<PAGE> 1
FORM 10-KSB
================================================================================
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, 1997
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
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2875 E. PATRICK SUITE G, LAS VEGAS, NV 89120
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (702) 740-5633
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
-----------------------------
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
--- ---
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 31, 1998, the aggregate market value of the company's common
stock held by non-affiliates was $12,588,885. 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 31, 1998, 24,218,917 shares of common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X
--- ---
================================================================================
<PAGE> 2
FORM 10-KSB
================================================================================
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
================================================================================
<PAGE> 3
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Chadmoore Wireless Group, Inc., together with its subsidiaries (collectively
"Chadmoore" or the "Company"), is the second-largest holder of frequencies in
the United States in the 800 megahertz ("MHz") band for commercial specialized
mobile radio ("SMR") service. The Company's Operating Territory defined below
covers more than 53 million people in 168 markets, focusing on secondary and
tertiary cities throughout the United States. Also known as dispatch,
one-to-many, or push-to- talk, Chadmoore's commercial SMR service enables
reliable, cost-effective, real-time communications for smaller and medium-sized
enterprises ("SMEs") that rely on mobile workforces. For a flat fee of
approximately $15.00 per radio per month, customers enjoy unlimited air-time for
communicating instantaneously with their teams.
The Company commenced operations in 1994 as Chadmoore Communications, Inc.
("CCI"), a Nevada corporation, to capitalize on the market opportunity created
when the Federal Communications Commission ("FCC") froze licensing of additional
SMR spectrum in 1993 in anticipation of transitioning from the traditional
application process to spectrum auctions. In April 1994, CCI took operational
control of an existing SMR system in Memphis, Tennessee and in March, 1996
acquired a second existing SMR system in Little Rock, Arkansas. In doing so,
CCI established credibility as an SMR operator, gained valuable operating and
marketing experience, and further positioned itself to capitalize on the
anticipated constraint in capacity resulting from the FCC's actions.
Having established credibility as an operator, CCI succeeded in negotiating the
acquisition of rights to approximately 2,300 channels from approximately 1,200
individual licensees during its first 18 months of operation. (See LICENSES AND
RIGHTS TO LICENSES). To facilitate financing for such acquisitions, in February
1995 CCI entered into and reorganized under an Agreement and Plan of
Reorganization ("Reorganization") with CapVest International, Ltd. ("CapVest"),
a Colorado company incorporated in 1987. In the Reorganization, CCI shareholders
owning 85% of the outstanding shares of CCI exchanged their shares for 89% of
the shares of CapVest, causing CCI to become a majority-owned subsidiary of
CapVest. Also in February 1995, the Board of Directors of CapVest resigned, new
members were appointed to fill the vacancies, CCI management assumed
responsibility for CapVest's affairs, and on April 21, 1995, the shareholders of
CapVest approved the change of its corporate name to "Chadmoore Wireless Group,
Inc."
The Company believes that its public company status provided by the
Reorganization, in conjunction with the critical mass established through the
earlier acquisition of rights to approximately 2,300 channels, positioned the
Company to compete for and consummate the acquisition of approximately 5,500
additional channels in June 1996 by acquiring all of the issued and outstanding
stock of CMRS Systems, Inc. ("CMRS") and 800 SMR Network, Inc. ("800") (See
LICENSES AND RIGHTS TO LICENSES.) During 1997, substantially all of the assets
of 800 were transferred to CMRS. The Company continues to operate primarily
through CCI and CMRS, and through subsidiaries thereof.
The Company's publicly held common stock $.001 par value per share ("The 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 2875 East Patrick Lane,
Suite G, Las Vegas, NV, 89120, and its telephone number at that address is (702)
740-5633.
<PAGE> 4
PRINCIPAL SERVICES AND MARKETS
Dispatch is a two-way wireless communication service primarily for business
users who have a need to communicate between a central dispatch point and a
mobile workforce. Users can choose to communicate with a group, selected sub-
groups or individuals. The customer base for dispatch service is typically
stable, diverse, and cost-conscious, including general and specialty
contractors, HVAC service providers, security services, courier and other
delivery services, distribution and transportation firms, real estate and
insurance agents, farmers, and other SMEs that have significant field
operations and need to provide their personnel with the ability to communicate
directly in real-time on a one-to-one or one-to-many basis.
Consequently, the Company believes that SMR represents an attractive and
affordable communication solution for smaller and middle market businesses,
especially in the secondary and tertiary cities in which Chadmoore is focusing.
Chadmoore provides its dispatch service for a flat fee averaging approximately
$15.00 per unit per month for unlimited talk-time.
The Company's primary objectives are to continue developing, operating and
aggressively loading SMR systems within its 168 markets ("Operating
Territory"), and to do so in a manner that effectively deploys capital,
maximizes recurring revenues per dollar of invested capital, and generates
positive cash flow at the system level as quickly as possible. In assessing
these objectives and its spectrum position, the Company adopted its strategy
focusing on the traditional analog SMR business.
Several key factors are believed by the Company to support this strategy,
including (i) an established market base of 18.8 million users in the U.S. were
estimated to already rely on analog SMR service for dispatch applications, (ii)
capacity constraints creating pent-up demand, (iii) before the FCC's licensing
freeze, demand for SMR had expanded consistently at a rate of approximately 15%
to 18% per year for the prior 10 years, (iv) basic businesses of the nature
served by SMR have endured for decades, and are expected to continue to
indefinitely into the future, particularly in the secondary and tertiary cities
focused on by Chadmoore, (v) favorable economic and demographic conditions have
stimulated significant business formation, with SMR positioned as a
cost-effective entry-level productivity tool for SMEs, (vi) outsourcing to
commercial SMR providers was becoming economical for users on private systems,
(vii) analog SMR technology is proven, dependable, and widely available, (viii)
analog dispatch service provides unlimited one-to-many communications for a
known, flat fee of approximately $15 per user per month, (ix) excellent system
economics are attainable as analog SMR service is simple and cost-effective to
deploy, (x) such system economics enable the Company to add capacity
incrementally as demand dictates, resulting in a relatively low cost of
infrastructure, (xi) additional services such as sub-fleet billing, interconnect
(telephony), automatic vehicle location, mobile data, voice mail, short
messaging (paging), and telemetry can be offered using the same infrastructure,
thereby generating operating leverage, (xii) an experienced, trained, and
motivated distribution network was already in place primarily in the form of
Motorola Sales and Service ("MSS") shops (See DISTRIBUTION), and (xiii) nothing
precludes the Company from migrating to digital or other technology as future
capacity requirements dictate on a market by market basis.
Prior to adopting its analog technology platform, the Company had considered
but decided against implementing a digital infrastructure ("digital SMR").
This decision was based, in part, on the Company's evaluation of the following
factors: (i) competitors converting to digital infrastructures are expected by
the Company to create further segmentation and awareness in the marketplace,
(ii) full-scale digital conversion strategies generally require turning off
existing SMR systems in order to utilize frequencies within a digital
architecture, creating a pool of established users which the Company believes
to be potentially available to other providers, (iii) the capital costs per
subscriber associated with such digital technology are substantially higher
than those for analog systems, (iv) the Company believes that the increasingly
competitive nature of the wireless communications industry increases the risks
associated with the higher capital costs of such digital technology, (v) a four
to five times lower pricing advantage for analog versus a digital service can be
marketed to the cost-conscious end-user, (vi) other than digital encryption,
the Company believes that essentially the same feature set can be offered to
the customer, (vii) the Company believes that it can add infrastructure on an
as-needed, just-in-time basis and for significantly less capital cost, and
2
<PAGE> 5
(viii) nothing precludes the Company from migrating to a digital SMR platform as
future capacity requirements dictate on a market by market basis although such
a migration would require additional expenditures. Because virtually all of the
channels acquired by the Company were initially unused, with few or no existing
customers on such frequencies, Chadmoore did not need to adopt a digital
infrastructure in order to create room for growth. Rather, with ample available
frequencies at its disposal, the Company could continue to offer traditional SMR
users the low-cost, fixed-rate communications solution to which they are
accustomed.
As of December 31, 1997, the Company had constructed, and based on detailed
criteria relating to engineering, demographics, competition, market conditions,
and dealer characteristics, developed a prioritized roll-out plan for a total of
168 markets in the United States covering more than 53 million people. This
population number, based on estimated 1996 U.S. Census Metropolitan Statistical
Area figures, represents the number of people residing in the 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. Of
these 168 markets, the Company has implemented full scale systems and
distribution servicing approximately 11,000 subscribers in the following 22
markets as of March 19, 1998:
<TABLE>
<S> <C>
Augusta, GA Austin, TX
Baton Rouge, LA Bay City/Saginaw, MI
Bowling Green, KY Charleston, SC
Charlotte, NC Fayetteville, AR
Fort Wayne, IN Grand Rapids, MI
Huntsville, AL Jacksonville, FL
Lake Charles, LA Little Rock, AR
Mankato, MN Memphis, TN
Naples, FL Pine Bluff, AR
Portland, ME Richmond, VA
Roanoke, VA Rockford, IL
</TABLE>
Chadmoore generates revenue primarily from monthly billing for dispatch
services on a per unit (radio) basis. In selected markets, additional revenue
is generated from telephone interconnect service based on air-time charges as
used, and in the case of the Memphis and Little Rock markets (in which direct
rather than indirect distribution is used -- see DISTRIBUTION), from the sale
of radio equipment, installation, and equipment service as well.
As core capacity in a market is approached, additional channels can be
integrated into the main system using the same basic controller (system
computer), which reduces the average initial capital cost per channel. The
Company believes that such system economics enable the Company to add capacity
incrementally as demand dictates and maximize recurring revenues with minimum
capital invested. At the same time, capacity increases geometrically as channels
are added due to the greater statistical probability of a channel being
available for any user at any given time. In the Company's belief, these two
factors generate strong operating leverage as the system expands.
In general, the Company prioritizes markets based on five key parameters: (i)
the quality of the potential dealer, (ii) the lack of available capacity from
other SMR providers in the market, (iii) business and population demographics,
(iv) channel density, availability of tower space, topography, and similar
engineering considerations, and (v) the overall business case including
anticipated pricing, demand, infrastructure and operating costs, return on
investment, and potential for value-added services.
3
<PAGE> 6
DISTRIBUTION
Once commercial service has been implemented in a market, Chadmoore's
executional focus turns to acquiring new users. In general, the Company
utilizes an indirect distribution network of well-established local dealers,
most of which are MSS shops, to penetrate its markets. The Company believes
that this distribution channel enables it to capitalize on substantial existing
infrastructure, reduce capital requirements, reduce fixed operating costs,
outsource lower-margin equipment sales and service, enhance flexibility, and
speed roll-out, while also bringing the Company immediate market knowledge and
presence, significant industry experience, and an established base of customers
and prospects to sell into. Chadmoore selects its dealers on the basis of
loading history, infrastructure for supporting customers, motivation level, and
references from vendors and customers. Motorola, Inc. (NYSE: MOT) has been very
helpful to the Company in identifying and introducing Chadmoore to quality
dealers in high-priority markets as well.
In markets in which the Company operates, but where a suitable dealer or
independent agent is not available, the Company intends to establish its own
marketing presence or offer such markets as expansion opportunities for top
dealers serving the Company in other cities, in each case to the extent the
Company finds practical. In addition, the Company's management team recognizes
that additional staff will be required to properly support marketing, sales,
engineering, accounting, and similar disciplines to achieve its 1998 marketing
objectives.
Through corporate and field management, Chadmoore supports its dealers with a
range of selling tools and incentives. Selling tools at present include
demographic data for targeted marketing, broadcast fax promotions, market rate
comparisons, propagation and coverage analyses and maps, guidelines for and
assistance in making professional proposals to potential customers, collateral
materials, and customer satisfaction surveys. The Company has also established
"Power To Talk" (PTT) as a national service mark, a take-off on the well-known
industry acronym for "Push To Talk". To incentivize dealers to load and retain
customers, Chadmoore provides long-term residuals rather than one-time
activation fees, and additional residuals are available to dealers based upon
performance.
In addition, during 1997 for selected dealers in priority markets, the Company
implemented a dealer partner program in order to finance system construction
ahead of plan. In this program, dealers made substantial direct contributions
that financed 100% of the initial system build-out. Depending on the market, the
dealer then recoups 60% to 80% of such investment from system earnings after
operating expenses, and retains a 20% to 40% interest in the system thereafter.
Of key significance, the dealer is repaid only if the system is profitable. The
result: a long-term partnering relationship that motivates the Company to
support the dealers, and that the Company believes will motivate dealers to load
systems rapidly, provide excellent service and customer retention, and market
value-added services to the installed base. Company management believes that
such emphasis has, in part, been responsible for a Chadmoore churn rate (the
rate at which customers disconnect service) well below industry average.
To keep the motivational aspects of the dealer partner program but reduce the
effective capital cost to the Company, in selected markets for which full-scale
roll-out has yet to occur the Company anticipates implementing a modified
dealer partner arrangement in which the dealer would contribute approximately
25% to 60% (depending on market size) towards initial market roll-out costs in
return for a 10% interest in the local system. This investment is a capital
contribution, and is not recouped from system earnings. Based on the speed and
extent of loading subscribers onto such system, the dealer partner would have
incentive opportunities to earn up to an additional 10% interest in the system.
With additional capital, Chadmoore plans to enhance its dealer education and
support with training programs in targeted marketing, pre-opening promotion,
telemarketing support, and advertising in trade magazines for target vertical
market segments. The Company is also contemplating implementation of specialized
marketing teams to assist in stimulating and maintaining demand in selected
markets. While the Company is now negotiating to obtain such additional
capital, there can be no assurance that Chadmoore will be successful in
obtaining the additional capital necessary for such implementation.
4
<PAGE> 7
COMPETITIVE BUSINESS CONDITIONS AND COMPANY'S INDUSTRY POSITION
In management's evaluation, key factors relevant to competition in the wireless
communication industry are pricing of service, size of the coverage area,
quality of communication, reliability and availability of service (i.e. waiting
time for a "clear channel", absence of busy signals, and absence of transmission
disconnects or failures). The Company's success depends in large measure on its
ability to compete with numerous wireless service providers in each of its
markets, including cellular operators, PCS service providers, digital SMR
service providers, paging services, and other analog SMR operators. The wireless
communications industry is highly competitive and comprised of many companies,
most of which have substantially greater financial, marketing, and other
resources than the Company. While the Company believes that it has developed a
differentiated and effective business plan, there can be no assurances that it
will be able to compete successfully in its industry.
Since the late 1980s, Nextel Communications Inc. ("Nextel") in particular has
acquired a large number of SMR systems and is in the process of implementing a
conversion from analog SMR technology to Motorola's digital integrated Dispatch
Enhanced Network ("iDEN") system. Other cellular operators and PCS providers
are implementing digital transmission protocols on their systems as well.
Chadmoore believes that Nextel is focusing on higher-end, cellular-like
telephony users, thereby creating a market segmentation opportunity for the
Company. As a result, the Company competes with Nextel primarily on the basis
of price.
Other potential wireless competitors for Chadmoore include Southern Company and
Geotek. Both are implementing digital architectures and pursuing Nextel-like
strategies on a regional or primary market basis. Southern Company is a large
utility focusing on wide-area communications for its own vehicle fleet in the
Southeastern U.S., while selling excess capacity to other businesses traveling
the same geographic region. Geotek is deploying an advanced proprietary
technology developed from Israeli military systems that operates on 900 MHz. As
with Nextel, Chadmoore intends to compete with Southern Company and Geotek
primarily based on price.
Most other analog SMR providers consist of local small businesses, often passed
from generation to generation, that Chadmoore believes lack the spectrum,
professional marketing, management expertise, and resources brought to the
marketplace by the Company. In fact, available capacity and operating
capabilities of existing SMR providers constitute key factors in Chadmoore's
market prioritization matrix. The Company intends to compete with existing
analog SMR providers primarily on the basis of customer service, capacity to
meet customer growth, and professional marketing and dealer support.
LICENSES AND RIGHTS TO LICENSES
Within its 168 target markets, Chadmoore controls approximately 5,000 channels
in the 800 MHz band through ownership of the licenses or through generally
irrevocable five and ten-year options ("Options") to acquire licenses (subject
to FCC rules, regulations, and policies), coupled with management agreements
until such Options have been exercised or expire. These like-term management
agreements with the license holders are intended to enable the Company to
develop, maintain, and operate the corresponding SMR channels subject the
licensee's direction. Any acquisition of an SMR license by the Company pursuant
to exercise of an Option is subject, among other things, to approval of the
acquisition by the FCC. Until an Option is exercised and the corresponding
license is transferred to Chadmoore, the Company acts under the direction and
ultimate control of the license holder and in accordance with FCC rules and
regulations.
Once an SMR station is operating, the Company may exercise its Option to acquire
the license at any time prior to the expiration of the Option. As of March 19,
1998, the Company had exercised Options on approximately 4,100 channels, of
which approximately 450 have transferred to the Company and approximately 3,650
are in the process of being transfered to the Company, after receiving FCC
approval. The remaining approximate 900 channels continue to be utilized under
Option and management agreements, for which the Company has decided to delay
exercise based on economic considerations.
5
<PAGE> 8
The Company presently intends to exercise all such remaining Options, but such
exercise is subject to certain considerations. The Company may elect not to
exercise an Option for various business reasons, including the Company's
inability to acquire other licenses 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. The Options also
authorize a court to order specific performance in favor of the Company if a
grantor fails to transfer the license in accordance with the Option. However,
there can be no assurance that a court would order specific performance, since
this remedy is subject to various equitable considerations.
To the extent that Option and 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.
GOVERNMENT REGULATION
The Company's operations are subject to regulation primarily by the FCC. The
licensing, operation, assignment, and acquisition of 800 MHz SMR licenses are
regulated under the Communication Act of 1934, as amended ("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. ''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 and has proposed other new rules allowing operational flexibility
and mandating future licensing by competitive bidding. 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.
All SMR and commercial mobile radio service 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. As of November 20,
1997 and March 19, 1998, no channels targeted by the Company in its 168 markets
had automatically been forfeited under this policy.
Prior to imposition of commercial mobile radio service regulation, the FCC
issued SMR licenses for five-year terms. Since January 2, 1995, commercial
mobile radio service licenses are to be issued for ten-year terms. Substantially
all of the commercial mobile radio service licenses managed by the Company
through CCI and CMRS are issued for five-year terms. Each license may be renewed
at the end of the license term upon application to the FCC. While the FCC
generally grants renewal of SMR licenses in routine fashion and the Company is
aware of no reason why its 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 the Company.
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corporation among others (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 little or 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 through NDD/
Metropolitan, 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, Daniel R. Goodman ("the Receiver"), to preserve
the assets of NDD/Metropolitan. In the course of the Receiver's duties, he
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 Commercial Mobile Radio Service stations, but had not
been granted the extended construction period to be awarded all such licensees.
Thus, in an effort to be consistent in its treatment of similarly situated
licensees, the FCC granted an additional four months in which to construct and
place the Receivership Stations in operation. The grant of such 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, in spite of repeated requests by the Company. Nonetheless, on the
basis of release to the Company, by the Receiver, of a list of the Receivership
Stations believed by the Receiver to be subject to Management and Option
agreements with or held by the Company, the Company believes that approximately
800 of the licenses that it owns or manages are Receivership Stations. For its
own licenses and under the direction of each licensee for managed stations, the
Company has proceeded with the construction of Receivership Stations. Because
the FCC has not released its final order for publication, no assurance can be
given that any of such stations owned or managed by the Company will obtain
relief with respect to deadlines for timely construction pursuant to FCC rules.
The Company believes that the Goodman/Chan decision will be published during
1998, however, significant delay by the FCC in publishing Goodman/Chan waiver in
the Federal Register would necessitate a re-prioritization of the Company's
roll-out plan.
The Receiver has requested that the Company replace some of the existing
Management and Option Agreements with Goodman/Chan licensees with promissory
notes. The Company engaged in discussions with the Receiver in this regard, but
did not reach a final determination and concluded that no further discussions
are warranted at this time. However, there can be no assurances that the
Receiver would not decide to take actions in the future to challenge the
Company's agreements with Goodman/Chan licensees, including the Company's rights
to licenses under such agreements, in an effort to enhance the value of the
Receivership Estate.
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)
frequencies. The only granted Finder's Preference Request which was appealed
involved a five-channel trunked 800 MHz SMR station, in Memphis, Tennessee.
Eight Finder's Preference Requests 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. To date,
no further action has been taken on these matters by the Company or the FCC.
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 filed its reply timely
following Nextel's responsive filing. The Company is unable to predict what
action the FCC will take with respect to the Wide-Area Finder's Preference. No
further action has been taken by the Company or the FCC.
6
<PAGE> 9
REGULATION OF RADIO TOWERS. The transmitters for SMR stations typically are
located on free-standing or building roof-top 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 is 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 is operating in conformity with all
applicable rules and regulations, policy, rule changes, and other actions of
these agencies could adversely affect the operations and financial standing of
the Company.
STATE REGULATIONS. At present, 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 Company's
systems are not subject to any state or local regulatory restraint (other than
generally applicable laws and regulations). However, there can be no assurances
that such systems will not become subject to various states' regulatory
authorities in the future.
REGULATORY DEVELOPMENTS. In March, 1996, the Communications Act of 1996 went
into effect. Such Act effected significant change in regulation and market entry
for communications service providers. Despite the Communications 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 Communications Act.
Legislation or materially different rules may be proposed and enacted at any
time and may materially adversely affect the operations of the Company. At this
time, the Company is unaware of any pending legislation or rule-making
proceedings that would have a material adverse impact on the current operations
of the Company.
DEPENDENCE UPON CUSTOMERS/SUPPLIERS
No customer accounted for more than 10% of the net revenues of the Company for
the 12 months ended December 31, 1997. The loss of any one customer would not
have a materially adverse effect on the Company. Seasonal factors do not
materially affect the Company's operations.
The Company's principal suppliers of analog SMR equipment are Motorola, Uniden,
and E. F. Johnson. The loss of Motorola as an analog SMR equipment supplier
could have a material adverse effect on its operations. However, the Company
believes that such loss is unlikely, particularly in light of numerous ways in
which Motorola and the Company have been working together in recent months.
With respect to the equipment for the potential implementation of digital SMR
systems in the future, the Company may be dependent upon a single manufacturer,
and such equipment may not be compatible with equipment infrastructures offered
by other manufacturers. The Company does not use substantial amounts of raw
materials in its business.
7
<PAGE> 10
RESEARCH AND DEVELOPMENT
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 digital systems.
COPYRIGHTS, PATENTS, PROPRIETARY INFORMATION, AND TRADEMARKS
The Company has registered service marks for several brand names associated
with its business, the primary such names including "TeamLink", "TeamLink-
Connecting Your Business", "TeamLink-Power To Talk" and PTT "Power To Talk
Communications".
IMPACT OF ENVIRONMENTAL LAWS
Federal, state, and local environmental laws have no material effect on
Chadmoore's business.
MANAGEMENT
Chadmoore is led by a team of senior management personnel who average 12 years
of experience each in wireless communications, including backgrounds with
industry leaders such as Ameritech, Cellular One, U.S. CommStruct, LIN
Broadcasting, Geotek, MCI, Radscan, and Sprint Cellular. Such experience spans
all functional disciplines, including executive management, full P&L
responsibility, operations, engineering, sales and marketing, customer support,
human resources, finance, and administration. To augment and support its
internal capabilities, Chadmoore utilizes KPMG Peat Marwick as auditors (since
inception), Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP and
Graham & James as counsel for corporate matters and securities law, and Irwin,
Campbell & Tannenwald, P.C. as FCC counsel in Washington D.C.
EMPLOYEES
At December 31, 1997, the Company had 34 full-time employees. None of the
Company's employees is covered by a collective bargaining agreement and the
Company believes its relationship with its employees is good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's corporate office is located at 2875 East Patrick Lane, Suite G,
Las Vegas, Nevada. The Company leases office and warehouse space at this
address which consists of 15,756 square feet at a monthly rental of
approximately $16,500 under a five-year lease, which started in December 1997,
with renewal and annual escalation provisions. Management believes that the
corporate office space will be sufficient to accommodate the growth necessary to
implement its plan of operation and has no expectation of needing more space
before the end of the lease term. In addition, the Company leases a sales
facility in Little Rock, Arkansas, which consists of 1,000 square feet under a
one-year lease expiring in October 1998 and a sales facility in Southaven,
Mississippi, which consists of 800 square feet under a one-year lease expiring
in March 1999. The Company, through a subsidiary, also owns an 8,000 square foot
sales and service facility in Memphis, Tennessee.
The Company, through its subsidiaries, leases approximately 180 antenna sites,
throughout the United States, for the transmission of its SMR services. These
sites are located primarily on roof tops or are free standing facilities. The
terms of these leases range from month to month to 5 years, with options to
renew. The Company believes it is more economical to lease antenna sites rather
than own the sites.
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
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 were otherwise
timely constructed and not subject to the above.
Airnet, Inc. v. Chadmoore Wireless Group, Inc. Case No. 768473, Orange County
Superior Court
On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and complaint on the
Company, alleging claims related to a proposed merger between Airnet and the
Company that never materialized. In particular, Airnet has alleged that a
certain "letter of intent" obligated the parties to complete the proposed
merger. The Company denies this allegation. In its complaint, Airnet has
alleged the following purported causes of action against the Company: breach
of contract, breach of the implied covenant of good faith and fair dealing,
intentional interference with prospective economic advantage, intentional
interference with contractual relationship, including breach of contract, false
promise and conversion. Airnet has also purported to seek the following relief
from the Company: $28,000,000 in compensatory damages plus interest, punitive
damages, costs of suit and attorney's fees. The Company challenged the
sufficiency of the complaint as to most of the purported causes of action on
the grounds that these purported causes of action fail to state facts
sufficient to constitute a cause of action. The Company also challenged the
sufficiency of the punitive damages allegations on the grounds that the
compliant fails to state facts sufficient to support these allegations. Rather
than oppose these challenges to its complaint, Airnet elected to file a first
amended complaint. Believing that Airnet's amendments were immaterial the
Company renewed its challenges to Airnet's pleading. On September 9, 1997, the
court sustained the Company's demurrers to Airnet's claims for damages based on
the Company's alleged failure to complete the merger and to Airnet's claims for
conversion. At Airnet's request, the court allowed Airnet to amend its pleading
a second time to attempt to state these claims, and Airnet's new complaint
asserts claims for breach of contract, anticipatory breach of contract,
intentional interference with prospective economic advantage, interference with
contractual relationship, inducing breach of contract and false promise. The
Company again filed demurrers challenging certain of the claims in Airnet's
pleading. On January 16, 1998, the Court overruled the Company's demurrers to
the Second Amended Complaint.
On February 2, 1998, the Company answered the Second Amended Complaint with a
general denial and by asserting the following affirmative defenses: failure to
state a claim, uncertainty, statutes of limitations, laches, lack of capacity,
lack of standing, waiver, estoppel, knowledge and acquiescence, unclean hands,
unjust enrichment, fraud, misrepresentations, res judicata, justification,
privilege, no action intended or reasonably calculated to cause injury, lack of
causation, acts of third parties, failure to allege a contract, no meeting of
the minds, statute of frauds, lack of privity, fraud in the inducement,
mistake, lack of consideration, failure of consideration, failure of conditions
precedent, concurrent, subsequent, Airnet's intentional misrepresentation,
Airnet's negligent misrepresentations, performance excused by Airnet's failure
to perform, performance excused by recission, performance excused by
modification, antecedent breaches by Airnet, accord and satisfaction,
privileged communications, justified communications, no damages, failure to
mitigate and offset.
On February 2, 1998, the Company filed a Cross-Complaint against Airnet as well
as three other named cross-defendants related to Airnet: Uninet, Inc.,
("Uninet") Anthony Schatzlein ("Schatzlein") and Dennis Houston ("Houston").
The Company's Cross-Complaint alleges various causes of action including fraud,
breach of oral contract, fraud and defamation which arise out of the proposed
merger and the events surrounding it. On March 2, 1998, cross-defendants
Airnet, Uninet, Schatzlein and Houston answered the
9
<PAGE> 12
Cross-Complaint with a general denial and a single affirmative defense -- that
the Cross-Complaint does not state facts sufficient to constitute a cause of
action.
The Company intends to vigorously defend the Second Amended Complaint and to
pursue the claims set forth in the Cross-Complaint. At this time, the outcome
of this litigation cannot be predicted with certainty. Although the Company
intends to defend the action vigorously, it is still in its early stages and no
substantial discovery has been conducted in this matter. Accordingly, at this
time, the Company is unable to predict the outcome of this matter.
Chadmoore Communications, Inc. v. John Peacock Case No. CV-S-97-00587-HDM
(RLH), United States District Court for the District of Nevada
In September 1994, CCI entered into a two year consulting agreement (the
"Consulting Agreement") with John Peacock ("Peacock") to act as a consultant and
technical advisor to CCI concerning certain specialized mobile radio ("SMR")
stations. In May, 1997 CCI filed a complaint against Peacock for declaratory
relief in the United States District Court for the District of Nevada, seeking a
declaration of the respective rights and obligations of CCI under the Consulting
Agreement. CCI is seeking this judicial declaration based upon Peacock's
contention that he is entitled to certain bonus compensation under the
Consulting Agreement. Peacock contends that this bonus compensation is due
regardless of whether an SMR license is granted based upon his activities as a
consultant. CCI contends that the Consultant Agreement is clear that such bonus
compensation is only awarded upon the "grant" of an SMR license. Peacock
contends that he is entitled to bonus compensation of four hundred five thousand
($405,000). In lieu of answering the complaint, Peacock filed a motion seeking
dismissal of the action based on the assertion that he is not subject to
jurisdiction in Nevada courts. After briefing, that motion was denied by the
Court, and the parties are now proceeding with discovery.
On September 26, 1997, Peacock answered the Complaint and asserted the following
affirmative defenses: failure to state a claim, failure to perform, intentional
concealment or failure to disclose material facts, estoppel, unclean hands, lack
of subject matter, claims not authorized by declaratory relief statutes,
improper venue, forum non conveniens, rescission and reformation, and choice of
law.
On or about January 28, 1998, Peacock filed a motion to add a counterclaim to
this litigation. The counterclaim purported to allege causes of action based on
breach of the Consultant Agreement, fraud and breach of fiduciary duty. CCI
objected to Peacock's improper attempt to add tort claims to this litigation and
Peacock agreed to withdrawn them, amend its proposed counterclaim by
stipulating, and assert only a breach of contract claim based on the Consulting
Agreement. Once the Amended Counterclaim is filed with the Court, CCI will have
the right to assert claims for affirmative relief against Peacock.
CCI intends to vigorously pursue its Complaint and defend against the
counterclaim. At this time, discovery has not been completed and the Company
is unable to predict the outcome of this matter.
Pursuant to the FCC's jurisdiction over telecommunications activities, the
Company is involved in pending matters before the FCC which may ultimately
affect the Company's operations. These pending matters include the "Goodman
Chan" decision and the Company's pending Finders Preference requests. Details
concerning the status of these proceedings at the FCC are given in "Item 1
Government Regulation".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE> 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
SHAREHOLDER MATTERS
MARKET INFORMATION. The Company's Common Stock has been listed on the NASD
Electronic Bulletin Board since July 1996. The Company's Common Stock
currently trades under the symbol "MOOR". As of March 19, 1998, there were 383
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>
<S> <C> <C>
Fiscal Year 1995 High Ask Low Bid
- ---------------- --------- -------
Third Quarter (from July 17, 1995) $5 1/2 $2 1/2
Fourth Quarter $7 1/8 $1 1/8
Fiscal Year 1996 High Ask Low Bid
- ---------------- --------- -------
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
Fiscal Year 1997 High Ask Low Bid
- ---------------- --------- -------
First Quarter $2 1/8 $0 5/8
Second Quarter $1 1/32 $0 11/32
Third Quarter $0 15/16 $0 7/32
Fourth Quarter $1 13/16 $0 13/32
</TABLE>
On December 31, 1997, the closing ask and bid price, on a per share basis, of
the Company's Common Stock was $0.50 and $0.40, 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the fiscal year ended December 31,
1997, which should be read in conjunction with, and is qualified in its entirety
by, the consolidated financial statements and notes thereto included elsewhere
in this report.
Statements contained herein that are not historical facts are forward-looking
statements as that term is defined by the Private Securities Litigation Reform
Act of 1995. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, the forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
from those projected. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance and that
actual results may differ materially from those in the forward-looking
statements. Such risks and uncertainties include, without limitation,
fluctuations in demand, loss of subscribers, the quality and price of similar or
comparable wireless communications services, well-established competitors who
have substantially greater financial resources and longer operating histories,
regulatory delays or denials, ability to complete intended market roll-out,
termination of proposed transactions, access to sources of capital, adverse
results in pending or threatened litigation, consequences of actions by the FCC,
and general economics.
11
<PAGE> 14
RESULTS OF OPERATION
Total revenues for the fiscal year ended December 31, 1997 increased 10.7% to
$1,900,167 from $1,716,114 in 1996, reflecting increases of $182,785, or 32.4%,
in Radio Services (recurring revenues from air-time subscription by customers)
and $65,585, or 23.8%, in Maintenance and Installation services, offset by
declines of $15,189, or 1.9%, in Equipment Sales and $49,128, or 91.8%, in
Other. Consistent with the Company's plan of operation to focus on recurring
revenues by selling its commercial SMR service through independent dealers, the
proportion of total revenues generated by Radio Services increased from 32.8% in
1996 to 39.3% in 1997. In such business model, the local dealer rather than the
Company sells, installs, and services the radio equipment and records the
revenues and costs associated therewith and the Company receives only the
recurring revenue associated with the sale of airtime. The Company anticipates
that the proportion of total revenues from recurring revenues will continue to
increase in future periods as additional markets are rolled out utilizing
indirect distribution through local dealers.
The 32.4% increase in Radio Services revenues, from $564,550 in 1996 to $747,335
in 1997, was driven by an increase in the number of subscribers utilizing the
Company's SMR systems, from approximately 2,100 at December 31, 1996 to
approximately 8,300 at December 31, 1997. Most of such additions occurred in the
latter part of the year. The increase in subscribers, in turn, was primarily due
to full-scale implementation of service by the Company in 19 new markets during
1997. Pricing per subscriber unit in service remained comparable during both
years.
The 23.8% increase in revenues from Maintenance and Installation services, from
$274,996 in 1996 to $340,581 in 1997, was attributable to an increase in new
subscribers in the Company's two direct distribution markets whose radio
equipment required initial installation and programming, as well as increased
repair services in the same markets.
Equipment Sales remained relatively flat at $807,884 in 1997 versus $823,073 in
1996. The 91.8% decline in Other revenues from $53,495 in 1996 to $4,367 in 1997
was primarily the result of commissions on the reselling of cellular services
for other providers during 1996 which was discontinued in the first quarter of
1997 in connection with the Company's focus on its core SMR business.
The Company anticipates that Equipment Sales and Maintenance and Installation
service will remain relatively constant and account for a declining share of
total revenues in the future, because since acquiring full-service operations in
its first two markets, the Company has utilized and intends to continue
utilizing indirect distribution through local dealers in substantially all
markets. As noted previously, in such business model, the local dealer rather
than the Company sells, installs, and services the radio equipment and records
the revenues and costs associated therewith.
Cost of sales increased by $140,110, or 17.2%, from $813,398 in 1996 to $953,508
in 1997. This increase was primarily due to SMR system site expenses at the
Company's 19 new markets rolled out during 1997. As a result, gross margin
(total revenue less cost of sales, as a percentage of total revenue) declined by
3%, from 53 % in 1996 to 50 % in 1997. This is
12
<PAGE> 15
reflective of the lead time between system implementation, at which time certain
operating costs are incurred, and the generation of revenues from such
operations.
Salaries, wages, and benefits expense increased by $1,092,593, or 64.7%, from
$1,687,792 in 1996 to $2,780,385 in 1997, primarily due to personnel additions,
largely in operational areas, made in anticipation of, and necessitated by, the
Company's transition from aggregating SMR spectrum to constructing, marketing,
and rolling out commercial SMR service utilizing such spectrum. Relative to
total revenues, salaries, wages, and benefits expense measured 146% in 1997
compared with 98.3% for 1996, which reflects the lead-time required for
personnel additions prior to realizing higher revenues from the rolling out of
additional markets as enabled by such incremental staffing. Correspondingly, in
future years the Company expects salaries, wages, and benefits expense as a
percent of total revenues to decline as the Company realizes operating leverage
gained from an increasing subscriber base managed through essentially the same
infrastructure.
Furthermore, such increase in salaries, wages, and benefits expense was more
than offset by a decrease of $1,466,992, or 27.1%, in general and administrative
expense, from $5,416,192 in 1996 to $3,949,200 in 1997. This decline resulted
primarily from a reduction in professional fees, including accounting, legal,
promotional, and consulting services. The Company expects the decline in
professional fees to continue as it transitions from spectrum acquisition to
systems implementation and operation. This decline was partially offset by an
increase in site expenses for non-commercial markets. The Company expects its
general and administrative site costs to decrease as sites are commercialized
and these costs move from general and administrative to cost of sales. Relative
to total revenues, general and administrative expense declined to 207.8% in 1997
compared with 315.6% for 1996. The Company expects general and administrative
expense as a percent of total revenues to continue to decline in future years as
the Company realizes operating leverage gained from an increasing subscriber
base managed through essentially the same infrastructure.
Depreciation and amortization expense increased $308,432, or 81.3% from $379,247
in 1996 to $687,679 in 1997, reflecting greater capital expenditures associated
with construction and implementation of operating systems equipment.
Due to the foregoing, total operating expenses increased $74,143 or 0.1% from
$8,296,629 in 1996 to $8,370,772 in 1997, and the Company's loss from
operations decreased by $109,910 or 1.7%, from $6,580,515 to $6,470,605, for
such respective periods.
In the second fiscal quarter of 1997, the Company recorded a one-time allowance
of $7,166,956 to reflect a then-probable impairment of value to management
agreements and options to acquire licenses for which the Company at such time
was uncertain of its ability to construct systems prior to an FCC-mandated
construction deadline of November 20, 1997, which would have resulted in
forfeiture of such spectrum back to the FCC. Licenses so selected for allowance
by the Company were chosen based on numerous strategic factors, including
importance of the markets in which such licenses were located, channel densities
in such markets, projected system revenues, and potential competitive impact.
The valuation allowance was based on, among other things, Management's estimate
of the Company's ability to meet FCC construction requirements in 158 markets
by the deadline. As of November 20, 1997. The Company had so constructed 168
markets, exceeding its estimate.
In the fourth quarter of 1997, the Company recorded a one-time non-cash write
down of $443,474 associated with its investment in JJ&D LLC. This write down was
almost exclusively purchased goodwill from the original purchase price
allocation. Management believes this investment is permanently impaired based on
the Company's expectation of JJ&D LLC's future performance.
Interest expense increased $161,228, or 50.1%, from $321,240 in 1996 to $482,468
in 1997 due to higher average balances outstanding under loan facilities.
Interest income decreased $41,973, or 77%, from $54,504 in 1996 to $12,531 in
1997 as a result of lower balances of cash on hand.
Based on the foregoing, the Company's net loss increased $7,853,039 from
$6,826,250, or $.55 per share, in 1996 to $14,679,286, or $.73 per share, in
1997. This increase was almost entirely the result of the aforementioned
$7,166,956 valuation allowance and $443,474 write down of its investment in
JJ&D, LLC.
13
<PAGE> 16
PLAN OF OPERATION
See Item 1. DESCRIPTION OF BUSINESS
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that during 1998, depending on the rate of market roll-out
during such period, it will require approximately $8 million to $10 million in
additional funding, of which approximately $3.5 million is available and an
additional $4.5 million to $6.5 million is required, for full-scale
implementation of its SMR services and ongoing operating expenses. To meet such
funding requirements, the Company anticipates continued utilization of its
existing borrowing facilities with Motorola, Inc. ("Motorola") and MarCap
Corporation ("MarCap"), a vendor financing arrangement recently consummated with
HSI GeoTrans, Inc. ("GeoTrans"), sales of selected SMR channels deemed
non-strategic to its business plan, and additional equity and debt financings
which are currently in progress. See discussion of "Recovery" below. There can
be no assurances that the Company will be able to successfully obtain the
additional equity and debt financings currently in progress, or will be
otherwise able to obtain sufficient financing to consummate the Company's
business plan.
On January 13, 1998, the Company entered into a letter of intent with Recovery
Equity Partners II, L.P. ("Recovery"), an institutional private equity fund with
$208 million under management that focuses on special situation investing. The
letter provides that Recovery may invest up to $10 million of equity capital
into the Company. Under the terms of this potential transaction, which remains
subject to certain contingencies, Recovery would purchase $5 million of the
Company's common stock at closing, with an option to purchase an additional $5
million of the Company's common stock, commencing in April 1999, at a higher
price. Based on certain performance criteria, the option for the second $5
million of investment by Recovery would be callable by the Company.
Among other factors, Recovery's equity investment in the Company is contingent
on the Company raising at least $10 million of debt financing, which the Company
is currently attempting to obtain. On March 4, 1998, the Company entered into a
letter of intent with Foothill Capital Corporation ("Foothill") by which
Foothill would provide $10 million of secured debt financing to the Company
subject to certain conditions being met. Collateral for such debt financing
would consist of substantially all the Company's assets other than those already
pledged to other creditors. Recovery has informed the Company that the Foothill
financing, if completed as currently contemplated, would satisfy Recovery's
aforementioned contingency that the Company raise at least $10 million of debt
financing. Closing of the contemplated transactions with Recovery and Foothill,
both of which remain subject to satisfactory completion of due diligence, formal
approval by their respective internal approval committees, satisfactory
completion of documentation, and (in the case of Foothill only) satisfactory
appraisal of collateral, is expected to occur by mid-1998. However, there can be
no assurances that such transactions will close in a timely fashion or at all.
On March 9, 1998, the Company entered into a vendor financing arrangement with
GeoTrans, a wholly owned subsidiary of Tetra Tech, Inc., whereby GeoTrans will
perform turn-key implementation of full-scale SMR system operations for the
Company in up to 10 markets per month and 145 total markets. During 1997,
GeoTrans completed preliminary construction services for the Company in 78
markets. The financing mechanism in the Company's arrangement with GeoTrans
specifies a $4,000 down-payment per market by the Company and approximately
$18,000 per market to be drawn by the Company under its Motorola financing
facility, with GeoTrans financing the balance of approximately $49,000 per
market on 120-day payment terms, with incentives to the Company of up to a 3%
discount for early payment. Collateral for such financing arrangement consists
of 183 channels in nine primarily non-strategic markets with a fair market value
estimated by the Company of $4.4 million.
On December 23, 1997, the Company completed a private placement of Series B
Convertible Preferred Stock (the "Series B Preferred") and warrants for
$1,575,188, net of transaction costs of $24,812, through Settondown Capital
International, Limited ("Settondown") under Regulation S ("Regulation S") of the
Securities Act of 1933, as amended. The purchase price per share of underlying
Common Stock of the Series B preferred was based on a 20% discount to the face
value of the Series B Preferred. The Series B preferred provides for liquidation
preference of $10.00 per share and cumulative dividends at 8.0% per annum from
the date of issuance, payable quarterly in cash or the Company's common stock at
the option of the Company at the then-current market price. The purchase price
of one share of Company common stock under each warrant is the closing bid price
of the shares of company common stock on the Nasdaq OTC Bulletin Board as quoted
by Bloomberg, LP on the date of closing. The warrants may be exercised at any
time prior to their expiration in December, 2002.
Holders of the Series B preferred are entitled to convert any portion of the
Series B Preferred into Common Stock of the Company at the average market price
of the Company's Common Stock for the five (5) day trading period ending on the
day prior to conversion. If the difference between the average price and the
current market price is greater than 20%, the lookback is increased to 20 days.
The Series B Preferred also provided that holders are restricted from
converting an amount of Series B Preferred which would cause them to exceed
4.99% beneficial ownership of the Company's common stock.
14
<PAGE> 17
On February 10, 1998, the Company and several holders of the Series B Preferred
entered into an amendment providing that such holders would not convert any
Series B Preferred into common stock of the Company prior to March 11, 1998. In
consideration for such amendment, the Company agreed to issue to the Series B
Preferred holders pursuant to Regulation S an aggregate of approximately 315,000
shares of the Company's common stock and warrants to purchase an additional
approximately 380,000 shares of the company's common stock, the terms of which
warrants are the same as terms of the warrants issued in the December 23, 1997
private placement described above.
On January 12, 1998, the Company consummated an agreement with 32 of 33 licensee
corporations that were due approximately 8% of the outstanding common stock of
CMRS (as the balance of consideration due for the Company's exercising options
to acquire licenses from such licensee corporations), for such licensee
corporations to accept $150,000 in lieu of such stock in CMRS. Upon signing, the
Company had five days to fund such transaction. Due to limited time and internal
resources, the Company sought an investor that could immediately meet the
$150,000 in payments. Already familiar with the Company from its earlier
investment, Settondown agreed to provide the financing to acquire the
approximately 8% minority interest in CMRS, provided that the Company in turn
enter into an exchange agreement with Settondown to issue 800,000 shares of the
Company's common stock in return for the minority interest in CMRS. These
transactions closed on February 10, 1998, in conjunction with which Settondown
also agreed to limit its selling of such shares of common stock of the Company
to no more than 50,000 shares per month for the first six months following
issuance thereof. An effect of these transactions was to eliminate an
approximately 8% minority interest in CMRS in return for the issuance of 800,000
shares of the Company's common stock. CMRS remains a wholly owned subsidiary of
the Company with no further obligations to the 32 licensee corporations,
considerably simplifying the Company's capital structure as a result. Management
believes the transactions were advantageous because the valuation placed by the
Company on the eight percent of CMRS common stock which would otherwise been
issued to the license holders was greater than the cash consideration actually
provided by the Company as a result of the transactions. However, no assurances
can be given that the Company's valuation of such eight percent of CMRS common
stock would be generally accepted, especially given the absence of a public
market in CMRS shares and market uncertainties regarding the valuation of assets
such as those held by CMRS. The one remaining licensee continues to operate
under the Company's Management and Option Agreement. Negotiations are currently
underway to exercise the Option. If a satisfactory resolution cannot be achieved
the Company intends to continue to operate under the current Management and
Option Agreement, subject to the licensee's direction.
On October 30, 1997, two subsidiaries of the Company, CCI and CMRS, entered into
a First Amendment and Financing and Security Agreement with MarCap which amended
that certain Financing and Security Agreement dated October 29, 1996 between CCI
and Motorola (the "Motorola Loan Facility"), the interest of Motorola therein
having been assigned to MarCap, pursuant to which MarCap extended to CCI and
CMRS an additional loan facility (the "MarCap Facility") in a maximum amount of
$2,000,000 (plus certain fees and legal expenses payable to MarCap). The MarCap
Facility is secured by (i) a pledge of all the stock of two subsidiaries and
assignment of all limited liability company membership interests in three
limited liability companies, which collectively hold licenses or rights to
licenses in up to 452 channels in 12 markets having a value (per a third-party
appraiser) of approximately $8,800,000, (ii) a first lien on all non-Motorola
equipment used in systems for such markets, and (iii) a cross-pledge of all
collateral previously granted in favor of Motorola relating to the Motorola
Facility, which cross-pledge, until modified by letter agreement dated February
25, 1998 between the Company and MarCap as described further below, would unwind
with respect to collateral pledged under either the Motorola Facility or MarCap
Facility upon full repayment by the Company of all outstanding balances under
either such respective Facility. The MarCap Facility is further guaranteed by
Chadmoore Wireless Group, Inc. and by Chadmoore Communications of Tennessee,
Inc. to the extent of its interest in the collateral previously pledged in favor
of Motorola.
On October 31, 1997, the initial draw under the MarCap Facility was made in the
amount of $481,440 and evidenced by a promissory note executed in favor of
MarCap. Subsequent draws of $250,000, $650,000 and $663,000 have been made on
February 6, 1998, March 6, 1998, and March 27, 1998, respectively.
15
<PAGE> 18
On February 25, 1998, the Company and MarCap entered into a letter agreement
relating to the Motorola and MarCap Facilities which provided for (i) complete
cross-collateralization of the Motorola and MarCap Facilities without the
aforementioned unwinding provision, (ii) a revised borrowing base formula for
the Motorola and MarCap Facilities, (iii) notification by the Company to
Motorola of the modifications being made pursuant to such letter agreement, (iv)
affirmation by the Company to utilize its diligent best efforts to raise at
least $5 million of equity and $15 million of aggregate financing by April 30,
1998, (v) waiver of existing covenants for the Motorola and MarCap facilities
through April 30, 1998 so long as the Company continues to utilize its diligent
best efforts to raise at least $5 million of equity and $15 million of aggregate
financing by such date, (vi) affirmation by MarCap that it will not object to
the Company incurring $10 million in additional senior debt so long as the
Company is not in material default on the Motorola or MarCap facilities, (vii)
new covenants for the Motorola and MarCap facilities, based on the Company's
business plan as if no additional equity and debt financing were raised by April
30, 1998, that would take effect after April 30, 1998. On March 5, 1998,
Motorola provided the Company with written acknowledgment of the notification
required by the Company as described in clause (iii) above. As a result of these
modifications, the Company is in full compliance with the Motorola and MarCap
facilities.
In October 1996, CCI signed a purchase agreement with Motorola to purchase
approximately $10,000,000 of Motorola radio communications equipment, including
Motorola Smartnet II trunked radio systems. Such purchase agreement required
that the equipment be purchased within 30 months of its effective date. In
conjunction with such purchase agreement, CCI entered into the Motorola Facility
permitting CCI to borrow during the term of the purchase agreement up to 50% of
the value of Motorola equipment purchased under the purchase agreement, or up to
$5,000,000. On August 18, 1997, Motorola, with the Company's concurrence,
assigned all of its interest in the Motorola Facility to MarCap. By way of
letter agreement dated March 10, 1998 among MarCap, Motorola, and the Company,
the effective period of the Motorola purchase agreement and Motorola facility
was extended from 30 months to 42 months from the effective dates thereof. As of
March 19, 1998, $363,100 was outstanding under the Motorola Facility. Depending
on the Company's ability to continue funding its minimum 50% down-payment
requirement under the Motorola purchase agreement, the Company anticipates
funding approximately $2 million of Motorola equipment for its SMR systems under
the Motorola Facility during 1998.
Based on the foregoing, the Company believes that it should have adequate
resources to continue establishing its SMR business and emerge from the
development stage during 1998. However, while the Company believes that it has
developed adequate contingency plans, the failure to consummate the
aforementioned potential financing with Recovery and Foothill as currently
contemplated, or at all, could have a material adverse effect on the Company,
including the risk of bankruptcy. Such contingency plans include pursuing
similar financing arrangements with other institutional investors and lendors
that have expressed interest in providing capital to the Company, selling
selected channels, and focusing solely on the 22 markets in which full-scale
service has already been implemented. This latter course might entail ceasing
further system expansion in such markets (which in the aggregate are generating
positive cash flow) and reducing corporate staff to the minimal level necessary
to administer such markets. The Company believes that this strategy would
provide sufficient time and resources to raise additional capital or sell
selected channels in order to resume its growth. However, there can be no
assurances that this or any of the Company's contingency plans would adequately
address the aforementioned risks, or that the Company will attain overall
profitability once it has emerged from the developmental stage.
The Company has considered the potential impact of the year 2000 issue on its
management information systems. The Company has begun to address this issue with
its software vendors and believes that it will not have a material adverse
effect on the Company's ability to gather and process vital information in the
year 2000. Further, the Company believes that this issue will not materially
affect the software it uses to load subscribers onto its SMR systems, capture
call records, and generate customer bills.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity sections of a statement of financial
position, and is effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company is currently assessing the impact
on the financial statements for the year ended December 31, 1997 and for the
year ended December 31, 1996 and believes that SFAS No. 130 will not result in
comprehensive income different from net income as reported in the accompanying
financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
16
<PAGE> 19
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 7 FINANCIAL STATEMENTS
The audited Financial Statements of the Company for the year ended December 31,
1997, are located at page F-1.
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
================================================================================
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period from
January 1, 1994 through December 31, 1997 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997 and 1996 and for the period
from January 1, 1994 through December 31, 1997 F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997 and 1996 and for the period from
January 1, 1994 through December 31, 1997 F-8
Notes to Consolidated Financial Statements F-10
</TABLE>
F-1
<PAGE> 20
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 enterprise, as of December 31, 1997 and 1996, 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, 1997 and for the
period from Jan. 1, 1994 (inception) to Dec 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial positions of Chadmoore Wireless
Group, Inc. and Subsidiaries (formerly Capvest Internationale, Ltd.), a
development stage enterprise, as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997 and for the period Jan. 1, 1994 (inception) to
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company has suffered recurring losses
from operations, has a negative working capital, and has a deficit accumulated
during the development stage that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 10. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
March 27, 1998
F-2
<PAGE> 21
Chadmoore Wireless Group, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash $ 959,390 $ 1,463,300
Accounts receivable, net of allowance for doubtful accounts of $45,000 265,935 266,520
and $0, respectively
Receivables other 99,223 --
Inventory 89,133 197,476
Prepaid property management rights -- 81,563
Deposits and prepaids 130,858 156,644
------------ ------------
Total current assets 1,544,539 2,165,503
------------ ------------
Investment in JJ&D, LLC (note 2) -- 532,997
Property and equipment, net (note 3) 5,809,168 3,164,098
FCC licenses, net of accumulated amortization of $231,917 and $153,404, 6,726,954 1,394,895
respectively
Debt issuance costs, net of accumulated amortization of $0 and $39,038, -- 77,562
respectively
Management agreements (note 2) 16,623,573 22,725,442
Investment in options to acquire management agreements (note 2) 7,156,358 9,771,445
Investment in license options (note 4) 4,113,995 3,239,691
Other 32,928 55,994
------------ ------------
Total Assets $ 42,007,515 $ 43,127,627
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt and capital lease obligations(note 6) 2,638,414 $ 247,366
Accounts payable 1,165,425 329,122
Accrued liabilities 1,106,029 --
Unearned revenue 107,057 --
Licenses - options payable (note 4) 350,000 49,800
License option commission payable (note 4) 3,412,000 524,800
Accrued interest 173,686 62,346
Other current liabilities 131,273 1,810
------------ ------------
Total current liabilities 9,083,884 1,215,244
------------ ------------
Capital lease obligations (note 6) -- 8,646
Long-term debt, excluding current installments (note 6) 4,614,157 2,500,141
Restricted option prepayment (note 7) -- 832,116
Minority interests 352,142 --
------------ ------------
Total liabilities 14,050,183 4,556,147
Shareholders' equity :
Preferred stock, $.001 par value. Authorized 40,000,000 shares
Series A. Issued and canceled 250,000 shares, outstanding -0- shares at
December 31, 1997 and 1996. -- --
Series B. Issued and outstanding 219,000 shares at December 31, 1997 and
0 shares at December 31, 1996. 219 --
Common stock, $.001 par value. Authorized 100,000,000 shares; issued and
outstanding 21,163,847 shares at December 31, 1997 and 17,823,445 shares 21,164 17,824
at December 31, 1996
Additional paid-in capital 57,269,015 52,951,491
Stock subscribed 32,890 288,835
Deficit accumulated during the development stage (29,365,956) (14,686,670)
------------ ------------
Total shareholders' equity 27,957,332 38,571,480
============ ============
Total liabilities and shareholders' equity $ 42,007,515 $ 43,127,627
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended December 31, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
PERIOD FROM
1/1/94
YEAR ENDED DECEMBER 31, THROUGH
------------------------------ 12/31/97
1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Radio services $ 747,335 $ 564,550 $ 1,311,885
Equipment sales 807,884 823,073 1,630,957
Maintenance and installation 340,581 274,996 615,577
Other 4,367 53,495 57,862
------------ ------------ ------------
1,900,167 1,716,114 3,616,281
------------ ------------ ------------
Costs and expenses:
Cost of sales 953,508 813,398 1,766,906
Salaries, wages and benefits 2,780,385 1,687,792 5,341,058
General and administrative 3,949,200 5,416,192 16,661,746
Depreciation & amortization 687,679 379,247 1,293,213
------------ ------------ ------------
8,370,772 8,296,629 25,062,923
------------ ------------ ------------
Loss from operations (6,470,605) (6,580,515) (21,446,642)
------------ ------------ ------------
Other income (expense):
Minority interest 19,366 -- 19,366
Interest expense, net (469,937) (266,736) (894,998)
Loss on reduction of management agreements and licenses to
estimated fair value (note 2) (7,166,956) -- (7,166,956)
Write down of investment in JJ&D, LLC (note 2) (443,474) -- (443,474)
Loss on extinguishment of debt (note 6) (598,222) -- (598,222)
Gain on settlement of debt (note 5) 670,188 47,450 717,638
Cost of settlement on license dispute (143,625) -- (143,625)
Management fees (notes 1 and 2) -- 100,198 472,611
Gain on sale of assets -- -- 330,643
Loss on retirement of note payable -- -- (32,404)
Other, net (76,021) (126,647) (179,893)
------------ ------------ ------------
(8,208,681) (245,735) (7,919,314)
------------ ------------ ------------
Net loss $(14,679,286) $ (6,826,250) (29,365,956)
============ ============ ============
Basic and diluted weighted average number of common
shares outstanding 20,061,602 12,384,216 10,187,647
============ ============ ============
Basic and diluted net loss per share $ (0.73) $ (0.55) (2.88)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
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, 1997
================================================================================
<TABLE>
<CAPTION>
PREFERRED DEFICIT
STOCK COMMON STOCK ACCUMULATED
----------- --------------------- ADDITIONAL DURING TOTAL
OUTSTANDING OUTSTANDING AMOUNT PAID-IN STOCK DEVELOPMENT SHAREHOLDERS'
SHARES SHARES CAPITAL SUBSCRIBED STAGE EQUITY
----------- ----------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 (note 1) -- $ 325,000 $ 325 $ 146,546 $ -- $ (638,620) $ (491,749)
Net loss -- -- -- -- -- (35,383) (35,383)
----- --------- -------- ------------ --------- ---------- -----------
Balance at December 31, 1994, as previously -- 325,000 325 146,546 -- (674,003) (527,132)
stated
Effect of Plan of Reorganization:
Eliminate Capvest accumulated deficit -- -- -- -- -- 674,003 674,003
Shares issued in lieu of cash -- 175,000 175 538,134 -- -- 538,309
Shares issued to Chadmoore Communications, -- 4,000,000 4,000 (589,180) -- (827,095) (1,412,275)
Inc
----- --------- -------- ------------ --------- ---------- -----------
As adjusted for reorganization with
Chadmoore Communication, Inc. the -- 4,500,000 4,500 95,500 -- (827,095) (727,095)
acquirer
Shares of Chadmoore Communications, Inc.,
issued January 1995 -- -- -- 565,000 -- -- 565,000
Shares issued in exchange for Chadmoore
Communications, Inc. shares -- 30,000 30 44,970 -- -- 45,000
Shares issued in connection with the private
placement -- 763,584 764 1,526,407 -- -- 1,527,171
Shares issued to investors for cash -- 400,000 400 399,200 -- -- 399,600
Shares issued under employee benefit and
consulting services plan -- 496,000 496 1,777,719 -- -- 1,778,215
Shares issued for legal fees -- 62,500 62 249,938 -- -- 250,000
Shares issued in conjunction with
conversion of advances -- 707,720 708 1,165,498 -- -- 1,166,206
Shares issued to license holders -- 562,260 562 859,696 -- -- 860,258
Shares issued to option holders -- 865,000 865 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 -- -- -- -- 324,807 -- 324,807
Net loss -- -- -- -- -- (7,033,325) (7,033,325)
----- --------- -------- ------------ --------- ---------- -----------
Balance at December 31, 1995 -- 8,387,064 8,387 10,564,852 324,807 (7,860,420) 3,037,626
</TABLE>
F-5
<PAGE> 24
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, 1997
================================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------------ ADDITIONAL
OUTSTANDING OUTSTANDING PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995, continued -- $ -- 8,387,064 $ 8,387 $ 10,564,852
Shares issued in connection with the private
placement (notes 4 and 7) -- -- 549,417 549 883,033
Shares issued to investors for cash (note 7) -- -- 430,000 430 644,570
Preferred shares issued to investors for cash (note 7) 250,000 250 -- -- 2,273,458
Preferred shares converted to common shares (note 7) (250,000) (250) 977,057 977 (727)
Shares issued for options exercised (note 7) -- -- 4,407,500 4,408 3,280,838
Shares issued for assets purchased from General
Communications, Inc. (notes 2 and 7) -- -- 100,000 100 176,463
Shares issued for conversion of debentures -- -- 3,553,213 3,553 5,983,567
Shares issued for CMRS and 800 acquisition -- -- 508,000 508 1,930,502
Shares issued to license holders (note 7) -- -- 332,960 333 881,801
Shares issued for legal fees (note 7) -- -- 62,500 63 62,437
Shares issued in connection with placement of two --
year, 8%, convertible notes (see note 8) -- -- 30,000 30 14,970
Options issued for 20% interest in JJ&D, LLC (note 2) -- -- -- -- 400,000
Options issued for purchase agreement for SMR
equipment from JJ&D, LLC (see note 5) -- -- -- -- 88,500
Options issued for CMRS and 800 Acquisition (note 7) -- -- -- -- 26,981,579
Options issued for consulting services (note 7) -- -- -- -- 866,250
Shares subscribed (notes 4 and 7) -- -- -- -- --
Canceled shares (note 7) -- -- (1,514,266) (1,514) (2,080,602)
Net loss -- -- -- -- --
-------- ----- ----------- --------- ------------
Balance at December 31, 1996 -- $ -- 17,823,445 $ 17,824 $ 52,951,491
======== ===== =========== ========= ============
<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
STOCK DEVELOPMENT SHAREHOLDERS'
SUBSCRIBED STAGE EQUITY
--------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995, continued $ 324,807 $ (7,860,420) $ 3,037,626
Shares issued in connection with the private
placement (notes 4 and 7) (324,807) -- 558,775
Shares issued to investors for cash (note 7) -- -- 645,000
Preferred shares issued to investors for cash (note 7) -- -- 2,273,708
Preferred shares converted to common shares (note 7) -- -- --
Shares issued for options exercised (note 7) -- -- 3,285,246
Shares issued for assets purchased from General
Communications, Inc. (notes 2 and 7) -- -- 176,563
Shares issued for conversion of debentures -- -- 5,987,120
Shares issued for CMRS and 800 acquisition -- -- 1,931,010
Shares issued to license holders (note 7) -- -- 882,134
Shares issued for legal fees (note 7) -- -- 62,500
Shares issued in connection with placement of two
year, 8%, convertible notes (see note 8) -- -- 15,000
Options issued for 20% interest in JJ&D, LLC (note 2) -- -- 400,000
Options issued for purchase agreement for SMR
equipment from JJ&D, LLC (see note 5) -- -- 88,500
Options issued for CMRS and 800 Acquisition (note 7) -- -- 26,981,579
Options issued for consulting services (note 7) -- -- 866,250
Shares subscribed (notes 4 and 7) 288,835 -- 288,835
Canceled shares (note 7) -- -- (2,082,116)
Net loss -- (6,826,250) (6,826,250)
--------- ------------ ------------
Balance at December 31, 1996 $ 288,835 $(14,686,670) $ 38,571,480
========= ============ ============
</TABLE>
F-6
<PAGE> 25
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, 1997
================================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- -----------------------
OUTSTANDING OUTSTANDING
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996, continued -- $ -- 17,823,445 $ 17,824
Shares issued for stock subscribed (note 7) -- -- 231,744 232
Shares issued for options exercised (note 7) -- -- 323,857 323
Shares issued for conversion of debentures (note 7) -- -- 1,587,527 1588
Shares issued for restructuring of convertible -- -- 1,050,000 1,050
debentures (note 6)
Shares issued for license dispute (note 7) -- -- 101,700 102
Shares issued for legal fees (note 7) -- -- 45,574 45
Options issued for services (note 7) -- -- -- --
Preferred shares issued in connection with private
placement (note 7) 219,000 219 -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1997 219,000 $ 219 21,163,847 $ 21,164
========== ========== ========== ==========
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING TOTAL
PAID-IN STOCK DEVELOPMENT SHAREHOLDERS'
CAPITAL SUBSCRIBED STAGE EQUITY
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996, continued $52,951,491 $ 288,835 $(14,686,670) $ 38,571,480
Shares issued for stock subscribed (note 7) 255,713 (255,945) --
Shares issued for options exercised (note 7) 161,606 -- -- 161,929
Shares issued for conversion of debentures (note 7) 1,123,507 -- -- 1,125,095
Shares issued for restructuring of convertible 723,450 -- -- 724,500
debentures (note 6)
Shares issued for license dispute (note 7) 127,023 -- -- 127,125
Shares issued for legal fees (note 7) 21,830 -- -- 21,875
Options issued for services (note 7) 329,426 -- -- 329,426
Preferred shares issued in connection with private
placement (note 7) 1,574,969 -- -- 1,575,188
Net loss -- -- (14,679,286) (14,679,286)
----------- ---------- ------------ ------------
Balance at December 31, 1997 $57,269,015 $ 32,890 $(29,365,956) $ 27,957,332
=========== ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 26
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1997 and 1996 and for the
Period From January 1, 1994 through December 31, 1997
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
-------------------------------- 1/1/94 THROUGH
1997 1996 12/31/97
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(14,679,286) $ (6,826,250) $(29,365,956)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Minority interest in loss (19,366) -- (19,366)
Depreciation and amortization 687,679 379,247 1,293,213
Write down of management agreements and licenses to estimated
fair value 7,166,956 -- 7,166,956
Write down of investment in JJ&D, LLC 443,474 -- 443,474
Write off of license options 330,882 -- 330,882
Write down of prepaid management rights 81,563 36,250 81,563
Gain on extinguishment of debt (670,188) -- (670,188)
Loss on extinguishment of debt 598,222 -- 598,222
Gain on sale of assets held for resale -- -- (330,643)
Shares issued for settlement of license dispute 127,125 -- 127,125
Amortization of debt discount 168,410 98,102 266,512
Equity in losses from minority investments -- 1,322 1,322
Expense associated with:
Stock issued for services 21,875 281,119 2,605,036
Options issued for services 329,430 866,250 4,037,464
Change in operating assets and liabilities:
Decrease in stock subscriptions receivable, net of
stock subscribed -- -- (637,193)
(Increase) in accounts receivable (98,638) (98,057) (196,695)
Decrease (Increase) in inventory 108,343 (119,495) (11,152)
Decrease in due from General Communications, Inc. -- 76,252 --
(Increase) in prepaid expense (82,241) (13,589) (120,994)
Increase (Decrease) in accounts payable 836,299 (30,710) 1,167,235
Increase in accrued liabilities 1,106,029 -- 1,106,029
Increase in unearned revenue 107,057 -- 107,057
Increase in commission payable -- 175,600 524,800
Increase in accrued interest 247,638 189,821 491,949
Increase in other current liabilities 151,693 -- 151,693
------------ ------------ ------------
Net cash used in operating activities (3,037,044) (4,984,138) (10,851,655)
------------ ------------ ------------
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 -- -- (1,398,575)
Purchase of license options (211,550) (775,545) (1,686,445)
Sale of management agreements & investment in options to acquire
licenses 500,000 -- 500,000
Purchase of property and equipment (1,885,223) (2,186,520) (4,624,175)
Sale of property and equipment 827,841 -- 827,841
Purchase of assets held for resale -- -- (219,707)
Sale of assets held for resale -- -- 700,000
Increase in other non current assets (11,123) -- (11,123)
------------ ------------ ------------
Net cash used in investing activities (780,055) (7,011,166) (9,961,285)
------------ ------------ ------------
</TABLE>
(Continued)
F-8
<PAGE> 27
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows, Continued
For the Years Ended December 31, 1997 and 1996 and for the
Period From January 1, 1994 through December 31, 1997
================================================================================
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, 1/1/94
-------------------------------- THROUGH
1997 1996 12/31/97
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds upon issuance of common stock $ -- $ 1,944,941 $ 4,316,543
Proceeds upon issuance of preferred stock 1,575,188 2,273,707 3,848,895
Proceeds upon exercise of options - related -- -- 62,500
Proceeds upon exercise of options - unrelated -- 2,097,757 3,075,258
Purchase and conversion of CCI stock -- -- 45,000
Advances from related parties -- -- 767,734
Payment of advances from related parties -- -- (73,000)
Payments of long-term debt and capital lease obligations (440,665) (225,830) (969,266)
Proceeds from issuance of notes payable -- -- 375,000
Proceeds from issuance of long-term debt 2,178,666 7,180,000 10,323,666
------------ ------------ ------------
Net cash provided by financing activities 3,313,189 13,270,575 21,772,330
------------ ------------ ------------
Net increase in cash (503,910) 1,275,271 959,390
Cash at beginning of period 1,463,300 188,029 --
------------ ------------ ------------
Cash at end of period $ 959,390 $ 1,463,300 $ 959,390
============ ============ ============
Supplemental disclosure of cash paid for:
Taxes $ -- $ -- $ --
Interest $ 42,264 $ 258,880 $ 404,979
============ ============ ============
</TABLE>
NON-CASH ACTIVITIES:
SEE NOTES 2,4,5,6,7,8 AND 9 FOR DISCLOSURE OF NON-CASH TRANSACTIONS.
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 28
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
================================================================================
(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 including majority owned joint ventures (the
"Company"), and 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.
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 the 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, 1997, 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. Therefore, the statements of operations, shareholders' equity and
cash flows have been presented from January 1, 1994 (the beginning of the
fiscal year of inception) to December 31, 1997.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of all
majority owned companies and joint ventures. All significant inter-company
balances and transactions have been eliminated in consolidation. Minority
interest represents the minority partners' proportionate share in the venturer's
equity or equity in income(loss) in the joint ventures.
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-10
<PAGE> 29
D. FCC LICENSES
FCC licenses are recorded at cost and consist of authorizations issued by the
Federal Communications Commission (FCC) which allow the use of certain
communications frequencies. FCC licenses have a primary term of five or ten
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. 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 in the period that
includes the enactment date.
F. 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.
G. REVENUES
The Company's only source of revenue through March 7, 1996 was management fee
income from General Communications Radio Sales and Services, Inc. ("General").
In connection with these services, the Company recorded 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. Throughout 1997 the Company continued to implement its business plan
by rolling out commercial SMR service in an additional 19 cities. As of December
31, 1997 the Company had 21 markets where they were fully commercial and
generating revenue. As such, the Company now recognizes revenue from monthly
radio dispatch and interconnect 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. All services paid by the customer in
advance are recorded as unearned revenue.
F-11
<PAGE> 30
H. LOSS PER SHARE
Basic and diluted loss per share were computed in accordance with SFAS No. 128,
"Earnings Per Share". Prior years have been restated to reflect the application
of SFAS 128.
I. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires companies to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
sections of a statement of financial position and is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company is currently assessing the impact on the financial statements for the
years ended December 31, 1997 and 1996, and believes that SFAS 130 will not
result in comprehensive income different from net income as reported in the
accompanying financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 establishes additional standards for segment reporting in
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company currently operates as one segment.
J. RECLASSIFICATIONS
Certain amounts in the 1996 Consolidated Financial Statements have been
reclassified to conform with the 1997 presentation.
K. 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 could 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 Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based Compensation, which permits entities
to recognize as expense over the vesting period 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 as if the fair value based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply provisions of
APB opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
F-12
<PAGE> 31
L. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial positions, results of operations, or liquidity.
(2) ACQUISITIONS
A. CMRS AND 800 STOCK PURCHASE AGREEMENT
On June 14, 1996, the Company executed a Stock Purchase Agreement with Libero
Limited ("Libero") to purchase approximately 5,500 channels. 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 engage in the
business of constructing and managing mobile radio stations ("Stations"). The
Management Companies entered into management agreements with certain companies
(the "Companies"), pursuant to which CMRS or 800 agreed, in accordance with
applicable "FCC" rules, regulations, and policies, to construct and manage all
of the SMR stations for which the Companies received licenses from the FCC. The
respective shareholders of the Companies granted to the Management Companies,
options to acquire all of the stock of the Companies, at such time as all
conditions of such transfer of control were met, as set forth in the FCC rules,
regulations and policies and as required by 310 of the Communications Act of
1934, as amended by U.S.C.310, a Transfer of Control Application would be filed
with the FCC.
The Company consummated such acquisition for combined consideration valued at
$32,459,589. 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 $1,910,010; 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 $0.50 per share valued at $26,981,579. An independent appraisal was obtained
by the Company for value of the securities.
Based on the independent appraiser's estimate of the fair market value of the
assets exchanged, $22,725,442 of the combined consideration was allocated to
"Management Agreements" and the remaining $9,771,445 was allocated to
"Investment in options to acquire licenses" (the "Options"). The exercise price
under the Options was payable by the Management Companies with an amount of the
Management Companies own stock equal to 10% of the then issued and outstanding
stock. The Management Companies' stock was to be issued and allocated on a
pro-rata basis to the licensees based on their individual license percentage of
the total number of licenses. No cash consideration was payable upon exercise of
the Options by either the Company or the Management Companies. (See Subsequent
Events, Footnote 11).
Approximately 5,500 channels managed by 800 and CMRS Systems were included in a
five year Extended Implementation Plan granted by the FCC on March 31, 1995,
under Section 90.629 of the FCC rules, 47 C.F.R. 90.629. Under the Extended
Implementation Plan the stations had to be constructed in accordance with a
five-year
F-13
<PAGE> 32
construction plan. In December of 1995, the Company filed the required
documents, as requested by the FCC, re-justifying the extended construction
plan. In May of 1997, the FCC denied the re-justification plan and granted six
months from the date of the denial to complete construction of the stations
managed by 800 and CMRS. Under the Commission's decision, licenses for any
stations not constructed before the six month deadline of November 20, 1997
would be canceled.
As a result of the ruling, the Company restructured its build-out plan and
prioritized the channels based on detailed criteria relating to engineering
specifications, demographics, competition, market conditions and dealer
characteristics. Based on the results of prioritization and the construction
deadline stipulated by the FCC, the Company believed the value of certain
licenses under the Management Agreements and Options to Acquire Licenses had
been impaired. For the approximately 5,500 channels, management allocated a
portion of the original purchase price based on estimated fair market value
determined by the criteria mentioned above. Based on this process, management
estimated the Company would be able to meet FCC construction requirements on
approximately 2,800 channels, before November 20, 1997. These channels were
allocated an aggregate value of $25,329,931. The remaining channels,
approximately 2,700, were determined to be impaired. As a result, the Company
recorded a valuation allowance of $7,166,956 in the second quarter. As of
November 20, 1997 the Company had met all of the FCC's construction
requirements for approximately 3,800 of the 5,500 channels. As a result the
Company exceeded its estimate by approximately 1,000 channels.
B. GENERAL COMMUNICATIONS ASSET PURCHASE AGREEMENT
On March 8, 1996, the Company finalized 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.
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 agreement, 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, non-interest bearing, negotiable promissory note with a face value 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, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
UNAUDITED PRO FORMA INFORMATION 1996
- ------------------------------------------------------------------------------
<S> <C>
Revenues $ 2,278,607
Net loss (6,824,049)
Basic net loss per common share $ (0.54)
</TABLE>
F-14
<PAGE> 33
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, 1996, nor are they necessarily indicative of future
operating results.
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.
At December 31, 1996, the investment was accounted for using the equity method
of accounting. All significant intercompany transactions were eliminated and
amortization of goodwill and equity in earnings was not material.
In 1997, the Company evaluated the recoverability of this asset in accordance
with Statement of Financial Accounting Standards 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
and determined it to be impaired based on expected future cash flows. The
impairment measured by the amount in which the carrying amount exceeded the
fair value of the asset, resulted in a write-down of $443,474, principally
goodwill, charged to other income.
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 results of operations of the Company. 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, non-interest 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 terms of the note. The Company made an initial payment of
$36,628, with the remaining $36,628 to be paid in 5 monthly installments of
$4,707, and a final payment of $14,866. As of December 31, 1997, this note has
a remaining balance of $10,158. In August 1997, the holder of the $75,000 note
waived the note in exchange for SMR equipment having a cost basis of $50,000 to
the Company. Therefore, the Company recorded FCC licenses with an estimated
value of $125,000.
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 has been reviewed in accordance with SFAS 121 and the
Company has determined, based on expected future benefit, that the value of this
asset has been impaired. The customer list, net of accumulated amortization of
$40,819 has been written off as a charge to income from operations. Condensed
financial information of Airtel Communications, Inc. has not been presented as
it is not material to the results of operations of the Company.
F-15
<PAGE> 34
(3) 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. The recorded amount of property and equipment capitalized and the
related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
SMR systems and equipment $ 5,768,117 $ 2,744,696
Buildings and improvements 335,900 345,665
Land 102,500 102,500
Furniture and office equipment 249,164 203,385
Leasehold improvements 9,759 --
---------------- ---------------
6,465,440 3,396,246
Less accumulated depreciation (656,272) (232,148)
---------------- ---------------
$ 5,809,168 $ 3,164,098
================ ===============
</TABLE>
JJ&D Master Purchase Agreement
In September of 1996, the Company signed a purchase agreement with JJ&D. The
agreement gave the Company the option to purchase, within one year from the date
of the agreement, certain specialized SMR equipment. In connection with the
agreement, the Company granted 295,000 options, with an exercise price of $ 1.00
per share. The options vest at 1,000 per unit as the equipment is shipped.
During 1996, 95 units were purchased and as a result, 95,000 options had vested.
In September 1997, the agreement expired. The Company did not purchase
additional units while the agreement was in existence. As a result, no
additional options vested. Also JJ&D did not exercise their vested options. Upon
the expiration of the agreement, 200,000 granted options lapsed. As of December
31, 1997, both parties are no longer obligated under this agreement.
(4) INVESTMENT IN LICENSE OPTIONS
A. LICENSE OPTION AGREEMENTS
The Company entered into various option agreements to acquire FCC licenses for
SMR channels. The option agreements allow the Company to purchase licenses,
subject to FCC approval, within a specified period of time after the agreement
is signed. As of December 31, 1997, the Company exercised option agreements for
approximately 480 channels for consideration of cash, notes payable and issuance
of Common Stock totaling approximately $4,183,572. In relation to the exercise
of the options for the channels, the Company has also incurred commission
expense totaling $1,102,000. Additionally, the Company has made partial payments
in cash and Common Stock totaling $1,393,012 toward the purchase of
approximately 1,100 channels. Commission expense associated with these options
is $2,310,000.
The Company amended several option agreements whereby the Company would make
quarterly installment payments toward the purchase of channels. With respect to
these agreements, the Company is in default thereof. There is approximately
$300,000 of accrued installment payments recorded at December 31, 1997 in
"Licenses - options payable". If the holder requests remedy, in writing, the
Company has thirty days to remedy any deficiency by sending monies totaling all
outstanding installment payments due such holder. The Company addresses each
request on a case by case basis and determines, based on various factors,
whether to pay the outstanding installment payments, purchase the license in
full with a promissory note or cancel the option agreement. As of March 31,
1998, holders of such amended option agreements have not elected to terminate
the options or exercise other available remedies. If the Company elects to
cancel the option agreement all consideration paid is retained by the licensee
and expensed accordingly by the Company. If the Company were to exercise the
remaining outstanding option agreements for approximately 1,100 channels as of
December 31, 1997, the obligations would total approximately $21 million.
F-16
<PAGE> 35
Upon entering into an option agreement, the Company also entered into a
management agreement with the licensee. The management agreements give the
Company the right to manage the SMR systems, subject to the direction of the
licensee, for a period of time prior to the transfer of the license to the
Company as stated in the agreements, usually 2 to 5 years. During such period,
revenues received by the Company will be shared with the licensee only after
certain agreed-upon costs to construct the channels are recovered by the
Company.
(5) GAIN ON SETTLEMENT 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 that time was $137,450. The resulting gain of
$47,450 is reflected in the Company's statement of operations under gain on
settlement of debt at December 31, 1996.
In September of 1996, the Company recorded an obligation to Libero in the
amount of $2,082,116. This obligation was recorded as a restricted option
prepayment and could only be reduced by the exercise of options by Libero in
connection with the CMRS and 800 Stock Purchase Agreement (see note 2). In
September 1997, the Company entered into a mutual termination agreement with
Libero whereby all outstanding options were terminated and the remaining
restricted option prepayment balance was forgiven. This resulted in a gain on
settlement of debt of $670,188.
F-17
<PAGE> 36
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<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, 1997. $ 1,201,160 $ 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 7). -- 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 7). -- 400,000
Notes payable to MarCap in connection to the purchase of radio communications
equipment, payable in 36 monthly installments maturing at various dates through
2000, interest rates from 10.625% to 11.15%, secured by a guarantee and stock
pledge agreement. 401,380 270,651
Note payable to MarCap in connection with the $2 million line of credit.
collateralized by certain assets of the Company, payable in 36 monthly
installments through November 2000, including interest at 12%, secured by
guarantee and stock pledge agreement. 470,264 --
Note payable to Motorola Credit in connection with equipment purchase, payable
in three monthly installments ending January 1998 34,189 --
Note payable, maturing in August 1998, 10 monthly principal payments of $162,750,
one interest payment of $425,000. 1,627,500 --
Notes payable to licensees, payable in 36 monthly installments beginning March
1998 through November 1998 and ending March 2001 through November 2001. Non
interest bearing, interest imputed at 15%. Aggregate face amount of $4,131,194
net discount of $964,386. 3,166,808 --
Notes payable to Joint ventures to be paid from positive cash flow of
the related LLC. Non interest bearing, interest imputed at 15%. 325,639 --
Note payable in connection with asset purchase, maturing May 1998, including
interest at 12%. 10,158 73,256
------------- ------------
7,237,048 2,717,237
Less current installments (2,622,891) (217,096)
------------- ------------
$ 4,614,157 $ 2,500,141
============= ============
</TABLE>
F-18
<PAGE> 37
(6) 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
<S> <C> <C>
1998 $ 2,622,891
1999 1,533,525
2000 1,460,629
2001 507,826
2002 33,310
Thereafter 1,078,867
--------------
$ 7,237,048
==============
</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 for as a reduction of the
obligation amortized on the straight-line method which approximates the
effective interest method. Subsequent to June 1996, 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 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 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 shareholders'
equity (deficiency) at December 31, 1996.
In February 1997, the Company executed a Securities Placement Agreement to place
a minimum of $1,000,000 and maximum of $4,000,000 of the Company's three year,
8% convertible Debentures. Principal 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 $1,000,000 of 8%
convertible Debentures placed. The warrants are exercisable for three years
from date of grant. On February 19, 1997, the Company placed $1,000,000 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. In
addition, the Company granted 30,000 warrants at an exercise price of $1.50 per
share 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. In addition, the Company granted 22,500 warrants
at an exercise price of $1.50 per share in connection
F-19
<PAGE> 38
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 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 and Electronic Bulletin Board.
On June 10, 1997 the holder of the $1,750,000 three-year 8% convertible
Debenture discussed above, tendered a notice of payment for penalties in the
amount of $52,500. The penalties were a result of the Company's nonperformance
to prepare and have declared effective, a registration statement with the
Securities and Exchange Commission to register the shares underlying the
convertible Debentures within 110 days from the date of closing. In addition, on
July 31, 1997, and August 1, 1997, the holder tendered to the Company notices of
conversion, pursuant to Regulation S, for $100,000 and $50,000 of principal,
respectively. The notices as tendered did not comply with the requirements of
Regulation S. The Company therefore did not issue the requested stock. If the
Company had been compelled to issue all of the stock into which the Debenture is
convertible, Management believes the effect on the Company's stock price and
liquidity could have been severe.
In September 1997, the holder of the convertible Debenture entered into an
agreement with the Company to restructure the convertible Debenture financing
described above (the "Debenture Restructuring Agreement"). Under the Debenture
Restructuring Agreement the holder agreed to restrict the holder's daily sales
of Company stock to not more than 10% of its total trading volume on the NASDAQ
bulletin board (but, notwithstanding the foregoing restriction the holder may
sell up to 100,000 shares per month). In addition, the Debenture Restructuring
Agreement also requires the holder to exchange the convertible Debenture
(including rights to all accrued interest and penalties) for a new debenture
(the "New Debenture") with a maturity date of August 31, 1998, in the principal
amount of $1,627,500, payable in ten monthly payments of $162,750. These
payments can be made in cash or stock at the then current market price (at the
Company's option). Interest, in the liquidated amount of $425,000, can also be
paid, by the Company, in cash or stock at the then current market price and is
payable in September 1998. The New Debenture is required to be secured by
specified Company assets with a value of at least 150% of principal outstanding.
Pursuant to the Restructuring Agreement, the holder also received 1,050,000
shares of common stock, which represented: payment of principal, interest
through September 1997, and penalties. The common stock was issued at the
current market price on date of execution.
The Company has accounted for the transaction in accordance with the provisions
of FASB 125, "Accounting for Transfers and Servicing of Financial Asset and
Extinguishment of Liabilities", wherein gain or loss on extinguishment is the
difference between the total reacquisition cost of the debt, to the debtor, and
the net carrying amount of the $1,750,000 Convertible Debenture on the Company's
books on the date of extinguishment, except, pursuant to Emerging Issues Task
Force 85-2 the Company classified the expense of $598,222 as costs incurred
attributable to the Stand-Still agreement and not as an extraordinary item.
B. LEASE COMMITMENTS
The Company entered into a new lease for its corporate offices and warehouse
facilities in Las Vegas, Nevada, commencing in December 1997, under a
non-cancelable operating lease agreement which expires in March 2002.
F-20
<PAGE> 39
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.
In addition, the Company leases sales facilities in Little Rock, AR and
Southaven, MS with monthly lease payments of $ 915 and $ 905, respectively.
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.
Future minimum payments associated with the leases described herein, including
renewal options are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C> <C>
Years ended December 31:
1998 $ 16,081 $ 828,989
1999 -- 407,743
2000 -- 365,066
2001 -- 312,416
2002 -- 244,400
----------- ----------
$ 16,081 $2,158,614
=========== ==========
Total minimum lease payments $ 16,081
Imputed interest (558)
----------- ----------
Present value of minimum capitalized lease payments 15,523
Less current portion (15,523)
----------- ----------
Long-term capitalized lease obligations $ --
=========== ==========
</TABLE>
Total rent expense for the year ended December 31, 1997 and 1996 amounted to
$79,642 and $66,728, 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 144 SmartNet II trunked radio systems. The
agreement requires that the equipment be purchased within 30 months, since
extended to 42 months of the effective date of the agreement (initial shipping
of the equipment). To date, approximately 20% of the Company's equipment has
been purchased from Motorola. If the Company was unable to use Motorola as a
vendor, it could have a materially adverse effect on the Company.
In connection with this purchase agreement, CCI entered into a Financing and
Security Agreement with Motorola (the " Motorola Loan Facility") for the
equipment stated above. This agreement allows CCI to borrow up to a total of
$5.0 million. This Motorola Loan Facility is available for drawdowns during the
effective term of the purchase agreement as extended. The facility allows no
more than one drawdown per month. Each of the drawdowns is evidenced by a
separate promissory note (the "Promissory Note"). Principal and interest on the
Promissory Note are payable in arrears monthly for a period of 36 months from
the funding date. The Loan Facility closed on October 29, 1996, and is subject
to certain pledges, representations, warranties 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, 1997, the Company was indebted for approximately $401,000 under the Loan
Facility.
In addition to the guaranty & security agreement, the Company also executed a
Stock Pledge Agreement "Agreement" with Motorola. The Agreement grants to
Motorola a first priority security interest in all of the Company's right, title
and interest to all shares of common stock of Chadmoore Communications of
Tennessee (a wholly owned subsidiary of the Company). The Agreement also
entitles Motorola to all subscriptions, warrants and other rights or options
issued to or exercisable by the Company with respect to the common stock, of
the subsidiary.
F-21
<PAGE> 40
In August 1997, Motorola, with the Company's concurrence, assigned all of its
interest in the Motorola Loan Facility to the MarCap Corporation. In October
1997, CCI entered into a First Amendment to the Financing Security Agreement
with MarCap, ("Amendment"). In conjunction with the Amendment, MarCap extended a
line of credit for up to $2,000,000 ("MarCap Facility"). There is approximately
$1.5 million available to the Company at December 31, 1997. The MarCap Facility
is secured by pledges of stock in certain subsidiaries holding licenses,
assignment of various membership interests in Joint Ventures, and a cross-pledge
of all collateral previously granted to Motorola, Inc. in connection with the
original Financing and Security Agreement. Advances under the MarCap Facility
are subject to prepayment fees in the amount of 5% of the principal amount if
prepaid during the fist 12 months, 4% if prepaid during the second 12 months,
and 3% in prepaid during the last 12 months of the term relating to the related
advance. The debt covenants as designated in the original Financing and Security
Agreement remained unchanged following the reassignment to MarCap. As of
December 31, 1997, the Company was not in compliance with said debt covenants,
such as, tangible net worth, minimum annualized revenue and cash flow to debt.
However, the necessary debt waiver was obtained. Subsequently, the Company has
renegotiated the covenants stipulated in the agreement and the Company is in
compliance thereof.
(7) EQUITY TRANSACTIONS
A. PRIVATE PLACEMENT
In 1995, the Company prepared a Private Placement Memorandum ("PPM") offering
one million units at a price of $2.00 per unit. In March 1996, the Company sold
549,417 PPM units, 441,666 of which 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 for the year ending 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 PRIVATE PLACEMENT
In April 1996, the Company issued 250,000 shares of preferred stock (Series A)
in exchange for $2,273,457, net of expenses totalling $226,293. Additionally, in
June 1996 the Company issued warrants to purchase 150,000 shares of common stock
as prescribed under the agreement. The preferred stock was converted to 977,057
shares of common stock in June 1996.
On December 23, 1997, the Company concluded a private placement of 219,000
shares of Series B Convertible Preferred Stock (the "Preferred Stock") and
warrants to purchase 420,000 shares of the Company's common stock, of which
223,937 Warrants were issued at closing and 196,063 Warrants remained to be
issued as of December 31, 1997. The Company received proceeds from the placement
of $1,600,000 net of placement fees of $24,812. The preferred stock is
convertible into common at the average trading price as defined. The Company
shall pay a dividend on each share of Preferred Stock at the rate of 8% per
annum of the liquidation preference of $10.00 per share for each share of
Preferred Stock, accruing from date of issuance. The dividend is payable
quarterly in cash or common stock at the option of the Company, is cumulative
and is calculated at the price at which the Preferred Stock may be converted
into shares of common stock of the Company on the date when converted or
quarterly based upon the last day of each quarter with the valuation determined
as if that was a Conversion Date. The warrants, which have an exercise price
equal to the fair value of the Company's common stock on the closing date of the
transaction, were deemed to have an estimated fair value equal to zero and
accordingly, all of the net proceeds from the transaction were allocated to the
preferred stock. The holders of the Preferred Stock and Warrants are restricted
from converting an amount which would cause them to exceed more than 4.99%
beneficial ownership of the Company's Common Stock determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. If for any
reason, while any of the Preferred Stock and Warrants are outstanding,
Regulation S is rescinded or modified so as to preclude the holders of the
Preferred Stock and Warrants from relying on Regulation S, the holders of the
Preferred Stock and Warrants may demand the Company to register the Preferred
Stock and Warrants.
C. LICENSE PURCHASE
In February 1996, the Company made a down payment on 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
F-22
<PAGE> 41
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, 1997.
D. DEBT CONVERSIONS
During 1996, certain holders of the 8% three-year, convertible notes payable
tendered approximately $6.5 million of convertible notes and $117,000 of accrued
interest for conversion into 3,784,957 shares of the Company's common stock, of
which 231,744 of the shares issued were recorded as common stock subscribed at
December 31, 1996.
During 1997, certain holders of the 8%, three year, convertible notes payable,
tendered $1,150,000 of convertible notes and $48,907 of accrued interest for
conversion into 1,587,527 shares of the Company's common stock. The unamortized
debt issuance costs were netted against the $1,150,000 of convertible notes
tendered.
E. CONSULTING
The Company issued 62,500 and 45,574 shares of restricted common stock for legal
services in 1996 and 1997 respectively. The value related to the shares was
based on the fair market value at the date of grant and totaled $62,500 and
$21,875 respectively. The legal services amount was expensed during the year
ended December 31, 1996 and 1997 and is included in the consolidated statement
of operations as general and administrative expense for each year.
In January 1996, the Company's Board of Directors approved and issued 450,000
shares of restricted common stock in lieu of a cash payment of $153,000 for
consulting services. 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. 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 could only be used for the future amount of option exercises. In
September 1997, the Company entered into a mutual termination agreement with
Libero, whereby all outstanding options were terminated and the remaining
restricted option payment balance was forgiven. This resulted in a gain on
settlement of debt of $670,188.
F-23
<PAGE> 42
G. OPTIONS
During 1997, the Company granted stock options to purchase 2,062,723 shares of
the Company's common stock. The options were issued to consultants and various
employees under the Company's Employee Stock Option Plan.
<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
Granted at $.50-1.50 per share 2,062,723
Less exercised at $.50 per share (323,857)
Lapsed or canceled (6,623,507)
----------
Outstanding at December 31, 1997 4,758,327
==========
</TABLE>
Compensation expense associated with the issuance of options was $329,426 and
$866,250 for the years ended December 31, 1997 and 1996, respectively.
The weighted average fair value of each of the options issued during the year
ended December 31, 1997, substantially all of which were granted at a price
exceeding the then current market price as estimated by management, to be
$413,525 using an option pricing model (Black-Scholes) with the following
assumptions: dividend yield of 0%; expected option life of 1 year; volatility of
42.48% and risk free interest rate of 5.73%.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Number Weighted Weighted Number Weighted
Range of outstanding Average average exercisable at average
exercise at December remaining exercise December 31, exercise
price 31, 1997 contractual life price 1997 price
<S> <C> <C> <C> <C> <C>
$0.50 2,062,723 1,085 days $0.50 1,142,723 N/A
$1.00 120,000 1,096 days $1.00 120,000 N/A
$1.50 620,000 521 days $1.50 620,000 N/A
$2.00 300,000 1,096 days $2.00 300,000 N/A
$2.50 1,255,604 230 days $2.50 1,255,604 N/A
$4.00-$6.00 400,000 550 days $4.88 400,000 N/A
</TABLE>
F-24
<PAGE> 43
The Company applied APB Opinion No. 25 in accounting for its stock options and
warrants and, accordingly, compensation cost of $866,250 in 1996 and 329,426 in
1997 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, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $ (14,679,286) $ (6,826,250)
(Loss) Pro forma (14,763,385) (10,049,448)
EPS As reported $ (.73) $ (.55)
Pro forma (.74) (.81)
</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 42.48%, risk free interest rate of 5.73% and
expected life of one year for the options.
Pro forma net income reflects only options granted in 1997 and 1996. 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 four
years, and compensation cost for options granted prior to January 1, 1996 is not
considered.
H. WARRANTS
During the Year ended December 31, 1997, the Company issued warrants in
conjunction with the following transactions:
* 300,000 issued in connection with legal fees
* 183,750 issued in connection with the placement of $1.75 million of
convertible debentures, 8%, due February 2000.
* 420,000 issued in connection with Series B Preferred Stock Placement,
of which 223,937 were issued and 196,063 are to be issued.
During the Year ended December 31, 1996, the Company issued warrants in
conjunction with the following transactions:
* 340,584 issued in connection with the sale of private placement units.
* 200,000 issued in connection with the Series A preferred stock
placement.
* 182,000 issued in connection with the placement of $5.0 million of
convertible debentures, 8%, due June, 1999.
* 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:
* 763,584 issued in connection with the private placement unit sales (see
"private placement").
F-25
<PAGE> 44
* 30,000 issued as part of the conversion of CCI common stock to
Chadmoore Wireless Group, Inc. common stock.
* 51,667 issued in addition to common shares issued lieu of cash payment
on notes payable (note 9).
* 55,250 issued in lieu of cash payment for consulting services.
* 208,833 issued in connection with the private placement unit sales, but
were subscribed at December 31, 1996.
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, 1997:
<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
Granted at $1.00-$2.50 per share 483,750
Granted at average trading price as defined 223,937
Less exercised --
Lapsed or canceled --
---------
Outstanding at December 31, 1997 2,639,605
=========
</TABLE>
F-26
<PAGE> 45
I. 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, 1996, the third party has options to purchase 2.1
million shares of restricted common stock of CCI. The options are exercisable
ranging from six months from the closing date of the amended and restated stock
subscription agreement through eight years from such date. As of July 13, 1996,
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 remain outstanding at December 31, 1997 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 1/13/2004
</TABLE>
The Company has entered into ten joint venture agreements with its dealers
("Minority Venturer"), to finance, install, optimize and aggressively load SMR
systems in selected markets. The Company has ownership percentages ranging from
60% to 93% in such joint ventures, and has complete operating responsibility in
all cases, subject to ultimate licensee control, if applicable. The Minority
Venturer is responsible for loading the system and must meet mutually agreeable
minimum loading standards.
The Company contributed the channels necessary to provide initial commercial
service. The Minority Venturer contributed a percentage of the system equipment
equal to their ownership interest and financed the balance of the capital
requirement necessary to bring the individual market to initial commercial
service with a liability which was discounted on a present value basis at a 15%
imputed interest rate. This financing will be repaid only from positive cash
flow from the system in that market.
To keep the motivational aspects of the dealer partner program but reduce the
effective capital cost to the Company, in selected markets for which full-scale
roll-out has yet to occur the Company anticipates implementing a modified
dealer partner arrangement in which the dealer would contribute approximately
25% to 60% (depending on market size) towards initial market roll-out costs in
return for a 10% interest in the local system. This investment is a capital
contribution, and is not recouped from system earnings. Based on the speed and
extent of loading subscribers onto such system, the dealer partner would have
incentive opportunities to earn up to an additional 10% interest in the system.
J. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128).
SFAS No. 128 supersedes APB Opinion No. 15 and specifies the computation,
presentation and disclosure requirements for earnings per share (EPS). It
replaces the presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and is computed similarly to fully diluted EPS under APB Opinion No. 15. The
following is a reconciliation of the basic and diluted EPS computations for
income/(loss) available to Common Stockholders.
<TABLE>
<CAPTION>
Period from
January 1, 1994
December 31, December 31, through
1997 1996 December 31, 1997
<S> <C> <C> <C>
Basic and Diluted Earnings per Share:
Shares outstanding at beginning of
period 17,823,445 8,387,064 --
Shares issued for conversion of debentures 1,372,412 852,609 1,559,093
Shares issued for option exercised 308,773 1,528,536 1,976,903
Shares issued for restructuring of
convertible debentures 296,301 -- 74,025
Shares issued for stock subscribed 230,474 -- 57,579
Shares issued for license dispute 28,574 -- 7,170
Canceled shares -- (378,567) (473,662)
Shares issued in connection with
private placement -- 450,784 669,565
Preferred Stock converted to common stock -- 547,135 380,493
Shares issued for cash -- 822,483 4,940,138
Shares issued for assets purchased -- 174,172 655,698
Shares issued for services 1,623 -- 340,645
------------ ------------ -------------
Weighted average common shares outstanding 20,061,602 12,384,216 10,187,647
============ ============ ============
Net loss available common shareholders $(14,679,286) $ (6,826,250) $(29,365,956)
============ ============ ============
Basic and diluted loss per common shares (.73) (.55) (2.88)
</TABLE>
The following potentially dilutive securities were not included in the
computation of dilutive EPS because the effect of doing so would be
antidilutive.
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
<S> <C> <C>
Options 4,758,327 6,162,364
Warrants 2,639,603 1,931,917
Convertible Preferred Stock 4,562,500 --
Convertible debentures -- 1,053,640
---------- ---------
11,960,430 9,147,921
========== =========
</TABLE>
F-27
<PAGE> 46
(8) INCOME TAXES
Since inception, the Company has incurred net operating losses for both
financial reporting and income tax purposes. As of December 31, 1997, the
Company has net operating loss carry forwards for income tax reporting purposes
totaling approximately $29 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. The deferred tax asset results primarily from net operating
losses and write downs of certain intangibles taken for book not currently
deductible for tax. 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 35% as follows:
<TABLE>
<S> <C>
"Expected" statutory tax expense (benefit) $ (5,157,501)
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) 5,157,501
--------------
$ --
==============
</TABLE>
.
(9) RELATED PARTY TRANSACTIONS
During 1997, the Company traded, with a stockholder in JJ&D, one hundred
channels, with a cost basis of $1 million, in exchange for certain specialized
SMR equipment with a similar market value and no gain or loss was recognized on
the transaction. These channels were non-strategic to the Company's business
plan.
(10) COMMITMENTS AND CONTINGENCIES
A. LICENSE OPTION CONTINGENCIES
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corp. among others (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 little or 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 through NDD/Metropolitan, 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 Daniel R. Goodman ("the Receiver"), to preserve
the assets of NDD/Metropolitan. In the course of the Receiver's duties, he
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. Thus, in an effort to be
consistent in its treatment of similarly situated licensees, 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, in spite of repeated requests by the Company. Nonetheless, on the
basis of release to the Company, by the Receiver, of a list of the Receivership
Stations believed by the Receiver to be subject to Management and Option
agreements with or held by the Company, the Company believes that approximately
800 of the licenses that it owns or manages are Receivership Stations. For its
own licenses and under the direction of each licensee for managed stations, the
Company has proceeded with the construction of Receivership Stations. Because
the FCC has not released its final order for publication, no assurance can be
given that any of such stations owned or managed by the Company will obtain
relief with respect to deadlines for timely construction pursuant to FCC rules.
The Company believes that the Goodman/Chan decision will be published during
1998, however, significant delay by the FCC in publishing the Goodman/Chan
Waiver in the Federal Register would necessitate a re-prioritization of the
Company's roll-out plan.
F-28
<PAGE> 47
The Receiver has requested that the Company replace some of the existing
Management and Option Agreements with Goodman/Chan licensees with promissory
notes. The Company engaged in discussions with the Receiver in this regard, but
did not reach a final determination and concluded that no further discussions
are warranted at this time. However, there can be no assurances that the
Receiver would not decide to take actions in the future to challenge the
Company's agreements with Goodman/Chan licensees, including the Company's rights
to licenses under such agreements, in an effort to enhance the value of the
Receivership Estate.
Approximately 5,500 channels managed by 800 and CMRS were included in a five
year Extended Implentation Plan granted by the FCC on March 31, 1995, under
Section 90.629 of the FCC rules, 47 G.F.R. 90.629. Under the Extended
Implentation Plan the stations had to be constructed in accordance with a
five-year construction plan. In December of 1995, the company filed the required
documents, as requested by the FCC, re-justifying the extended construction
plan. In May of 1997, the FCC denied the re-justification plan and granted six
months from the date of the denial to complete construction of the stations
managed by 800 and CMRS. Under the Commission's decision, licenses for any
stations not constructed before the six month deadline of November 20, 1997
would be canceled.
As a result of the ruling, the Company restructured its build-out plan and
prioritized the channels based on detailed criteria relating to engineering
specifications, demographics, competition, market conditions and dealer
characteristics. Based on the results of prioritization and the construction
deadline stipulated by the FCC, the Company believed the value of certain
licenses under the Management Agreements and Options to Acquire Licenses had
been impaired. For the approximately 5,500 channels, management allocated a
portion of the original purchase price based on estimated fair market value
determined by the criteria mentioned above. Based on this process, management
estimated the Company would be able to meet FCC construction requirements on
approximately 2,800 channels, before November 20, 1997. These channels were
allocated an aggregate value of $25,329,931. The remaining channels,
approximately 2,700, were determined to be impaired. As a result, the company
recorded a valuation allowance of $7,166,956. As of November 20, 1997 the
Company had met all of the FCC's construction requirements for approximately
3,800 of the 5,500 channels. As a result the Company exceeded its estimate by
approximately 1,000 channels.
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.
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 were
otherwise timely constructed and not subject to the above.
On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and complaint on the
Company, alleging claims related to a proposed merger between Airnet and the
Company that never materialized. In particular, Airnet has alleged that a
certain "letter of intent" obligated the parties to complete the proposed
merger. The Company denies this allegation. In its complaint, Airnet has
alleged the following purported causes of action against the Company: breach
of contract, breach of the implied covenant of good faith and fair dealing,
intentional interference with prospective economic advantage, intentional
interference with contractual relationship, including breach of contract, false
promise and conversion. Airnet has also purported to seek the following relief
from the Company: $28,000,000 in compensatory damages plus interest, punitive
damages, costs of suit and attorney's fees. The Company challenged the
sufficiency of the complaint as to most of the purported causes of action on
the grounds that these purported causes of action fail to state facts
sufficient to constitute a cause of action. The Company also challenged the
sufficiency of the punitive damages allegations on the grounds that the
compliant fails to state facts sufficient to support these allegations. Rather
than oppose these challenges to its complaint, Airnet elected to file a first
amended complaint. Believing that Airnet's amendments were immaterial the
Company renewed its challenges to Airnet's pleading. On September 9, 1997, the
court sustained the Company's demurrers to Airnet's claims for damages based on
the Company's alleged failure to complete the merger and to Airnet's claims for
conversion. At Airnet's request, the court allowed Airnet to amend its pleading
a second time to attempt to state these claims, and Airnet's new complaint
asserts claims for breach of contract, anticipatory breach of contract,
intentional interference with prospective economic advantage, interference with
contractual relationship, inducing breach of contract and false promise. The
Company again filed demurrers challenging certain of the claims in Airnet's
pleading. On January 16, 1998, the Court overruled the Company's demurrers to
the Second Amended Complaint.
On February 2, 1998, the Company answered the Second Amended Complaint with a
general denial and by asserting the following affirmative defenses: failure to
state a claim, uncertainty, statutes of limitations, laches, lack of capacity,
lack of standing, waiver, estoppel, knowledge and acquiescence, unclean hands,
unjust enrichment, fraud, misrepresentations, res judicata, justification,
privilege, no action intended or reasonably calculated to cause injury, lack of
causation, acts of third parties, failure to allege a contract, no meeting of
the minds, statute of frauds, lack of privity, fraud in the inducement,
mistake, lack of consideration, failure of consideration, failure of conditions
precedent, concurrent, subsequent, Airnet's intentional misrepresentation,
Airnet's negligent misrepresentations, performance excused by Airnet's failure
to perform, performance excused by recision, performance excused by
modification, antecedent breaches by Airnet, accord and satisfaction,
privileged communications, justified communications, no damages, failure to
mitigate and offset.
On February 2, 1998, the Company filed a Cross-Complaint against Airnet as well
as three other named cross-defendants related to Airnet: Uninet, Inc.,
("Uninet") Anthony Schatzlein ("Schatzlein") and Dennis Houston ("Houston"). The
Company's Cross-Complaint alleges various causes of action including fraud,
breach of oral contract, fraud and defamation which arise out of the proposed
merger and the events surrounding it. On March 2, 1998, cross-defendants
Airnet, Uninet, Schatzlein and Houston answered the Cross-Complaint with a
general denial and a single affirmative defense -- that the Cross-Complaint does
not state facts sufficient to constitute a cause of action.
The Company intends to vigorously defend the Second Amended Complaint and to
pursue the claims set forth in the Cross-Complaint. At this time, the outcome
of this litigation cannot be predicted with certainty. Although the Company
intends to defend the action vigorously, it is still in its early stages and no
substantial discovery has been conducted in this matter. Accordingly, at this
time, the Company is unable to predict the outcome of this matter.
In September 1994, CCI entered into a two year consulting agreement (the
"Consulting Agreement") with John Peacock ("Peacock") to act as a consultant and
technical advisor to CCI concerning certain specialized mobile radio ("SMR")
stations. In May, 1997 CCI filed a complaint against Peacock for declaratory
relief in the United States District Court for the District of Nevada, seeking a
declaration of the respective rights and obligations of CCI under the Consulting
Agreement. CCI is seeking this judicial declaration based upon Peacock's
contention that he is entitled to certain bonus compensation under the
Consulting Agreement. Peacock contends that this bonus compensation is due
regardless of whether an SMR license is granted based upon his activities as a
consultant. CCI contends that the Consultant Agreement is clear that such bonus
compensation is only awarded upon the "grant" of an SMR license. Peacock
contends that he is entitled to bonus compensation of four hundred five thousand
($405,000). In lieu of answering the complaint, Peacock filed a motion seeking
dismissal of the action based on the assertion that he is not subject to
jurisdiction in Nevada courts. After briefing, that motion was denied by the
Court, and the parties are now proceeding with discovery.
On September 26, 1997, Peacock answered the Complaint and asserted the following
affirmative defenses: failure to state a claim, failure to perform, intentional
concealment or failure to disclose material facts, estoppel, unclean hands, lack
of subject matter, claims not authorized by declaratory relief statutes,
improper venue, forum non conveniens, rescission and reformation, and choice of
law.
On or about January 28, 1998, Peacock filed a motion to add a counterclaim to
this litigation. The counterclaim purported to allege causes of action based on
breach of the Consultant Agreement, fraud and breach of fiduciary duty. CCI
objected to Peacock's improper attempt to add tort claims to this litigation and
Peacock agreed to withdrawn them, amend its proposed counterclaim by
stipulating, and assert only a breach of contract claim based on the Consulting
Agreement. Once the Amended Counterclaim is filed with the Court, CCI will have
the right to assert claims for affirmative relief against Peacock.
CCI intends to vigorously pursue its Complaint and defend against the
counterclaim. At this time, discovery has not been completed and the Company
is unable to predict the outcome of this matter.
Pursuant to the FCC's jurisdiction over telecommunications activities, the
Company is involved in pending matters before the FCC which may ultimately
affect the Company's operations. These pending matters include the "Goodman
Chan" decision and the Company's pending Finders Preference requests. Details
concerning the status of these proceedings at the FCC are given in "Item 1
Government Regulation".
C. MANAGEMENT PLANS
The Company believes that during 1998, depending on the rate of market roll-out
during the period, it will require approximately $8 million to $10 million in
additional funding, of which approximately $3.5 million is available and an
additional $4.5 million to $6.5 million is required, for full-scale
implementation of its SMR services and ongoing operating expenses. To meet such
funding requirements, the Company anticipates continued utilization of its
existing borrowing facilities with Motorola, Inc. ("Motorola") and MarCap
Corporation ("MarCap"), a vendor financing arrangement recently consummated
with HSI GeoTrans, Inc. ("GeoTrans"), sales of selected SMR channels deemed
non-strategic to its business plan, and additional equity and debt financings
which are currently in progress.
The Company believes that it should have adequate resources to continue
establishing its SMR business and emerge from the development stage during 1998.
However, while the Company believes that it has developed adequate contingency
plans, the failure to consummate the aforementioned potential financing as
currently contemplated, or at all, could have a material adverse affect on the
Company, including the risk of bankruptcy. Such contingency plans include
pursuing similar financing arrangements with other institutional investors and
lenders that have expressed interest in providing capital to the Company,
selling selected channels, and focusing solely on the Company's current 22
markets in which full-scale service has already been implemented. This latter
course might entail ceasing further system expansion in such markets and
reducing corporate staff to the minimal level necessary to administer such
markets. The Company believes that this strategy would provide sufficient time
and resources to raise additional capital or sell selected channels in order to
resume its growth. However, there can be no assurances that this or any of the
Company's contingency plans would adequately address the aforementioned risks,
or that the Company will attain overall profitability once it has emerged from
the developmental stage.
(11) SUBSEQUENT EVENTS.
On January 13, 1998, the Company entered into a letter of intent with Recovery
Equity Partners II, L.P. ("Recovery"), an institutional private equity fund. The
letter provides that Recovery may invest up to $10 million of equity capital
into the Company. Under the terms of this potential transaction, which remains
subject to certain contingencies, Recovery would purchase $5 million of the
Company's common stock at closing, with an option to purchase an additional $5
million of the Company's common stock, commencing in April 1999, at a higher
price. Based on certain performance criteria, the option for the second $5
million of investment by Recovery would be callable by the Company.
Among other factors, Recovery's equity investment in the Company is contingent
upon the Company raising at least $10 million of debt financing, which the
Company is currently attempting to obtain. On March 4, 1998, the Company entered
into a letter of intent with Foothill Capital Corporation ("Foothill") by which
Foothill would provide $10 million of secured debt financing to the Company
subject to certain conditions being met. Collateral for such debt financing
would consist of substantially all the Company's assets other than those already
pledged to other creditors. Closing of the contemplated transactions with
Recovery and Foothill, are subject to satisfactory completion of due diligence,
F-29
<PAGE> 48
formal approval by their respective internal approval committees, satisfactory
completion of documentation, and (in the case of Foothill only) satisfactory
appraisal of collateral.
On March 9, 1998, the Company entered into a vendor financing arrangement with
GeoTrans, a wholly owned subsidiary of Tetra Tech, Inc., whereby GeoTrans will
perform turn-key implementation of full-scale SMR system operations for the
Company in up to 10 markets per month and 145 total markets. During 1997,
GeoTrans completed preliminary construction services for the Company in 78
markets. The financing mechanism in the Company's arrangement with GeoTrans
specifies a $4,000 down-payment per market by the Company and approximately
$18,000 per market to be drawn by the Company under its Motorola financing
facility, with GeoTrans financing the balance of approximately $49,000 per
market on 120-day payment terms, with incentives to the Company of up to a 3%
discount for early payment. Collateral for such financing arrangement consists
of 183 channels in nine primarily non-strategic markets with a fair market value
estimated by the Company of $4.4 million.
On February 10, 1998, the Company and several holders of the Series B Preferred
entered into an amendment providing that such holders would not convert any
Series B Preferred into common stock of the Company prior to March 11, 1998. In
consideration for such amendment, the Company issued to the Series B Preferred
holders pursuant to Regulation S an aggregate of approximately 315,000 shares
of the Company's common stock and Warrants to purchase an additional
approximately 380,000 shares of the Company's common stock , the terms of which
Warrants are the same as terms of the Warrants issued in the December 23, 1997
private placement described above.
On January 12, 1998, the Company consummated an agreement with 32 of 33 licensee
corporations that were due approximately 8% of the outstanding common stock of
CMRS, as the balance of consideration due for the Company's exercising options
to acquire licenses from such licensee corporations, for such licensee
corporations to accept $150,000 in lieu of such stock in CMRS. Upon signing, the
Company had five days to fund such transaction. Due to limited time and internal
resources, the Company sought an investor that could immediately meet the
$150,000 in payments. Already familiar with the Company from its earlier
investment, Settondown agreed to provide the financing to acquire the
approximately 8% minority interest in CMRS, provided that the Company in turn
enter into an exchange agreement with Settondown to issue 800,000 shares of the
Company's common stock in return for the minority interest in CMRS. These
transactions closed on February 10, 1998, in conjunction with which Settondown
also agreed to limit its selling of such shares of common stock of the Company
to no more than 50,000 shares per month for the first six months following
issuance thereof. An effect of these transactions was to eliminate an
approximately 8% minority interest in CMRS in return for the issuance of 800,000
shares of the Company's common stock. CMRS remains a wholly owned subsidiary of
the Company with no further obligations to the 32 licensee corporations,
considerably simplifying the Company's capital structure as a result. Management
believes the transactions were advantageous because the valuation placed by the
Company on the eight percent of CMRS common stock which would otherwise have
been issued to the license holders was greater than the consideration actually
provided by the Company as a result of the transactions. However, no assurances
can be given that the Company's valuation of such eight percent of CMRS common
stock would be generally accepted, especially given the absence of a public
market in CMRS shares and market uncertainties regarding the valuation of assets
such as those held by CMRS. The one remaining licensee continues to operate
under the Company's Management and Option Agreement. Negotiations are currently
underway to exercise the Option. If a satisfactory resolution cannot be achieved
the Company intends to continue to operate under the current Management and
Option Agreement, subject to the licensee's direction.
On February 25, 1998, the Company and MarCap entered into a letter agreement
relating to the Motorola and MarCap Facilities which provided for (i) complete
cross-collateralization of the Motorola and MarCap Facilities without any
unwinding provision, (ii) a revised borrowing base formula for the Motorola and
MarCap Facilities, (iii) notification by the Company to Motorola of the
modifications being made pursuant to such letter agreement, (iv) affirmation by
the Company to utilize its diligent best efforts to raise at least $5 million of
equity and $15 million of aggregate financing by April 30, 1998, (v) waiver of
existing covenants for the Motorola and MarCap facilities through April 30, 1998
so long as the Company continues to utilize its diligent best efforts to raise
at least $5 million of equity and $15 million of aggregate financing by such
date, (vi) new covenants for the Motorola and MarCap facilities, based on the
Company's business plan as if no additional equity and debt financing were
raised by April 30, 1998, that would take
F-30
<PAGE> 49
effect after April 30, 1998. On March 5, 1998, Motorola provided the Company
with written acknowledgment of the notification required by the Company as
described in clause (iii) above. As a result of these modifications, the Company
is in full compliance with the Motorola and MarCap facilities.
Subsequent to December 31, 1997, the Company made additional draws under the
MarCap Facility totaling $1,563,000.
In October 1996, CCI signed a purchase agreement with Motorola to purchase
approximately $10,000,000 of Motorola radio communications equipment, including
Motorola Smartnet II trunked radio systems. Such purchase agreement required
that the equipment be purchased within 30 months of its effective date. In
conjunction with such purchase agreement, CCI entered into the Motorola
Facility permitting CCI to borrow during the term of the purchase agreement up
to 50% of the value of Motorola equipment purchased under the purchase
agreement, or up to $5,000,000. On August 18, 1997, Motorola, with the Company's
concurrence, assigned all of its interest in the Motorola Facility to MarCap.
By way of letter agreement dated March 10, 1998 among Marcap, Motorola, and the
Company, the effective period of the Motorola purchase agreement and Motorola
facility was extended from 30 months to 42 months from the effective dates
thereof. As of March 19, 1998, $363,100 was outstanding under the Motorola
Facility. Depending on the Company's ability to continue funding its minimum
50% down-payment requirement under the Motorola purchase agreement, the Company
anticipates funding approximately $2 million of Motorola equipment for its SMR
systems under the Motorola Facility during 1998.
F-31
<PAGE> 50
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
IDENTIFICATION OF 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 or she has served as a director or
executive officer as of March 19, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD OF SERVICE AS
- ---- --- -------- ---------------------
DIRECTOR OR EXECUTIVE OFFICER
-----------------------------
<S> <C> <C> <C>
Robert W. Moore 40 President, CEO and Director 02/95 to Present
Jan S. Zwaik 49 Chief Operating Officer 02/97 to Present
Director and Treasurer 06/97 to Present
Chief Financial Officer 06/97 to Present
Alyson A. Sheradin 35 Secretary 02/98 to Present
Vice President of Administration 06/97 to Present
William C. Bossung 40 Director 02/95 to Present
Secretary 04/96 to 02/98
Gary L. Killoran 32 Chief Financial Officer 11/95 to 06/97
Treasurer 04/96 to 06/97
Director 11/96 to 06/97
</TABLE>
17
<PAGE> 51
BUSINESS EXPERIENCE
ROBERT W. MOORE, President, Chief Executive Officer and Director, founded the
Company in 1994. He began his career in wireless telecommunications in 1985 as a
cellular Account Executive with Ameritech. From 1989 to 1993, Mr. Moore served
as a Regional Manager and General Manager for two Cellular One companies,
managing more than 75 employees and having full profit-and-loss responsibility
for several MSAs with more than 35,000 customers generating more than $40
million in revenues. He also served as Director of Marketing for U.S.
CommStruct, a telecommunications construction company building cell sites
nationwide. On behalf of a small SMR business, he negotiated rights to SMR
channels covering more than 10 million pops during 1993 and 1994, which
experience, in turn, provided the basis for launching Chadmoore in 1994.
JAN S. ZWAIK, Chief Operating Officer and Chief Financial Officer, joined
Chadmoore in 1997. His principal responsibilities include prioritization and
commercialization of wireless communications markets, development and management
of the dealer network, and related operating and financial matters. From 1988 to
1992, Mr. Zwaik was Vice President - Finance and Operations for the Cellular
Division of LIN Broadcasting, where he increased revenues by $30 million and
reduced costs of customer billing by $5 million annually. From 1992 to 1995, he
served as Chief Operating Officer and Chief Financial Officer of Mariga
Communications/NovoComm, managing all aspects of operational development and
raising $8 million of financing for this international SMR, paging, FM radio,
and satellite telecommunications company. From 1995 until joining Chadmoore, Mr.
Zwaik was Vice President at Geotek Communications, with comprehensive marketing
responsibility for Geotek's digital SMR systems in the metropolitan New York
market. Earlier in his career, Mr. Zwaik also spent 12 years as a CPA with KPMG
Peat Marwick, and five years as Chief Financial Officer of Swiss American
Securities, a New York-based unit of Credit Suisse with $12 billion of assets
under custody at that time.
ALYSON A. SHERADIN, Secretary and Vice President of Administration, joined
Chadmoore in 1995 and holds responsibilities in the areas of administrative and
human resource activities. From 1984 to 1987, she was a Senior Buyer for Dey
Brothers Department Stores, part of the Federated Department Stores group. In
1987, she became Senior Buyer of telecommunications equipment for Sounds Great,
a 17-store electronics retailing chain serving the northeastern United States.
In 1989, Ms. Sheradin joined Cellular One in Albany, New York as Sales Manager,
with responsibility for both direct and indirect distribution channels. She also
developed a comprehensive training program that generated a 40% increase in
retail production. From 1993 until joining Chadmoore, Ms. Sheradin was Sales
Manager for Sprint Cellular in the Las Vegas marketplace, where she expanded
retail channel contribution to new customer activations from 20% to more than
35%. She also is a Licensed Instructor of the Dale Carnegie Training Program and
was a team member for two national quality award programs for Sprint.
18
<PAGE> 52
WILLIAM C. BOSSUNG, Director, joined the Company concurrent with its
reorganization with CCI effective in February 1995. Prior to joining the
Company, 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. Mr. Bossung previously
held the following positions with the Company: Director of Corporate Finance
from February 1995 to August 1997, Assistant Secretary from February 1995 to
February 1997 and Secretary from April 1996 to February 1998.
GARY L. KILLORAN, Mr. Killoran resigned from all positions with the Company in
June 1997.
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 serve
until their respective successors are elected and shall qualify.
COMPENSATION OF DIRECTORS. Currently, Directors of the Company receive no cash
compensation for their services. However, Robert Moore, Jan Zwaik and William
Bossung each received 100,000 options to acquire the Company's common stock at
a price of .50 per share. These options were granted to Jan Zwaik and William
Bossung in 1997 and Robert Moore in February 1998. In addition, the Company
pays approximately $500 a month for health insurance for Mr. Bossung and his
family.
FAMILY RELATIONSHIPS. There are no family relationships between any Director of
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. During
1997, Mr. Bossung failed to timely file a Form 4, reporting one transaction,
and Mr. Zwaik failed to timely file a form 3. As of the date of this filing,
Mr. Zwaik has filed a Form 5 in lieu of such untimely Form 3, and Mr. Bossung
has represented to the Company that he has filed Form 5. During 1997, no other
person required to file reports pursuant to Section 16(a) failed to timely
file any such report.
19
<PAGE> 53
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, 1997,
1996 and 1995. to the Company's chief executive officer and each of the
Company's other executive officers ("Named Officers") whose total salary and
bonus exceeded $100,000.
SUMMARY COMPENSATION TABLES
ANNUAL COMPENSATION
-------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name Year Salary (1) Bonus Other
and Ended Annual
Principal December Compensation
Position 31 ($) ($) ($)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Moore 1997 128,000 100,000 (2) --
President, CEO 1996 93,000 78,000 --
and Director 1995 78,000 -- --
Jan S. Zwaik 1997 98,000 100,000 (2) --
Chief Operating Officer, 1996 -- -- --
Chief Financial Officer, 1995 -- -- --
Director and Treasurer
William C. Bossung 1997 59,000 -- --
Director 1996 75,000 65,000 --
1995 60,000 -- --
</TABLE>
20
<PAGE> 54
LONG TERM COMPENSATION AWARDS
<TABLE>
<CAPTION>
YEAR SHARES
NAME AND PRINCIPAL ENDED RESTRICTED UNDERLYING ALL OTHER EXERCISE
POSITION DECEMBER 31 STOCK AWARDS OPTIONS/SARS LTIP PAYOUTS COMPENSATION Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Moore 1997 None 250,000 (3) None None $ 0.50
President/CEO (250,000) $ 1.50
1995 None 250,000 None 39,000(4) $ 1.50
Jan S. Zwaik 1997 None 500,000 None None $ 0.50
Chief Operating Officer, 1996 None None None None
Chief Financial Officer, 1995 None None None None
Director and Treasurer
William C. Bossung 1997 None 100,000 (5) None None $ 0.50
Director (100,000) $ 1.50
1996 None 100,000 None None $ 1.50
1995 None 100,000 None None $ 1.50
</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.
(2) In 1997, Robert Moore and Jan Zwaik were paid cash bonuses of $20,000
and $25,000, respectively and an additional $80,000 and $75,000 was
accrued and unpaid, respectively.
(3) These options were originally granted in 1995 pursuant to the
Nonqualified Plan, with an exercise price of $1.50 per share. The
options issued in 1995 were cancelled and reissued at a new exercise
price of $.50 per share on December 30, 1997 under the Non-qualified
Plan. The net effect of this transaction was to change the exercise
price of the options issued in 1995. Robert Moore was also granted an
additional 100,000 options under the Employee consulting and services
plan, with an exercise price of $.50 per share, on February 10, 1998.
As of the date of this filing Robert Moore has 250,000 options under the
Nonqualified plan, with an exercise price of $.50 and 100,000 options
under the Employee consulting and services plan, with an exercise price
of $.50 per share.
(4) Mr. Moore elected to defer his compensation from CCI for six months in
1994, in the aggregate amount of $39,000, which was paid in 1995.
(5) As of the date of this filing Jan Zwaik has 150,000 options under the
Nonqualified Stock Option Plan, with an exercise price of $.50 per share
and 350,000 options under the Employee consulting and services plan, with
an exercise price of $.50 per share.
(6) These options were originally granted in 1995 pursuant to the
Nonqualified Plan, with an exercise price of $1.50 per share. The
options issued in 1995 were cancelled and reissued at a new exercise
price of $.50 per share on December 30, 1997, under the Employee
consulting and services plan. The net effect of this transaction was to
change the exercise price of the options issued in 1995 and change the
plan they were issued under. As of the date of this filing William
Bossung has 100,000 options under the Nonqualified plan, with a exercise
price of $1.50 and 100,000 options under the Employee consulting and
services plan, with an exercise price of $.50 per share.
21
<PAGE> 55
EMPLOYMENT AGREEMENTS. The Company entered into an Employment Agreement with
Robert W. Moore effective as of April 21, 1995, which expired on January 1,
1997, which provided for a base annual salary of $78,000, subject to increases
thereafter upon the approval of the Board of Directors. During 1996 the Company
entered into an Employment Agreement, expiring on January 1, 1997, with William
C. Bossung with substantially the same terms and provisions as Mr. Moore's,
except that Mr. Bossung's compensation was $75,000 per annum. The Company
entered into a new Employment Agreement with Mr. Moore as of January 1, 1997
providing for a base salary of $125,000, a copy of which Agreement is attached
as Exhibit 10.21. The Company also entered into an Employment Agreement with Jan
Zwaik as of February 17, 1997 providing for a base salary of $110,000, a copy of
which is attached as Exhibit 10.22. The Company entered into new Employment
Agreements with each of Messrs. Bossung and Gary Killoran effective as of
January 1, 1997. During 1997 Messrs. Bossung and Killoran resigned as officers
of the Company, and their Employment Agreements were terminated.
AMENDED NONQUALIFIED STOCK OPTION PLAN. The Company has reserved an aggregate
of 1,500,000 shares of restricted common stock for issuance pursuant to 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, 1997, the Board of Directors
has granted options for 2,638,000 restricted shares, of which options for
1,228,500 restricted shares of the Company's common stock have been canceled
and options for 824,000 restricted shares of the Company's common stock have
vested.
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 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 2,350,000 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, 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. 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.
22
<PAGE> 56
At December 31, 1997, the Committee has authorized and issued 1,547,000 shares
of common stock for issuance under the plan. Since the Plan's inception, the
Committee has granted options to acquire 1,230,000 shares of common stock
pursuant to the terms of the Plan. Options for 1,128,500 restricted shares of
the Company's common stock have been canceled and options for 605,000
restricted shares of the Company's common stock have vested. With respect to
the options granted to date, they may be exercised by the holders, when vested,
in whole or in part, at any time within three years of the vesting date. The
holders of the options have exercised no such options as of December 31, 1997.
The Company did not grant any stock appreciation rights during 1997.
23
<PAGE> 57
The following table sets forth the options to acquire common stock issued to
the Named Officers of the Company in fiscal 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Shares Underlying OPTIONS / SARS EXERCISE OR
NAME Options/SARs GRANTED TO BASE PRICE
EMPLOYEES IN FISCAL ($/SHARE) VEST DATE EXPIRATION
YEAR DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Moore 125,000 (1) 5% $ 0.50 Vested 10/12/98
125,000 (1) 5% $ 0.50 Vested 05/12/99
Jan S. Zwaik 75,000 (2) 3% $ 0.50 Vested 02/17/01
75,000 (2) 3% $ 0.50 02/17/99 02/17/02
150,000 (4) 6% $ 0.50 Vested 10/02/00
100,000 (4) 4% $ 0.50 10/02/98 10/02/01
50,000 (3) (4) 2% $ 0.50 Vested 07/09/00
50,000 (3) (4) 2% $ 0.50 07/09/98 07/09/01
William C. Bossung 50,000 (5) 2% $ 0.50 Vested 01/16/01
50,000 (5) 2% $ 0.50 12/30/98 12/30/01
</TABLE>
1. Options were originally issued under the Nonqualified Plan in 1995
at an exercise price of $1.50 per share. Those options were cancelled
and reissued at an exercise price of $0.50 per share on December 30,
1997. In addition, Robert Moore was issued 100,000 options under the
Employee consulting and services plan, with an exercise price of $.50,
per share on February 10, 1998.
2. Options were originally issued under the Nonqualified Plan in 1997 at
an exercise price of $1.50 per share. Those options were cancelled and
reissued at an exercise price of $0.50 per share on December 30, 1997.
3. Options were originally issued under the Employee consulting and
services plan in 1997 at an exercise price of $1.00 per share. Those
options were cancelled and reissued at an exercise price of $0.50 per
share on December 30, 1997.
4. Options were granted under the Employee consulting and services plan.
5. Options were originally issued under the Nonqualified Plan in 1995 at
an exercise price of $1.50 per share. Those options were cancelled and
reissued, under the Employee consulting and services plan, at an
exercise price of $0.50 per share on January 16, 1998.
24
<PAGE> 58
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 19, 1998, 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; (iii) each Director of the Company, and (iv) 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.
SECURITY OWNERSHIP OF CERTAIN beneficial OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
OPTIONS DATE
NAME NUMBER PERCENT(1) ISSUED EXERCISABLE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Moore 2,024,266 6.2% 300,000 Vested
50,000 2/10/99
Jan S. Zwaik 500,000 1.5% 75,000 Vested
75,000 2/17/99
150,000 10/2/97
100,000 10/2/98
50,000 7/9/97
50,000 7/9/98
William C. Bossung 383,700 1.2% 50,000 Vested
50,000 Vested
50,000 Vested
50,000 1/16/99
All Directors and Executive
Officers as a Group 2,907,966 8.9%
</TABLE>
(1) The percentage of stock outstanding for each shareholder is calculated
by dividing the number of shares of common stock deemed to be
beneficially held by such shareholder as of March 19, 1998, by the sum
of the number of shares of common stock outstanding as of March 19, 1998
and the number of shares issuable upon exercise of options or warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of the employment agreements entered into between the Company
and three (3) of the Company's executive officers in the years 1996 and 1997,
see Item 10. "EXECUTIVE COMPENSATION". Except for such employment agreements,
there were during the years 1996 and 1997 no transactions, or proposed
transactions, to which the Company was or is to be a party, in which any of the
following had or is to have a direct or indirect material interest: any
Company director, executive officer, or nominee for election as a director, or
beneficial owner of more than five percent of the Company common stock, which
is the only class of voting stock.
25
<PAGE> 59
ITEM 13. EXHIBITS AND CURRENT REPORTS ON FORM 8-K
During the 1997 the Company was late on filing one (1) current report on form
8-K, such report is referenced below as 10.19. Such current report was due to
be filed 15 days after December 23, 1997, that is by January 7, 1998, but was
filed on February 24, 1998.
(a)(1) A list of the financial statements and schedules thereto as filed in
this report reside at Item 7.
(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)
10.5 Employment Agreement between the Company and David J. Chadwick
effective as of April 21, 1995 (14)
26
<PAGE> 60
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.(23)
10.14 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.(24)
10.15 Restructuring Agreement Regarding 8% Convertible Debentures dated
September 19, 1997, by and between Chadmoore Wireless Group, Inc., Cygni S.A.,
and Willora Company Limited (25)
10.16 Transfer and Release Agreement effective September 26, 1997, by and
between Chadmoore Wireless Group, Inc. and LDC Consulting, Inc. (26)
10.17 Certificate of Designation of Rights and Preferences of Convertible
Preferred Stock Series B of the Company (27)
10.18 Form of Stock Purchase Warrant issued in connection with the Series B
8% Convertible Preferred Stock Offshore Subscription Agreement dated on or
about December 10, 1997 (28)
10.19 Form of Series B 8% Convertible Preferred Stock Offshore Subscription
Agreement dated on or about December 10, 1997 (29)
10.20 Form of Amendment No. 1 to Offshore Subscription Agreement for Series
B 8% Convertible Preferred Stock dated on or about February 17, 1998 (30)
10.21 Employment Agreement between the Company and Robert Moore effective as
of January 1, 1997(31)
10.22 Employment Agreement between the Company and Jan Zwaik effective as of
February 17, 1997(31)
27
<PAGE> 61
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 (31)
23.1 Consent of KPMG Peat Marwick LLP (31)
27.1 Financial Data Schedule (31)
- -------------
(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)
28
<PAGE> 62
(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) Incorporated by reference to Exhibit 10.12 to the Company's Form 10-KSB
for the year ended December 31, 1996
(23) Incorporated by reference to Exhibit 10.13 to the Company's Form 10-KSB
for the year ended December 31, 1996
(24) Incorporated by reference to Exhibit 10.14 to the Company's Form 10-KSB
for the year ended December 31, 1996
(25) Incorporated by reference to Exhibit 10.12 to the Company's Form 8-K,
under Item 9, date of earliest event reported - September 19, 1997
(26) Incorporated by reference to Exhibit 10.13 to the Company's Form 8-K,
under Item 5, date of earliest event reported - September 26, 1997
(27) Incorporated by reference to Exhibit 4.5 to the Company's Form 8-K, under
Item 9, date of earliest event reported - December 23, 1997
(28) Incorporated by reference to Exhibit 4.6 to the Company's Form 8-K, under
Item 9, date of earliest event reported - December 23, 1997
(29) Incorporated by reference to Exhibit 10.15 to the Company's Form 8-K,
under Item 9, date of earliest event reported - December 23, 1997
(30) Incorporated by reference to Exhibit 10.16 to the Company's Form 8-K,
under Item 9, date of earliest event reported - February 17, 1998
(31) Filed herewith.
29
<PAGE> 63
<TABLE>
<S> <C>
(b) Current Reports on Form 8-K
(i) Current Report on Form 8-K filed on December 31, 1996, reporting shares
of the Company'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 the Company'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 the
Company and Libero Limited, limiting the number of options exercisable
at any one time thereunder; and further reporting shares of the
Company'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 the Company'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.
(v) Current Report on Form 8-K filed on June 30-1997, reporting that on June
13, 1997, Gary L. Killoran resigned as a Director and Executive Officer
of the Company and from similar positions with affiliates of the
Company, and that Mr. Jan S. Zwaik, Chief Operating Officer, will act as
Chief Financial Officer until the position is filled.
(vi) Current Report on Form 8-K filed on June 10, 1997, reporting the terms
of the Company's agreement to replace its Convertible Debenture due
February 19, 2000 in the principal amount of $1,750,000 previously
issued to Willora Company Limited with a
</TABLE>
30
<PAGE> 64
<TABLE>
<S> <C>
new 8% Convertible Debenture in the principal amount of $1,627,500 due
August 31, 1998, and the assignment by Willora of its rights and
interest in such Convertible Debenture to Cygni, S.A.
(vii) Current Report on Form 8-K filed on June 11, 1997 reporting that
effective September 26, 1997, Company and LDC Consulting, Inc., a
Delaware corporation ("LDC"), entered into a Transfer and Release
Agreement (as amended, the "Release Agreement"), pursuant to which LDC
agreed to use its commercially reasonable efforts to obtain the
execution and delivery of: (A) certain amendments (the "Amendments") of
certain SMR Stations Management Agreements, each dated June 3, 1996
(collectively, as amended, the "Licensee Management Agreements"), and
certain Option and Stock Purchase Agreements, each dated June 14, 1996
(collectively, the "Licensee Option Agreements", and, together with the
Management Agreements, the "Licensee Agreements") , and (B) the
Termination of Stock Option Agreement (the "Termination Agreement") on
behalf of Libero, Limited ("Libero"). The Release Agreement and the
Amendments, among other things, amended the (i) Licensee Option
Agreements to grant to the Company options to acquire the call signs
held by the licensees (the "Call Signs") other than a limited number of
Call Signs which were released by the Amendments from the Licensee
Agreements (the "Released Call Signs"), and to terminate the Company's
options to acquire the Licensees' outstanding stock, and (ii) Management
Agreements to provide for the continuing management by Company of the
Call Signs other than the Released Call Signs. The Termination
Agreement terminated each of the following agreements between the
Company and Libero: (1) Stock Purchase Agreement dated as of June 14,
1996, (2) Stock Option Agreement dated as of June 14, 1996, and (3) the
Offshore Securities Subscription Agreement as of June 14, 1996.
(viii) Current Report on Form 8-K filed on February 24, 1998, reported pursuant
to the SEC's Division of Corporation Finance's interpretation of the
disclosure requirements set forth in SEC Release No. 34-37801,
reporting (a) On December 23, 1997, the Company concluded a private
placement conducted in accordance with Regulation S in which the Company
sold (i) 219,000 shares of Series B Convertible Preferred Stock (the
"Preferred Stock") and (ii) warrants ("Warrants") to purchase 300,000
shares of the Company's Common Stock, with the Company receiving
proceeds of $1,650,000; and (b) with respect to certain conversions of
the Preferred Stock, the Company issued shares of its Common Stock to
various holders of some of such Preferred Shares.
(i) Current Report on Form 8-K filed on March 16, 1998 reporting (a) the
terms of amendments (the "Amendments") of the terms of the private
placement described in the Company's Current Report on Form 8-K filed on
February 24, 1998 (the "Prior 8-K"), which Amendments extended the
holding period applicable to purchasers of the Preferred Stock (as
defined in the Prior 8-K) and provided for the issuance of additional
shares of Common Stock, Warrants (as defined in the Prior 8-K) and
Common Stock underlying Warrants to such purchaser; (b) with respect to
certain conversions of the Preferred Stock, the Company issued shares of
its Common Stock to various holders of some of such Preferred Shares;
and (c) the Company's agreement to issue 800,000 shares of its Common
Stock in accordance with Regulation S to a single investor (the
"Investor") who is not a U.S. Person, in exchange for the delivery to
the Company of 5,032 shares of common stock of CMRS. CMRS had previously
agreed to issue the CMRS Shares to the Investor in exchange for the
agreement of the Investor to pay, on behalf of CMRS, a fee to a LDC
Consulting, Inc.
</TABLE>
31
<PAGE> 65
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/ Jan S. Zwaik
-----------------------------------
Jan S. Zwaik
Chief Financial Officer, Treasurer
Date: April 15, 1998
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: April 15, 1998
- -----------------------------------
Robert W. Moore, President,
Chief Executive Officer and Director
/s/ Jan S. Zwaik Date: April 15, 1998
- -----------------------------------
Jan S. Zwaik, Chief Financial
Officer, Treasurer and Director
================================================================================
<PAGE> 66
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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)
10.5 Employment Agreement between the Company and David J. Chadwick
effective as of April 21, 1995 (14)
<PAGE> 67
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.(23)
10.14 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.(24)
10.15 Restructuring Agreement Regarding 8% Convertible Debentures dated
September 19, 1997, by and between Chadmoore Wireless Group, Inc., Cygni S.A.,
and Willora Company Limited (25)
10.16 Transfer and Release Agreement effective September 26, 1997, by and
between Chadmoore Wireless Group, Inc. and LDC Consulting, Inc. (26)
10.17 Certificate of Designation of Rights and Preferences of Convertible
Preferred Stock Series B of the Company (27)
10.18 Form of Stock Purchase Warrant issued in connection with the Series B
8% Convertible Preferred Stock Offshore Subscription Agreement dated on or
about December 10, 1997 (28)
10.19 Form of Series B 8% Convertible Preferred Stock Offshore Subscription
Agreement dated on or about December 10, 1997 (29)
10.20 Form of Amendment No. 1 to Offshore Subscription Agreement for Series
B 8% Convertible Preferred Stock dated on or about February 17, 1998 (30)
10.21 Employment Agreement between the Company and Robert Moore effective as
of January 1, 1997(31)
10.22 Employment Agreement between the Company and Jan Zwaik effective as of
February 17, 1997(31)
<PAGE> 68
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 (31)
23.1 Consent of KPMG Peat Marwick LLP (31)
27.1 Financial Data Schedule (31)
- -------------
(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> 69
(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) Incorporated by reference to Exhibit 10.12 to the Company's Form 10-KSB
for the year ended December 31, 1996
(23) Incorporated by reference to Exhibit 10.13 to the Company's Form 10-KSB
for the year ended December 31, 1996
(24) Incorporated by reference to Exhibit 10.14 to the Company's Form 10-KSB
for the year ended December 31, 1996
(25) Incorporated by reference to Exhibit 10.12 to the Company's Form 8-K,
under Item 9, date of earliest event reported - September 19, 1997
(26) Incorporated by reference to Exhibit 10.13 to the Company's Form 8-K,
under Item 5, date of earliest event reported - September 26, 1997
(27) Incorporated by reference to Exhibit 4.5 to the Company's Form 8-K, under
Item 9, date of earliest event reported - December 23, 1997
(28) Incorporated by reference to Exhibit 4.6 to the Company's Form 8-K, under
Item 9, date of earliest event reported - December 23, 1997
(29) Incorporated by reference to Exhibit 10.15 to the Company's Form 8-K,
under Item 9, date of earliest event reported - December 23, 1997
(30) Incorporated by reference to Exhibit 10.16 to the Company's Form 8-K,
under Item 9, date of earliest event reported - February 17, 1998
(31) Filed herewith.
<PAGE> 1
W I T N E S S E T H
WHEREAS, the Employee has been serving the Corporation in the
capacities of Member of the Board of Directors, President and Chief Executive
Officer, and has been employed by the Corporation under the Agreement, dated
January 1, 1995 (the "Prior Agreement"), and both the Corporation and the
Employee desire to continue their relationship, subject to the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree to amend and restate the Prior Agreement in
its entirety on the following terms and conditions, which shall be effective
from and after the date hereof:
1. RETENTION, TERM AND DUTIES
1.1 Retention. The Company hereby employs the Employee as a
Member of the Board of Directors and President, Chief Executive Officer, and
the Employee hereby accepts such employment, upon the terms and subject to the
conditions of this Agreement.
1.2 Term. The term of employment of the Employee by the
Company shall be for the period commencing on January 1, 1995 (the
"Commencement Date") and ending on January 1, 1997, (the "Term"), unless this
Agreement is sooner terminated pursuant to Section 5, 6 or 8 herein.
Notwithstanding anything contained herein to the contrary, the term of
employment will be automatically extended for successive two (2) year periods
commencing January 1, 1997 (referred to below as an "Extended Term"), unless
either party to this Agreement elects to terminate this agreement by providing
notice pursuant to Section 12 hereof of such election to the other party during
the thirty (30) day period commencing ninety (90) days prior to the expiration
of the then applicable Term or Extended Term.
1.3 Positions. The Employee shall serve as a Member of the
Board of Directors and President, Chief Executive Officer of the Corporation,
and as a director and senior executive officer of such subsidiaries of the
Corporation as the Employee and the Corporation may determine from time to
time.
1.4 Duties. The Employee shall be the most senior executive
of the Corporation (and its subsidiaries), with duties and responsibilities
commensurate with such positions. All employees of the Corporation and its
subsidiaries shall report to the Employee. The Employee shall report only to
the Corporation's Board of Directors.
2. SCOPE OF SERVICES
2.1 Services. Subject to Section 2.2 herein, the Employee
agrees that he shall perform his services to the best of his ability. During
the term of this Agreement the Employee shall not render any services for
others in any line of business in which the Corporation or its subsidiaries are
significantly engaged without first obtaining the Corporation's written
consent; and he shall devote his full business time, care, attention and best
efforts to the Corporation's business.
2.2 Other Interests. The Employee may make and maintain
investments in any business (whether publicly or privately held) (provided that
without the consent of the Board of Directors, the Employee shall not make
material investments in any business which is in direct material competition
with the Corporation or its subsidiaries at the time the investment is made).
The Employees investments in other businesses may not interfere with his
obligations in the Corporation's business. From time to time the Corporation
may make investments in other corporations (the "Investee Corporations").
Notwithstanding his duties under this Agreement, the Employee may devote such
time and energy as may reasonably be required to tend to the business matters
of such Investee Corporations and may receive compensation for services he
renders to any Investee Corporation. The Employee agrees that he will not
invest in any Investee Corporation except in conformity with policies
established from time to time by the Corporation's Board of Directors and
applicable securities laws.
3. COMPENSATION
3.1 Base. The Corporation shall pay to the Employee an annual
base salary of $125,000 (the "Base Compensation"), payable in equal
installments (in accordance with the Corporation's standard practices, but no
less often than semi-monthly) subject to all withholding for income, FICA and
other similar taxes, to the extent required by applicable law. The Corporation
agrees to provide an annual written proposal, subject to approval of the Board
of Directors, to increase the Employee's salary on a yearly basis in proportion
to the Employee's productivity, with the year 1995 established as the base
year.
3.2 Bonus. In addition to the Base Compensation payable to
the Employee pursuant to Section 3.1 hereof, the Corporation (i) shall pay to
the Employee as a result of the Employee's services the amount set forth in
Exhibit A hereto in accordance with the performance standards set forth in such
Exhibit A, and (ii) may pay any additional amounts as, in the discretion of the
Corporation's Board of Directors or the Compensation Committee (if any), it may
desire as a result of the Employee's services.
3.3 No Reduction; Minimum Annual Increase of Base
Compensation. The compensation paid to the Employee by the Corporation
pursuant to this Section 3 shall not be reduced by any amounts received or
earned by the Employee with respect to any outside activities or services
<PAGE> 2
permitted under Section 2.2 hereof. In addition, it is agreed that Base
Compensation shall in all events be increased annually by at least the greater
of five per cent (5%) or the inflation rate for the previous year (as measured
by the Consumer Price Index prepared and published by the United States
Department of Labor) over the Term or Extended Term of this Agreement.
4. OTHER BENEFITS
4.1 Life Insurance. So long as it does not adversely affect
the Employee's ability to obtain life insurance in the general market at
prevailing premiums, the Corporation, at its discretion, shall have the right
to take out life insurance or other insurance with respect to the Employee, at
the Corporation's cost and for the Corporation's benefit, and the Employee
shall have no rights in such insurance policies or their proceeds. The
Employee shall cooperate with the Corporation in obtaining such insurance, and
shall timely submit to any required medical or other examinations in Las Vegas,
Nevada, provided that if such medical examination cannot be conducted by the
Employee's personal physician, (a) the Employee shall have the right to have
such physician attend such examinations and (b) the examining physician shall
be based in Las Vegas, Nevada and be subject to the Employee's approval, not to
be unreasonably withheld. Upon termination of this Agreement, the Employee
shall have the right to acquire ownership of such insurance policies upon
reimbursement to the Corporation of the cash surrender value thereof, if any,
and the pro rata portion of any premium paid applicable to future periods.
4.2 Insurance Benefits. The Corporation shall continue to
make available to the Employee any benefits of a type, nature and amount
comparable to those benefits which have been heretofore provided to the
Employee up to this time by the Corporation, and in any event no less favorable
than the best benefits of its type made available to any other employee of the
Corporation from time to time during the Term or the Extended Term (including,
without limitation, any disability, medical and dental insurance).
4.3 Expenses. To the extent not otherwise reimbursed under
this Agreement, the Corporation shall reimburse the Employee for all reasonable
and customary expenses which the Employee shall incur in connection with the
Employee's services to the Corporation or any subsidiary pursuant to this
Agreement. All additional benefits are to be authorized by and subject to
approval by the Corporation's Board of Directors.
4.4 Vacation; Sick Leave. The Corporation shall provide to
the Employee such paid vacation and paid sick leave as outlined in the
Corporation's Associate Managed Time Off (AMTO) Policy which do not materially
interfere with the Employee's performance of his obligations hereunder.
5. DEATH OF EMPLOYEE
5.1 Effect. This Agreement shall automatically terminate upon
the Employee's death (the "Section 5 Termination"). Upon such termination the
Corporation shall:
(i) pay to the Employee's estate the accrued amount of the compensation,
benefits, reimbursements or other sums payable pursuant to this Agreement, such
amounts to be prorated through the date of the Section 5 Termination (other
than expense reimbursements which will be paid in full), if, as and when such
amounts would be paid but for such termination of this Agreement;
(ii) pay to Employee's estate a lump sum payment equal to one-half the
then effective Base Compensation,
(iii) beginning six months after such Section 5 termination date, pay
to Employee's estate periodic amounts equal to the amounts of Base Compensation
which employee would have received hereunder if, as and when such amounts would
be paid but for such Section 5 termination, such payments to continue for the
period beginning six months after such Section 5 termination date and ending on
the later to occur of: (A) twelve months from the date of such termination and
(B) the date which would have been the end of the Term or Extended Term, as the
case may be, but for such termination, and
(iv) provide to the immediate family of the Employee the continuation of
their health insurance benefits at the Corporation's expense for a period of
two years from the Section 5 termination date. Except for the amounts payable
by Corporation pursuant to the preceding sentence, all obligations of the
Corporation with respect to compensation and benefits under this Agreement
shall cease upon a Section 5 Termination.
<PAGE> 3
Option Extension. The Corporation shall use its best
efforts to obtain stockholder approvals, to the extent required, of amendments
to any stock option plan it may have which would provide that the termination
date for all options held under each such plan by the Employee and exercisable
as of the date of his death shall remain exercisable until (i) the termination
date as set forth in the respective option certificates or (ii) 18 months after
the Section 5 Termination, whichever is later.
6. DISABILITY OF EMPLOYEE
6.1 Determination. The Employee shall be considered disabled
if, due to illness or injury, either physical or mental, he is unable to
perform his customary duties and responsibilities as required by this Agreement
for more than six (6) months in the aggregate out of any period of twelve (12)
consecutive months. The determination that the Employee is disabled shall be
made by the Board of Directors of the Corporation (with the Employee abstaining
from the decision if he is then a member of such Board), based upon an
examination and certification by a physician based in Las Vegas, Nevada
selected by the Corporation subject to the Employee's approval, which approval
shall not be unreasonably withheld. The Employee agrees to submit timely to
any required medical or other examination, provided that such examination shall
be conducted in Las Vegas and that if the examining physician is other than the
Employee's personal physician, the Employee shall have the right to have such
personal physician present at such examination.
6.2 Effect of Disability. If the Employee is determined to be
disabled pursuant to this Section 6, the Corporation shall have the option to
terminate this Agreement by written notice to the Employee stating the date of
termination, which date may be any time subsequent to the date of such
determination, except that the Corporation shall pay to the Employee: (i) the
accrued amount of the compensation, benefits, reimbursements and other sums
payable pursuant to this Agreement, prorated through the date of termination
(other than expense reimbursements which shall be paid in full), if, as and
when such amounts would be paid but for the termination of this Agreement, and
(ii) a lump sum payment equal to twice the then Base Compensation. Except for
the amounts payable by the Corporation pursuant to the preceding sentence, all
obligations of the Corporation with respect to compensation and benefits under
this Agreement shall cease upon any such termination.
6.3 Option Extension. The Corporation shall use its best
efforts to obtain stockholder approvals, to the extent required, of amendments
to any stock option plan it may have which would provide that the termination
date for all options held under such plans by the Employee and exercisable as
of the date of the termination of Employee (as a result of Employee's
disability) shall remain exercisable until (i) the termination date as set
forth in the respective option certificates or (ii) 18 months after the date of
termination (as a result of Employee's disability), whichever is later.
7. INDEMNIFICATION AND INSURANCE
7.1 Obligation. The Corporation shall indemnify and hold
harmless, and in any action, suit or proceeding, defend the Employee (with the
Employee having the right to use counsel of his choice) against all expenses,
costs, liabilities and losses (including attorneys' fees, judgments and fines,
and amounts paid or to be paid in any settlement) (collectively "Indemnified
Amounts") reasonably incurred or suffered by the Employee in connection with
the Employee's service as a director or officer of the Corporation or any
affiliate to the full extent permitted by the By-laws of the Corporation as in
effect on the date of this Agreement, or, if greater, as permitted by the
general corporation law of the jurisdiction of the Corporation's incorporation
(the "GCL"), provided that the indemnity afforded by the Corporation's By-laws
shall never be greater than permitted by the GCL. The Company shall advance on
behalf of Employee all Indemnified Amounts as they are incurred. To the extent
a change in the GCL (whether by statute or judicial decision) permits greater
indemnification than is now afforded by the By-laws and a corresponding
amendment shall not be made in said By-laws, it is the intent of the parties
hereto that the Employee shall enjoy the greater benefits so afforded by such
change.
7.2 Determination. A determination that indemnification
with respect to any claims by the Employee pursuant to this Section 7 is proper
shall be made by independent legal counsel selected by the Board of Directors
of the Corporation and set forth in a written opinion furnished by such counsel
to the Board of Directors, the Corporation and the Employee. In the event it
is determined by such
<PAGE> 4
counsel that Employee is not entitled to indemnification pursuant to this
Section 7 (and if contested by Employee, such determination is confirmed by the
final non-appendable order of a court of competent jurisdiction), or if a court
of competent jurisdiction determines in a final non-appendable order that
Employee is not entitled to indemnification pursuant to this Section 7,
Employee hereby undertakes that he shall promptly reimburse the Company for all
such advances of Indemnified Amounts made by the Company on Employee's behalf.
7.3 Effect. This Agreement establishes contract rights which
shall be binding upon, and shall inure to the benefit of, the heirs, executors,
personal and legal representatives, successors and assigns of the Employee and
the Corporation.
7.4 Other Rights. The contract rights conferred by this
Section 7 shall not be exclusive of any other right which the Employee may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation or By-laws, agreement, vote of stockholders or disinterested
directors or otherwise. This Section 7 shall not be deemed to affect any
rights to subrogation which may exist in any policy of directors and officers
liability insurance.
7.5 Notice of Claims. The Employee shall advise promptly the
Corporation in writing of the institution of any action, suit or proceeding
which is or may be subject to this Section 7, provided that Employee's failure
to so advise the Corporation shall not affect the indemnification provided for
herein, except to the extent such failure has a material and adverse effect on
the Corporation's ability to defend such action, suit or proceeding.
7.6 Indemnification Insurance. The Employee shall be covered
by insurance, to the same extent as other senior executives and directors of
the Corporation are covered by insurance, with respect to (a) directors and
officers liability, (b) errors and omissions, and (c) general liability
insurance. The Corporation shall maintain reasonable and customary insurance
of the type specified in parts (b) and (c) in the preceding sentence. The
Employee shall be a named insured or additional insured, without right of
subrogation against him, under any policies of insurance carried by the
Corporation. The Corporation will, in good faith, make efforts to maintain
insurance coverage of the type specified in part (a) above at commercially
reasonable rates, but the failure to obtain such coverage shall not constitute
a breach of the Corporation's obligations hereunder.
8. TERMINATION
8.1 By The Corporation For Cause. The Corporation may
terminate this Agreement for cause at any time. For purposes of this
Agreement, the term "cause," when used in connection with termination of the
Agreement by the Corporation under this Section 8.1, shall be limited to (i)
the willful engaging by the Employee in gross misconduct which is materially
injurious to the Corporation, (ii) conviction of the Employee of a felony
involving any financial impropriety or which would materially interfere with
the Employee's ability to perform his services required under this Agreement or
otherwise be materially injurious to the Corporation, or (iii) the willful
refusal of the Employee to perform in a material respect any of his material
obligations under this Agreement without proper justification after being
notified with specificity by the Board of Directors in writing of the
particular respects in which the Board of Directors asserts that Employee has
not performed such material obligations. For purposes of this Section 8.1, no
act, or failure to act, on the Employee's part shall be considered willful
unless done, or admitted to be done, by the Employee in bad faith and without
reasonable belief that such action or omission was in the best interest of the
Corporation.
8.2 By The Employee For Cause. The Employee may terminate
this Agreement for cause at any time. For purposes of this Agreement, the term
"cause" when used in connection with the termination of the Agreement by the
Employee under this Section 8.2 shall be limited to the failure of the
Corporation to perform in a material respect any of its material obligations
under this Agreement without proper justification.
8.3 Procedure For "Cause" Termination. Any termination of
this Agreement pursuant to Section 8.1 or 8.2 hereof shall be effective only if
(i) the terminating party exercises such right of termination in writing
delivered to the non-terminating party within sixty (60) days of the
terminating party having actual knowledge of the event giving rise to the right
of termination, and (ii) the non-terminating party shall have failed to correct
or reverse the event giving rise to such right of termination
<PAGE> 5
within thirty (30) days of the receipt of such notice. Such termination shall
be effective upon the expiration of the period referred to in clause (ii)
above; provided, however, that should the Corporation seek such termination the
Employee may contest such termination and demand arbitration as to the validity
of the termination pursuant to the procedure in Section 11.1 of this Agreement.
8.4 By The Corporation Without "Cause". The Corporation may
not terminate the Agreement without "cause," as defined in Section 8.1 of this
Agreement.
8.5 By The Employee Without "Cause". The Employee shall have
the right to terminate this Agreement without "cause" and in his discretion,
upon written notice to be given to the Corporation not less than sixty (60)
days prior to the effective date of such termination.
8.6 Effect of Termination. (a) If this Agreement is
terminated for any reason prior to the end of the stated Term, or an Extended
Term, as the case may be, neither party shall have any further obligation under
this Agreement except with respect to those provisions of this Agreement which,
by their terms, require performance by the parties subsequent to termination of
this Agreement.
(a) If this Agreement is terminated by the Corporation for
"cause" pursuant to Section 8.1 hereof or by the Employee without "cause"
pursuant to Section 8.5 hereof, the Corporation shall pay to the Employee the
accrued amount of the compensation benefits, reimbursement and other sums
payable pursuant to this Agreement up to the effective date of termination,
prorated through the effective date of termination (other than expense
reimbursements which will be paid in full) if, as and when such amounts could
be paid but for the termination of this Agreement.
(b) If this Agreement is terminated by the Employee for
"cause" pursuant to Section 8.1 hereof or by the Corporation without "cause",
the Employee shall be entitled to receive (i) health insurance benefits
provided for in this Agreement (A) through the end of the stated Term or (B) 24
months from the date of termination, whichever is the longer, and (ii) a lump
sum payment equal to twice the then Base Compensation. Any amounts payable to
the Employee under this paragraph (c) shall not be reduced by any amounts
earned or received by the Employee from any third party at any time after such
termination; there being no requirement on the part of the Employee to mitigate
damages and no amounts received by him from others may be used to mitigate
damages.
8.7 Termination Following Change of Ownership. If this
Agreement is terminated by either party within one year following a "change in
the ownership" (as defined below) of the Corporation, and in lieu of the
benefits provided for in Section 8.6(b) and 8.6(c)(ii), Corporation shall pay
to Employee a lump sum payment equal to 2.99 times the average annual
compensation paid by the Corporation and includable by Employee in his gross
income during the lesser of (i) the period of time employed by Corporation or
(ii) the five tax years ended prior to the tax year in which such change of
ownership or control occurs. For purposes of this Section 8.7, a "change in
the ownership" of the Corporation will be deemed to have occurred upon: (i)
completion of a transaction resulting in a consolidation, merger, combination
or other transaction in which the common stock of the Corporation is exchanged
for or changed into other stock or securities, cash and/or any other property
and the holders of the Corporation's common stock immediately prior to
completion of such transaction are not, immediately following completion of
such transaction, the owners of at least a majority of the voting power of the
surviving entity, (ii) a tender or exchange offer by any person or entity other
than Employee and/or his affiliates for fifty percent (50%) of the outstanding
shares of common stock of the Corporation is successfully completed, (iii) the
Corporation has sold all or substantially all of the Corporation's assets, (iv)
during any period of twenty-four (24) consecutive months, individuals who at
the beginning of such period constituted the board of directors of the
Corporation (together with any new or replacement directors whose election by
the board of directors, or whose nomination for election, was approved by a
vote of at least a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for reelection was previously so approved) cease for any reason to
constitute a majority of the directors then in office, and (v) any other event
resulting in a change in the ownership of the Corporation. Notwithstanding
anything contained herein to the contrary, the payment by Corporation to
Employee pursuant to this Section 8.7 shall be reduced to the extent necessary
to prevent any portion of such payment to be characterized as an excess
parachute payment under Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor provision thereof, which may be applicable to a
payment pursuant to this Section 8.7.
<PAGE> 6
8.8 Expiration Of Term. Subject to Section 8.7, upon the
termination of this Agreement upon the expiration of the Term or Extended Term,
as the case may be, or by Employee pursuant to Section 8.5, the Corporation
shall pay Employee a lump sum termination payment equal to the then effective
Base Compensation.
9. CONFIDENTIAL INFORMATION: NONDISCLOSURE, ETC.
9.1 Confidentiality. Except as may be in furtherance of the
Employee's performance of his functions as the Corporation's most senior
executive officer (including, without limitation, in connection with
acquisitions, dispositions, financings and other significant corporate
transactions, developments or planning which involve the participation of third
parties) or otherwise with the consent of the Board of Directors, the Employee
shall not, throughout the Term of this Agreement and thereafter, disclose to
any third party, or use or authorize any third party to use, any material
information relating to the material business or interests of the Corporation
(or any of its subsidiaries) which Employee knows to be confidential and
valuable to the Corporation or any of its subsidiaries (the "Confidential
Information"). The Confidential Information is and will remain the sole and
exclusive property of the Corporation, and, during the Term of this Agreement,
the Confidential Information, when entrusted to the Employee's custody, shall
be deemed to remain at all times in the Corporation's sole possession and
control. Notwithstanding the foregoing, the Employee may, after prior written
notice to the Corporation (to the extent such notice is possible under the
circumstances) disclose such Confidential Information pursuant to subpoena or
other legal process, and promptly thereafter shall advise the Corporation in
writing as to the Confidential Information which was disclosed and the
circumstances of such disclosure.
9.2 Return of Documents. Upon termination of this Agreement
for any reason whatsoever, or whenever requested by the Board of Directors of
the Corporation, the Employee shall return or cause to be returned to the
Corporation all of the Confidential Information or any other property of the
Corporation in the Employee's possession or custody or at his disposal, which
he has obtained or been furnished, without retaining any copies thereof.
10. NON-COMPETITION
10.1 Restriction. Subject to Section 2.2 hereof, the Employee
shall not, (i) throughout the Term or Extended Term of this Agreement, as the
case may be, and (ii) for a period of 12 months thereafter, in each case
without the Corporation's prior written consent, render services to a business,
or plan for or organize a business, which is materially competitive with or
similar to the business of the Corporation or of any of its subsidiaries by
becoming an owner, officer, director, shareholder (owning more than 4.9% of
such business' equity interests), partner, associate, employee, agent or
representative or consultant or serve in any other capacity in any such
business.
10.2 Trade Secrets. Subject to Section 2.2 hereof, all ideas
and improvements which are protectable by patent or copyright or as trade
secrets, conceived or reduced to practice (actually or constructively) during
the Term of this Agreement by the Employee, shall be the property of the
Corporation; provided, however, that the provisions of this Section 10.2 shall
not apply to an invention for which no equipment, supplies, facility or trade
secret information of the Corporation was used and which was developed entirely
on the Employee's own time, and (a) which does not relate to (i) the business
of the Corporation or any of its subsidiaries or (ii) the actual or
demonstrably anticipated research or development by the Corporation of any of
its subsidiaries or (b) which does not result from any work performed by the
Employee pursuant to this Agreement.
11. REMEDIES
11.1 Arbitration. In the event of any dispute or controversy
arising under, out of or relating to this Agreement or the breach hereof other
than under Section 9 or 10 hereunder for which the Corporation may seek
injunctive relief, it shall be determined by arbitration in Las Vegas, Nevada
to be heard by a single arbitrator chosen by the Corporation and the Employee,
provided that if the Corporation and the Employee cannot agree on a single
arbitrator, each shall select one arbitrator and the arbitrators so selected
shall select a third arbitrator, and the panel of three arbitrators shall
determine the dispute. The arbitration is to commence within four (4) weeks
after service a demand for arbitration by either party,
<PAGE> 7
and each party shall have the right to make one document request on the other
party prior to commencement of the arbitration proceeding, but no other
discovery shall be conducted other than that which is agreed upon in writing by
both parties. Such arbitration and any award made therein shall be binding
upon the Corporation and the Employee.
11.2 Injunctive Relief. The Employee acknowledges and agrees
that any material breach which occurs or which is threatened of Section 9 or 10
hereof shall cause substantial and irreparable damage to the Corporation in an
amount and of a character difficult to ascertain. Accordingly, in addition to
any other relief to which the Corporation may otherwise be entitled at law, in
equity or by statute, or under this Agreement, the Corporation shall also be
entitled to seek such immediate temporary, preliminary and permanent injunctive
relief on such breach or threatened breach of Section 9 or 10 hereof as may be
granted through appropriate proceedings.
11.3 Fees. If any action at law or in equity or arbitration is
necessary to enforce or interpret the terms and conditions of this Agreement,
the prevailing party shall be entitled to reasonable attorney's, accountant's
and expert's fees, costs and necessary disbursements in addition to any other
relief to which it or he may be entitled. As used in this Section 11.3, the
term prevailing party shall include, but not be limited to, any party against
whom a cause of action, demand for arbitration, complaint, cross-complaint,
counterclaim, cross-claim or third party complaint is voluntarily dismissed,
with or without prejudice.
12. NOTICES
All notices required or permitted hereunder shall be in writing
and shall be delivered in person, by facsimile, telex or equivalent form of
written communication, or sent by certified or registered mail, return receipt
requested, postage prepaid, as follows:
To Corporation:
Chadmoore Wireless Group, Inc.
4720 Polaris Street
Las Vegas, Nevada 89103
Attention: Corporate Secretary
Fax: 702-891-5262
To the Employee:
Robert W. Moore
Chadmoore Wireless Group, Inc.
4720 Polaris Street
Las Vegas, Nevada 89103
Fax: 702-891-5262
or such other party and/or address as either party may designate in a written
notice delivered to the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received on the
date of delivery, if delivered in person or by facsimile, telex or other
equivalent written telecommunication, or on the seventh day next succeeding the
date of mailing if sent by certified or registered mail.
13. FURTHER ACTION
The Corporation and the Employee each agrees to execute and
deliver such further documents as may be reasonably necessary by the other in
order to give effect to the intentions expressed in this Agreement.
14. HEADING; INTERPRETATIONS
The headings and captions used in this Agreement are for convenience only and
shall not be construed in interpreting this Agreement.
15. ASSIGNABILITY
<PAGE> 8
This Agreement and the rights and duties under it may not be
assigned by any party hereto without the prior written consent of the other
party hereto. The parties expressly agree that any attempt to assign rights
and duties without such written consent shall be null and void and of no force
and effect. The terms and provisions of this Agreement shall bind successors
and assigns of the Corporation.
16. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding of
the parties with respect to the matters herein, and supersedes all existing
negotiations, representations or agreements and all other oral, written and
other communications between them concerning the subject matter of this
Agreement.
17. AMENDMENTS
This Agreement may be amended or modified in whole or in part
only by an agreement in writing signed by the Corporation and the Employee.
18. WAIVER AND SEVERABILITY
The waiver by either party of a breach of any terms or conditions
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by such party. In the event that one or more provisions of
this Agreement shall be declared to be invalid, illegal or unenforceable under
any law, rule or regulation, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of the other
provisions of this Agreement.
19. GOVERNING LAW
This Agreement and the rights of the parties under it shall be
governed by and construed in accordance with laws of the State of Nevada,
including all matters of construction, validity, performance and enforcement
and without giving effect to the principles of conflict of laws, except that
matters of corporate law and governance shall be governed by and construed in
accordance with the laws of the State of Nevada.
20. COUNTERPARTS
This Agreement may be executed in any number of counterparts,
each of which shall be an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed Agreement as of the day
and year first above written.
EMPLOYEE
----------------------------------------
Robert W. Moore
CHADMOORE WIRELESS GROUP, INC.
By:
----------------------------------------
Title:
ATTEST:
<PAGE> 1
Name:
Title:
CHADMOORE WIRELESS GROUP, INC.
By:
-------------------------------
Title:
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made as of June 16, 1997 by
and between CHADMOORE WIRELESS GROUP, INC., a Colorado corporation (the
"Corporation"), and Jan S. Zwaik (the "Employee").
W I T N E S S E T H
WHEREAS, the Employee has been serving the Corporation in the
capacities of Member of the Board of Directors and Chief Operating Officer, and
both the Corporation and the Employee desire to continue their relationship,
subject to the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements hereinafter set forth, the parties hereto, intending
to be legally bound, agree on the following terms and conditions, which shall
be effective from and after the date hereof:
2.1. RETENTION, TERM AND DUTIES
1.1 Retention. The Company hereby employs the Employee as a Member
of the Board of Directors and Chief Operating Officer, and the Employee hereby
accepts such employment, upon the terms and subject to the conditions of this
Agreement.
1.2 Term. The term of employment of the Employee by the Company
shall be for the period commencing on February 17, 1997 (the "Commencement
Date") and ending on February 17, 1999, (the "Term"), unless this Agreement is
sooner terminated pursuant to Section 5, 6 or 8 herein. Notwithstanding
anything contained herein to the contrary, the term of employment will be
automatically extended for successive two (2) year periods commencing February
17, 1999 (referred to below as an "Extended Term"), unless either party to this
Agreement elects to terminate this agreement by providing notice pursuant to
Section 12 hereof of such election to the other party during the thirty (30)
day period commencing ninety (90) days prior to the expiration of the then
applicable Term or Extended Term.
1.3 Positions. The Employee shall serve as a Member of the Board of
Directors and Chief Operating Officer of the Corporation, and as a director and
senior executive officer of such subsidiaries of the Corporation as the
Employee and the Corporation may determine from time to time.
1.4 Duties. The Employee shall be a senior executive of the
Corporation (and its subsidiaries), with duties and responsibilities
commensurate with such positions. The Employee shall report only to the
Corporation's Chief Executive Officer, and its Board of Directors.
2. SCOPE OF SERVICES
2.1 Services. Subject to Section 2.2 herein, the Employee agrees
that he shall perform his services to the best of his ability. During the term
of this Agreement the Employee shall not render any services for others in any
line of business in which the Corporation or its subsidiaries are significantly
engaged without first obtaining the Corporation's written consent; and he shall
devote his full business time, care, attention and best efforts to the
Corporation's business.
<PAGE> 2
2.2 Other Interests. The Employee may make and maintain investments
in any business (whether publicly or privately held) (provided that without the
consent of the Board of Directors, the Employee shall not make material
investments in any business which is in direct material competition with the
Corporation or its subsidiaries at the time the investment is made). The
Employees investments in other businesses may not interfere with his
obligations in the Corporation's business. From time to time the Corporation
may make investments in other corporations (the "Investee Corporations").
Notwithstanding his duties under this Agreement, the Employee may devote such
time and energy as may reasonably be required to tend to the business matters
of such Investee Corporations and may receive compensation for services he
renders to any Investee Corporation. The Employee agrees that he will not
invest in any Investee Corporation except in conformity with policies
established from time to time by the Corporation's Board of Directors and
applicable securities laws.
3. COMPENSATION
3.1 Base. The Corporation shall pay to the Employee an annual base
salary of $110,000 (the "Base Compensation"), payable in equal installments (in
accordance with the Corporation's standard practices, but no less often than
semi-monthly) subject to all withholding for income, FICA and other similar
taxes, to the extent required by applicable law. The Corporation agrees to
provide an annual written proposal, subject to approval of the Board of
Directors, to increase the Employee's salary on a yearly basis in proportion to
the Employee's productivity, with the year 1997 established as the base year.
3.2 Bonus. In addition to the Base Compensation payable to the
Employee pursuant to Section 3.1 hereof, the Corporation (i) shall pay to the
Employee as a result of the Employee's services the amount set forth in Exhibit
A hereto in accordance with the performance standards set forth in such Exhibit
A, and (ii) may pay any additional amounts as, in the discretion of the
Corporation's Board of Directors or the Compensation Committee (if any), it may
desire as a result of the Employee's services.
3.3 No Reduction; Minimum Annual Increase of Base Compensation. The
compensation paid to the Employee by the Corporation pursuant to this Section 3
shall not be reduced by any amounts received or earned by the Employee with
respect to any outside activities or services permitted under Section 2.2
hereof. In addition, it is agreed that Base Compensation shall in all events
be increased annually by at least the greater of five per cent (5%) or the
inflation rate for the previous year (as measured by the Consumer Price Index
prepared and published by the United States Department of Labor) over the Term
or Extended Term of this Agreement.
4. OTHER BENEFITS
4.1 Life Insurance. So long as it does not adversely affect the
Employee's ability to obtain life insurance in the general market at prevailing
premiums, the Corporation, at its discretion, shall have the right to take out
life insurance or other insurance with respect to the Employee, at the
Corporation's cost and for the Corporation's benefit, and the Employee shall
have no rights in such insurance policies or their proceeds. The Employee
shall cooperate with the Corporation in obtaining such insurance, and shall
timely submit to any required medical or other examinations in Las Vegas,
Nevada, provided that if such medical examination cannot be conducted by the
Employee's personal physician, (a) the Employee shall have the right to have
such physician attend such examinations and (b) the examining physician shall
be based in Las Vegas, Nevada and be subject to the Employee's approval, not to
be unreasonably withheld. Upon termination of this Agreement, the Employee
shall have the right to acquire ownership of such insurance policies upon
reimbursement to the Corporation of the cash surrender value thereof, if any,
and the pro rata portion of any premium paid applicable to future periods.
4.2 Insurance Benefits. The Corporation shall continue to make
available to the Employee any benefits of a type, nature and amount comparable
to those benefits which have been heretofore provided to the Employee up to
this time by the Corporation, and in any event no less favorable than the best
benefits of its type made available to any other employee of the Corporation
from time to time during the Term or the Extended Term (including, without
limitation, any disability, medical and dental insurance).
4.3 Expenses. To the extent not otherwise reimbursed under this
Agreement, the Corporation shall reimburse the Employee for all reasonable and
customary expenses which the Employee shall incur
<PAGE> 3
in connection with the Employee's services to the Corporation or any subsidiary
pursuant to this Agreement. All additional benefits are to be authorized by
and subject to approval by the Corporation's Board of Directors.
4.4 Vacation; Sick Leave. The Corporation shall provide to the
Employee such paid vacation and paid sick leave as outlined in the
Corporation's Associate Managed Time Off (AMTO) Policy which do not materially
interfere with the Employee's performance of his obligations hereunder.
5. DEATH OF EMPLOYEE
5.1 Effect. This Agreement shall automatically terminate upon the
Employee's death (the "Section 5 Termination"). Upon such termination the
Corporation shall:
(i) pay to the Employee's estate the accrued amount of the
compensation, benefits, reimbursements or other sums payable pursuant to this
Agreement, such amounts to be prorated through the date of the Section 5
Termination (other than expense reimbursements which will be paid in full), if,
as and when such amounts would be paid but for such termination of this
Agreement;
(ii) pay to Employee's estate a lump sum payment equal to one-
half the then effective Base Compensation,
(iii) beginning six months after such Section 5 termination
date, pay to Employee's estate periodic amounts equal to the amounts of Base
Compensation which employee would have received hereunder if, as and when such
amounts would be paid but for such Section 5 termination, such payments to
continue for the period beginning six months after such Section 5 termination
date and ending on the later to occur of: (A) twelve months from the date of
such termination and (B) the date which would have been the end of the Term or
Extended Term, as the case may be, but for such termination, and
(iv) provide to the immediate family of the Employee the
continuation of their health insurance benefits at the Corporation's expense
for a period of two years from the Section 5 termination date. Except for the
amounts payable by Corporation pursuant to the preceding sentence, all
obligations of the Corporation with respect to compensation and benefits under
this Agreement shall cease upon a Section 5 Termination.
5.2 Option Extension. The Corporation shall use its best efforts to
obtain stockholder approvals, to the extent required, of amendments to any
stock option plan it may have which would provide that the termination date for
all options held under each such plan by the Employee and exercisable as of the
date of his death shall remain exercisable until (i) the termination date as
set forth in the respective option certificates or (ii) 18 months after the
Section 5 Termination, whichever is later.
6. DISABILITY OF EMPLOYEE
6.1 Determination. The Employee shall be considered disabled if, due
to illness or injury, either physical or mental, he is unable to perform his
customary duties and responsibilities as required by this Agreement for more
than six (6) months in the aggregate out of any period of twelve (12)
consecutive months. The determination that the Employee is disabled shall be
made by the Board of Directors of the Corporation (with the Employee abstaining
from the decision if he is then a member of such Board), based upon an
examination and certification by a physician based in Las Vegas, Nevada
selected by the Corporation subject to the Employee's approval, which approval
shall not be unreasonably withheld. The Employee agrees to submit timely to
any required medical or other examination, provided that such examination shall
be conducted in Las Vegas and that if the examining physician is other than the
Employee's personal physician, the Employee shall have the right to have such
personal physician present at such examination.
6.2 Effect of Disability. If the Employee is determined to be
disabled pursuant to this Section 6, the Corporation shall have the option to
terminate this Agreement by written notice to the Employee stating the date of
termination, which date may be any time subsequent to the date of such
determination, except that the Corporation shall pay to the Employee: (i) the
accrued amount of the compensation, benefits, reimbursements and other sums
payable pursuant to this Agreement, prorated through the date of termination
(other than expense reimbursements which shall be paid in full), if, as and
when such amounts would be paid but for the termination of this Agreement, and
(ii) a lump sum payment equal to twice the then Base Compensation. Except for
the amounts payable by the Corporation
<PAGE> 4
pursuant to the preceding sentence, all obligations of the Corporation with
respect to compensation and benefits under this Agreement shall cease upon any
such termination.
6.3 Option Extension. The Corporation shall use its best efforts to
obtain stockholder approvals, to the extent required, of amendments to any
stock option plan it may have which would provide that the termination date for
all options held under such plans by the Employee and exercisable as of the
date of the termination of Employee (as a result of Employee's disability)
shall remain exercisable until (i) the termination date as set forth in the
respective option certificates or (ii) 18 months after the date of termination
(as a result of Employee's disability), whichever is later.
7. INDEMNIFICATION AND INSURANCE
7.1 Obligation. The Corporation shall indemnify and hold harmless,
and in any action, suit or proceeding, defend the Employee (with the Employee
having the right to use counsel of his choice) against all expenses, costs,
liabilities and losses (including attorneys' fees, judgments and fines, and
amounts paid or to be paid in any settlement) (collectively "Indemnified
Amounts") reasonably incurred or suffered by the Employee in connection with
the Employee's service as a director or officer of the Corporation or any
affiliate to the full extent permitted by the By-laws of the Corporation as in
effect on the date of this Agreement, or, if greater, as permitted by the
general corporation law of the jurisdiction of the Corporation's incorporation
(the "GCL"), provided that the indemnity afforded by the Corporation's By-laws
shall never be greater than permitted by the GCL. The Company shall advance on
behalf of Employee all Indemnified Amounts as they are incurred. To the extent
a change in the GCL (whether by statute or judicial decision) permits greater
indemnification than is now afforded by the By-laws and a corresponding
amendment shall not be made in said By-laws, it is the intent of the parties
hereto that the Employee shall enjoy the greater benefits so afforded by such
change.
7.2 Determination. A determination that indemnification with respect
to any claims by the Employee pursuant to this Section 7 is proper shall be
made by independent legal counsel selected by the Board of Directors of the
Corporation and set forth in a written opinion furnished by such counsel to the
Board of Directors, the Corporation and the Employee. In the event it is
determined by such counsel that Employee is not entitled to indemnification
pursuant to this Section 7 (and if contested by Employee, such determination is
confirmed by the final non-appendable order of a court of competent
jurisdiction), or if a court of competent jurisdiction determines in a final
non-appendable order that Employee is not entitled to indemnification pursuant
to this Section 7, Employee hereby undertakes that he shall promptly reimburse
the Company for all such advances of Indemnified Amounts made by the Company on
Employee's behalf.
7.3 Effect. This Agreement establishes contract rights which shall
be binding upon, and shall inure to the benefit of, the heirs, executors,
personal and legal representatives, successors and assigns of the Employee and
the Corporation.
7.4 Other Rights. The contract rights conferred by this Section 7
shall not be exclusive of any other right which the Employee may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation or By-laws, agreement, vote of stockholders or disinterested
directors or otherwise. This Section 7 shall not be deemed to affect any
rights to subrogation which may exist in any policy of directors and officers
liability insurance.
7.5 Notice of Claims. The Employee shall advise promptly the
Corporation in writing of the institution of any action, suit or proceeding
which is or may be subject to this Section 7, provided that Employee's failure
to so advise the Corporation shall not affect the indemnification provided for
herein, except to the extent such failure has a material and adverse effect on
the Corporation's ability to defend such action, suit or proceeding.
7.6 Indemnification Insurance. The Employee shall be covered by
insurance, to the same extent as other senior executives and directors of the
Corporation are covered by insurance, with respect to (a) directors and
officers liability, (b) errors and omissions, and (c) general liability
insurance. The Corporation shall maintain reasonable and customary insurance
of the type specified in parts (b) and (c) in the preceding sentence. The
Employee shall be a named insured or additional insured, without right of
subrogation against him, under any policies of insurance carried by the
Corporation. The Corporation will, in good faith, make efforts to maintain
insurance coverage of the type specified in part (a) above at
<PAGE> 5
commercially reasonable rates, but the failure to obtain such coverage shall
not constitute a breach of the Corporation's obligations hereunder.
8. TERMINATION
8.1 By The Corporation For Cause. The Corporation may terminate this
Agreement for cause at any time. For purposes of this Agreement, the term
"cause," when used in connection with termination of the Agreement by the
Corporation under this Section 8.1, shall be limited to (i) the willful
engaging by the Employee in gross misconduct which is materially injurious to
the Corporation, (ii) conviction of the Employee of a felony involving any
financial impropriety or which would materially interfere with the Employee's
ability to perform his services required under this Agreement or otherwise be
materially injurious to the Corporation, or (iii) the willful refusal of the
Employee to perform in a material respect any of his material obligations under
this Agreement without proper justification after being notified with
specificity by the Board of Directors in writing of the particular respects in
which the Board of Directors asserts that Employee has not performed such
material obligations. For purposes of this Section 8.1, no act, or failure to
act, on the Employee's part shall be considered willful unless done, or
admitted to be done, by the Employee in bad faith and without reasonable belief
that such action or omission was in the best interest of the Corporation.
8.2 By The Employee For Cause. The Employee may terminate this
Agreement for cause at any time. For purposes of this Agreement, the term
"cause" when used in connection with the termination of the Agreement by the
Employee under this Section 8.2 shall be limited to the failure of the
Corporation to perform in a material respect any of its material obligations
under this Agreement without proper justification.
8.3 Procedure For "Cause" Termination. Any termination of this
Agreement pursuant to Section 8.1 or 8.2 hereof shall be effective only if the
terminating party exercises such right of termination in writing delivered to
the non-terminating party within sixty (60) days of the terminating party
having actual knowledge of the event giving rise to the right of termination.
Such termination shall be effective upon the expiration of the period referred
to above; provided, however, that should the Corporation seek such termination
the Employee may contest such termination and demand arbitration as to the
validity of the termination pursuant to the procedure in Section 11.1 of this
Agreement.
8.4 By The Corporation Without "Cause". The Corporation may not
terminate the Agreement without "cause," as defined in Section 8.1 of this
Agreement.
8.5 By The Employee Without "Cause". The Employee shall have the
right to terminate this Agreement without "cause" and in his discretion, upon
written notice to be given to the Corporation not less than sixty (60) days
prior to the effective date of such termination.
8.6 Effect of Termination. If this Agreement is terminated for
any reason prior to the end of the stated Term, or an Extended Term, as the
case may be, neither party shall have any further obligation under this
Agreement except with respect to those provisions of this Agreement which, by
their terms, require performance by the parties subsequent to termination of
this Agreement.
(a) if this Agreement is terminated by the Corporation for "cause"
pursuant to Section 8.1 hereof or by the Employee without "cause" pursuant to
Section 8.5 hereof, the Corporation shall pay to the Employee the accrued
amount of the compensation benefits, reimbursement and other sums payable
pursuant to this Agreement up to the effective date of termination, prorated
through the effective date of termination (other than expense reimbursements
which will be paid in full) if, as and when such amounts could be paid but for
the termination of this Agreement.
(b) If this Agreement is terminated by the Employee for "cause"
pursuant to Section 8.1 hereof or by the Corporation without "cause", the
Employee shall be entitled to receive (i) health insurance benefits provided
for in this Agreement (A) through the end of the stated Term or (B) 24 months
from the date of termination, whichever is the longer, and (ii) a lump sum
payment in accordance with the following terms; should termination occur
without "cause" occur in first year of employment (February 17, 1997 to
February 17, 1998), payment will be equal to 6 months of the then Base
Compensation; after February 17, 1998, payment will be equal to twice the then
Base Compensation. Any amounts payable to the Employee under this paragraph
(c) shall not be reduced by any amounts earned or received by the Employee from
any third party at any time after such termination;
<PAGE> 6
there being no requirement on the part of the Employee to mitigate damages and
no amounts received by him from others may be used to mitigate damages.
8.7 Termination Following Change of Ownership. If this Agreement is
terminated by either party within one year following a "change in the
ownership" (as defined below) of the Corporation, and in lieu of the benefits
provided for in Section 8.6(b) and 8.6(c)(ii), Corporation shall pay to
Employee a lump sum payment equal to 2.99 times the average annual compensation
paid by the Corporation and includable by Employee in his gross income during
the lesser of (i) the period of time employed by the Corporation or (ii) the
five tax years ended prior to the tax year in which such change of ownership or
control occurs. For purposes of this Section 8.7, a "change in the ownership"
of the Corporation will be deemed to have occurred upon: (i) completion of a
transaction resulting in a consolidation, merger, combination or other
transaction in which the common stock of the Corporation is exchanged for or
changed into other stock or securities, cash and/or any other property and the
holders of the Corporation's common stock immediately prior to completion of
such transaction are not, immediately following completion of such transaction,
the owners of at least a majority of the voting power of the surviving entity,
(ii) a tender or exchange offer by any person or entity other than Employee
and/or his affiliates for fifty percent (50%) of the outstanding shares of
common stock of the Corporation is successfully completed, (iii) the
Corporation has sold all or substantially all of the Corporation's assets, (iv)
during any period of twenty-four (24) consecutive months, individuals who at
the beginning of such period constituted the board of directors of the
Corporation (together with any new or replacement directors whose election by
the board of directors, or whose nomination for election, was approved by a
vote of at least a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for reelection was previously so approved) cease for any reason to
constitute a majority of the directors then in office, and (v) any other event
resulting in a change in the ownership of the Corporation. Notwithstanding
anything contained herein to the contrary, the payment by Corporation to
Employee pursuant to this Section 8.7 shall be reduced to the extent necessary
to prevent any portion of such payment to be characterized as an excess
parachute payment under Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor provision thereof, which may be applicable to a
payment pursuant to this Section 8.7.
8.8 Expiration Of Term. Subject to Section 8.7, upon the termination
of this Agreement upon the expiration of the Term or Extended Term, as the case
may be, or by Employee pursuant to Section 8.5, the Corporation shall pay
Employee a lump sum termination payment equal to the then effective Base
Compensation.
9. CONFIDENTIAL INFORMATION: NONDISCLOSURE, ETC.
9.1 Confidentiality. Except as may be in furtherance of the
Employee's performance of his functions as a senior executive officer of the
Corporation (including, without limitation, in connection with acquisitions,
dispositions, financings and other significant corporate transactions,
developments or planning which involve the participation of third parties) or
otherwise with the consent of the Board of Directors, the Employee shall not,
throughout the Term of this Agreement and thereafter, disclose to any third
party, or use or authorize any third party to use, any material information
relating to the material business or interests of the Corporation (or any of
its subsidiaries) which Employee knows to be confidential and valuable to the
Corporation or any of its subsidiaries (the "Confidential Information"). The
Confidential Information is and will remain the sole and exclusive property of
the Corporation, and, during the Term of this Agreement, the Confidential
Information, when entrusted to the Employee's custody, shall be deemed to
remain at all times in the Corporation's sole possession and control.
Notwithstanding the foregoing, the Employee may, after prior written notice to
the Corporation (to the extent such notice is possible under the circumstances)
disclose such Confidential Information pursuant to subpoena or other legal
process, and promptly thereafter shall advise the Corporation in writing as to
the Confidential Information which was disclosed and the circumstances of such
disclosure.
9.2 Return of Documents. Upon termination of this Agreement for any
reason whatsoever, or whenever requested by the Board of Directors of the
Corporation, the Employee shall return or cause to be returned to the
Corporation all of the Confidential Information or any other property of the
Corporation
<PAGE> 7
in the Employee's possession or custody or at his disposal, which he has
obtained or been furnished, without retaining any copies thereof.
10. NON-COMPETITION
10.1 Restriction. Subject to Section 2.2 hereof, the Employee shall
not, (i) throughout the Term or Extended Term of this Agreement, as the case
may be, and (ii) for a period of 12 months thereafter, in each case without the
Corporation's prior written consent, render services to a business, or plan for
or organize a business, which is materially competitive with or similar to the
business of the Corporation or of any of its subsidiaries by becoming an owner,
officer, director, shareholder (owning more than 4.9% of such business' equity
interests), partner, associate, employee, agent or representative or consultant
or serve in any other capacity in any such business.
10.2 Trade Secrets. Subject to Section 2.2 hereof, all ideas and
improvements which are protectable by patent or copyright or as trade secrets,
conceived or reduced to practice (actually or constructively) during the Term
of this Agreement by the Employee, shall be the property of the Corporation;
provided, however, that the provisions of this Section 10.2 shall not apply to
an invention for which no equipment, supplies, facility or trade secret
information of the Corporation was used and which was developed entirely on the
Employee's own time, and (a) which does not relate to (i) the business of the
Corporation or any of its subsidiaries or (ii) the actual or demonstrably
anticipated research or development by the Corporation of any of its
subsidiaries or (b) which does not result from any work performed by the
Employee pursuant to this Agreement.
11. REMEDIES
11.1 Arbitration. In the event of any dispute or controversy arising
under, out of or relating to this Agreement or the breach hereof other than
under Section 9 or 10 hereunder for which the Corporation may seek injunctive
relief, it shall be determined by arbitration in Las Vegas, Nevada to be heard
by a single arbitrator chosen by the Corporation and the Employee, provided
that if the Corporation and the Employee cannot agree on a single arbitrator,
each shall select one arbitrator and the arbitrators so selected shall select a
third arbitrator, and the panel of three arbitrators shall determine the
dispute. The arbitration is to commence within four (4) weeks after service a
demand for arbitration by either party, and each party shall have the right to
make one document request on the other party prior to commencement of the
arbitration proceeding, but no other discovery shall be conducted other than
that which is agreed upon in writing by both parties. Such arbitration and any
award made therein shall be binding upon the Corporation and the Employee.
11.2 Injunctive Relief. The Employee acknowledges and agrees that any
material breach which occurs or which is threatened of Section 9 or 10 hereof
shall cause substantial and irreparable damage to the Corporation in an amount
and of a character difficult to ascertain. Accordingly, in addition to any
other relief to which the Corporation may otherwise be entitled at law, in
equity or by statute, or under this Agreement, the Corporation shall also be
entitled to seek such immediate temporary, preliminary and permanent injunctive
relief on such breach or threatened breach of Section 9 or 10 hereof as may be
granted through appropriate proceedings.
11.3 Fees. If any action at law or in equity or arbitration is
necessary to enforce or interpret the terms and conditions of this Agreement,
the prevailing party shall be entitled to reasonable attorney's, accountant's
and expert's fees, costs and necessary disbursements in addition to any other
relief to which it or he may be entitled. As used in this Section 11.3, the
term prevailing party shall include, but not be limited to, any party against
whom a cause of action, demand for arbitration, complaint, cross-complaint,
counterclaim, cross-claim or third party complaint is voluntarily dismissed,
with or without prejudice.
12. NOTICES
All notices required or permitted hereunder shall be in writing
and shall be delivered in person, by facsimile, telex or equivalent form of
written communication, or sent by certified or registered mail, return receipt
requested, postage prepaid, as follows:
To Corporation:
<PAGE> 8
Chadmoore Wireless Group, Inc.
4720 Polaris Street
Las Vegas, Nevada 89103
Attention: Corporate Secretary
Fax: 702-740-4233
To the Employee:
Jan S. Zwaik
Chadmoore Wireless Group, Inc.
4720 Polaris Street
Las Vegas, Nevada 89103
Fax: 702-740-4233
or such other party and/or address as either party may designate in a written
notice delivered to the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received on the
date of delivery, if delivered in person or by facsimile, telex or other
equivalent written telecommunication, or on the seventh day next succeeding the
date of mailing if sent by certified or registered mail.
13. FURTHER ACTION
The Corporation and the Employee each agrees to execute and
deliver such further documents as may be reasonably necessary by the other in
order to give effect to the intentions expressed in this Agreement.
14. HEADING; INTERPRETATIONS
The headings and captions used in this Agreement are for convenience
only and shall not be construed in interpreting this Agreement.
15. ASSIGNABILITY
This Agreement and the rights and duties under it may not be
assigned by any party hereto without the prior written consent of the other
party hereto. The parties expressly agree that any attempt to assign rights
and duties without such written consent shall be null and void and of no force
and effect. The terms and provisions of this Agreement shall bind successors
and assigns of the Corporation.
16. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding of
the parties with respect to the matters herein, and supersedes all existing
negotiations, representations or agreements and all other oral, written and
other communications between them concerning the subject matter of this
Agreement.
17. AMENDMENTS
This Agreement may be amended or modified in whole or in part
only by an agreement in writing signed by the Corporation and the Employee.
18. WAIVER AND SEVERABILITY
The waiver by either party of a breach of any terms or conditions
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by such party. In the event that one or more provisions of
this Agreement shall be declared to be invalid, illegal or unenforceable under
any law, rule or regulation, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of the other
provisions of this Agreement.
19. GOVERNING LAW
<PAGE> 9
This Agreement and the rights of the parties under it shall be
governed by and construed in accordance with laws of the State of Nevada,
including all matters of construction, validity, performance and enforcement
and without giving effect to the principles of conflict of laws, except that
matters of corporate law and governance shall be governed by and construed in
accordance with the laws of the State of Nevada.
20. COUNTERPARTS
This Agreement may be executed in any number of counterparts,
each of which shall be an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed Agreement as of the day
and year first above written.
EMPLOYEE
--------------------------------------------------
Jan S. Zwaik
CHADMOORE WIRELESS GROUP, INC.
ATTEST:
- ---------------------------------------------------------
Signature
Name:
---------------------------------------------------
Title:
---------------------------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES 4/14/98
CHADMOORE WIRELESS GROUP, INC.
Chadmoore Communications, Inc.
CMRS Systems, Inc.
Chadmoore Construction Services, Inc.
PTT Beacon Hill, Inc.
PTT of Nevada, Inc.
PTT Tanner, Inc.
CHADMOORE COMMUNICATIONS, INC.
Chadmoore Communications of Tennessee, Inc.
PTT Burton, Inc.
PTT Maple, Inc.
PTT Tristin, Inc.
PTT Communications of Austin, LLC
PTT Communications of Ft. Wayne, LLC
PTT Communications of Huntsville, LLC
PTT Communications of Jacksonville, LLC
PTT Communications of Richmond, LLC
PTT Communications of Roanoke, LLC
PTT Communications of Virginia Beach, LLC
CMRS SYSTEMS, INC.
800 SMR Network, Inc.
PTT Artina, Inc.
PTT Chaco, Inc.
PTT Franklin, Inc.
PTT Roseland, Inc.
PTT Communications of Baton Rouge, LLC
PTT Communications of Bay City, LLC
PTT Communications of Lake Charles, LLC
PTT Communications of Rockford, LLC
<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 27, 1998, relating to the consolidated balance sheets of
Chadmoore Wireless Group, Inc. and subsidiaries as of December 31, 1997 and
1996, 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, 1997 and for the period from January 1, 1994 through December 31,
1997, which report appears in the December 31, 1997, annual report on Form
10-KSB of Chadmoore Wireless Group, Inc. Our report dated March 27, 1998,
contains an explanatory paragraph that states that the Company has suffered
recurring losses from operations and has a deficit accumulated during the
development stage which raise substantial doubt about its ability to continue as
a going concern. The Consolidated Financial Statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
April 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 959,390
<SECURITIES> 0
<RECEIVABLES> 365,158
<ALLOWANCES> 45,000
<INVENTORY> 89,133
<CURRENT-ASSETS> 1,544,539
<PP&E> 6,465,440
<DEPRECIATION> 656,272
<TOTAL-ASSETS> 42,007,515
<CURRENT-LIABILITIES> 9,083,884
<BONDS> 0
0
219
<COMMON> 21,164
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,007,515
<SALES> 1,900,167
<TOTAL-REVENUES> 1,900,167
<CGS> 953,508
<TOTAL-COSTS> 8,370,772
<OTHER-EXPENSES> 8,208,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469,937
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,679,286)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
