets 2,165,503 1,368,649
Investment in JJ&D, LLC (note 2) 532,997 --
Property and equipment, net (note 5) 3,164,098 353,942
FCC licenses, net of accumulated amortization of $153,404 and $77,238,
respectively 1,394,895 1,321,336
Debt issuance costs, net of accumulated amortization of $39,038 77,562 --
Management agreements (note 2) 22,725,442 --
Investment in license options (note 6) 3,239,691 2,007,958
Investment in options to acquire management agreements (note 2) 9,771,445 --
Non-competition and consulting agreements, net of accumulated amortization
of $-0- and $94,838, respectively -- 258,121
Other 55,994 31,489
- ------------------------------------------------------------------------------------------------------------
Total Assets $ 43,127,627 $ 5,341,495
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt (note 8) $ 217,096 $ 456,480
Accounts payable and accrued liabilities 329,122 361,641
Licenses - options payable 49,800 448,350
License option commission payable (note 6) 524,800 349,200
Accrued interest 62,346 54,490
Other 32,080 --
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,215,244 1,670,161
Capital lease obligations (note 8) 8,646 --
Long-term debt, excluding current installments (note 8) 2,500,141 633,708
Restricted option prepayment (note 9) 832,116 --
- ------------------------------------------------------------------------------------------------------------
Total liabilities 4,556,147 2,303,869
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 12)
Shareholders' equity :
Preferred stock, $.001 par value. Authorized 40,000,000 shares; issued and
outstanding -0- shares -- --
Common stock, $.001 par value. Authorized 100,000,000 shares; issued and
outstanding 17,823,445 shares at December 31, 1996 and 8,387,064 shares
at December 31, 1995 17,824 8,387
Additional paid-in capital 52,951,491 10,564,852
Stock subscribed (note 4) 288,835 324,807
Deficit accumulated during the development stage (14,686,670) (7,860,420)
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 38,571,480 3,037,626
- ------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 43,127,627 $ 5,341,495
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended December 31, 1996 and 1995 and for the Period from
January 1, 1994 through December 31, 1996
===============================================================================
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
1996 1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Radio services $ 564,550 $ -- $ 564,550
Equipment sales 823,073 -- 823,073
Maintenance and installation 274,996 -- 274,996
Other 243,587 -- 243,587
- ------------------------------------------------------------------------------------------
1,906,206 -- 1,906,206
- ------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,117,151 -- 1,117,151
Salaries, wages and benefits 1,687,792 549,060 5,332,202
General and administrative 5,302,531 6,729,962 9,827,356
Depreciation and amortization 379,247 191,343 605,534
- ------------------------------------------------------------------------------------------
8,486,721 7,470,365 16,882,243
- ------------------------------------------------------------------------------------------
Loss from operations (6,580,515) (7,470,365) (14,976,037)
- ------------------------------------------------------------------------------------------
Other income (expense):
Management fees (notes 1 and 2) 100,198 246,005 472,611
Interest expense (266,736) (129,527) (425,061)
Gain on sale of assets -- 330,643 330,643
Gain on forgiveness of debt (note 7) 47,450 -- 47,450
Equity in losses from minority investment (1,322) -- (1,322)
Loss on retirement of note payable -- (32,404) (32,404)
Other, net (125,325) 22,323 (102,550)
- ------------------------------------------------------------------------------------------
(245,735) 437,040 289,367
- ------------------------------------------------------------------------------------------
Net loss $ (6,826,250) $ (7,033,325) $(14,686,670)
==========================================================================================
Weighted average number of common
shares outstanding 12,763,323 5,459,524 12,763,323
==========================================================================================
Net loss per share $ (0.53) $ (1.29) $ (1.15)
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 28
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the period from January 1, 1994 to December 31, 1996
===============================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------- ------------------------------
OUTSTANDING OUTSTANDING
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (note 1) -- $ -- 325,000 $ 325
Net loss -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994, as previously stated -- -- 325,000 325
Effect of Plan of Reorganization:
Eliminate Capvest accumulated deficit -- -- -- --
Shares issued in lieu of cash -- -- 175,000 175
Shares issued to Chadmoore Communications, Inc. -- -- 4,000,000 4,000
- ----------------------------------------------------------------------------------------------------------------------------
As adjusted for reorganization with Chadmoore
Communication, Inc. the acquirer -- -- 4,500,000 4,500
Shares of Chadmoore Communications, Inc., issued
January 1995 -- -- -- --
Shares issued in exchange for Chadmoore
Communications, Inc. shares -- -- 30,000 30
Shares issued in connection with the private
placement -- -- 763,584 764
Shares issued to investors for cash -- -- 400,000 400
Shares issued under employee benefit and consulting
services plan -- -- 496,000 496
Shares issued for legal fees -- -- 62,500 62
Shares issued in conjunction with conversion of
advances -- -- 707,720 708
Shares issued to license holders -- -- 562,260 562
Shares issued to option holders -- -- 865,000 865
Options issued in lieu of cash payments for legal,
consulting and financing fees -- -- -- --
Shares subscribed (note 3) -- -- -- --
Net loss -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- -- 8,387,064 8,387
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING SHARE-
PAID-IN DEVELOPMENT STOCK HOLDERS'
CAPITAL STAGE SUBSCRIBED EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (note 1) $ 146,546 $ (638,620) $ -- $ (491,749)
Net loss -- (35,383) -- (35,383)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994, as previously stated 146,546 (674,003) -- (527,132)
Effect of Plan of Reorganization:
Eliminate Capvest accumulated deficit -- 674,003 -- 674,003
Shares issued in lieu of cash 538,134 -- -- 538,309
Shares issued to Chadmoore Communications, Inc. (589,180) (827,095) -- (1,412,275)
- -----------------------------------------------------------------------------------------------------------------------------
As adjusted for reorganization with Chadmoore
Communication, Inc. the acquirer 95,500 (827,095) -- (727,095)
Shares of Chadmoore Communications, Inc., issued
January 1995 565,000 -- -- 565,000
Shares issued in exchange for Chadmoore
Communications, Inc. shares 44,970 -- -- 45,000
Shares issued in connection with the private
placement 1,526,407 -- -- 1,527,171
Shares issued to investors for cash 399,200 -- -- 399,600
Shares issued under employee benefit and consulting
services plan 1,777,719 -- -- 1,778,215
Shares issued for legal fees 249,938 -- -- 250,000
Shares issued in conjunction with conversion of
advances 1,165,498 -- -- 1,166,206
Shares issued to license holders 859,696 -- -- 860,258
Shares issued to option holders 1,039,136 -- -- 1,040,001
Options issued in lieu of cash payments for legal,
consulting and financing fees 2,841,788 -- -- 2,841,788
Shares subscribed (note 3) -- -- 324,807 324,807
Net loss -- (7,033,325) -- (7,033,325)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 10,564,852 (7,860,420) 324,807 3,037,626
</TABLE>
(Continued)
F-5
<PAGE> 29
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity, Continued
For the period from January 1, 1994 to December 31, 1996
===============================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------- ------------------------------
OUTSTANDING OUTSTANDING
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995, continued -- $ -- 8,387,064 $ 8,387
Shares issued in connection with the private
placement (notes 4 and 9) -- -- 549,417 549
Shares issued to investors for cash (note 9) -- -- 430,000 430
Preferred shares issued to investors for cash (note 9) 250,000 250 -- --
Preferred shares converted to common shares (note 9) (250,000) (250) 977,057 977
Shares issued for options exercised (note 9) -- -- 4,407,500 4,408
Shares issued for assets purchased from General
Communications, Inc. (notes 2 and 9) -- -- 100,000 100
Shares issued for conversion of debentures -- -- 3,553,213 3,553
Shares issued for CMRS and 800 Acquisition -- -- 508,000 508
Shares issued to license holders (note 9) -- -- 332,960 333
Shares issued for legal fees (note 9) -- -- 62,500 63
Shares issued in connection with placement of two
year, 8%, convertible notes (note 8) -- -- 30,000 30
Options issued for 20% interest in JJ&D, LLC (note 2) -- -- -- --
Options issued for purchase agreement for SMR
equipment from JJ&D, LLC (note 5) -- -- -- --
Options issued for CMRS and 800 Acquisition (note 2) -- -- -- --
Options issued for consulting services (note 9) -- -- -- --
Shares subscribed (notes 4 and 9) -- -- -- --
Canceled shares (note 9) -- -- (1,514,266) (1,514)
Net loss -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- $ -- 17,823,445 $ 17,824
===============================================================================================================================
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING SHARE-
PAID-IN DEVELOPMENT STOCK HOLDERS'
CAPITAL STAGE SUBSCRIBED EQUITY
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995, continued $ 10,564,852 $ (7,860,420) $ 324,807 $ 3,037,626
Shares issued in connection with the private
placement (notes 4 and 9) 883,033 -- (324,807) 558,775
Shares issued to investors for cash (note 9) 644,570 -- -- 645,000
Preferred shares issued to investors for cash (note 9) 2,273,458 -- -- 2,273,708
Preferred shares converted to common shares (note 9) (727) -- -- --
Shares issued for options exercised (note 9) 3,280,838 -- -- 3,285,246
Shares issued for assets purchased from General
Communications, Inc. (notes 2 and 9) 176,463 -- -- 176,563
Shares issued for conversion of debentures 5,983,567 -- -- 5,987,120
Shares issued for CMRS and 800 Acquisition 1,930,502 -- -- 1,931,010
Shares issued to license holders (note 9) 881,801 -- -- 882,134
Shares issued for legal fees (note 9) 62,437 -- -- 62,500
Shares issued in connection with placement of two
year, 8%, convertible notes (see note 8) 14,970 -- -- 15,000
Options issued for 20% interest in JJ&D, LLC (note 2 400,000 -- -- 400,000
Options issued for purchase agreement for SMR
equipment from JJ&D, LLC (note 5) 88,500 -- -- 88,500
Options issued for CMRS and 800 Acquisition (note 2) 26,981,579 -- -- 26,981,579
Options issued for consulting services (note 9) 866,250 866,250
Shares subscribed (notes 4 and 9) -- -- 288,835 288,835
Canceled shares (note 9) (2,080,602) -- -- (2,082,116)
Net loss -- (6,826,250) -- (6,826,250)
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 52,951,491 $(14,686,670) $ 288,835 $ 38,571,480
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 30
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1996 and 1995 and for the
period from January 1, 1994 through December 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Period from
January 1,
Year ended December 31, 1994 through
---------------------------- December 31,
1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,826,250) $ (7,033,325) $(14,686,669)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 379,247 191,343 605,534
Amortization of debt discount 98,102 -- 98,102
Gain on sale of assets held for resale -- (330,643) (330,643)
Equity in losses from minority investments 1,322 -- 1,322
Expense associated with:
Stock issued for services 281,119 2,302,042 2,583,161
Options issued for services 866,250 2,841,788 3,708,038
Change in operating assets and liabilities:
Decrease in stock subscriptions receivable, net of
stock subscribed -- (637,193) (637,193)
Increase in accounts receivable (98,057) -- (98,057)
Increase in inventory (119,495) -- (119,495)
Decrease in due from General Communications, Inc. 76,252 (76,252) --
Decrease (increase) in prepaids 36,250 -- 36,250
Increase in other noncurrent assets -- (6,170) (36,859)
Increase in deposits 10,618 (16,742) (6,124)
Increase in other current assets (24,207) -- (32,020)
Increase (decrease) in accounts payable (30,710) 15,952 330,931
Increase in commission payable 175,600 349,200 524,800
Increase in accrued interest 189,821 25,692 244,311
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (4,984,138) (2,374,308) (7,814,611)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of assets from General Communications, Inc. (352,101) -- (352,101)
20% investment in JJ&D, LLC (100,000) -- (100,000)
Purchase of Airtel Communications, Inc. assets (50,000) -- (50,000)
Purchase of CMRS and 800 SMR Network, Inc. (3,547,000) -- (3,547,000)
Purchase of SMR station licenses -- (91,351) (1,398,575)
Purchase of license options (432,737) (628,500) (1,132,087)
Increase in deposits of licenses (342,808) -- (342,808)
Purchase of property and equipment (2,186,520) (298,269) (2,738,952)
Purchase of assets held for resale -- -- (219,707)
Sale of assets held for resale -- 700,000 700,000
Decrease in deposit on sale -- (375,000) --
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,011,166) (693,120) (9,181,230)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-7
<PAGE> 31
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows, Continued
For the Years Ended December 31, 1996 and 1995 and for the
Period From January 1, 1994 through December 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Period from
January 1,
Year ended December 31, 1994 through
---------------------------- December 31,
1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds upon issuance of common stock $ 1,944,941 $ 2,271,602 $ 4,316,543
Proceeds upon issuance of preferred stock 2,273,707 -- 2,273,707
Proceeds upon exercise of options - related -- 62,500 62,500
Proceeds upon exercise of options - unrelated 2,097,757 977,501 3,075,258
Purchase and conversion of CCI stock -- 45,000 45,000
Advances from related parties -- 114,205 767,734
Payment of advances from related parties -- (73,000) (73,000)
Payments on capital lease obligations (24,087) -- (24,087)
Payments of long-term debt (201,743) (294,323) (504,514)
Proceeds from issuance of notes payable -- -- 375,000
Proceeds from issuance of long-term debt 7,180,000 -- 8,145,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,270,575 3,103,485 18,459,141
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash 1,275,271 36,057 1,463,300
Cash at beginning of period 188,029 151,972 --
- -------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 1,463,300 $ 188,029 $ 1,463,300
=========================================================================================================================
Supplemental disclosure of cash paid for:
Taxes $ -- $ -- $ --
Interest $ 258,880 $ 117,431 $ 362,715
=========================================================================================================================
</TABLE>
NON-CASH ACTIVITIES:
See Notes 2,4,5,6,7 and 8 for disclosure of non-cash transactions.
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 32
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
A. THE COMPANY AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Chadmoore
Wireless Group, Inc. and subsidiaries (the "Company"), which is a development
stage company. The Company commenced formal operations in the state of Nevada
on May 11, 1994, and was organized for the purpose of acquiring and operating
Specialized Mobile Radio ("SMR") wireless communication systems. The Company's
current market area is primarily located in Tennessee and Arkansas.
In February 1995, the Company (formerly Capvest Internationale, Ltd.
("Capvest"), a publicly held entity) entered into a Plan of Reorganization
("Plan") whereby the Company exchanged 89% of its issued and outstanding stock
for 85% of restricted common shares of Chadmoore Communications, Inc. ("CCI").
Capvest has not had significant operations since its inception in 1988. Pursuant
to the Plan, Capvest changed its name to Chadmoore Wireless Group, Inc.
The transaction has been accounted for under the purchase method of accounting
as a reverse purchase acquisition whereby Chadmoore Wireless Group, Inc. is the
remaining legal entity and CCI is the acquirer and remaining operating entity.
Pursuant to this structure, the consolidated shareholders' equity of the legal
entity has been adjusted for the effect of the reorganization and to reflect
the shareholders' equity of the acquiring entity as of December 31, 1994.
Through December 31, 1996, the Company has been engaged primarily in the
identification, development and acquisition of SMR systems and Options to
Acquire SMR Stations and has therefore not commenced normal operations nor
generated significant revenues. In addition, a development stage company is
required to report the results of its operations and cash flow from inception
to date. However, Capvest has been dormant since 1988 and CCI began operations
on May 11, 1994. The statements of operations, shareholders' equity and cash
flows have been presented from that date forward January 1, 1994 (the beginning
of the fiscal year of inception) to December 31, 1996.
Management's Plans. Through December 31, 1996, the Company has been engaged
primarily in the identification, development and acquisition of SMR channels
and operating SMR systems and has not commenced normal operations nor
generated significant revenues. The Company has incurred substantial losses
during the development stage and needs to obtain additional funding for the
capital required to implement its business plan. However, if the Company is
unable to obtain in part or in whole, the capital necessary to fully implement
its business plan, the Company has a modified business plan which substantially
scales back construction of SMR stations and reflects the Company's ability to
meet its current obligations through 1997. The Company believes that in the
next 12 months, it will require approximately $10.6 million for capital
expenditures to fully implement its business plan. -- The Company expects to
fund approximately $2.0 million through the Loan Facility with Motorola (see
note 8). In addition, the Company expects to require $6.9 million to meet
operating expenses associated with fully implementing its business plan. The
Company expects to fund $3.0 million with a combination of cash on hand and the
net proceeds expected from placing the remaining $2.2 million 8% convertible
debentures (see note 13).
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Chadmoore Wireless Group, Inc. and its subsidiaries CMRS Systems, Inc. ("CMRS"),
800 SMR Network, Inc. ("800"), Chadmoore Construction Services, Inc. ("CCSI"),
and Chadmoore Communications, Inc. ("CCI") and its wholly-owned subsidiaries
Chadmoore Communications of Tennessee ("CCT") and Chadmoore Communications of
Memphis (a non-active entity). All significant inter-company balances and
transactions have been eliminated in consolidation.
C. INVENTORY
Inventories, which consist of merchandise and parts, are accounted for by the
lower of cost (using the first-in first-out method) or net realizable value.
F-9
<PAGE> 33
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
D. FCC LICENSES
FCC licenses are recorded at cost and consist of agreements with the Federal
Communications Commission ("FCC") which allow the use of certain communications
frequencies. FCC licenses have a primary term of five years and are renewable
for additional five-year periods for a nominal fee. Although there can be no
assurance that the licenses will be renewed, management expects that the
licenses will be renewed as they expire. FCC license costs and renewal fees are
amortized using the straight-line method over 20 years and 5 years,
respectively. The Company evaluates the recoverability of FCC licenses by
determining whether the unamortized balance of this asset is expected to be
recovered over its remaining life through projected undiscounted operating cash
flows.
E. INTANGIBLE ASSETS
Goodwill, which is included in the investment in JJ&D, represents the excess of
purchase price over fair value of net assets acquired and is amortized on a
straight-line basis over the expected periods to be benefited, which is five
years.
Non-compete and consulting agreements are stated at cost, net of accumulated
amortization, and amortized over a three to five year period using the straight
line method.
F. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 107 Disclosure About Fair Value of Financial Instruments (SFAS
107). SFAS 107 requires all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. SFAS 107
defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 1996, the carrying value of all financial instruments
approximates fair value.
G. LONG-LIVED ASSETS
During fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of (SFAS 121), which establishes accounting
standards for the recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles including, FCC licenses, management
agreements, investment in license options, investment in options to acquire
management agreements and goodwill either of which to be held or disposed of.
The adoption of SFAS 121 did not have a material impact on the Company's
financial position or results of operations. The Company assesses the
recoverability of intangible assets by determining whether the balance over its
remaining life can be recovered through undiscounted future operating cash
flows. The amount of the impairment, if any, is measured based on projected
discounted future cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of intangibles
could be impacted if estimated future operating cash flows are not achieved.
H. INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income as the
period that includes the enactment date.
F-10
<PAGE> 34
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
I. USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
J. STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period for the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
K. REVENUES
The Company's only source of revenue through March 7, 1996 was management fee
income from General Communications Radio Sales and Services, Inc. In connection
with these services, the Company records a management fee equal to the net cash
flows of General. This revenue has been included as part of Other Income and
Expense in the Statement of Operations through March 7, 1996. On March 8, 1996,
the Company completed the asset purchase of General's assets and in May 1996,
the Company completed the acquisition of Airtel Communications, Inc. and
consummated Management and Option to Acquire Agreements with Airtel SMR, Inc.
(see note 2). As such, the Company now recognizes revenue from monthly
telephone interconnect and dispatch services based on monthly access charges
per radio, plus in the case of telephone interconnect service, revenue is
recognized based on air time charges as used. Revenue is also recognized from
equipment service upon acceptance by the customer of the work completed as well
as from the sale of equipment when delivered.
L. LOSS PER SHARE
Loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding at December 31, 1996 and 1995. The
inclusion of equivalent shares in the form of stock options and warrants were
not included in a computation of fully dilutive loss per share as the results
would be anti-dilutive.
M. RECLASSIFICATIONS
Certain amounts in the 1995 Consolidated Financial Statements have been
reclassified to conform with the 1996 presentation.
F-11
<PAGE> 35
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(2) ACQUISITIONS
A. CMRS AND 800 STOCK PURCHASE AGREEMENT
On June 14, 1996, the Company executed a Stock Purchase Agreement with Libero
Limited ("Libero"). Pursuant to the agreement, the Company acquired from Libero
all the issued and outstanding common stock of CMRS Systems, Inc. ("CMRS") and
800 SMR Network, Inc. ("800") (jointly the "Management Companies"). The
Management Companies intend to engage in the business of constructing and
managing mobile radio stations ("Stations"). The Management Companies have
entered into management agreements ("Management Agreements") with certain
companies (the "Companies"), pursuant to which CMRS or 800, as the case may be,
has agreed, in accordance with applicable Federal Communications Commission
("FCC") rules, regulations and policies, to construct and manage all of the
Stations for which the Companies have received licenses from the FCC. The
respective shareholders of the Companies have granted to CMRS or 800, as the
case may be, options to acquire all of the stock of the Companies ("Options"),
at such time as all conditions of such transfer of control have been met, as
set forth in the FCC rules, regulations and policies and as required by
beta 310 of the Communications Act of 1934, as amended by U.S.C. 310.
The Company consummated such acquisition for combined consideration valued at
$32,459,584. The Company has accounted for the acquisition under the purchase
method of accounting. The purchase price was paid with (1) an aggregate cash
consideration of $3,547,000; (2) 508,000 shares of the Company's restricted
common stock valued at $1,931,010; and (3) a grant of an option to purchase
8,323,857 shares of common stock for a period of ten years at an exercise price
of $.50 per share valued at $26,981,579. The Company obtained an independent
appraisal of the value of the securities issued in connection with the
acquisition. Combined consideration of $22,721,712 was allocated to Management
Agreements held by CMRS and 800 and combined consideration of $9,737,877 was
allocated to options to acquire the stock of the licensee corporations also held
by CMRS and 800. These allocations were based on an evaluation by an independent
consultant's estimate of the fair market value of the assets exchanged.
Additionally, deferred income tax assets of approximately $10.0 million
resulting from different tax bases for income tax and financial reporting
purposes have been fully reserved with a valuation allowance as the realization
of the deferred tax asset cannot be reasonably assumed. The Company will begin
amortizing the cost allocated to the Management Agreements over the useful lives
commencing upon the underlying Station being placed in service not to extend
past June 2006. The Company will evaluate the recoverability of the asset on an
annual basis. The Company had sufficient cash on hand for the cash consideration
paid. Pro forma information has not been shown as operations have not yet
commenced.
The exercise price under the Options is payable by the Management Companies
with an amount of their own stock equal to 10% of the then issued and
outstanding stock. Such Management Companies' stock is to be issued and
allocated on a pro-rata basis to the licensees based on their individual
license percentage of the total. No cash consideration is payable upon exercise
of the Options by either the Company or the Management Companies.
F-12
<PAGE> 36
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
B. GENERAL COMMUNICATIONS ASSET PURCHASE AGREEMENT
On March 8, 1996, the Company renegotiated and finalized the purchase of Phases
2-5 of the General Communications Asset Purchase Agreement. In conjunction with
this transaction, the Company purchased certain SMR equipment, land, building,
other fixed assets, accounts receivable, inventory and FCC licenses for SMR
channels in Memphis, Tennessee from General Communications Radio Sales and
Service, Inc. ("General"). Prior to the asset purchase and since November 1994,
the Company was managing the daily operations of General for a management fee
equal to the net cash flows of General.
The acquired assets were recorded at $834,569. The Company paid $345,609 in
cash and issued 100,000 shares of restricted common stock with a fair market
value on March 8, 1996, of $176,563, based on the discounted average closing bid
and ask price of the Company's common stock trading on the NASD Electronic
Bulletin Board. The Company's non-competition, consulting agreement and note
payable liabilities to General with a balance totaling $906,687, net of the
corresponding non-competition and consulting agreement asset of $244,571 were
canceled and a new note payable was issued. The new note is a 25-year,
unsecured, noninterest bearing, negotiable promissory note face amount of
$4,110,000, scheduled to be repaid in 300 monthly installments.
The note's monthly payments are subject to Consumer Price Index ("CPI")
increases in years three through thirteen. The Company has assumed a CPI
increase of 2.5% for recording purposes thereby reflecting the gross value of
the note equal to $5,024,198. Interest on the note has been imputed at 9% giving
a net present value of $1,208,869, net of unamortized discount of $3,815,329
amortized on the straight line method over the term of the note.
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
UNAUDITED PRO FORMA INFORMATION 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Revenue sales $ 2,278,607 $ 2,146,584
Net loss (6,824,049) (7,098,494)
Net loss per common share $ (0.54) $ (1.28)
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the General acquisition been
consummated as of January 1, 1995, nor are they necessarily indicative of
future operating results.
F-13
<PAGE> 37
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
C. JJ&D, LLC INVESTMENT
On May 11, 1996, the Company purchased a 20% investment in JJ&D, LLC ("JJ&D") by
tendering $100,000 in cash, issuing a $100,000 non-interest bearing 120 day
note and issuing 298,507 options to purchase the Company's restricted common
stock. The options are exerciseable for three years at $1.00 per share. JJ&D
has obtained the exclusive rights from A Communications, LLC to market, in the
United States, A Communications' proprietary SMR frequency agile quick start
module. This investment is being accounted for using the equity method of
accounting. All significant intercompany transactions have been eliminated.
Amortization of goodwill and equity in earnings of investee are not material
through December 31, 1996. Condensed financial information of JJ&D, LLC has not
been presented as it is not material to the consolidated position of the
Company.
D. AIRTEL SMR, INC. MANAGEMENT AND OPTION TO ACQUIRE AGREEMENT
On May 11, 1996, the Company completed a Management and Option to Acquire
Agreement with Airtel SMR, Inc., an operator of SMR stations. The Company
assumed a $100,000 note payable, due May 1998, with interest at 12%. The Company
received SMR equipment valued at $62,702, Management Agreements for one-year
valued at $3,730 and an Option to Acquire the common stock of Airtel SMR, Inc.
valued at $33,568. The allocated valuations of the Management Agreement and
Option to Acquire Agreement were based on Management's estimates. Condensed
financial information of Airtel SMR, Inc. has not been presented as it is not
material to the consolidated position of the Company.
E. AIRTEL COMMUNICATIONS, INC. ASSET PURCHASE AGREEMENT
On May 11, 1996, the Company completed an Asset Purchase Agreement with Airtel
Communications, Inc., an SMR sales organization. The Company paid $50,000 and
received certain office equipment and rights to a customer list valued at
$47,788. The customer list will be amortized on a straight-line basis over its
useful life estimated to be two years. The accumulated amortization at December
31, 1996, was $13,936. Condensed financial information of Airtel Communications,
Inc. has not been presented as it is not material to the consolidated position
of the Company.
(3) AMOUNTS HELD FOR SHARES ISSUED
On December 29, 1995, certain option holders exercised options to purchase
450,000 shares of common stock at $1.50 per share. The proceeds of $675,000
were held by the Company's corporate counsel at December 31, 1995. In January
1996, the funds were received by the Company.
F-14
<PAGE> 38
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(4) STOCK SUBSCRIPTIONS RECEIVABLE AND SUBSCRIBED
In the second quarter of 1996, the Company made a down payment on eight license
options and agreed to issue 11,440 shares of its common stock as payment of 40%
of the option price of these licenses valued at $32,890. On December 27, 1996,
the holder of the 8%, two-year convertible notes, due September 1998, tendered
$250,000 of the convertible notes and $5,945 of accrued interest for conversion
into 231,744 shares of the Company's common stock. The value of the unissued
shares, or $288,835, is classified as common stock subscribed in shareholders'
equity at December 31, 1996.
In 1995, the Company received $287,000 for the sale, by the Company, of 191,333
shares of common stock pursuant to the Private Placement Memorandum. The shares
were not issued until January 1996. As a result, the funds were held in an
escrow account and classified as stocks subscription receivable at December 31,
1995. The Company received the funds when the shares were issued in January
1996. In addition, in December 1995, the Company received cash of $37,807 for
17,500 shares of common stock pursuant to the Private Placement Memorandum that
had not been issued at December 31, 1995. The value of the unissued shares, or
$324,807, is classified as common stock subscribed in shareholders' equity at
December 31, 1995.
(5) PROPERTY AND EQUIPMENT
A. Property and equipment, which is recorded at cost and depreciated over their
estimated useful lives, generally 5-10 years, consists primarily of SMR system
components and related acquisition costs. The recorded amount of property and
equipment capitalized and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
SMR systems and equipment $ 2,744,696 $ 292,901
Buildings and improvements 345,665 109,870
Land 102,500 --
Furniture and office equipment 203,385 --
- ----------------------------------------------------------------------
3,396,246 402,771
Less accumulated depreciation (232,148) (48,829)
- ----------------------------------------------------------------------
$ 3,164,098 $ 353,942
======================================================================
</TABLE>
B. JJ&D MASTER PURCHASE AGREEMENT
On September 13, 1996, the Company signed a purchase agreement with JJ&D, a
related party (see note 2). The agreement states the Company is to purchase,
within one year from the date of this agreement, SMR equipment from JJ&D valued
at approximately $885,000, one-third of which is to be paid with the issuance of
common stock of the Company. In September 1996, the Company issued 295,000
options, with an exercise price of $1.00 per share, in connection with the
agreement valued at $0.30 per share totaling $88,500. The options vest at 1,000
per unit as the equipment is shipped and the value will be removed from deposit
on purchase and placed in property and equipment on the Company's consolidated
balance sheet. The agreement also takes into consideration equipment previously
purchased and shipped of 35 units. Therefore at December 31, 1996, 35,000 option
shares have vested and $10,500 of the original amount has been reclassified into
property and equipment.
F-15
<PAGE> 39
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(6) INVESTMENT IN LICENSE OPTIONS
A. LICENSE OPTION AGREEMENTS
The Company entered into various option agreements to acquire FCC radio licenses
for SMR channels and also entered into management agreements with the licensees
of the SMR channels. Depending on the size of the market in which the channel is
located, the Company paid $100 to $1,500 for each option. As of December 31,
1996, the Company invested $3,239,691 in license options. The total purchase
price of the licenses under option, including commissions, amount to
approximately $32.7 million and $43.0 million at December 31, 1996 and December
31, 1995, respectively. The agreements allow the Company to purchase licenses
within a specified period of time after the agreement is signed. On February 2,
1996, the Company made a down payment on approximately 140 license options and
issued 285,860 restricted shares of its common stock as payment of the full
option price which is 40% of the purchase price of these licenses (see note 9).
The issuance of the stock valued, at $821,850, has been recorded as an
investment in license options on December 31, 1996. In addition, the Company
made a down payment on approximately 8 license options and agreed to issue
11,440 restricted shares of its common stock as payment of the full option price
which is 40% of the purchase price of these licenses. The shares have been
valued at $32,890 and have been recorded as an investment in license options and
common stock subscribed at December 31, 1996.
In December 1995, the Company issued 562,260 restricted common shares as down
payment for the exercise of the option to purchase 347 licenses under the
license option agreements. The issuance of the stock represents the full option
price which is 40% of the purchase price. The amount capitalized as down
payment of these licenses was based on the fair market value of the stock on
the date of issuance and totaled $860,258.
Certain options required down payments in January 1996. The Company submitted
an amendment to the option holders which would increase the down payment and
move the date to September 9, 1996. Of the options the Company desires to
amend, approximately 94% of the option holders executed the amendments. On
September 6, 1996, the company submitted a second amendment for the option
holders which would change the down payment amounts to a series of $100
quarterly payments instead of one lump sum. The payment of the first series was
sent on September 9, 1996, and amounted to $116,000. The second series was sent
on December 18, 1996, and amounted to $99,200. Of these second amendments sent,
approximately 96% of the option holders executed the agreement. With respect to
the remaining options on which a holder has not executed an amendment, the
Company is in default of the terms thereof. The holders of such options have
not yet, however, elected to terminate the options based on this default.
Notwithstanding this failure to act, such holders may at any time terminate
their options or exercise other remedies with respect thereto, unless the
amendment is executed or the Company is able to meet its monetary obligations
thereon. The Company is addressing each in a case by case basis and any loss
associated with canceled option agreements will be expensed as incurred.
Upon entering into an option agreement, the Company also enters into a
management agreement with the licensee. The management agreements give the
Company the right to manage the SMR systems for the period stated in the
agreements, usually 2 to 5 years. During this period, revenues received are
shared with the licensee after certain agreed upon costs to construct the
channels have been recovered. The Company has not recognized any revenue from
these agreements during the years ended December 31, 1996 and 1995, as none of
the systems under option are revenue producing.
B. COMMISSION PAYABLE
In connection with the exercise of the options to purchase licenses, the
Company is required to pay an allocated portion of the payment to a certain
third party. As a result of the down payment made on December 29, 1995 to
purchase 30% of licenses, the Company accrued $349,200 of commissions payable
which represents 40% of the total commission to be paid when these licenses are
fully paid for by the Company. As a result of the down payment made on February
2, 1996 to purchase 140 of licenses, the Company accrued $175,600 of
commissions payable which represents 40% of the total commission to be paid
when these licenses are fully paid for by the Company.
F-16
<PAGE> 40
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(7) GAIN ON FORGIVENESS OF DEBT
In September 1996, one of the Company's vendors signed a release agreement to
accept $90,000 as full payment of all the Company's outstanding liability to
it. Total outstanding liability at this time was $137,450. The resulting gain
of $47,450 is reflected in the Company's statement of operations under gain on
forgiveness of debt.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable in connection with the asset purchase from General (see Note 2),
payable in monthly installments of $12,500 through February 1997; $13,750
through February 1998; thereafter, monthly payments are subject to annual
CPI increases through February 2008 at which time the monthly payments are
capped through February 2021. Management has assumed annual CPI increases to
be 2.5%. Non-interest bearing with interest imputed at 9%, net of
unamortized discount of $3,688,151 as of December 31, 1996. $ 1,223,330 $ --
Notes payable, two year, 8%, aggregate principal amount of $3,000,000, due
September 1998, principal and interest convertible into shares of the
Company's common stock (see note 9). 750,000 --
Notes payable, three year, 8%, aggregate principal amount of $5,000,000, due
June 1999, principal and interest convertible into shares of the
Company's common stock (see note 9). 400,000 --
Note payable to Motorola in connection with the purchase of radio
communications equipment, payable in 36 monthly installments through January
2000, including interest at 10.625%, secured by guarantee and stock pledge
agreement (see note 5). 270,651 --
Note payable to Bortex Trust in connection with asset purchase (see note 2)
payable in monthly installments of $4,707 through May 1998, including
interest at 12%. 73,257 --
Note payable in connection with purchase of SMR stations from General (see note
2), payable in semi-annual installments of $146,303 through November 1996.
Thereafter, $280,278 semiannually through November 1997 including interest
at 9%, secured by stock pledge agreement. -- 862,123
$410,000 note payable associated with non-competition and consulting agreements
obligation, from General acquisition (see note 2), payable in 36 monthly
installments of $11,389 through November 1997, non-interest bearing with
interest imputed at 10% net of discount of approximately $54,000. -- 228,065
- ------------------------------------------------------------------------------------------------------------
2,717,238 1,090,188
Less current installments (217,096) (456,480)
============================================================================================================
$ 2,500,142 $ 633,708
============================================================================================================
</TABLE>
F-17
<PAGE> 41
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(8) LONG-TERM DEBT - CONTINUED
Aggregate maturity of debt, net of discount, for the next five years is as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year ended December 31
<C> <C>
1997 $ 217,096
1998 877,816
1999 519,126
2000 33,092
2001 28,776
Thereafter 1,041,332
- ---------------------------------------------------------------------
$2,717,238
=====================================================================
</TABLE>
A. DEBT ISSUANCES AND CONVERSIONS
In June 1996, the Company issued $4.0 million out of a $5.0 million
offering of 8%, three year, convertible notes payable. The Company received
$3,580,000, net of placement fees of $420,000, which are accounted as a
reduction of the obligation amortized on the straight-line which approximates
effective interest method. Subsequent to June, the Company placed the remaining
$1.0 million convertible notes and received $900,000, net of placement fees of
$100,000. Principal and accrued interest are convertible into common stock at a
conversion price for each share of common stock equal to 72-1/2% of the market
price of the common stock. Market price is defined as the lessor of (a) a
27-1/2% discount of the 5 day average closing bid price of the common stock, as
reported by the National Association of Securities Dealers Electronic Bulletin
Board, for the previous 5 business days ending on the day before the conversion
date, or (b) the closing bid on the closing date of the sale. During 1996,
certain holders tendered $4.6 million of the convertible notes and $80,432 of
accrued interest for conversion into 2,187,029 shares of the Company's common
stock.
In September 1996, the Company issued a new debt offering of $3.0 million of 8%,
two year convertible notes. The Company received $2.7 million, net of placement
fees of $300,000. The Company issued 30,000 shares of common stock in connection
with the placement of the convertible notes. Principal and accrued interest are
convertible into common stock at a conversion price for each share of common
stock equal to 72-1/2% of the market price of the common stock. Market price is
defined as the lessor of (a) a 27-1/2% discount of the 5 day average closing bid
price of the common stock, as reported by the National Association of Securities
Dealers Electronic Bulletin Board, for the previous 5 business days ending on
the day before the conversion date, or (b) the closing bid on the closing date
of the sale. During 1996, the holder tendered $2.0 million of the convertible
notes and $30,673 of accrued interest for conversion into 1,366,184 shares of
the Company's common stock. On December 27, 1996, the holder tendered $250,000
of the convertible notes and $5,945 of accrued interest for conversion into
231,744 shares of the Company's common stock. The unissued common stock and the
value of these shares of $255,945 is recorded as common stock subscribed in
share holders' equity (deficiency) at December 31, 1996.
B. LEASE COMMITMENTS
Commencing in March 1995, the Company leases its corporate offices and
warehouse facilities in Las Vegas, Nevada under a non-cancelable operating
lease agreement which expired in March 1997. Terms of the lease provide for
minimum monthly lease payments of $5,560 including operating expenses. The
agreement provides for one two-year renewal period in which the lease payment
shall be adjusted for changes in the consumer price index as defined therein.
The Company extended this lease to June 1997.
The Company entered into a new lease for its corporate offices and warehouse
facilities in Las Vegas, Nevada, commencing in April 1997, subject to available
occupancy, under a non-cancelable operating lease agreement which expires in
March 2002. Terms of the lease provide for minimum monthly lease payments of
$16,331 including operating expenses. The agreement provides for annual
adjustments to the minimum monthly lease payment based on the consumer price
index as defined therein.
The Company is obligated under two capital leases for various SMR equipment.
In addition, the Company leases certain antenna sites for transmission of SMR
services. The terms of these leases range from month-to-month to 5 years, with
options to renew. Most of the leases provide for a termination notification
period of 30 to 60 days by the Company or the site owner.
F-18
<PAGE> 42
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(8) LONG-TERM DEBT - CONCLUDED
Future minimum payments associated with the leases described herein including
renewal options are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
- -----------------------------------------------------------------------------
<S> <C> <C>
Years ended December 31:
1997 $ 31,109 $ 321,760
1998 11,500 273,618
1999 -- 238,368
2000 -- 222,182
2001 -- 199,012
- -----------------------------------------------------------------------------
$ 42,609 $1,254,940
=============================================================================
Total minimum lease payments $ 42,609
Imputed interest (3,693)
- -----------------------------------------------------------------------------
Present value of minimum capitalized lease payments 38,916
Less current portion (30,270)
- -----------------------------------------------------------------------------
Long-term capitalized lease obligations $ 8,646
=============================================================================
</TABLE>
Total rent expense for the year ended December 31, 1996 and 1995 amounted to
$66,728 and $55,600, respectively.
C. MOTOROLA PURCHASE AND FINANCE AGREEMENTS
On October 25, 1996, the Company's subsidiary CCI signed a purchase agreement
with Motorola to purchase approximately $10.0 million of Motorola's radio
communications equipment, including a Smartnet II trunked radio system. The
agreement requires that the equipment be purchased within 30 months of the
effective date of the agreement (initial shipping of the equipment).
In connection with this purchase agreement, CCI entered into a financing and
security agreement with Motorola for the equipment stated above. This agreement
allows CCI to borrow up to a total of $5.0 million (the "Loan Facility"). This
Loan Facility is available for draw downs during the effective term of the
purchase agreement. The facility allows no more than one draw down per month.
Each of the draw downs will be evidenced by a promissory note (the "Promissory
Note"). Principle and interest on the Promissory Note are payable in arrears
monthly from the date of each funding for a period of 36 months from the fund
date. The agreement closed on October 25, 1996 and is subject to certain
pledges, representations, warrants and covenants. As a part of the financing
provided pursuant to the purchase agreement between CCI and Motorola, the
Company executed a guaranty and security agreement with Motorola, pursuant to
which the Company unconditionally and irrevocably guarantees the obligations of
CCI under the purchase agreement. The guaranty and security agreement contains
various financial and other covenants of the Company. As of December 31, 1996,
the Company is indebted for $270,651 under the Loan Facility.
F-19
<PAGE> 43
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
D. AMERICAN CREDIT CORPORATION LETTER OF AGREEMENT
In October 1996, the Company entered into a letter of agreement with American
Credit Corp. (ACC) to establish a $16.5 million equipment financing facility for
the purpose of purchasing analog systems and related equipment. The equipment
will be purchased by ACC (the "Lessor") and leased to the Company. The financing
facility will act as a draw down account with each draw representing a funding
date. The agreement calls for a basic lease term of five years, beginning on
the basic lease commencement date. There will be two basic lease commencement
dates, July 1, 1997, for all equipment with funding dates on or before December
31, 1996, and January 5, 1998, for funding on or before December 31, 1997. The
leases are paid in advance starting on the basic lease commencement date and
continuing until the end of the term. At the expiration of the basic lease term
the Company will have the right (a "Purchase Option") to purchase all, but not
less than all, of such equipment at a purchase price equal to the fair market
value of such equipment. A definitive agreement is subject to the approval of
the credit committee of ACC, preparation, negotiation, and completion of
documentation, due diligence investigations and evaluation by ACC of the 800
MHz marketplace.
(9) EQUITY TRANSACTIONS
A. PRIVATE PLACEMENT
In August 1995, the Company prepared a Private Placement Memorandum ("PPM") and
offered 1.0 million units at a price of $2.00 per unit. Each unit consisted of
one share of the Company's common stock and one common stock purchase warrant.
One warrant entitles the holder to purchase one share of common stock at $5.00
per share for a period of three years from the date of issuance. In connection
with the PPM, the Company issued 763,584 shares of restricted common shares and
received proceeds of $1,527,171 net of issuance costs of $54,210. In October
1995, the Company reduced the price of the units in the PPM to $1.50 per unit
with the same warrant terms.
In March 1996, 549,417 of the PPM units were sold. 441,666 of those units were
sold at a discount of $.50. As a result, the Company expensed $220,833 in
connection with the sale of these units which is included in general and
administrative expense in the statement of operations at December 31, 1996.
The Company also sold 430, 000 shares of restricted common stock to these
foreign investors and received proceeds of $645,000.
B. PREFERRED STOCK OFFERING
On April 4, 1996, the Company issued 250,000 shares of its Convertible Series A
Preferred Stock in exchange for $2,273,708, net of expenses of $226,292. In
addition, during June 1996, the Company issued warrants to purchase 200,000
shares of common stock as prescribed under the agreement. The preferred stock
was converted to 977,057 shares of common stock in June 1996.
C. LICENSE PURCHASE
During 1995, the Company purchased options to buy licenses from individuals
ranging between $100 to $1,500 per option. In February 1996, the Company issued
285,860 restricted common shares as down payment for the exercise of the option
to purchase 140 licenses under the license option agreements (see note 6). The
issuance of the stock represented the full option price which is 40% of the
purchase price. The amount capitalized as down payment of these licenses was
based on Management's estimate of the fair market value of the stock on the
date of issuance and totaled $821,850. The issuance of the stock, valued at
$821,850, has been recorded as an investment in license options on December 31,
1996. In addition, the Company made a down payment on approximately 8 license
options and agreed to issue 11,440 restricted shares of its common stock as
payment of the full option price which is 40% of the purchase price of these
licenses. The shares have been valued at $32,890 and have been recorded as an
investment in license options and common stock subscribed at December 31, 1996.
F-20
<PAGE> 44
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
In December 1995, the Company issued 562,260 restricted common shares as down
payment for the exercise of the option to purchase 347 licenses under the
license option agreements. The issuance of the stock represents the full option
price which is 40% of the purchase price. The amount capitalized as down
payment of these licenses was based on the fair market value of the stock on
the date of issuance and totaled $860,258.
D. DEBT CONVERSIONS
o RELATED PARTIES -- In connection with the Plan of Reorganization, the
Company issued to certain former Capvest officers, directors and
creditors 175,000 shares of the Company's common stock in lieu of cash
payments on obligations of $538,309 owed by the Company. No gain or loss
was recognized in the transaction.
On March 9, 1995, a significant shareholder and officer of the Company
converted advances totaling $116,329 into 46,532 shares of the Company's
restricted common stock at a rate of $2.50 per share. In addition, 46,352
options were issued at an exercised price of $4 per share, exercisable
for three years from the date of grant. No gain or loss was recognized in
the transaction.
On March 24, 1995, a trust managed by a significant shareholder and
officer of the Company converted advances totaling $578,405 into 385,604
shares of the Company's restricted common stock at a rate of $1.50 per
share. In addition, 385,604 options were issued at an exercise price of
$4 per share, exercisable for three years from the date of grant. No gain
or loss was recognized in the transaction.
o UNRELATED PARTIES -- In connection with a note payable to a third party
with an original balance of $350,000, the Company issued 171,917 shares
of restricted common stock in lieu of a cash payment of $275,000. The
Company recognized a loss of $20,904 as a result of this transaction
based on the fair market value of the stock at the date of conversion.
The loss is included in general and administrative expense in the
consolidated statement of operations at December 31, 1995.
In connection with a note payable with an original balance of $23,000 to
an individual, the Company issued 16,667 shares of restricted common
shares in lieu of a cash payment in full satisfaction of the debt. The
Company recognized a loss of $11,500 as a result of this transaction
based on the fair market value of the stock at the date of conversion.
The loss is included in general and administrative expense in the
consolidated statement of operations at December 31, 1995.
During the second half of 1996, certain holders of the 8%, three-year,
convertible notes payable, tendered $4.6 million of the convertible notes
and $80,432 of accrued interest for conversion into 2,187,029 shares of
the Company's common stock. In the fourth quarter of 1996, the holder of
the 8%, three-year, convertible notes payable, tendered $2.25 million of
the convertible notes and $36,617 of accrued interest for conversion into
1,597,928 shares of the Company's common stock.
E. CONSULTING
o RELATED PARTIES -- The Company issued 60,000 unrestricted shares to an
employee for consulting services. The expense associated with the shares
was based on the fair market value at the date of grant and totaled
$285,000. This amount has been included in general and administrative
expense in the consolidated statement of operations at December 31, 1995.
o UNRELATED PARTIES -- The Company also issued 215,000 shares of
unrestricted common stock and 221,000 shares of restricted common stock
for consulting services. The expense related to the shares was based on
the fair market value at the date of grant and totaled $1,493,215. This
amount was expensed during the year ended December 31, 1995, and is
included in the consolidated statement of operations as general and
administrative expense.
The Company also issued 62,500 shares of restricted common stock for
legal services. The value related to the shares was based on the fair
market value at the date of grant and totaled $62,500. The legal services
amount was expensed during the year ended December 31, 1996, and is
included in the consolidated statement of operations as general and
administrative expense.
F-21
<PAGE> 45
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
As of January 19, 1996, the Company's Board of Directors approved and
issued 450,000 shares of restricted common stock valued at $.37 per share
in lieu of cash payment of $153,000. The expense related to the shares was
based on the fair market value at the date of grant and totaled $866,250.
This amount was expensed during the year ended December 31, 1996, and is
included in the consolidated statement of operations as general and
administrative expense.
F. CANCELED AGREEMENTS
In October 1996, the Company entered into mutual settlement and release
agreements (the "Settlement Agreements") with certain parties to an SMR System
Management Agreement and Option to Acquire ("Underlying Agreements"). The
parties agreed to nullify and render void the Underlying Agreements and as
additional consideration for the Settlement Agreements, the Company agreed to
issue shares of the Corporation's restricted common stock. Pursuant to the
terms in the Settlement Agreements, the Company has authorized the issuance of
an aggregate of 47,100 shares of its restricted common stock, the value of
$60,288 is reflected in other income and expenses in the Company's consolidated
statement of operations.
G. PENALTY FEES
In connection with the note payable to the owner of General (see notes 2 and
8), the Company issued 10,000 restricted shares of common stock as late fees on
their monthly payments of the note payable. The shares were valued at $.25 per
share. The fair market value at the date of grant totaled $18,750 and is
included in general and administrative expense in the consolidated statement of
operations at December 31, 1995.
H. PREPAID MANAGEMENT RIGHT FEES
On December 29, 1995, in connection with an agreement for the management of
certain SMR stations, the Company issued 77,002 shares of restricted common
stock valued at $1.50 per share. The agreement called for the Company to
receive a percentage of the net revenues generated over the next five years.
The number of shares issued was determined based on the present value of an
estimate of the future cash flows to be received under the management
agreement. The expense related to this transaction was based on the fair market
value of the stock at the date of grant and totaled $117,813 at December 31,
1995. The total amount was capitalized as prepaid expense in the consolidated
balance sheet at December 31, 1995, and is being amortized over the management
agreement period. The expense associated the prepaid management right fees was
$36,250 and $-0- for the years ended December 31, 1996 and 1995, respectively.
I. STOCK RETIREMENT
In September 1996, Libero tendered funds, in the amount $2,082,116, to a former
officer and director of the Company. In consideration of the funds received,
the Company's former officer and director tendered 1,514,266 shares of the
Company's common stock to the Company which were canceled. In consideration for
the shares, the Company recorded an obligation to Libero in the amount of
$2,082,116 which can only be used for the future amount of option exercises. At
December 31, 1996, the remaining obligation to Libero totals $832,116 and is
included in accompanying consolidated balance sheet.
F-22
<PAGE> 46
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
J. OPTIONS
During 1996, the Company granted stock options to purchase 11,417,364 shares of
the Company's common stock. The options issued to shareholders, consultants,
investors and third parties through acquisitions are exercisable for three to
ten years from date of issuance.
<TABLE>
<CAPTION>
NUMBER
STOCK OPTIONS OF SHARES
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994 --
Granted at $0.50-$5.50 per share 3,937,136
Less exercised at $0.50-$1.50 per share (865,000)
Lapsed or canceled --
- -----------------------------------------------------------------------
Outstanding at December 31, 1995 3,072,136
Granted at $.37-$6.00 per share 11,417,364
Less exercised at $0.37-$2.50 per share (4,470,000)
Lapsed or canceled (376,532)
- -----------------------------------------------------------------------
Outstanding at December 31, 1996 9,642,968
=======================================================================
</TABLE>
Compensation expense associated with the issuance of options of $866,250 and
$2,841,788 was recognized for the years ended December 31, 1996 and 1995,
respectively.
The Company applied APB Opinion No. 25 in accounting for its Non-Compensatory
Stock Option Plan and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amount indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Net income As reported $ (6,826,250) $ (7,033,325)
Pro forma (10,049,448) (1.29)
EPS As reported (0.53) (7,033,792)
Pro forma $ (0.79) $ (1.29)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 25%, risk-free interest rate of 6.5% and
expected life of one year for the options.
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of two
years, and compensation cost for options granted prior to January 1, 1995 is not
considered.
F-23
<PAGE> 47
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
K. WARRANTS
During the Year ended December 31, 1996, the Company issued warrants in
conjunction with the following transactions:
o 340,584 issued in connection with the private placement unit sales (see
"private placement").
o 200,000 issued in connection with the preferred stock placement.
o 182,000 issued in connection with the placement of $5.0 million of
convertible debentures, 8%, due June, 1999.
o 100,000 issued in connection with the placement of $3.0 million of
convertible debentures, 8%, due September, 1998
During the year ended December 31, 1995, the Company issued warrants in
conjunction with the following transactions:
o 763,584 issued in connection with the private placement unit sales (see
"private placement").
o 30,000 issued as part of the conversion of CCI common stock to CWG common
stock (see "conversion of CCI shares").
o 51,667 issued in addition to common shares issued lieu of cash payment on
notes payable (note 9).
o 55,250 issued in lieu of cash payment for consulting services.
o 208,883 issued in connection with the private placement unit sales, but
were subscribed at December 31, 1995.
Each warrant can be exercised for one share of the Company's common stock. The
following is a summary of warrants outstanding and their terms as of December
31, 1996:
<TABLE>
<CAPTION>
NUMBER
WARRANTS OF SHARES
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994 --
Granted at $2.50-$5.00 per share 1,109,334
Less exercised --
Lapsed or canceled --
- -----------------------------------------------------------------------
Outstanding at December 31, 1995 1,109,334
Granted at $1.50 - $4.00 per share 822,584
Less exercised --
Lapsed or canceled --
- -----------------------------------------------------------------------
Outstanding at December 31, 1996 1,931,918
=======================================================================
</TABLE>
L. MINORITY INTEREST
Prior to the reverse merger, the Company sold restricted common stock in its
subsidiary, CCI, to a third party totaling 700,000 shares. The holder of such
shares has not yet elected to convert these shares of CCI to shares of Chadmoore
Wireless Group, Inc. As per the amended and restated stock subscription
agreement dated January 13, 1995, the third party has options to purchase 2.1
million shares of restricted common stock of CCI. The options are exercisable
six months from the closing date of the amended and restated stock subscription
agreement through eight years from such date. As such, by July 13, 1995, 700,000
options that were exercisable at $1.50 per share were unexercised by the third
party and thus expired on that date. Options to purchase 1.4 million shares of
CCI remained outstanding at December 31, 1996 at the following exercise prices:
<TABLE>
<CAPTION>
NUMBER OPTION
OF OPTIONS OPTION TYPE EXERCISE PRICE EXPIRATION DATE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
700,000 A $ 2.50 1/13/2000
700,000 B $ 4.00 1/13/2003
</TABLE>
F-24
<PAGE> 48
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
In addition, subsequent to the merger, the Company sold common stock in CCI to
third parties totaling 30,000 shares with net proceeds of $45,000. At December
31, 1995, these 30,000 shares of CCI's common stock were converted to an equal
number of Chadmoore Wireless Group, Inc.'s restricted common stock and these
shareholders were granted warrants to purchase 30,000 shares of common stock at
$5 per share.
As a result of the reverse purchase acquisition and Plan of Reorganization as
described in note 1, the third party shareholders of CCI shares are not
considered a minority interest in the Company for accounting purposes as CCI is
treated as the acquiring entity.
However, for accounting purpose, the original shareholders of CapVest would be
a minority interest. Due to the net losses of the Company incurred to date, no
minority interest is presented in the accompanying consolidated financial
statements.
(10) INCOME TAXES
Since inception, the Company has incurred net operating losses for both
financial reporting and income tax purposes. As of December 31, 1996, the
Company has net operating loss carry forwards for income tax reporting purposes
totaling approximately $23.5 million. A deferred tax asset is provided when,
in management's opinion, it is more likely than not that the deferred tax asset
will be realized. To the extent the Company is not able to determine that it is
more likely than not that net deferred tax assets will be realized prior to
expiration, a valuation allowance is recorded to reduce the net deferred tax
asset to the amount which is more likely than not to be realized. A valuation
allowance has been provided for 100% of such asset since the likelihood of
realization cannot be determined.
Total income tax expense (benefit) differed from the "expected" income tax
expense (benefit) determined by applying the statutory federal income tax rate
of 34% as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C>
"Expected" statutory tax expense (benefit) $(2,320,925)
Increase (reduction) in income taxes (benefit) resulting from:
Change in the beginning of year balance of the valuation allowance for deferred tax
assets allocated to income tax expense (benefit) 2,320,925
- ------------------------------------------------------------------------------------------------------
$ --
======================================================================================================
</TABLE>
(11) RELATED PARTY TRANSACTIONS
In connection with the note payable to a third party, in 1995, the Company paid
cash of $75,000 and issued 171,917 shares of restricted common stock. In
addition, the Company issued warrants to purchase 35,000 shares of restricted
common stock at an exercise price of $5 per share. These warrants expire
December 29, 1998.
In connection with the note payable to an individual, in 1995, the Company
issued 16,667 shares of restricted common stock. In addition, the Company
issued warrants to purchase 16,667 shares of restricted common stock at an
exercise price of $5 per share. These warrants expire September 22, 1998.
On March 24, 1995, a trust managed by a significant shareholder and officer of
the Company converted advances totaling $578,405 into 385,604 shares of the
Company's restricted common stock at a rate of $1.50 per share and options to
purchase 385,604 shares at $4 per share, in accordance with existing debt
agreements, in full satisfaction of the advances.
On March 9, 1995, a significant shareholder and officer of the Company
converted advances totaling $116,329 into 46,532 shares of the Company's
restricted common stock at a rate of $2.50 per share in full satisfaction of
the advances. In addition, 46,532 options were issued, exercisable at $4 per
share and expiring March 9, 1998.
F-25
<PAGE> 49
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
===============================================================================
(12) COMMITMENTS AND CONTINGENCIES
A. LICENSE OPTION CONTINGENCIES
Once an SMR channel is operating, the Company may exercise its option to acquire
the license at any time prior to the expiration of the option. Although, the
Company presently intends to exercise all options, the exercise is subject to a
number of contingencies. These contingencies include constructing the license
within the time period allotted by the FCC, maintaining the channel once
constructed, having the ability to purchase the license and the FCC approval of
the transfer. If the Company fails to complete construction within the FCC time
period and the Company fails to timely notify the grantor of the option, the
Company will be obligated under the option to pay the full option price.
The Company may elect not to exercise an option for various business reasons,
including the Company's inability to acquire other stations in a given market,
making it economically unfeasible for the Company to offer an SMR system in
such market. If the Company does not exercise an option, its grantor may retain
the consideration previously paid by the Company. Moreover. if the Company
defaults in its obligations under an option, the grantor may retain the
consideration previously paid by the Company as liquidated damages. Further, if
the SMR system is devalued by the Company's direct action, the Company is also
liable under the option for the full option price, provided the grantor gives
timely notice.
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corp. (collectively, "NDD/Metropolitan"), traded in the selling
of SMR application preparation and filing services to the general public. Most
of the purchasers in these activities had no experience in the wireless
communications industry. Based on evidence that NDD/Metropolitan had been
unable to fulfill their construction and operation obligations to over 4,000
applicants who had received FCC licenses, the Federal Trade Commission ("FTC")
filed suit against NDD/Metropolitan in January, 1993, in the Federal District
Court for the Southern District of New York ("District Court").
The District Court appointed a receiver, Daniel R. Goodman, to preserve the
assets of NDD/Metropolitan. In the course of the receiver's duties, Mr.
Goodman, together with a licensee. Dr. Robert Chan, who had received several
FCC licenses through NDD/Metropolitan's services, filed a request to extend the
construction period for each of over 4,000 SMR stations. At that time,
licensees of most of the stations included in the waiver request ("Receivership
Stations") were subject to an eight month construction period. On May 24, 1995,
the FCC granted the request for extension. The FCC reasoned that the
Receivership Stations were subject to regulation as CMRS stations, but had not
been granted the extended construction period to be awarded all CMRS licensees.
In fairness, the FCC granted an additional four months in which to construct
and place the Receivership Stations in operation. The grant of the Goodman/Chan
Waiver is to become effective upon publication in the Federal Register. As of
this date, the Goodman/Chan Waiver has not been published in the Federal
Register.
The FCC has never released a list of stations it considers to be Receivership
Stations. Nonetheless, on the basis of general descriptions of the Receivership
Stations contained in FCC communications, the Company believes that many of the
stations CCI managers are Receivership Stations. In cooperation with each
licensee, CCI is proceeding with the construction of the Receivership Stations
it manages. Because the FCC will not release a list of Receivership Stations, no
assurance can be given that any of the stations managed by CCI are Receivership
Stations or that the construction of all of the stations managed by CCI will be
timely constructed. Approximately 1,700 of the stations managed by CCI are
implicated in or involved with the receivership. As of December 31, 1996, the
Company has recorded $3,239,691 to investment in license options in association
with the option agreements held by CCI.
The Company's Subsidiaries. 800 and CMRS, manage over five hundred multi-channel
trunked SMR stations representing over 5,000 channels and licensed to
thirty-three corporations. The stations managed by 800 and CMRS are
included in a five-year Extended Implementation Plan granted by the FCC on March
31, 1995, under Section 90.629 of the FCC's rules, 47 C.F.R. Section 90.629.
Under the Extended Implementation Plan, as granted, the stations must be
constructed in accord with a five-year construction plan. On December 15, 1995,
the FCC requested that all licensees included in a Section 90.629 Extended
Implementation Plan file documents re-justifying the extended construction
period. A rejustification of the Extended Implementation Plan including the
stations managed by 800 and CMRS was timely filed. While the Company
believes that the FCC will grant at least two years to complete construction of
the stations managed by 800 and CMRS, it cannot predict what the FCC's
evaluation of the rejustification will yield. In any event, even if the FCC
finds the rejustification to be meritless, under Section 90.629(e) of the FCC's
rules, 47 C.F.R. Section 90.629(e), 800 and CMRS will be given six
months from the date of such determination to complete construction of the
stations managed by 800 and CMRS. As of December 31, 1996, the Company
has recorded $22,721,712 to management agreements held by CMRS and 800 and
$9,737,877 to options to acquire the stock of the licensee corporations also
held by CMRS and 800.
B. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of Management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(13) SUBSEQUENT EVENTS
A. DEBT ISSUANCE
In February 1997, the Company executed a Securities Placement Agreement to place
a minimum of $1.0 million and maximum of $4.0 million of the Company's
three-year, 8%, Convertible Debentures. Principle and interest are convertible
into shares of the Company's common stock. In addition, the Securities Purchase
Agreement calls for the issuance of 75,000 warrants to purchase shares of the
Company's common stock at an exercise price of $2.50 per share for each
$1.0 million of 8% Convertible Debentures placed. The warrants are exercisable
for three years from date of grant. On February 19, 1997, the Company placed
$1.0 million of the 8% Convertible Debentures and received $860,000, net of
$140,000 of placement fees. The Company granted 75,000 warrants in connection
with the placement. On February 24, 1997, the Company placed an additional
$750,000 of the 8% Convertible Debentures and received $670,000, net of $80,000
in placement fees. The Company granted 56,250 warrants in connection with the
placement. Principal and accrued interest are convertible at a conversion price
for each share of common stock equal to the lessor of (a) $1.37 or (b) a
discount of 25% for principal and accrued interest held up to 90 days from the
closing date, a discount of 27-1/2% for principal and accrued interest held for
91 to 130 days from the closing date or a discount of 30-1/2% for principal and
accrued interest held for more than 131 days. The discount will apply to the
average closing bid price for the 5 trading days ending on the date before the
conversion date, as represented by the National Association of Securities
Dealers Electronic bulletin Board.
B. AIRTEL SMR, INC. OPTION TO ACQUIRE AGREEMENT
On May 11, 1996, the Company completed a Management and Option to Acquire
Agreement with Airtel SMR, Inc., an operator of SMR stations. The Company
assumed a $100,000 note payable, due May 1998 with interest at 12%. The Company
received SMR equipment valued at $62,702, Management Agreements for one year
valued at $3,730 and an Option to Acquire the common stock of Airtel SMR, Inc.
valued at $33,568. The allocated valuations of the Management Agreement and
Option to Acquire Agreement were based on Management's estimates. On February
23, 1997, The Company exercised its option to acquire the outstanding stock of
Airtel SMR, Inc. for $75,000 cash and a 180 day, noninterest bearing, note
payable for $75,000. In addition, the $100,000 note payable previously assumed
was to become due and payable upon the exercise of the option. The parties
agreed to amend the note in consideration for payment of $36,628 which was paid
on February 23, 1997. The remaining $36,628 is payable in five monthly
installments of $4,707 and the remaining $14,866 is due on June 1, 1997.
F-26
<PAGE> 50
FORM 10-KSB
===============================================================================
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Identification Directors and Executive Officers. The following table sets forth
the names and ages of all directors and executive officers of the company and
all persons nominated or chosen to become a director or an executive officer,
indicating all positions and offices with the registrant held by each such
person and the period during which he has served as a director or executive
officer as of March 17, 1997:
<TABLE>
<CAPTION>
Period of Service
as Director or
Name Age Position Executive Officer
- --------------------- --- ----------------------------- -----------------
<S> <C> <C> <C>
Robert W. Moore 39 President, CEO and Director 2/95 to Present
Jan S. Zwaik 48 Chief Operating Officer 2/97 to Present
William C. Bossung 39 Director of Corporate Finance and Director 2/95 to Present
Assistant Secretary 2/95 to 2/97
Secretary 4/96 to Present
Gary L. Killoran 31 Chief Financial Officer 11/95 to Present
Treasurer 4/96 to Present
Assistant Secretary 2/97 to Present
Director 11/96 to Present
David J. Chadwick 36 Vice President, Secretary, Treasurer
and Director 2/95 to 4/96
James E. Treatch 62 Director 5/96 to 11/96
</TABLE>
Business Experience
ROBERT W. MOORE, has been President, Chief Executive Officer and a Director of
the Company since its reorganization with CCI effective in February 1995, and
has held similar positions in CCI since May, 1994. Mr. Moore has been involved
in the wireless communications industry since 1984. From 1989 to 1991, Mr.
Moore was Regional General Manager of three Metropolitan Statistical Areas for
Cellular One. The requirements of his position included management of over 75
employees, complete marketing, operational and P&L responsibility. From 1992 to
1993, he was General Manager for Cellular One in Upstate New York, managing a
cellular market with over 35,000 customers and annual revenues in excess of
$30,000,000. Again, he was responsible for marketing, strategic planning for
system upgrades and customer service and had complete P&L responsibilities.
From May 1993 to March 1994, he was President and Director of American Digital
Communications, Inc., a public company, where he negotiated agreements to
acquire over 800 SMR channels covering a population of over 10,000,000. In
addition, while employed at US CommStruct, from 1991 to 1992, as Director of
Marketing, Mr. Moore was responsible for completing the design, construction,
marketing plan, operational budgets, hiring and training of initial staff and
implementation of those plans to bring into operation cellular systems for four
Rural Statistical Areas.
23
<PAGE> 51
FORM 10-KSB
===============================================================================
JAN S. ZWAIK, has been Chief Operating Officer since February 1997. Prior to
that, Mr. Zwaik was the Vice President-Director of Geotek Communications in New
York from 1995 until February 1997. In that capacity, he administered all
aspects of the marketing and distribution of Geotek's Digital SMR system. From
1992 to 1995, he was Chief Financial Officer and Chief Operating Officer of
Mariga Communications Corporation/NovoComm Inc., an international
telecommunications company. He managed all aspects of operations and finance
for four divisions of entrepreneurial international telecommunications company
with offices in the US and Russia. Mr. Zwaik also served as CFO and Vice
President-Finance and Operations of Lin Broadcasting's Cellular Division
between 1988 and 1992. As Vice President-Finance and Operations, he contributed
toward the achievement of the highest operating margins in competitive markets
of New York, Los Angeles, Philadelphia, Dallas and Houston. Mr. Zwaik is an
honors graduate of New York University (BS, Accounting) and a Certified Public
Accountant, State of New York.
WILLIAM C. BOSSUNG, has been Director of Corporate Finance, Assistant Secretary
and a Director of the Company since its reorganization with CCI effective in
February 1995, and has held similar positions in CCI since December, 1994. In
addition, Mr. Bossung was elected Secretary in April of 1996. Prior to that, he
had been an independent financial consultant to private and public corporations
in the development stage since 1990. He specializes in the assessment of
capital structures and planning of capital formation. Mr. Bossung is also
President of Asian Financial Network, Inc., a Colorado corporation. Asian
Financial Network, Inc. is involved in the evaluation of private companies and
operates also as a financial advisor to public corporations. Mr. Bossung owns
85% of the common stock of Asian Financial Network, Inc., whose principal
business is corporate financial advisement. He is a graduate of Bloomsburg
State College (BS, Accounting, 1979).
GARY L. KILLORAN, has been Chief Financial Officer since November 1995,
Treasurer since March 1996, Director since November 1996 and Assistant
Secretary since February 1997. From May, 1995 to November he was Controller of
the Company. Prior to joining Chadmoore, Mr. Killoran spent 2 years as the
Regional Accounting Manager - West Region for Sprint Cellular Corporation in
Las Vegas, Nevada. In that capacity he managed the development and
implementation of the operating budgets in excess of $ 175 million, capital
budgets in excess of $65 million and related strategic plans as presented to
senior management for approval. He also compiled financial data, implemented
and monitored internal controls and completed monthly variance analysis. From
1988 to 1992, he was a Senior Accountant with Centel Corporation in Chicago,
Illinois, where he was involved with various aspects of financial reporting
including the preparation of earnings releases, quarterly dividend inserts,
annual reports and financial reports required to be filed with the Securities
and Exchange Commission. He is a graduate of the University of Wisconsin (BS,
Business Administration, 1988).
DAVID J. CHADWICK, was Vice President, Secretary, Treasurer, Director of
Technology and Development and a Director of the Company since reorganization
with CCI effective in February 1995, and has held similar positions in CCI
since May, 1994. In April 1996, Mr. Chadwick resigned from all positions with
the Company and its subsidiaries, including Director.
JAMES E. TREATCH, was Director of the Company from April 1996 to November 1996.
Mr. Treach began his career in the communications industry in 1956 with the
Motorola Communications Division. Over the past 34 years, Treach founded and
developed several significant communications businesses such as: Cellpage Inc.,
Metroplex Radio, Inc., MOSMR inc., Versalink and ComVen Inc. Treach has also
established MicroRel Inc., in Tempe, Arizona.
Term of Office. Directors are elected to serve until the next succeeding annual
meeting of the shareholders or until their successors are duly elected and
shall qualify. Executive officers are elected by a majority vote of the board
of directors and unless removed by a 2/3 vote of the board of directors and
until their respective successors are elected and shall qualify.
24
<PAGE> 52
FORM 10-KSB
===============================================================================
Compensation of Directors. Currently, Directors of the Company are not
compensated for their services. Directors are, however, reimbursed for all
travel and other expenses incurred in attending meetings of the Board and any of
its committees. No expenses were reimbursed or accrued for the fiscal year ended
December 31, 1996 and 1995, except the Company issued 109,862 shares of its
common stock to former officers and directors in February 1995, for services
rendered and reimbursement of costs. The Company valued such shares at $109,862.
Family Relationships. There are no family relationships between any Director or
executive officer or person nominated or chosen by the Company to become a
Director or executive officer.
Directorships. No Director or nominee for Director currently holds a
directorship in any company subject to the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered as
an investment company under the Investment Company Act of 1940.
Legal Proceedings. None.
Compliance With Section 16(a) of the Securities Exchange Act of 1934. Section
16(a) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's executive officers and directors and persons who
own more than ten percent of a registered class of the Company's equity
securities registered under the Exchange Act, to file initial reports of
ownership with the Securities and Exchange Commission (the "SEC") and each
exchange in which its securities are traded. Executive officers and directors
and greater than ten percent stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Robert W.
Moore, William C. Bossung, Gary L. Killoran, James W. Brock, and James E.
Treatch, officers and directors of the Company at July 12, 1996, the effective
date of the Company's registration of its Common Stock pursuant to Section 12
of the Exchange Act, failed to file their Form 3's on the effective date as
required. During 1996, Messrs. Bossung and Killoran failed to timely file Form
4's, each reporting one transaction. As of the date of this Report, all of the
above persons have filed such required Forms.
ITEM 10. EXECUTIVE COMPENSATION
Except for certain stock issuances footnoted below, prior to February 2, 1995,
no officer of the Company received any compensation for his services in that
capacity. The following table sets forth the total executive compensation paid
or accrued by the Company for services rendered to the Company or its
subsidiaries in all capacities in the fiscal years ended December 31, 1996,
1995 and 1994 to the Company's chief executive officer and each of the
Company's other executive officers ("Named Officers") whose total salary and
bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------
(a) (b) (c) (d) (e)
Name Year Other
and Ended Annual
Principal December Salary(1) Bonus(2) Compensation
Position 31 ($) ($) ($)
- --------------------- -------- --------- -------- ------------
<S> <C> <C> <C> <C>
Robert W. Moore 1996 93,000 78,000 --
President, CEO 1995 78,000 -- --
1994 11,650 -- --
William C. Bossung 1996 75,000 65,000 --
Director of Corporate 1995 60,000 -- --
Finance, Secretary 1994 -- -- --
</TABLE>
25
<PAGE> 53
FORM 10-KSB
===============================================================================
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------
Awards Payouts
-----------------------------------------------
(a) (b) (f) (g) (h) (i)
Name Year Restricted Shares All
and Ended Stock Underlying LTIP Other
Principal December Award(s) Options/ Payouts Compensation
Position 31 ($) SARs(#)(3) ($) ($)
- ---------------------- -------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Robert W. Moore 1996 -- -- -- --
President, CEO 1995 -- 250,000 -- 39,000(4)
1994 -- -- -- --
William C. Bossung 1996 -- 100,000 -- --
Director of Corporate 1995 -- 100,000 -- --
Finance, Secretary 1994 -- -- -- --
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of the Named Officer's total annual salary and bonus, but
includes salary received from CCI for the months January through February
1995, for services rendered to CCI in similar officer positions. CCI paid
the salary received in fiscal 1994.
(2) Mr. Moore received a bonus equal to $78,000 as a result of the Company
receiving an excess of $3,500,000 in aggregate equity financing as stated
in their respective employment agreements. Mr. Bossung received a bonus
equal to $65,000, as authorized by the board of Directors, based on Mr.
Bossung's significant contribution to the Company acquiring equity
financing.
(3) These options have been granted pursuant to the Non-qualified Plan.
One-half of the options awarded vest upon the Named Officers' respective
first anniversary of employment with the Company and with CCI and the
other half vests upon the Named Officers' respective second anniversary of
such employment.
(4) Mr. Moore elected to defer his compensation from CCI for six months in
1994, in the aggregate amount of $39,000, paid in 1995.
Employment Contracts. The Company does not currently have Employment Agreements
with its executive officers. The Company entered into an Employment Agreement
with Robert W. Moore effective as of April 21, 1995, which expired on January 1,
1997, provided for a base annual salary of $78,000, subject to increases
thereafter upon the approval of the Board of Directors in proportion to the
Company's performance and profitability. On February 8, 1996, the Board of
Directors approved an increase in Messrs. Moore's and Bossung's base annual
salaries to $93,000 and $75,000 respectively. The Company intends to renew Mr.
Moore's Employment Agreement on terms currently under discussion. Mr. Moore is
entitled to participate in the Company's employee benefit programs. At the
discretion of the Board of Directors, the Board may award a bonus to Mr. Moore
when the Company reports net taxable earnings. The Company also had an
Employment Agreement, expiring on January 1, 1997, with William C. Bossung, as
Director of Corporate Finance, with substantially the same terms and provisions
as Mr. Moore's, except that Mr. Bossung's compensation was $75,000 per annum.
The Company also intends to renew Mr. Bossung's Employment Agreement on terms
now under discussion.
26
<PAGE> 54
FORM 10-KSB
===============================================================================
Amended Nonqualified Stock Option Plan. The Company has reserved an aggregate
of 1,500,000 shares of common stock for issuance at fair market value pursuant
to the exercise of options under the Amended Nonqualified Stock Option Plan
adopted by the Board of Directors on June 15, 1995 (the "Nonqualified Plan"). A
Committee of the Company's Board of Directors, which is currently the Board of
Directors, has the authority to determine the persons to whom options shall be
granted, the amount of such options, and number of shares subject to each
option, the time or times on which all or a portion of each option may be
exercised and certain other provisions of each option. Options may be granted
to directors, officers and key employees of the Company. As of December 31,
1996, the Board of Directors has granted options for 1,575,000 restricted
shares, of which options for 330,000 restricted shares of the Company's common
stock have been canceled and options for 797,500 restricted shares of the
Company's common stock have vested.
The Nonqualified Plan requires the exercise price of the options granted to be
not less than the fair market value of the Company's common stock on the day of
grant. The Board of Directors may terminate the Nonqualified Plan at any time,
subject to outstanding options. Subject to certain exceptions, the Nonqualified
Plan may be amended by the Board of Directors without shareholder approval.
Employee Benefit and Consulting Services Compensation Plan. On June 15, 1995,
the Company adopted the Chadmoore Wireless Group, Inc. Employee Benefit and
Consulting Services Compensation Plan (the "Plan"). On December 8, 1995, the
Company's Board of Directors amended the Plan with respect to the number of
shares reserved for issuance thereunder. The Plan provides for the direct
issuance of, or the granting of options to acquire, common stock to any
consultant, service provider or employee (including a director who is also an
employee) of the Company who is eligible to receive such common stock or
exercise such options up to an aggregate amount of 1,600,000 shares of Common
Stock. These shares have been registered under cover of Form S-8 as filed with
the SEC on July 12, 1995 and December 14, 1995.
The Plan is administered by a committee of the Board of Directors, which
currently is the Board of Directors. The committee has the authority to
determine the persons to whom the shares or options are granted, the amount of
such shares or options, the exercise price and number of shares subject to each
option, the time or times on which all or a portion of each option may be
exercised and certain other provisions with respect to each option and the
direct issue price for payment by each person for shares granted. The
determination of shares to be issued or options to be granted to a particular
person pursuant to the terms of the Plan can be made by the committee at any
time. As a result, the terms and/or exercise price so set by the committee may
vary from one person to another selected to participate in the Plan. Unless at
the time of grant or issuance, the committee in its sole discretion adopts
restrictions with respect to transferability thereof, the options and shares
issued pursuant to the Plan are freely tradable. The Plan does not limit the
number of options granted or shares issued to any particular person nor does it
provide any limits with respect to the terms that the options may be exercised
upon.
At December 31, 1996, the Committee has authorized and issued 1,547,500 shares
of common stock for issuance under the plan. Since the Plan's inception, the
Committee has granted options to acquire 1,297,500 shares of common stock
pursuant to the terms of the Plan. With respect to the options granted to date,
they may be exercised by the holders thereof, in whole or in part, at any time
within three years of the date of grant. The exercise price of the options is
$1.00 per share, except options for 702,500 shares, which have an exercise
price of $.50 per share. The holders of the options have exercised such options
to purchase an aggregate of 1,272,500 shares of common stock as of December 31,
1996. Unless exercised, all the remaining options will expire by July 1998.
27
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FORM 10-KSB
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Options of Named Officers. The following table sets forth the options issued to
the Named Officers of common stock in fiscal 1996. The Company did not grant
any stock appreciation rights during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
% of Total
Options/SARs
Shares Granted to
Underlying Employees
Options/SARs in Fiscal Exercise or Base Expiration
Name (#)(1) Year Price ($/Share) Market Price(2) Date
- -------------------------- ------------ ------------ ---------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Robert W. Moore -- -- -- -- --
President, CEO
William C. Bossung 100,000 25% 1.50 1.50 (3)
Director of Corporate
Finance, Secretary
</TABLE>
(1) The options have been granted under the Nonqualified Plan.
(2) The closing bid price of the Company's Common Stock on the date of grant.
(3) One-half of the options may be exercised at any time until December 1,
1998, and the remaining options may be exercised at any time after
December 1, 1996, until expiration on December 1, 1999.
28
<PAGE> 56
FORM 10-KSB
===============================================================================
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 17, 1997, regarding the
beneficial ownership of shares of common stock by (i) management; (ii) each
shareholder known by the Company to be the beneficial owner of more than 5% of
the common stock; and (iii) each Director of the Company, and all Directors and
executive officers of the Company as a group. The common stock, $.001 par
value, is the Company's only class of outstanding voting securities. Unless
otherwise indicated in a footnote thereto, the persons named in the table below
have sole voting and investment power with respect to the shares of common
stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER PERCENT(1)
- ------------------- ------ ----------
<S> <C> <C>
Directors and Officers
Robert W. Moore 1,924,266(2) 9.4%
4720 Polaris St.
Las Vegas, NV 89103
William C. Bossung 550,000(3) 2.7%
4720 Polaris St.
Las Vegas, NV 89103
Gary L. Killoran 250,000(4) 1.2%
4720 Polaris St.
Las Vegas, NV 89103
All Directors and Executive 2,724,266 13.3%
Officers as a Group
</TABLE>
- --------------
(1) The percentage of stock outstanding for each shareholder is calculated by
dividing (i) the number of shares of common stock deemed to be
beneficially held by such shareholder as of March 17, 1997, by (ii) the
sum of (A) the number of shares of common stock outstanding as of March
17, 1997, plus (B) the number of shares issuable upon exercise of options
or warrants held by such shareholder which were exercisable as of March
17, 1997, or which will become exercisable within 60 days after March 17,
1997.
(2) Includes options for 125,000 shares exercisable as of October 12, 1995 and
options for 125,000 shares exercisable as of May 11, 1996.
(3) Includes options for 100,000 shares exercisable as of December 1, 1995 and
options for 100,000 shares exercisable as of December 1, 1996.
(4) Includes options for 100,000 shares exercisable as of May 8, 1996 and
options for 100,000 shares exercisable as of May 8, 1997.
29
<PAGE> 57
FORM 10-KSB
===============================================================================
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization Activities.
On February 2, 1995, the Company converted each 50 shares of common stock
outstanding into one share of common stock. The Board of Directors determined
that a reverse stock split of its common stock was in the best interest of the
Company based on its current financial position and the pending Reorganization
with CCI. As a result of this reverse stock split, the Company had 500,000
shares of common stock outstanding immediately prior to the Reorganization with
CCI.
On April 21, 1995, the Company consummated a reorganization with CCI and
exchanged with the shareholders of CCI an aggregate of 4,385,604 shares of its
common stock for 4,385,604 shares of the outstanding shares of common stock of
CCI, resulting in CCI becoming a majority owned subsidiary of the Company. The
remaining 700,000 shares of common stock of CCI are owned by Third Mobile. All
of the shares issued in the Reorganization are "restricted securities" as
defined in Rule 144 of the Act.
The following table sets forth the number of shares of common stock received by
each CCI shareholder who held 5% or more of the outstanding CCI shares prior to
the Reorganization and their percentage ownership in the Company upon
completion of the Reorganization on April 21, 1995.
<TABLE>
<CAPTION>
PERCENT OF COMPANY SHARES
NAME COMPANY SHARES RECEIVED OWNED AFTER REORGANIZATION
- ---- ------- --------------- --------------------------
<S> <C> <C> <C>
Robert Moore CCI 2,000,000 49%
David Chadwick CCI 2,000,000 49%
</TABLE>
In connection with the Reorganization, the Company issued an aggregate of
108,362 shares of common stock (post-reverse split) to former directors and
officers of the Company in lieu of cash reimbursements for expenses paid on
behalf of the Company and as compensation for services rendered to the Company.
Also, in connection with the Reorganization, the Company converted
approximately $428,608 in debt to an aggregate of 65,138 shares of common stock
issued to the respective creditors of the Company.
Affiliate Transactions.
In May 1995, Robert W. Moore transferred 350,000 shares of common stock in the
Company to William C. Bossung, an officer and a director of the Company. Mr.
Bossung also has beneficial ownership of options to purchase 45,000 shares of
common stock of the Company at an exercise price of $1.00 per share for three
years from July 1995, held by Asian Financial Network, Inc. On July 9, 1996,
Asian Financial Network, Inc. exercised its option to purchase 45,000 shares of
the Company's common stock.
Pursuant to the terms of a conversion agreement dated March 9, 1995, the
Company converted a $116,329 note payable to David Chadwick into 46,532
restricted shares of the Company's common stock, plus warrants to purchase
46,532 shares of common stock of the Company at an exercise price of $4.00 per
share for three years from April 1995. In September 1996, the warrants to
purchase 46,532 shares of the Company's common stock were surrendered by Mr.
Chadwick and canceled.
On March 24, 1995, the Company converted a note payable to Green Valley
Partners Co., a business trust managed by a significant shareholder and officer
of the Company, with an outstanding balance of $578,405, including interest,
into 385,604 shares of common stock and options to purchase 385,604 shares of
common stock of the Company at an exercise price of $2.50 per share for three
years from April 1995. CCI originally signed the note in October 1994. In
addition, CCI executed a second note payable to Green Valley Partners Co.,
dated March 28, 1995. This note expired January 1, 1996, without CCI exercising
its right to borrow thereunder. In December 1995, Green Valley Partners Co.
transferred all of its interest in the Company to a third party.
For a description of the employment agreements entered into between the Company
and two of the Company's officers, see Item 10. "EXECUTIVE COMPENSATION".
30
<PAGE> 58
FORM 10-KSB
===============================================================================
PART IV
ITEM 13. EXHIBITS AND CURRENT REPORTS ON FORM 8K
(a)(1) A list of the financial statements and schedules thereto as filed in
this report reside at Item 7 on page F1 of this report.
(a)(2) The following exhibits are submitted herewith:
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and
between the Company (f/k/a CapVest Internationale, Ltd.) and
Chadmoore Communications, Inc.(1)
2.2 Addendum to the Agreement and Plan of Reorganization, dated February
21, 1995, by and between the Company (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc.(1)
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated
March 31, 1995, by and between the Company (f/k/a CapVest
Internationale, Ltd.) and Chadmoore Communications, Inc.(1)
3.1 Articles of Incorporation(1)
3.2 Articles of Amendment to the Articles of Incorporation filed November
1, 1988(3)
3.3 Articles of Amendment to the Articles of Incorporation filed April
28, 1995(4)
3.4 Articles of Amendment to the Articles of Incorporation filed April 1,
1996(5)
3.5 Articles of Amendment to the Articles of Incorporation filed April
11, 1996(6).
3.6 Bylaws(2)
4.1 Form of Warrant Certificate, together with the Terms of Warrants(7)
4.2 Registration Rights Agreement(8)
4.3 Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock of the Company(9)
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995
(employee stock option plan covering 1,500,000 shares)(10)
10.2 Employee Benefit and Consulting Services Plan dated July 7, 1995(11)
10.3 First Amendment to the Employee Benefit and Consulting Services Plan
dated December 8, 1995(12)
10.4 Employment Agreement between the Company and Robert W. Moore
effective as of April 21, 1995(13)
- ------------
(1) Incorporated by reference to Exhibit 1 in the Form 8-K, under Item 2, date
of earliest event reported- February 21, 1995
(2) Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (33-14841-D)
(3) Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(4) Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for
the year ended December 31, 1995
(5) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(6) Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(7) Incorporated by reference to Exhibit 4.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(8) Incorporated by reference to Exhibit 4.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(9) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(10) Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(11) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective July 12, 1996 (file no. 33-94508)
(12) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective December 1, 1996 (file no.33-80405)
(13) Incorporated by reference to Exhibit 10.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
31
<PAGE> 59
FORM 10-KSB
===============================================================================
PART IV
ITEM 13. EXHIBITS AND CURRENT REPORTS ON FORM 8K - CONTINUED
(a)(2) The following exhibits are submitted herewith: - Concluded
10.5 Employment Agreement between the Company and David J. Chadwick
effective as of April 21, 1995(14)
10.6 Employment Agreement between the Company and William C. Bossung
effective as of April 21, 1995(15)
10.7 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement
dated February 28, 1996 by and between the Company and Motorola, Inc.
(16)
10.8 Amendment Number 001 to the Integrated Dispatch Enhanced Network
(iDEN) Purchase Agreement dated March 25, 1996(17)
10.9 Asset Purchase Agreement dated November 2, 1994 by and between
Chadmoore Communications, Inc., and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day
with Exhibits(18)
10.10 Modification to Asset Purchase Agreement dated March 8, 1996 by and
between Chadmoore Communications, Inc., the Company and Chadmoore
Communications of Tennessee, Inc. and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day
with Exhibits(19)
10.11 Stock Purchase Agreement dated June 14, 1996, by and between
Chadmoore Wireless Group, Inc. and Libero Limited(20)
10.12 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless
Group, Inc. and Chadmoore Communications, Inc. dated October 25,
1996(22)
10.13 Promissory Note executed by Chadmoore Communications, Inc. payable to
Motorola, Inc., dated December 30, 1996.(22)
10.14 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.(22)
11.1 Calculation of Weighted Average Shares Outstanding (see Consolidated
Statement of Operations and Notes to Consolidated Financial
Statement, 1-L)
16.1 Letter of Mitchell Finley & Company, P.C. dated July 10, 1995,
stating its concurrence with the disclosure contained in the
Company's Current Report on Form 8-K(21)
21.1 Subsidiaries of the Company(22)
23.1 Consent of KPMG Peat Marwick LLP(22)
27.1 Financial Data Schedule(22)
- -------------
(14) Incorporated by reference to Exhibit 10.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(15) Incorporated by reference to Exhibit 10.6 to the Company's Form 10-KSB for
the year ended December 31, 1995
(16) Incorporated by reference to Exhibit 10.7 to the Company's Form 10-KSB for
the year ended December 31, 1995
(17) Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB for
the year ended December 31, 1995
(18) Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K, under
Item 2, date of earliest event reported - March 8, 1996
(19) Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K, under
Item 2, date of earliest event reported March 8, 1996
(20) Incorporated by reference to Exhibit 10.11 to the Company's Form 8-K, under
Item 2, date of earliest event reported - June 14, 1996
(21) Incorporated by reference to Exhibit 16 to the Company's Form 8-K, under
Item 4, date of earliest event reported - July 7, 1995
(22) Filed herewith.
32
<PAGE> 60
FORM 10-KSB
===============================================================================
PART IV
ITEM 13. EXHIBITS AND CURRENT REPORTS ON FORM 8K - CONCLUDED
(b) Current Reports on Form 8-K
(i) Current Report on Form 8-K filed on December 31, 1996, reporting
shares of Registrant's common stock issued pursuant to Regulation S
since November 3, 1996, upon conversion of debentures and exercise of
options, reported pursuant to the SEC's Division of Corporation
Finance's interpretation of the new disclosure requirements set forth
in SEC Release No. 34-37801.
(ii) Current Report on Form 8-K filed on January 13, 1997, reporting shares
of Registrant's common stock issued pursuant to Regulation S since
December 27, 1996, upon conversion of debenture(s) and conversion of
note(s), reported pursuant to the SEC's Division of Corporation
Finance's interpretation of the new disclosure requirements set forth
in SEC Release No. 34-37801.
(iii) Current Report on Form 8-K filed on January 30, 1997, reporting the
execution of First Amendment to Stock Option Agreement between
Registrant and Libero Limited, limiting the number of options
exercisable at any one time thereunder; and further reporting shares
of Registrant's common stock issued pursuant to Regulation S, upon
exercise of stock options on January 17, 1997, reported pursuant to
the SEC's Division of Corporation Finance's interpretation of the new
disclosure requirements set forth in SEC Release No. 34-37801.
(iv) Current Report on Form 8-K filed on February 28, 1997, reporting
shares of Registrant's common stock issued pursuant to Regulation S
since January 17, 1996, upon conversion of debenture(s) and conversion
of note(s), reported pursuant to the SEC's Division of Corporation
Finance's interpretation of the new disclosure requirements set forth
in SEC Release No. 34-37801.
33
<PAGE> 61
FORM 10-KSB
===============================================================================
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Chadmoore Wireless Group, Inc.
(formerly CapVest International, Ltd.)
By: /s/ Robert W. Moore
----------------------------------
Robert W. Moore
President and CEO
By: /s/ Gary L. Killoran
----------------------------------
Gary L. Killoran
Chief Financial Officer, Treasurer
Date: March 31, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the
dates indicated.
/s/ Robert W. Moore Date: March 31, 1997
- -----------------------------------------------
Robert W. Moore, President, Chief Executive
Officer and Director
/s/ William C. Bossung Date: March 31, 1997
- -----------------------------------------------
William C. Bossung, Director of Finance,
Secretary and Director
/s/ Gary L. Killoran Date: March 31, 1997
- -----------------------------------------------
Gary L. Killoran, Chief Financial Officer,
Treasurer and Director
<PAGE> 62
FORM 10-KSB
===============================================================================
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(a)(1) A list of the financial statements and schedules thereto as filed in
this report reside at Item 7 on page F1 of this report.
(a)(2) The following exhibits are submitted herewith:
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and
between the Company (f/k/a CapVest Internationale, Ltd.) and
Chadmoore Communications, Inc.(1)
2.2 Addendum to the Agreement and Plan of Reorganization, dated February
21, 1995, by and between the Company (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc.(1)
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated
March 31, 1995, by and between the Company (f/k/a CapVest
Internationale, Ltd.) and Chadmoore Communications, Inc.(1)
3.1 Articles of Incorporation(1)
3.2 Articles of Amendment to the Articles of Incorporation filed November
1, 1988(3)
3.3 Articles of Amendment to the Articles of Incorporation filed April
28, 1995(4)
3.4 Articles of Amendment to the Articles of Incorporation filed April 1,
1996(5)
3.5 Articles of Amendment to the Articles of Incorporation filed April
11, 1996(6).
3.6 Bylaws(2)
4.1 Form of Warrant Certificate, together with the Terms of Warrants(7)
4.2 Registration Rights Agreement(8)
4.3 Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock of the Company(9)
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995
(employee stock option plan covering 1,500,000 shares)(10)
10.2 Employee Benefit and Consulting Services Plan dated July 7, 1995(11)
10.3 First Amendment to the Employee Benefit and Consulting Services Plan
dated December 8, 1995(12)
</TABLE>
- ------------
(1) Incorporated by reference to Exhibit 1 in the Form 8-K, under Item 2, date
of earliest event reported- February 21, 1995
(2) Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (33-14841-D)
(3) Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(4) Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for
the year ended December 31, 1995
(5) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(6) Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(7) Incorporated by reference to Exhibit 4.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(8) Incorporated by reference to Exhibit 4.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(9) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(10) Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(11) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective July 12, 1996 (file no. 33-94508)
(12) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective December 1, 1996 (file no.33-80405)
<PAGE> 63
FORM 10-KSB
===============================================================================
<TABLE>
<S> <C>
(a)(2) The following exhibits are submitted herewith: - Concluded
10.4 Employment Agreement between the Company and Robert W. Moore
effective as of April 21, 1995(13)
10.5 Employment Agreement between the Company and David J. Chadwick
effective as of April 21, 1995(14)
10.6 Employment Agreement between the Company and William C. Bossung
effective as of April 21, 1995(15)
10.7 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement
dated February 28, 1996 by and between the Company and Motorola, Inc.
(16)
10.8 Amendment Number 001 to the Integrated Dispatch Enhanced Network
(iDEN) Purchase Agreement dated March 25, 1996(17)
10.9 Asset Purchase Agreement dated November 2, 1994 by and between
Chadmoore Communications, Inc., and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day
with Exhibits(18)
10.10 Modification to Asset Purchase Agreement dated March 8, 1996 by and
between Chadmoore Communications, Inc., the Company and Chadmoore
Communications of Tennessee, Inc. and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day
with Exhibits(19)
10.11 Stock Purchase Agreement dated June 14, 1996, by and between
Chadmoore Wireless Group, Inc. and Libero Limited(20)
10.12 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless
Group, Inc. and Chadmoore Communications, Inc. dated October 25,
1996(22)
10.13 Promissory Note executed by Chadmoore Communications, Inc. payable to
Motorola, Inc., dated December 30, 1996.(22)
10.14 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.(22)
11.1 Calculation of Weighted Average Shares Outstanding (see Consolidated
Statement of Operations and Notes to Consolidated Financial
Statement, 1-L)
16.1 Letter of Mitchell Finley & Company, P.C. dated July 10, 1995,
stating its concurrence with the disclosure contained in the
Company's Current Report on Form 8-K(21)
21.1 Subsidiaries of the Company(22)
23.1 Consent of KPMG Peat Marwick LLP(22)
27.1 Financial Data Schedule(22)
</TABLE>
- -------------
(13) Incorporated by reference to Exhibit 10.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(14) Incorporated by reference to Exhibit 10.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(15) Incorporated by reference to Exhibit 10.6 to the Company's Form 10-KSB for
the year ended December 31, 1995
(16) Incorporated by reference to Exhibit 10.7 to the Company's Form 10-KSB for
the year ended December 31, 1995
(17) Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB for
the year ended December 31, 1995
(18) Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K, under
Item 2, date of earliest event reported - March 8, 1996
(19) Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K, under
Item 2, date of earliest event reported March 8, 1996
(20) Incorporated by reference to Exhibit 10.11 to the Company's Form 8-K, under
Item 2, date of earliest event reported - June 14, 1996
(21) Incorporated by reference to Exhibit 16 to the Company's Form 8-K, under
Item 4, date of earliest event reported - July 7, 1995
(22) Filed herewith.
<PAGE> 1
EXHIBIT 10.12
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (hereinafter referred to as "Agreement"), made and
entered into this 25th day of October, 1996 by and between Motorola, Inc. an
Illinois corporation, hereinafter referred to as "MOTOROLA", and Chadmoore
Wireless Group, Inc., an Colorado corporation and Chadmoore Communications,
Inc., an Nevada corporation, both of which hereinafter are referred to as
"PURCHASER".
WITNESSETH:
WHEREAS, the PURCHASER desires to purchase Motorola Radio Communications
Equipment; and
WHEREAS, MOTOROLA desires to sell Motorola Radio Communications Equipment; and
THEREFORE, the parties hereby enter into an agreement pursuant to which
MOTOROLA hereby extends to PURCHASER the right to purchase Motorola Radio
Communications Equipment ("Equipment") in accordance with the following terms
and conditions:
Section 1 EQUIPMENT AND PRICING
Equipment which may be purchased pursuant to this Agreement and the prices
applicable thereto are set out in the Motorola Proposal which is incorporated
by this reference and made a part of this Agreement as "Exhibit C".
PURCHASER agrees to purchase $10,368,000.00 worth of Motorola Radio
Communications Equipment found in the Motorola Equipment List (made part of
Exhibit C) to support the equivalent of 1440 800 Mhz SMR Channels within thirty
(30) months of the effective date of this Agreement, subject to an equitable
extension which is to be agreed to in writing by both parties, which is equal
to the periods of any delays in the agreed upon delivery schedules for any
equipment.
PURCHASER agrees that the maximum number of SmartNet II Controllers which can
be purchased by PURCHASER to support 1440 800Mhz SMR Channels is equal to 144.
The sale of the Equipment under this Agreement does not include or involve
coverage, performance, training, or system engineering.
PURCHASER may, at the time, request its MOTOROLA Account Manager to provide a
current total of equipment shipped during the calendar year.
<PAGE> 2
Section 2 USE OF NOTICE TO SHIP FORMS (DELIVERY DATES)
It is expressly understood that PURCHASER will issue Notice to Ship Forms which
are to be delivered to MOTOROLA's authorized representative and which will
constitute the "Notice to Ship" as to each particular shipment. PURCHASER and
MOTOROLA will agree to a delivery date which must be printed on the Notice to
Ship Form. MOTOROLA's delivery obligations are contingent upon Motorola's
approval of the delivery date printed on the subject Notice to Ship Form.
MOTOROLA's approval of the delivery date on the Notice to Ship Form must be
evidenced by the signature of MOTOROLA's authorized representative. In the
event the delivery date is not printed on the Notice to Ship Form, the parties
agree that the delivery date, will be a reasonable date for delivery of the
equipment.
Section 3 PAYMENT
A. MOTOROLA agrees to sell the Equipment in "Exhibit C", and PURCHASER
agrees to buy the sum of ten million three hundred and sixty-eight thousand
dollars ($10,368,000.00) worth of the Equipment found in "Exhibit C".
B. The PURCHASER shall make payments to MOTOROLA as follows:
Fifty percent (50%) cash down payment of the amount found on the applicable
Notice to Ship Form due upon MOTOROLA's acceptance of the Notice to Ship Form;
and
Fifty percent (50%) of the amount found on the applicable Notice to Ship Form
due Net 30 from shipment of the equipment per each Notice to Ship Form.
C. If the PURCHASER fails to take delivery of the $10,368,000.00 worth of
the Motorola Radio Communications Equipment found in the Motorola Equipment
List (found in Exhibit C) to support the equivalent of 1440 800 Mhz SMR
Channels within thirty (30) months of the effective date of this Agreement,
PURCHASER agrees to pay MOTOROLA a "Discount Reimbursement" as calculated by
the Table set forth in Exhibit "D". This amount will represent a "discount
reimbursement" from PURCHASER to MOTOROLA for MOTOROLA's unrealized sales
volume resulting from PURCHASER's failure to meet its purchase commitment. IN
NO EVENT WILL THE "DISCOUNT REIMBURSEMENT" BE CONSIDERED A PENALTY OR
LIQUIDATED DAMAGES. IN ADDITION, MOTOROLA WILL BE ENTITLED TO ALL RIGHTS AND
REMEDIES AVAILABLE BY LAW.
D. MOTOROLA will also provide to PURCHASER, upon request, financing plans
such as lease or conditional sale.
<PAGE> 3
Section 4 INSTALLATION/SYSTEMS
If PURCHASER desires to make purchases of items requiring installation, a
separate document making reference to the PURCHASE AGREEMENT shall be used.
Such document shall set forth in detail, responsibilities for installation,
implementation, and acceptance along with the associated costs and payment
terms for such services.
Section 5 TERMS AND CONDITIONS
a. Equipment will be furnished in accordance with the terms and conditions
set forth in this Agreement.
b. Software programs will be licensed in accordance with Exhibit "B" which
is incorporated and made part of this Agreement by this reference.
c. Financed equipment will be furnished in accordance with the then
prevailing financing terms and conditions.
Section 6 FEDERAL GOVERNMENT EXCLUSION
Purchases for, or chargeable to the Federal Government as well as any reference
to Federal Acquisition Regulations (FAR's) or other such Federal Government
procurement type regulations are expressly excluded from this Agreement.
Section 7 TERM
The Term of this Agreement shall commence on the date of execution of this
Agreement and continue until thirty (30) months therefrom.
Section 8 ORDERING
Notice to Ships issued by PURCHASER to MOTOROLA for Equipment shall make
specific reference to this PURCHASE AGREEMENT.
Section 9 DOCUMENT LISTING
This PURCHASE AGREEMENT consists of four (4) pages along with the following
which are incorporated into this Agreement by this reference. In the event of
an inconsistency in this Agreement, the inconsistency shall be resolved in the
following order:
1. This Agreement;
<PAGE> 4
2.. Exhibit "A" - Terms and Conditions of Sale.
3. Exhibit "B" - Software License.
4. Exhibit "C" - Equipment List and Pricing dated October 21, 1996.
5. Exhibit "D" - Discount Reimbursement Table.
Section 10 CONTROLLING AGREEMENT
All orders issued by PURCHASER shall be only upon the terms and conditions of
this Purchase Agreement.
It is expressly understood and agreed by MOTOROLA and PURCHASER that this
Purchase Agreement and the specific terms hereof and in the attachment hereto
shall control over all transactions between MOTOROLA and PURCHASER regardless
of any standard or preprinted language in any contract, agreement or Notice to
Ship form which may purport to control over or modify any other prior agreement
between the parties. No other agreement entered into hereafter shall be deemed
to amend, modify or supersede the terms hereof unless such agreement
specifically refers to this Purchase Agreement and indicates the intention of
the parties hereto to override and modify this Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this PURCHASE AGREEMENT to
be executed by their duly authorized representatives indicated below.
PURCHASER: MOTOROLA, INC.
/s/ Robert W. Moore /s/ Daniel R. Russell
- --------------------------------- ----------------------------------
Signature Signature
Robert W. Moore Dan Russell
- --------------------------------- ----------------------------------
Name Name
President/CEO Vice Pres. & Dir. Of Finance
- --------------------------------- ----------------------------------
Title Title
10/25/96 10/30/96
- --------------------------------- ----------------------------------
Date Date
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
This Note has not been registered under the Securities Act of 1933, as amended,
and may not be sold or otherwise disposed of in contravention of the provision
of such Act.
$5,000,000.00 Dated: December 30, 1996
FOR VALUE RECEIVED, the undersigned Chadmoore Communications, Inc., a
Nevada corporation (the "Payor"), hereby unconditionally promises to pay to the
order of Motorola, Inc., a Delaware corporation, or its assigns (the "Payee")
in lawful money of the United States of America and in immediately available
funds, the principal sum of Five Million Dollars ($5,000,000.00), or, if less,
the aggregate unpaid principal amount of all advances made by Payee to Payor
pursuant to the Loan Facility (as defined in the Financing Agreement)
established under the Financing Agreement (as defined below). Each advance made
by Motorola under the Loan Facility shall be evidenced by a separate entry on
the Grid attached hereto and hereby incorporated as part of this Promissory
Note. Interest shall accrue on each advance under the Loan Facility from the
date of such advance at the fixed rate equal to 2.5% per annum in excess of the
Prime Rate, as quoted in The Wall Street Journal two (2) days prior to the date
of such advance. In the event that The Wall Street Journal fails to publish the
"Prime Rate," or publishes an erroneous rate on the date upon which reference
to such rate is required, the applicable rate shall be equal to 2.5% per annum
in excess of the interest rate (rounded upward to the nearest whole multiple of
1/16 of 1% per annum) which Citibank quoted and offered as its prime rate or
base rate on such date. Interest shall be calculated on an actual 365/366-day
year basis and compounded monthly. Interest shall be payable on the outstanding
balance of each drawdown under this Note monthly beginning on the first day of
the second calendar month following such advance under the Loan Facility. The
principal balance of the portion of this Promissory Note evidenced by each
advance reflected on the Grid shall be payable monthly beginning on the same
dates as the interest payments and shall become due and payable in full on the
date reflected on the Grid (which date shall be thirty-six (36) months after
the date the first payment is due with respect to such advance), unless paid in
full on or prior to such date or unless this Note shall have been accelerated
pursuant to the terms of the Financing Agreement.
Payee shall record on the Grid or on its books or records, (i) the
principal amount of each advance made by Payee to Payor under the Loan
Facility, (ii) the applicable interest rate for each advance, (iii) the date
the first monthly payment of principal and interest shall be due for each such
advance, (iv) the date each such advance shall be due and payable, and (v) any
prepayment of any principal amount hereof. The record thereof, whether shown on
such books or records or on the Grid, shall be prima facie evidence as to all
such amounts; provided, however, that the failure of Payee to record any of the
foregoing shall not limit or otherwise affect the obligation of the Payor to
repay all advances under the Loan Facility, together with accrued interest
thereon. Payee shall provide Payor a copy of the Grid after each entry thereon;
provided, however, failure by Payee to so provide a copy to Payor shall not
limit or otherwise affect the obligation of the Payor to repay all advances
under the Loan Facility, together with accrued interest thereon.
<PAGE> 2
It shall constitute an event of default hereunder if Payor shall fail to
make payment of any installment of principal or interest when due hereunder
(and such failure shall continue for a period of ten (10) Business Days (as
defined in the Financing Agreement) after receipt by Payor of written notice
from Payee of such failure). Upon the occurrence of any such event of default,
the Payee by notice in writing to Payor may declare this Note to be and all
remaining payments shall thereupon forthwith become due and payable without
presentment, demand, protest or other notice of any kind to Payor. Payor shall
pay all reasonable attorneys' fees and expenses incurred by Payee in collecting
any defaulted payments hereunder. Notwithstanding the foregoing, the Payee may
waive any such event of default. No such waiver shall affect the Payee's rights
upon a subsequent event of default.
Time is of the essence hereof. If any payment is not received when due,
Payor agrees to pay to Payee a delinquency charge calculated on such delinquent
payment at the lesser of 1.5% per month, or the maximum rate permitted by law,
for the term of the delinquency. All payments may, at the option of the Payee,
be applied first to delinquency charges, then to interest, and then to
principal. The acceptance by the Payee of any payment which is less than
payment in full of all amounts due and owing at such time shall not constitute
a waiver of the Payee's right to receive payment in full at such or any other
time. Payor may prepay the then outstanding principal, plus interest hereon at
any time during the term of this Note without penalty upon not less than five
(5) Business Days (as defined in the Financing Agreement) notice. The principal
amount of any prepayment shall be $100,000 or an integral multiple thereof, or
such amount as is necessary to prepay this Note in full.
This Note is issued pursuant to a Financing and Security Agreement among
the Payor and Payee dated October 29, 1996 (the "Financing Agreement") to which
reference is hereby made for a description of other events of default and the
further rights of Payee to accelerate payment hereof, the conditions upon which
the maturity hereof may be accelerated by the Payee, and other terms and
conditions upon which this Note is issued.
This Note has not been registered under the Securities Act of 1933, as
amended, or any similar securities law of any state ("Securities Laws") and
Payee and each subsequent holder, by acceptance of this Note, agrees that no
sale, pledge, assignment or other disposition of this Note will be made or
attempted until the Payor has been notified of the manner and circumstances of
the proposed transaction and the Payor shall have received an opinion of
counsel to Payee, or such subsequent holder, in form and substance reasonably
satisfactory to counsel for Payor, to the effect that the proposed transaction
may be consummated without having to register this Note under any of the
Securities Laws.
Upon compliance with the above requirements and upon surrender of this
Note at the offices of the Payor, together with an assignment duly executed by
the holder hereof, the Payor will execute and deliver in exchange therefor a
new note or notes payable to such payee or payees as may be requested, in
aggregate principal amount equal to the unpaid principal amount of the
surrendered note and of like tenor (but dated the last date to which interest
has been paid on the surrendered Note and excluding any installments for the
payment of principal that were paid prior to the issuance of the new note or
notes).
2
<PAGE> 3
All agreements between Payor and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of acceleration of the maturity hereof or
otherwise, shall the interest contracted for, charged, received, paid, or
agreed to be paid to the holder hereof, exceed the maximum amount permissible
under applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to the holder hereof in excess of the maximum lawful
amount, the interest payable to the holder hereof shall be reduced to the
maximum amount permitted under applicable law, and if from any circumstance the
holder hereof shall ever receive anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall be applied to the reduction of the principal hereof
and not to the payment of interest, or if such excessive interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to Payor.
This paragraph shall control all agreements between Payor and the holder
hereof.
Until receipt of notice of any assignment, the Payor may treat Payee as
the owner of this Note for all purposes, including payment of principal and
interest.
This Note shall be subject to, governed and construed according to the
laws of the State of Illinois.
CHADMOORE COMMUNICATIONS, INC.
By: /s/ Robert W. Moore
------------------------------------
Printed Name: Robert W. Moore
--------------------------
Its: President
-----------------------------------
3
<PAGE> 4
GRID
TO PROMISSORY NOTE
<TABLE>
<CAPTION>
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OPTIONAL/
APPLICABLE MANDATORY
DRAWDOWN AMOUNT INTEREST FIRST PAYMENT PRINCIPAL
NUMBER (USD) RATE DUE DATE DATE DUE PREPAYMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 270,651.02 10.625 Feb 1 2/1/99
- --------------------------------------------------------------------------------
2 71,439.06 10.75 April 1 3/1/00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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</TABLE>
The Monthly Payment Amount of each advance and the outstanding principal
balance under this Promissory Note after giving effect to such advance will be
reflected on the Amortization Schedules attached hereto. Each Amortization
Schedule will be assigned the number corresponding to the Drawdown Number
assigned to such advance.
4
<PAGE> 1
EXHIBIT 10.14
GUARANTY AND SECURITY AGREEMENT
THIS GUARANTY AND SECURITY AGREEMENT ("Guaranty"), dated as of December 30,
1996, is made by Chadmoore Wireless Group, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Guarantor"), in favor of
Motorola, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Motorola").
WITNESSETH:
WHEREAS, Guarantor is the parent corporation of Chadmoore
Communications, Inc., a corporation organized and existing under the laws of
Nevada (the "Borrower");
WHEREAS, Guarantor and Borrower have entered into a Master Purchase
Agreement dated October 29, 1996 (the "Purchase Agreement") with Motorola
pursuant to which Borrower and Guarantor have agreed to purchase analog Special
Mobilized Radio infrastructure equipment and related services (the
"Equipment");
WHEREAS, Motorola has agreed to provide a credit facility to Borrower
pursuant to a Financing and Security Agreement dated as of October 29, 1996
(the "Financing Agreement") to finance a portion of the cost of the Equipment,
and in connection therewith, Borrower has executed or will execute in favor of
Motorola a Promissory Note (the "Promissory Note") in an aggregate principal
amount of U.S.$5,000,000.00 plus accrued interest representing Borrower's
obligations under the Financing Agreement;
WHEREAS, Guarantor will receive and use a portion of the Equipment
purchased under the Purchase Agreement and financed by Borrower under the
Financing Agreement and will derive substantial direct and indirect benefit
from the transactions contemplated by the Financing Agreement; and
WHEREAS, Motorola's willingness to provide the financing contemplated
pursuant to said Financing Agreement is conditioned upon, and subject to,
Guarantor providing its guaranty of Borrower's obligations thereunder and
further subject to Guarantor pledging its right, title and interest in the
Equipment to secure such Guaranty;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by Guarantor, and in order to induce Motorola to
enter into the Financing Agreement and to advance funds thereunder, the
Guarantor does hereby covenant and agree as follows:
1. GENERAL PROVISIONS
1.1 Unconditional Guaranty. The Guarantor hereby unconditionally and
irrevocably guarantees the full and prompt payment of all obligations of
Borrower under the Promissory Note and the Financing Agreement, without
deduction for any claim of setoff or counterclaim (any such claim to be made in
a separate proceeding), including the entire outstanding principal balance of
said Promissory Note together with accrued interest, late charges and any other
charges, cost and expenses provided for thereunder. Any such payment shall be
free from all
1
<PAGE> 2
taxes, charges, fees, costs, expenses or duties (other than taxes based solely
on Motorola's income or profits) imposed by any governmental authority and in
such cases, Guarantor shall bear all of such taxes, duties or charges.
1.2 Obligations Absolute. Guarantor's obligations hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including but not limited to, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of any of the
following: (a) the invalidity or unenforceability of the Promissory Note; (b)
any extension, modification or renewal of, or indulgence with respect to, or
substitutions for, the sum evidenced by the Promissory Note or any part thereof
or any agreement relating thereto at any time; (c) any failure or omission to
enforce any right, power or remedy with respect to the Promissory Note or any
part thereof; (d) any waiver of any right, power or remedy or of any default
with respect to the Promissory Note or any part thereof or any other agreement
relating thereto; or (e) any compromise, settlement, waiver or other
modification, or any release or surrender not knowingly given by Motorola, with
or without consideration, of the Promissory Note, any guarantees with respect
to the Promissory Note or any part thereof or any other obligation of any
person or entity with respect to the Promissory Note or any part thereof.
1.3 Guaranty of Payment. As long as said Promissory Note is outstanding,
Guarantor agrees that this Guaranty shall be an absolute, present, continuing,
unlimited, unconditional and irrevocable guaranty of payment (and not of
collection). Suit may be brought and maintained against the Guarantor by
Motorola to enforce any liability, obligation or duty guaranteed hereunder
without joinder of any other person or entity. The liability of Guarantor
shall not be deemed to be waived, released, discharged, impaired or affected
by: any foreclosures, indulgence, or variation of terms of the Promissory Note
whether or not it might vary the risk of guaranty under this Guaranty,
including, without limitation, any alteration, amendment, acceleration,
extension, modification, waiver or change concerning the amount of time or
manner of payment or performance of any of the obligations; any discharge or
release of any of the obligations securing the payment or performance thereof,
whether or not in accordance with the respective provisions thereof, or any
bankruptcy, insolvency, reorganization, liquidation or similar proceeding
concerning Guarantor; the addition or omission or delay in the enforcement of
any right or remedy with respect to any of the obligations or with respect to
this Guaranty; or the receipt, exchange, surrender or acquiescence in, any
default with respect to any of the obligations.
2. DEFINITIONS
2.1 Defined Terms. Capitalized terms used throughout this Guaranty
(including the attachments and exhibits, which are a part of this Guaranty)
shall have the following meanings.
Affiliate - of the Guarantor means any Person controlling, controlled by, or
under common control with, the Guarantor. For purposes of this definition and
the definition of "Subsidiary," a Person shall be deemed to control another
Person if such first Person possesses, directly or indirectly, the power to
direct, or to cause the direction of, the management and policies of such other
Person, whether through ownership of voting securities, by contract or
otherwise.
Chadmoore/Parent Guaranty.004 2
December 23, 1996
<PAGE> 3
Business Day - A day other than a Saturday, a Sunday or other day on which
commercial banks in Illinois are authorized or required by law to close.
Capitalized Leases - Any lease the obligation for rentals with respect to which
is required to be capitalized on the consolidated balance sheet of the lessee
and its subsidiaries in accordance with GAAP.
Cash Flow - The sum of Operating Cash Flow plus Cash From Other Sources.
Cash From Other Sources - For any quarterly fiscal period means the sum of (i)
cash, (ii) equity contributions received in such quarterly fiscal period, (iii)
Subordinated Debt incurred during such quarterly fiscal period, plus (iv)
proceeds received during such quarterly fiscal period from the sale of assets.
CCT - Chadmoore Communications of Tennessee, Inc., a Tennessee corporation and
a wholly-owned subsidiary of Borrower.
Closing Date - December 30, 1996 or such later date as the parties mutually
agree.
Code - The Internal Revenue Code of 1986, as amended from time to time.
Collateral - Has the meaning set forth in Section 6.1.
Commonly Controlled Entity - An entity, whether or not incorporated, which is
under common control of a corporation by any of its shareholders within the
meaning of Section 414(b) or (c) of the Code.
Consolidated Tangible Net Worth - Shareholders' equity of the Guarantor and its
Subsidiaries determined in accordance with GAAP (with Licenses valued at all
times at the respective October 1, 1996 values shown on the books of the
Guarantor, which values are reflected in Exhibit A to this Guaranty), plus the
principal amount of Subordinated Debt of the Guarantor and/or its Subsidiaries,
if any, less the value of warrants, if any, issued by the Guarantor or its
Subsidiaries, less all intangible assets of the Guarantor and its Subsidiaries,
other than the Licenses.
Contingent Obligation - Any obligation of any Person guaranteeing or otherwise
becoming responsible for, in any manner whatsoever, whether directly or
indirectly, any indebtedness, lease, dividend or other obligation of any other
Person, whether or not contingent; provided, however, that the term "Contingent
Obligation" shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. Notwithstanding the foregoing,
no Contingent Obligation of Guarantor or any Subsidiary shall be included in
any calculations for purposes of this Guaranty to the extent that the primary
obligation so guaranteed is so included in such calculation as Debt or
Indebtedness.
Debt - At a particular time, the principal amount of all outstanding
Indebtedness required by GAAP to be reflected on the consolidated balance sheet
of the Guarantor and its Subsidiaries plus all rentals or other payments
payable by the Guarantor or any Subsidiary under all non-cancellable leases
during the quarterly fiscal period for which Debt is being determined.
Chadmoore/Parent Guaranty.004 3
December 23, 1996
<PAGE> 4
Debt Service - For any quarterly fiscal period, the sum of (i) principal
repayments of Debt by the Guarantor on all Indebtedness due during such
quarterly fiscal period, and (ii) interest expense due during such quarterly
fiscal period.
Default - Has the meaning assigned in the Financing Agreement.
Equipment - Has the meaning set forth in the Recitals of this Guaranty.
ERISA - The Employee Retirement Income Security Act of 1974, as amended from
time to time.
Event of Default - Has the meaning assigned in the Financing Agreement.
FCC - The Federal Communications Commission.
Financings - Each drawdown under the Financing Agreement, as evidenced by the
Promissory Note, constitutes a "Financing" and all such drawdowns collectively
are referred to as "Financings".
Fiscal Year - The fiscal year of the Guarantor adopted by the Board of
Directors of Guarantor.
GAAP - Generally accepted accounting principles in effect in the United States
of America from time to time.
Governmental Authority - Any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
Indebtedness - At a particular time, a Person's (i) indebtedness for borrowed
money or for the deferred purchase price of property or services with respect
to which such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which such Person otherwise assures a
creditor against loss, (ii) obligations under leases which have been or should
be recorded, in accordance with GAAP, as capital leases in respect of which
obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations such Person
assures a creditor against loss and (iii) obligations to a Plan.
Notwithstanding the foregoing, no guaranty by Guarantor or any Subsidiary of
shall be included in any calculations for purposes of this Guaranty to the
extent that the primary obligation so guaranteed is so included in such
calculation as Debt or Indebtedness.
Lien - Any mortgage, pledge, hypothecation, assignment, encumbrance, lien
(statutory or other), security interest, preferential payment arrangement or
other security agreement or arrangement (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
the same economic effect as any of the foregoing, and the filing of any
financing statement under the Uniform Commercial Code (other than protective
filings in connection with any true lease) or comparable law of any
jurisdiction).
Minimum Annualized Revenue - For any quarterly fiscal period means the total
revenue of Guarantor and its Subsidiaries for such quarterly fiscal period
determined in accordance with GAAP multiplied by four (4).
Chadmoore/Parent Guaranty.004 4
December 23, 1996
<PAGE> 5
Operating Cash Flow - The sum of Guarantor's and its Subsidiaries' (i) earnings
after interest and taxes, (ii) interest expense on all Indebtedness and
Capitalized Leases, and (iii) depreciation, amortization and other non-cash
items.
PBGC - The Pension Benefit Guaranty Guarantor established pursuant to subtitle
A of Title IV of ERISA.
Person - An individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture, Governmental
Authority or other entity, including Commonly Controlled Entities, of whatever
nature.
Plan - Any pension or profit sharing plan which is covered by Title IV of ERISA
and with respect to which Guarantor or a Commonly Controlled Entity is an
"Employer" as defined in Section 3(5) of ERISA.
PUC - A public utility commission.
Purchase Agreement - Has the meaning set forth in the Recitals of this
Guaranty.
Reportable Event - Any of the events set forth in Section 4043(b) of ERISA or
the regulations thereunder.
Requirement of Law - As to any Person, the articles of incorporation, By-Laws
or other organizational or governing documents of such Person, and any law, or
determination of any arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its properties or
to which such Person or any of its property is subject.
Responsible Officer - An officer of any corporation, or the chairman of the
partners' committee or the general manager of any partnership, or any other
individual who is duly authorized by the Person represented to perform the
duties required by this Guaranty.
Subordinated Debt - Debt incurred by Guarantor to any Person which is
subordinate and junior, both in priority and in right of payment, to all
obligations owing by Guarantor to Motorola hereunder.
Subsidiary - As to any Person, a corporation of which more than 50% of the
outstanding capital stock having full voting power is at the time directly or
indirectly owned or controlled by such Person.
Uniform Commercial Code or UCC - The Uniform Commercial Code as adopted by the
various states relevant hereto.
2.2 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made for the
purposes of this Guaranty, the same shall be done in accordance with GAAP, to
the extent applicable.
Chadmoore/Parent Guaranty.004 5
December 23, 1996
<PAGE> 6
2.3 Directly or Indirectly. Where any provision in this Guaranty refers to
action to be taken by any Person , or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
3. REPRESENTATIONS
In order to induce Motorola to enter into the Financing Agreement,
Guarantor hereby represents and warrants to Motorola as follows:
3.1 Financial Statements. Guarantor has furnished to Motorola its Business
Plan containing its projected consolidated balance sheet, consolidated
statement of operations and consolidated statement of cash flows of the
Guarantor and its Subsidiaries, which projections give effect to the incurrence
of the Financings under the Financing Agreement. Except for this Guaranty and
the Guaranty and Security Agreement entered into by CCT in favor of Motorola,
Neither the Guarantor nor CCT will have any material Contingent Obligation,
contingent liability or liability for taxes, long-term lease or unusual forward
or long-term commitment, which are not reflected in the foregoing statements or
on Exhibit B attached hereto and hereby made a part hereof.
3.2 Corporate Status. Guarantor (a) is a corporation validly existing and
in good standing under the laws of its state of incorporation, (b) has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates, and to conduct the business in
which it is currently engaged and in which it proposes to engage, (c) is in
compliance with the Requirements of Law except to the extent that the failure
to comply therewith could not, in the aggregate, have a material adverse affect
on the business, operations, assets (taken in the aggregate) or financial
condition of Guarantor, and could not materially adversely affect its ability
to perform its obligations under or in connection with this Guaranty or the
Purchase Agreement (collectively, the "Guarantor Agreements"), and (d) has or
will have qualified to do business in all jurisdictions where its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except where the failure to comply therewith could not, in the
aggregate, have a material adverse affect on the business, operations, assets
(taken in the aggregate) or financial condition of Guarantor.
3.3 Power and Authority. Guarantor has the power, authority and legal right
to make, deliver and perform the Guarantor Agreements, and to authorize the
execution, delivery and performance of the Guarantor Agreements. No consent or
authorization or filing with, or other act by or with respect to any
Governmental Authority, is required in connection with the execution, delivery,
performance, validity or enforceability of the Guarantor Agreements. Each of
such Guarantor Agreements has been duly executed and delivered on behalf of
Guarantor and each such agreement constitutes (or when executed, delivered and
if necessary, filed or recorded, will constitute), a legal, valid and binding
obligation of Guarantor which obligation shall be enforceable against Guarantor
in accordance with the terms thereof, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles.
3.4 No Violations. The execution, delivery and performance of the Guarantor
Agreements will not violate any Requirement of Law or any contractual
obligation of Guarantor.
Chadmoore/Parent Guaranty.004 6
December 23, 1996
<PAGE> 7
3.5 No Pending Actions. Except as disclosed on Exhibit C-1, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending against Guarantor or, to its knowledge, against any of the
properties or revenues of Guarantor (a) with respect to the Guarantor
Agreements or any of the transactions contemplated thereby, or (b) which, if
adversely determined, would have a material adverse effect on the business,
operations, assets (taken in the aggregate) or financial condition of
Guarantor.
3.6 No Defaults. Guarantor is not in default under or with respect to any
contractual obligation which could be materially adverse to the business,
operations, assets (taken in the aggregate) or financial condition of
Guarantor, or which could materially and adversely affect the ability of
Guarantor to perform its obligations under the Guarantor Agreements. No
Default or Event of Default has occurred and is continuing.
3.7 Ability to Perform. No contractual obligation of Guarantor and no
Requirement of Law at present materially adversely affects, or, insofar as
Guarantor can reasonably foresee, may so affect the ability of Guarantor to
perform its obligations under any of the Guarantor Agreements.
3.8 No Extending of Credit. Neither Guarantor nor any of its Affiliates is
engaged, and none will engage, principally or as one of its important
activities, in the business of extending credit.
3.9 Patents, Trademarks, etc. Guarantor owns or has the right to use all of
the patents, trademarks, permits, service marks, trade names, copyrights,
licenses and franchises or rights (collectively "patents") necessary for the
conduct of its business as presently contemplated, without any known conflict
with the rights of others, other than such patents which, taken in the
aggregate, could not materially and adversely affect (i) the business,
operations, assets (taken as a whole) or financial condition of Guarantor or
(ii) the ability of Guarantor to perform its obligations under the Guarantor
Agreements.
3.10 Information, Reports, etc. All information, reports and other papers
and data with respect to Guarantor furnished to Motorola by Guarantor are or
will be, at the time the same are so furnished, complete and correct in all
material respects; and all projections concerning Guarantor's business
furnished by Guarantor, as supplemented, will be prepared and presented in good
faith by Guarantor and have a reasonable basis. Except as disclosed in Exhibit
C-2, no fact is known to Guarantor which materially and adversely affects, or
in the future is likely (so far as Guarantor can reasonably foresee) to
materially and adversely affect, the business, operations, assets (taken as a
whole) or financial condition of Guarantor which has not been set forth in the
financial statements incorporated as part of the Business Plan or in such
information, reports, papers and data or otherwise disclosed in writing to
Motorola prior to the Closing Date.
3.11 Security Document. The provisions of this Guaranty are effective to
create in favor of Motorola a legal, valid and enforceable security interest in
all right, title and interest of Guarantor in the Collateral specified in
Section 6 hereof; and when financing statements have been filed in the proper
offices in the jurisdictions listed in Exhibit D hereto, except for any
further filing or taking of possession which may be required under Section 9-
306 of the UCC in order to perfect a security interest in proceeds of the
Collateral and any taking of possession which may be required under the UCC in
order to perfect a security interest in instruments, this Guaranty shall
constitute a fully perfected first Lien on, and security interest in, all
right,
Chadmoore/Parent Guaranty.004 7
December 23, 1996
<PAGE> 8
title and interest of Guarantor in such of the Collateral described herein with
respect to which a security interest may be perfected by a filing under Article
9 of the Uniform Commercial Code.
3.12 Transactions with Affiliates. No officer, director or shareholder of
Guarantor or any individual related by blood, marriage, adoption or otherwise
to any such officer, director or shareholder or any Person in which any such
officer, director, shareholder or individual related thereto owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with Guarantor or has any material interest in any material
property used by the Guarantor, except as set forth on Exhibit E hereto.
3.13 Assumed Names. Guarantor is not doing business under any assumed names.
3.14 FCC Licenses. All FCC licenses granted to and currently held by
Guarantor are listed on Exhibit A hereto.
3.15 Taxes. Guarantor and each of its Affiliates has filed or caused to be
filed all tax returns that they are required by law to have filed. All such
tax returns are correct and complete in all material respects. Guarantor and
each of its Affiliates have paid or caused to be paid all taxes shown on said
returns, and have no material liability for any other taxes which are overdue
(other than those being contested in good faith by appropriate proceedings).
Neither Guarantor nor any of its Affiliates has waived any statute of
limitations for the assessment or collection of any taxes. Neither Guarantor
nor any of its Affiliates is aware that any governmental authority has asserted
any claim for any material amount of additional taxes for which it is or could
be liable. No tax liens have been filed on the assets of either the Guarantor
or any of its Affiliates.
3.16 No Subsidiaries. Guarantor has no Subsidiaries other than the
Subsidiaries listed on Exhibit F hereto.
4. AFFIRMATIVE COVENANTS
Guarantor hereby agrees that, so long as this Guaranty remains in effect
or any amounts under the Promissory Note remain outstanding and unpaid,
Guarantor shall do the following:
4.1 Financial Reporting
4.1.1 As soon as available, but in any event within five (5) business
days after the submission of its annual financial statements to the Securities
and Exchange Commission, Guarantor shall provide Motorola with a copy of the
consolidated and consolidating balance sheet of Guarantor and its Subsidiaries,
as at the end of such Fiscal Year, as well as the related statements of
operations and statement of cash flow for such Fiscal Year, in each case
setting forth in comparative form the figures for the fiscal year most recently
ended, certified without a material qualification arising out of the scope of
the audit, by nationally recognized independent certified public accountants
selected by Guarantor.
4.1.2 As soon as available, but in any event within five (5) business
days after the submission of its quarterly financial statements to the
Securities and Exchange Commission, Guarantor shall provide Motorola with a
copy of (i) the unaudited consolidated and consolidating balance sheets of
Guarantor and its Subsidiaries as at the end of such fiscal
Chadmoore/Parent Guaranty.004 8
December 23, 1996
<PAGE> 9
quarter, setting forth in comparative form the consolidated figures for the
fiscal year most recently ended, (ii) the unaudited consolidated and
consolidating statements of operations of the Guarantor and its Subsidiaries
for such quarterly fiscal period and for the portion of the fiscal year ending
with such quarterly fiscal period, in each case setting forth in comparative
form the consolidated figures for the corresponding period of the preceding
fiscal year, and (iii) statement of cash flow of the Guarantor and its
Subsidiaries for the portion of the fiscal year ending with such quarterly
fiscal period, setting forth in comparative form the consolidated figures for
the corresponding period of the preceding fiscal year.
4.1.3 All financial statements provided pursuant to Sections 4.1.1 and
4.1.2 shall be present fairly the financial results of operations of the
Guarantor and its Subsidiaries and shall be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods reflected
therein, except that interim period statements will not have footnotes and
shall be subject to normal year end adjustments.
4.2 Certificates; Other Information
4.2.1 Concurrently with the delivery of any of the items referred to in
Section 4.1 above, Guarantor shall deliver to Motorola a certificate of the
independent certified public accountants or of a Responsible Officer of
Guarantor certifying such financial statements or other items, as the case may
be, and stating that, in making the examination necessary therefor, no
knowledge was obtained of any Default or Event of Default, except as specified
in such certificate.
4.2.2 (i) The Initial Business Plan. The initial Business Plan has
been delivered to, and approved by, Motorola. Such Business Plan sets forth a
budget for the Company prepared on a quarterly basis for the fiscal years 1996
through 2001, sets forth anticipated balance sheets and statements of income
and cash flows, and establishes target figures for the following items (the
"Target Figures"):
(A) number of Paid Subscribers at the end of the applicable
period;
(B) Service Revenue received during the applicable period;
(C) Operating Income of the Company during the applicable period;
(D) net income of the Company during the applicable period; and
(E) Cash Flow during the applicable period.
In addition, the initial Business Plan sets forth Target Figures as of the end
of each of the fiscal quarters through 2001, including annual figures for each
such fiscal year.
(ii) Revisions to Business Plan. At any time and from time to time the
Company may prepare and submit to Motorola a revised business plan (the
"Proposed Revision") which sets forth the Company's budget prepared on a
quarterly basis beginning with the calendar quarter immediately following the
date on which the Proposed Revision is submitted and ending with the last
quarter of the fiscal year ending 2001, together with detailed calculations
showing the reasons for any changes from the current Business Plan and a
narrative explanation of the
Chadmoore/Parent Guaranty.004 9
December 23, 1996
<PAGE> 10
assumptions or reasons for such changes. Such Proposed Revision, if submitted,
shall also set forth the Company's good faith estimates for quarterly and
annual Target Figures which correspond to the budgetary periods described
above. A Responsible Officer of Motorola shall notify the Company of its
approval or disapproval of such Proposed Revision, and if such notice is of
disapproval, an explanation of the reasons for such disapproval. Upon
approval, such Proposed Revision shall become the Business Plan and shall
replace all previous versions of the Business Plan and the Target Figures set
forth therein shall become the Target Figures for all purposes of this
Guaranty. The parties acknowledge that the Business Plan was prepared upon the
assumption that the FCC would submit regulations regarding STAs (as defined in
Exhibit C-2) on or prior to January 31, 1997. In the event that such
regulations are not issued by such date, the parties will revise the Business
Plan related to such delay, subject to Motorola's approval, such approval not
to be unreasonably withheld.
(iii) Performance Review. A Responsible Officer of the Company shall
be made available to meet by telephone or in person at the Company's principal
office for a conference with Motorola representatives at a mutually convenient
time or times during the 15-day period following Motorola's receipt of the
financial information required to be delivered by the Company pursuant to
Section 4.1.1 and 4.1.2 hereof, in order to discuss and review the Company's
results shown on such financial statements.
4.2.3 Guarantor shall further deliver promptly to Motorola such
additional financial and other information (including projections) regarding
Guarantor, Borrower and CCT as Motorola may reasonably request from time to
time.
4.3 Discharge of Obligations. Guarantor shall pay, discharge or otherwise
satisfy in the ordinary course of business (a) all Indebtedness as it shall
become due, (b) all of its other obligations (as they become due) to the extent
such obligations exceed, in the aggregate, $50,000, except to the extent that
the amount or validity of any such Indebtedness or other obligation is
currently being contested in good faith by appropriate proceedings and
appropriate reserves in conformity with GAAP have been provided on the books of
Guarantor.
4.4 Continuation of SMR Business. Guarantor shall continue to serve
primarily as a holding company for companies in the business of acquiring and
operating SMR communications systems, and shall preserve, renew and keep in
full force and effect its and its Subsidiaries' corporate existence, and
acquire and maintain all rights, privileges, franchises and licenses necessary
for the operation and maintenance of its current businesses and cause its
Subsidiaries to so acquire and maintain such rights, privileges, franchises and
licenses (including, without limitation any license or authorization required
by the FCC and the PUC of any state in which Guarantor operates or will operate
a communications system), and shall further comply with all contractual
obligations and Requirements of Law, except where the failure to so acquire,
maintain and comply could not materially and adversely affect (i) the business,
operations, assets (taken as a whole) or financial condition of Guarantor, or
(ii) the ability of Guarantor to perform its obligations under any of the
Guarantor Agreements.
4.5 Maintenance. Guarantor shall keep all property useful and necessary to
its business in good working order and condition, reasonable wear and tear
excepted.
4.6 Insurance. Guarantor shall maintain insurance on all its property with
financially sound and reputable insurance companies in such amounts and against
such risks as are customary
Chadmoore/Parent Guaranty.004 10
December 23, 1996
<PAGE> 11
for corporations of established reputation engaged in the same or a similar
business and owning and operating similar properties (but including in any
event public liability and property "all risk"). The policies shall be in
writing and shall name Motorola as an additional insured or a loss payee, as
appropriate. Guarantor shall furnish to Motorola, upon written request, full
information as to the insurance carried.
4.7 Records; Access. Guarantor shall keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made to reflect truly the financial position and
the results of operations of Guarantor. Guarantor shall further, upon
reasonable notice, permit representatives of Motorola to visit and inspect any
of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired by
Motorola, but no more often than once a quarter if no Event of Default has
occurred, and to discuss the business, operations, properties and financial and
other condition of Guarantor.
4.8 Notices. Guarantor shall, within five (5) Business Days of the date of
the occurrence thereof (or the date the Guarantor knows or should have known of
the occurrence thereof), give notice to Motorola of the occurrence of any of
the following:
(a) any (i) material default or any material event of default under
any contractual obligation of Guarantor which is material in relation to the
business, operations, assets (taken in the aggregate) or financial condition of
Guarantor, or (ii) any claim, litigation, investigation or proceeding which
arises at any time involving Guarantor, which, if adversely determined, would
have a material adverse affect on the business, operations, assets (taken in
the aggregate) or financial condition of Guarantor;
(b) any material adverse change in the business, operations, assets
(taken in the aggregate) or financial condition of Guarantor;
(c) any of the following events, as soon as possible and in any event
within thirty (30) days after Guarantor knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with respect
to any Plan, or (ii) the institution of proceedings or the taking or expected
taking of any other action by PBGC, Guarantor or any Commonly Controlled Entity
to terminate, withdraw or partially withdraw from any Plan and, with respect to
a multiemployer plan, as defined in ERISA the reorganization or insolvency of
such a Plan. In addition to such notice, Guarantor shall deliver to Motorola
whichever of the following may be applicable: (a) a copy of any notice of such
Reportable Event that may be required to be filed with PBGC, or (b) any notice
delivered by PBGC evidencing its intent to institute such proceedings or any
notice to PBGC that such Plan is to be terminated, as the case may be.
(d) the movement of Guarantor's principal place of business to any
location other than as set forth in Section 9 of this Guaranty.
(e) Each notice pursuant to paragraphs (a) through (c) above shall be
accompanied by a statement of a Responsible Officer of Guarantor setting forth
details of the occurrence referred to therein and stating what action Guarantor
or the Commonly Controlled Entity proposes to take with respect thereto.
Chadmoore/Parent Guaranty.004 11
December 23, 1996
<PAGE> 12
4.9 Management Team. Guarantor shall engage and continue to retain a
professional and experienced management staff.
4.10 Financial Covenants. Guarantor and its Subsidiaries shall comply with
the following financial covenants:
4.10.1 Guarantor and its Subsidiaries shall maintain Consolidated
Tangible Net Worth ("CTNW") not less than the amounts reflected below at the
end of each fiscal quarter in the applicable fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR CTNW
<S> <C>
1996 $30,000,000
1997 $32,000,000
1998 $32,000,000
1999 $33,000,000
2000 $39,000,000
2001 $45,000,000
</TABLE>
4.10.2 Guarantor and its Subsidiaries shall maintain the ratio of Debt
to Consolidated Tangible Net Worth at not less than the amount reflected below
at the end of each quarterly fiscal period in the applicable fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR RATIO
<S> <C>
1996 0.4:1
1997 0.75:1
1998 1:1
1999 1:1
2000 1:1
2001 1:1
</TABLE>
4.10.3 Guarantor and its Subsidiaries shall maintain the number of
accumulative radio units in service at not less than the number listed below
for each quarterly fiscal period:
<TABLE>
<S> <C>
Q4 1996 75
Q1 1997 1,047
Q2 1997 4,181
Q3 1997 10,439
Q4 1997 20,002
Q1 1998 34,973
Q2 1998 46,017
Q3 1998 57,827
Q4 1998 68,058
Q1 1999 74,584
Q2 1999 74,006
Q3 1999 74,178
Q4 1999 74,243
Q1 2000 73,966
Q2 2000 73,690
Q3 2000 73,415
Q4 2000 73,141
Q1 2001 72,868
Q2 2001 72,597
Q3 2001 72,325
Q4 2001 72,056
</TABLE>
Chadmoore/Parent Guaranty.004 12
December 23, 1996
<PAGE> 13
4.10.4 Guarantor and its Subsidiaries will not permit its Minimum
Annualized Revenue to be less than the following for each fiscal year of the
Guarantor:
<TABLE>
<CAPTION>
FISCAL YEAR ANNUALIZED REVENUE
<S> <C>
1996 $ 1,800,000
1997 $ 2,300,000
1998 $ 6,400,000
1999 $20,400,000
2000 $22,000,000
2001 $24,000,000
</TABLE>
4.10.5 Guarantor and its Subsidiaries shall maintain the ratio of Cash
Flow to Debt Service at not less than the amount reflected below at the end of
each quarterly fiscal period for the twelve (12) month period then ending in
the applicable calendar year:
<TABLE>
<CAPTION>
FISCAL YEAR RATIO
<S> <C>
1996 1.25
1997 1.25
1998 1.25
1999 1.25
2000 1.25
2001 1.25
</TABLE>
5. NEGATIVE COVENANTS
Guarantor hereby agrees that, so long as this Guaranty remains in effect or any
amounts under the Promissory Note remain outstanding and unpaid, Guarantor
shall comply with the following:
5.1 Liens. Guarantor shall not create, incur, assume or suffer to exist,
any Lien upon any of its property, assets, income or profits, owned by
Guarantor as of the Closing Date except:
(a) Liens for taxes not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of Guarantor in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than thirty (30) days or which are being contested
in good faith and by appropriate proceedings;
Chadmoore/Parent Guaranty.004 13
December 23, 1996
<PAGE> 14
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of Guarantor;
(f) Liens in favor of Motorola;
(g) Liens resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in respect
of which the Guarantor shall at any time in good faith be prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or preceding for review shall have been secured;
(h) purchase money security interests or other Liens given to the
seller or supplier of goods on the goods so sold or supplied in order to secure
the payment obligation relating thereto;
(i) Liens on shares owned by Guarantor of its Subsidiaries' stock
(other than CCI and CCT); and
(j) Liens existing on the Closing Date and disclosed on Exhibit G
hereto.
5.2 Change of Status. Guarantor shall not enter into any merger or
consolidation or amalgamation, except for (i) mergers or consolidations with
Borrower and/or CCT, and (ii) mergers in which Guarantor is the survivor and,
after giving effect to such merger, Guarantor is in compliance with the
financial covenants set forth in Section 4.11. Guarantor shall not liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), and
shall not convey, sell, lease, assign, transfer or otherwise dispose of any of
its property, business or assets (including, without limitation, receivables
and leasehold interests) whether now owned or hereafter acquired, except in the
ordinary course of business or as set forth in a business plan of Guarantor
approved by Motorola.
5.3 Loans/Investments. Guarantor shall not make any advances, loans or
investments in or to any shareholder, officer, director, employee, or Affiliate
of Guarantor (except Subsidiaries), or any shareholder, officer, director or
employee of any such Affiliate (except Subsidiaries) or any other Person,
except (i) in connection with a cashless loan for the purpose of allowing a
shareholder, officer, director or employee of Guarantor to exercise stock
options to purchase the capital stock of Guarantor, and (ii) any loans,
advances or investments to shareholders, officers, employees or Affiliates of
Guarantor in an amount not to exceed $250,000 in the aggregate at any time,
including any loans, advances or investments made by Borrower or CCT.
5.4 Waivers. Guarantor shall not waive or otherwise relinquish any of its
material rights or
Chadmoore/Parent Guaranty.004 14
December 23, 1996
<PAGE> 15
causes of action under or arising out of any third party agreement or assign to
any other Person (except for Subsidiaries) all or a substantial part of its
rights or obligations thereunder, except to the extent that such waiver,
relinquishment or assignment could not individually, or together with any other
similar waivers, relinquishments or assignments, have a material adverse effect
upon the business or assets of Guarantor.
5.5 Articles of Incorporation and By-Laws. Guarantor shall not amend,
supplement, or otherwise modify or waive compliance with any of the provisions
of its articles of incorporation or By-Laws if such amendment, supplement,
modification or waiver would have a material adverse affect on the business,
operations, assets (taken in the aggregate) or financial condition of Guarantor
or would otherwise materially and adversely affect Guarantor's ability to
perform its obligations under the Guarantor Agreements.
5.6 No Transfer of Licenses. Guarantor shall not transfer or attempt to
transfer any of its FCC licenses now or hereafter held by Guarantor to any
Person.
5.7 Transactions with Affiliates. Guarantor shall not use any of the
proceeds hereunder, directly or indirectly, for the benefit of any Affiliate
thereof (except CCI and CCT), including, without limitation, any of its
shareholders or any relative of any of its shareholders, whether by marriage,
adoption, ownership or otherwise, or enter into any other transaction or
arrangement with any Affiliate thereof, except transactions with CCT and CCI
and transactions involving the use of the proceeds approved vb by Motorola in
writing prior to the consummation thereof.
5.8 Expenditures. Guarantor shall not make any expenditure other than for
an ordinary and reasonable expense of Guarantor in connection with the
operation of its businesses and in accordance with its business plans or as
otherwise contemplated by this Guaranty.
5.9 Assumed Names. Guarantor shall not at any time transact or engage in
business under any assumed names, except upon thirty (30) days prior written
notice to Motorola.
5.10 Distributions. Guarantor shall not make any distribution of earnings or
capital (including without limitation, any dividends contemplated by its
articles of incorporation or By-Laws) either directly or indirectly, whether in
cash or property or in obligations of Guarantor, to any of its shareholders as
shareholders, and Guarantor shall not repurchase or redeem any shares of its
capital stock; provided, however, that Guarantor may repurchase or redeem
shares of its capital stock with Motorola's prior written consent, which
consent shall not be unreasonably withheld.
6. SECURITY
The proper, complete and punctual performance by Guarantor of the terms and
conditions of this Guaranty, including its obligations hereunder, shall be
secured by the following described security interest:
6.1 Equipment. Guarantor hereby grants to Motorola a continuing first
priority security interest in and to all of Guarantor's right, title and
interest in and to all of the Equipment, wherever located, together with all
substitutions therefor and accessions, replacements and
Chadmoore/Parent Guaranty.004 15
December 23, 1996
<PAGE> 16
renewals thereof, and in all proceeds and products thereof, including without
limitation insurance proceeds (herein referred to as "Collateral").
6.2 Amounts Owed Guarantor. In addition to the previously described kinds
and types of property owned by Guarantor, Guarantor grants to Motorola a
continuing security interest in all amounts that may be owing at any time and
from time to time by Motorola to Guarantor in any capacity.
6.3 Priority of Security Interest. The security interest granted by
Guarantor to Motorola pursuant to this Guaranty shall be a first, continuing
and indefeasible security interest in the Collateral.
7. GOVERNING LAW
This Guaranty is, and shall be deemed to be, a contract entered into, under and
pursuant to the substantive laws of the State of Illinois, without regard to
the conflict of laws rules thereof.
8. LEGAL EXPENSES
Guarantor agrees that if Motorola shall employ outside legal counsel in order
to successfully present, enforce or defend any or all of Motorola's rights or
remedies hereunder, then in any such event, Guarantor shall pay all reasonable
attorneys' fees and reasonable expenses incurred by Motorola in connection
therewith.
9. NOTICES
Any notices, requests, demands or other communications required or permitted to
be given to any party hereunder shall be deemed to have been sufficiently given
or served for all purposes: (i) when presented personally; or (ii) upon
receipt when sent by facsimile with confirmed answerback of the transmittal;
(iii) upon delivery when sent by prepaid certified mail, return receipt
requested, with post office confirmation of receipt by the addressee, or (iv)
upon delivery when sent by reliable overnight air courier to any party hereto
at its address shown below, or at such other address of which it shall have
notified in writing the party giving such notice.
If to Guarantor: Chadmoore Wireless Communications, Inc.
4720 Polaris
Las Vegas, Nevada 89103
Attention: Robert W. Moore, President and CEO
Telephone No.: (702) 891-5255
Facsimile No.: (702) 891-5250
Chadmoore/Parent Guaranty.004 16
December 23, 1996
<PAGE> 17
With a copy to: The Bogatin Law Firm
860 Ridge Lake Boulevard
Suite 360
Memphis, Tennessee 38120
Attention: David C. Porteous
Telephone No.: (901) 767-1234
Facsimile No.: (901) 767-4010
If to Motorola: Motorola Credit Corporation
1301 East Algonquin Rd.
Schaumburg, Illinois 60196
Attention: Vice President and Director of Worldwide
Customer Finance, Land Mobile Products
Sector
Telephone No. (847) 576-6625
Telecopy No. (847) 576-2279
With a copy to: Motorola, Inc.
1303 E. Algonquin Rd.
Schaumburg, IL 60196
Attention: General Counsel and Secretary
10. AMENDMENTS
This Guaranty may not be amended or modified except by a modification in
writing signed by Guarantor and Motorola.
11. SUCCESSORS AND ASSIGNS
All of the terms, agreement and conditions of this Guaranty shall extend to and
be binding upon Guarantor, its successors and assigns, and shall inure to the
benefit of Motorola and its respective successors and assigns. Guarantor
acknowledges that time is of the essence.
12. WAIVER
Guarantor waives presentment, protest, notice of protest and notice of either
dishonor, default or nonperformance in connection with the Promissory Note or
with respect to any other obligations thereunder or under this Guaranty to the
extent it may lawfully do so, and any and all demands and other notice of every
kind that may be required to be given by law.
13. SEVERABILITY
Any determination that any provision hereof is invalid, illegal or
unenforceable in any respect shall not affect the validity, legality or
enforceability of such provision in any other respect and shall not affect the
validity, legality or enforceability of any other provision contained herein.
Chadmoore/Parent Guaranty.004 17
December 23, 1996
<PAGE> 18
14. TERM
This Guaranty shall be effective upon the date of execution hereof and the
obligations of the Guarantor shall continue until the receipt by Motorola of
payment in full (principal and accrued interest) of the Promissory Note.
15. CONFIDENTIALITY
This Guaranty and the information exchanged pursuant to the terms and
provisions hereof are "Confidential Information" as such term is used in the
Non-Disclosure Agreement dated October 13, 1995 (the "NDA") among Guarantor,
Borrower and Motorola. Consequently, the terms of this Financing Agreement may
not be disclosed to other parties for a period of three (3) years after the
expiration or termination hereof, except as permitted by the NDA.
Chadmoore/Parent Guaranty.004 18
December 23, 1996
<PAGE> 19
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty and Security
Agreement to be duly executed and delivered by the proper and duly authorized
officer as of the day and year first above written.
CHADMOORE WIRELESS GROUP, INC.
By: /s/ Robert W. Moore
----------------------------------------------
Printed Name: Robert W. Moore
------------------------------------
Title: President/CEO
-------------------------------------------
Accepted By:
MOTOROLA, INC.
By: /s/ Gary B. Tatje
----------------------------------------------
Printed Name: Gary B. Tatje
------------------------------------
Title: VP, Director of Worldwide Customer Finance
-------------------------------------------
Chadmoore/Parent Guaranty.004 19
December 23, 1996
<PAGE> 1
EXHIBIT 21.1
Chadmoore Subsidiaries & Relationships
- --------------------------------------------------------------------------------
Chadmoore Wireless Group, Inc.: Parent Company to Chadmoore Communications,
Inc. CMRS Systems, Inc., 800 SMR Network, Inc. and Chadmoore Construction
Services, Inc.
Chadmoore Communications, Inc.: Parent Company to Chadmoore Communications of
Tennessee, Inc. and Chadmoore Communications of Memphis, Inc.
Chadmoore Wireless Group, Inc.:
Publicly traded company
Chadmoore Communications, Inc.:
Majority owned by Chadmoore Wireless Group, Inc.
CMRS Systems, Inc.:
Wholly owned by Chadmoore Wireless Group, Inc.
800 SMR Network, Inc.:
Wholly owned by Chadmoore Wireless Group, Inc.
Chadmoore Construction Services, Inc.:
Wholly owned by Chadmoore Wireless Group, Inc.
Chadmoore Communications of Tennessee, Inc.:
Wholly owned by Chadmoore Wireless Group, Inc.
Chadmoore Communications of Memphis, Inc.
Wholly owned by Chadmoore Wireless Group, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chadmoore Wireless Group, Inc.
We consent to incorporation by reference in the registration statements
(No. 33-95408 and No. 33-80405) on Form S-8 of Chadmoore Wireless Group, Inc.
of our report dated March 19, 1997, relating to the consolidated balance sheets
of Chadmoore Wireless Group, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1996 and for the period from January 1, 1994 through December 31,
1996, which report appears in the December 31, 1996, annual report on
Form 10-KSB of Chadmoore Wireless Group, Inc.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,463,300
<SECURITIES> 0
<RECEIVABLES> 266,520
<ALLOWANCES> 0
<INVENTORY> 197,476
<CURRENT-ASSETS> 2,165,503
<PP&E> 3,396,246
<DEPRECIATION> (232,148)
<TOTAL-ASSETS> 43,127,627
<CURRENT-LIABILITIES> 1,215,244
<BONDS> 0
0
0
<COMMON> 17,824
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 43,127,627
<SALES> 1,387,623
<TOTAL-REVENUES> 1,906,206
<CGS> 1,117,151
<TOTAL-COSTS> 8,486,721
<OTHER-EXPENSES> 125,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266,736
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,826,250)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> 0
</TABLE>
