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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[x] Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___ to ____.
Commission file number 000-21463
Murdock Communications Corporation
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1337746
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1112 29th Avenue S.W., Cedar Rapids, Iowa 52404
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 319-362-6900
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
NA NA
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
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(Title of class)
Redeemable Common Stock Purchase Warrants
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(Title of class)
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Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the Issuer 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 disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year. $8,417,120
The aggregate market value of the common stock held by nonaffiliates of
the issuer as of March 30, 1998 was $5,883,675.
On March 30, 1998, there were outstanding 4,858,439 shares of the
issuer's no par value common stock.
Transitional Small Business Disclosure Format (check one): Yes
No X ---
---
DOCUMENTS INCORPORATED BY REFERENCE: None
Items 9, 10, 11 and 12 of Part III of the Annual Report on Form 10-KSB
of Murdock Communications Corporation for the fiscal year ended December 31,
1997, filed with the Securities and Exchange Commission on April 10, 1998, are
hereby amended in their entirety as follows to reflect the information
required by such items.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
The following table sets forth the name, age and principal occupation
and employment during the past five years of the current directors of the
Corporation:
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<TABLE>
<CAPTION>
DIRECTOR
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NAME, AGE, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND DIRECTORSHIPS AGE SINCE
--------------------------------------------------------------------- --- -----
<S> <C> <C>
GUY O. MURDOCK 42 1989
Chairman of the Board since 1989. Chief Executive Officer of the Corporation
from 1989 to April 1997 and President of the Corporation from 1989 to
July 1996.
THOMAS E. CHAPLIN 46 1997
Chief Executive Officer of the Corporation since April 1997. From 1993 to
1996, Senior Vice President and General Manager of APAC Teleservices, Inc.
(provider of outsourced customer service and sales teleservices for large
companies). From 1990 to 1993, President and Chief Operating Officer of
Unilens Corp., USA (a manufacturer of aspheric multifocal contact lenses).
COLIN P. HALFORD 43 1993
President of the Corporation since July 1996. Vice President - Sales and
Marketing of the Corporation from 1994 to July 1996. President of Halford and
Associates (telecommunications management and consulting firm) from 1992 to
1993.
JOHN C. POSS 50 1994
President of J.C. Poss & Company, Inc. (telecommunications consulting firm)
since 1995. President of WorldQuest Networks, Inc. (provider of international
facsimile services) during 1997. Vice President - Corporate Development and
Planning of Intellicall, Inc. (provider of technology, equipment and services
to the telecommunications industry) from 1992 to 1995. Mr. Poss also served
as Chief Financial Officer of the Corporation in 1993.
STEVEN R. EHLERT 40 1995
Vice President of Operations of Starter Printables Division of Starter
Corporation (producer of athletic apparel and equipment) since 1996. Director
of Operations of Galt Sand Company Incorporated (commercial printing company
specializing in silk screened clothing) from 1986 to 1996.
WAYNE WRIGHT 52 1997
President of Priority International Communications, Inc. (a wholly owned
subsidiary of the Corporation since October 1997) since March 1997 and
chairman of the Board of Priority International Communications, Inc. since
1996. Mr. Wright served as an officer of U.S. Ameriphone from 1993 to 1996.
LARRY A. ERICKSON 49 1997
Vice President and Controller of the Rockwell Avionics and Communications
division (provider of advanced avionics and airborne and mobile communications
systems and services to airlines, aircraft manufacturers and business
aircraft) of Rockwell International Corporation since November 1996. For more
than 20 years prior to November 1996, Mr. Erickson served in a variety of
finance and accounting positions at Rockwell International Corporation.
</TABLE>
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EXECUTIVE OFFICERS
The following table sets forth the name, age, current position and
principal occupation and employment during the past five years of the executive
officer of the Corporation who is not a director:
<TABLE>
<CAPTION>
Name Age Current Position Other Positions
---- --- ---------------- ---------------
<S> <C> <C> <C>
Bill R. Wharton 37 Vice President-Operations (since Director of Operations of the
1995) Corporation from 1989 to 1995
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Corporation's directors and executive
officers, and persons who own more than 10% of a registered class of the
Corporation's equity securities, to file with the Securities and Exchange
Commission ("SEC") initial reports of beneficial ownership and reports of
changes in beneficial ownership of the Corporation's equity securities. The
rules promulgated by the SEC under section 16(a) of the Exchange Act require
those persons to furnish the Corporation with copies of all reports filed with
the SEC pursuant to section 16(a). Based solely upon a review of such forms
actually furnished to the Corporation, and written representations of certain
of the Corporation's directors and executive officers, all directors, executive
officers and 10% shareholders have filed with the SEC on a timely basis all
reports required to be filed under section 16(a) of the Exchange Act, except
that Wayne Wright filed a Form 5 on February 17, 1998 to report his appointment
as a director of the Corporation on October 31, 1997, and Larry A. Erickson
filed a Form 3 on July 24, 1997 to report his appointment as a director of the
Corporation on May 28, 1997.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Cash and Other Compensation. The table which follows sets forth certain
information concerning compensation paid to, earned by, or awarded to Thomas E.
Chaplin, the Corporation's Chief Executive Officer, Guy O. Murdock, the
Corporation's Chairman of the Board, and Colin P. Halford, the Corporation's
President (collectively, the "named executive officers") during the years
indicated below. No other executive officer's salary and bonus exceeded $100,000
in 1997.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
OTHER COMPENSATION
ANNUAL ANNUAL AWARDS
NAME AND COMPENSATION COMPEN- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION($) OPTIONS (#) COMPENSATION ($)
------------------ ---- ---------- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Guy O. Murdock, 1997 150,000 20,000 11,283 (2) 123,236 --
Chairman of the 1996 150,000 18,750 13,099 (2) -- --
Board (1) 1995 137,500 42,385 13,081 (2) -- --
Thomas E. Chaplin, 1997 105,962 40,000 2,983 (4) 400,000 --
Chief Executive 1996 -- -- -- -- --
Officer (3) 1995 -- -- -- -- --
Colin P. Halford, 1997 121,923 25,000 -- 136,201 --
President 1996 100,000 10,000 -- -- --
1995 66,000 25,000 -- -- --
</TABLE>
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(1) Mr. Murdock resigned as Chief Executive Officer of the Corporation
effective April 4, 1997.
(2) The amounts listed for 1997, 1996 and 1995 include $4,825, $8,200
and $7,845, respectively, for use of a company car, and $6,458,
$4,899 and $5,236, respectively, for country club membership fees.
(3) Mr. Chaplin commenced employment with the Corporation effective April
4, 1997.
(4) The amount listed for 1997 consists of $2,983 for use of a company
car.
OPTIONS GRANTED DURING 1997
The following table provides certain information regarding stock
options granted to the named executive officers of the Corporation during
the year ended December 31, 1997.
OPTIONS/SAR GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
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NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE
---- ------- ----------- ----- ----
<S> <C> <C> <C> <C>
Guy O. Murdock............ 123,236 (1) 16.0% $3.25 April 3, 2007
Thomas E. Chaplin......... 175,000 (2) 22.7 4.16 April 4, 2007
Thomas E. Chaplin......... 225,000 (3) 29.2 4.16 April 4, 2007
Colin P. Halford.......... 136,201 (4) 17.7 3.25 April 3, 2007
</TABLE>
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(1) These options become exercisable on April 3, 1998.
(2) Options with respect to 75,000 were exercisable on the date of grant,
options with respect to 50,000 shares become exercisable on April 4,
1998 and options with respect to 50,000 shares become exercisable on
April 4, 1999.
(3) These Options become exercisable in three installments of 75,000 shares
each based upon the achievement of certain performance criteria.
(4) Options with respect to 93,961 shares become exercisable on April 3,
1998, options with respect to 21,120 shares become exercisable on April
3, 1999 and options with respect to 21,120 shares become exercisable on
April 3, 2000.
FISCAL YEAR-END OPTION VALUES
The following table provides certain information regarding the value of
unexercised options held by the named executive officers at December 31, 1997.
No named executive officer exercised any options during the year ended December
31, 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL
YEAR-END (1)
-----------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------- ---------------
<S> <C> <C>
Guy. O. Murdock.............. -- 123,236
Thomas E. Chaplin............ 75,000 325,000
Colin P. Halford............. 31,040 143,960
</TABLE>
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(1) Based on the reported closing bid price of $15/16 per share of the
Company's Common Stock on the Nasdaq SmallCap Market on December 31, 1997,
none of these options were in the money at December 31, 1997.
Employment Agreements. On August 16, 1996, the Corporation entered into
separate Employment Agreements with each of Guy Murdock, Colin Halford, and Bill
Wharton. Each of the Employment Agreements has a three-year term. Pursuant to
the Employment Agreements, Messrs. Murdock, Halford and Wharton will receive
base salaries of not less than $150,000, $130,000 and $65,000, respectively. In
addition, each of them will be eligible to participate in the Stock Option Plan
and other executive compensation plans. Each Employment Agreement contains a
provision restricting competition with the Corporation for a period of two years
following termination of employment. If employment with the Corporation is
terminated by the Corporation for any reason, including for cause, the employee
is entitled to receive continuation of his then effective base salary for two
years.
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On April 4, 1997, the Corporation entered into three-year employment
agreement with Thomas E. Chaplin. Pursuant to this agreement, Mr. Chaplin will
receive an annual base salary of $130,000 and will be eligible to participate
in an incentive bonus program to be developed by the Compensation Committee.
This agreement contains a provision restricting competition with the
Corporation for (i) a period of six months if Mr. Chaplin's employment is
terminated prior to October 4, 1997, (ii) a period of time equal to Mr.
Chaplin's employment term if his employment is terminated on or after October
4, 1997 but prior to April 4, 1998 and (iii) a period of two years following
termination of employment if Mr. Chaplin's employment is terminated on or after
April 4, 1998. If Mr. Chaplin's employment is terminated by the Corporation for
any reason other than for "cause" (as defined in the employment agreement),
Mr. Chaplin is eligible to receive continuation of his base salary for the
period of his covenant restricting competition with the Corporation. In
connection with this employment agreement, Mr. Chaplin also received options to
purchase an aggregate of 400,000 shares of the Corporation's no par value
Common Stock (the "Common Stock") at an exercise price of $4.16 per
share. Options exercisable for 75,000 shares were immediately exercisable on
grant, options exercisable for 50,000 shares vest on each of April 4, 1998 and
1999, and options for a total of 225,000 shares vest in three increments of
75,000 each upon the achievement by the Corporation of specified income and
profit targets. These options were not granted to Mr. Chaplin under either the
Corporation's 1993 Stock Option Plan or the Corporation's 1997 Stock Option
Plan.
COMPENSATION OF DIRECTORS
The Corporation pays directors not employed by the Corporation an
annual retainer equal to the greater of (a) $12,000 or (b) $1,000 for each
meeting of the Board of Directors attended. In addition, the Corporation has
issued to each director not employed by the Corporation an option to purchase up
to 5,000 shares of Common Stock on the day after election as a director with an
exercise price equal to the closing market price of the Common Stock on the date
of issuance.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1998
regarding the beneficial ownership of shares of Common Stock by (1) each person
who is known to the Corporation to be the beneficial owner of more than 5% of
the Common Stock, (2) each director, director nominee and named executive
officer (as defined below), and (3) all directors and executive officers as a
group. Beneficial ownership of Common Stock has been determined for this
purpose in accordance with Rules 13d-3 and 13d-5 of the SEC under the
Exchange Act, which provide, among other things, that a person is deemed
to be the beneficial owner of Common Stock if such person, directly or
indirectly, has or shares voting power or investment power with respect to the
Common Stock or has the right to acquire such ownership within sixty days after
March 31, 1998.
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<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED (1) OF CLASS
------------------------ --------------- --------
<S> <C> <C>
Guy O. Murdock (2) 1,049,321 21.1
Thomas E. Chaplin (3) 125,000 2.5
Berthel Fisher & Company, Inc. (4) 690,365 13.6
Larry A. Cahill (5) 462,380 9.5
Colin P. Halford (6) 125,151 2.5
John C. Poss (7) 51,040 1.0
Steven R. Ehlert (8) 10,000 *
Wayne Wright 270,000 5.6
Larry A. Erickson (9) 5,000 *
All directors and executive
officers as a group
(8 persons) (10) 1,698,794 39.0
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* Less than 1%.
</TABLE>
(1) This table is based upon information supplied by directors, executive
officers and principal shareholders. Unless otherwise indicated in
footnotes to this table, each of the shareholders named in this table has
sole voting and investment power with respect to the shares shown as
beneficially owned.
(2) Includes 123,236 shares subject to exercise of stock options.
(3) Includes 125,000 shares subject to exercise of stock options.
(4) Includes (i) 501,794 shares of Common Stock held by certain affiliates of
Berthel for which Berthel shares voting and investment power, including
154,279 shares subject to exercise of warrants, and (ii) 75,000 shares
subject to exercise of warrants. Reflects information reported in a
Schedule 13D filed with the SEC by Berthel on January 16, 1997, as amended
on June 6, 1997 and on January 18, 1998. The address of Berthel is 100
Second Street S.E., P.O. Box 74250, Cedar Rapids, Iowa 52407.
(5) Mr. Cahill's address is 3330 Southgate Court S.W., Cedar Rapids, Iowa
52404. Includes 20,000 shares subject to exercise of warrants. Reflects
information reported in a Schedule 13G filed with the SEC by Mr.
Cahill on December 11, 1996.
(6) Includes 125,001 shares subject to exercise of stock options and 50 shares
subject to exercise of warrants.
(7) Includes 41,040 shares subject to exercise of stock options.
(8) Includes 10,000 shares subject to exercise of stock options.
(9) Includes 5,000 shares subject to exercise of stock options.
(10) Includes 492,559 shares subject to exercise of stock options and 50 shares
subject to exercise of warrants.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation obtains lease and other financing services from Berthel
Fisher & Company, Inc. and its subsidiaries and their affiliated leasing
partnerships ("Berthel"). Berthel is the beneficial owner of approximately
13.6% of the Common Stock outstanding on March 31, 1998. The Corporation paid
Berthel $645,047 in 1997, including $491,175 for scheduled lease payments,
$38,622 for interest payments, $72,000 in commissions, and $43,250 in sales
commissions and related fees in connection with the Corporation's private
placement of shares of its preferred stock. The Corporation currently makes
monthly lease and debt payments to Berthel of $75,000 in the aggregate and
makes monthly commission payments to Berthel of approximately $6,000 in
connection with the services provided by the Corporation to a hotel management
company.
On June 5, 1997, certain affiliates of Berthel agreed to convert (the
"Berthel Notes Conversion") note obligations with an aggregate principal amount
of $1.7 million and a carrying value to the Corporation of $1.3 million into
465,625 shares of Common Stock. On December 31, 1997, the Corporation and
Berthel agreed to rescind the Berthel Notes Conversion. In connection with this
rescission, the Corporation issued notes to Berthel which are identical in all
material respects to the notes originally canceled, Berthel delivered to the
Corporation its certificates for 465,625 shares of Common Stock and the
Corporation issued warrants to Berthel exercisable to purchase up to 229,279
shares of Common Stock at an exercise price of $1.12 per share.
The Corporation provides telecommunications services to certain hotels
managed by Larken, Inc., a corporation controlled by Larry A. Cahill. Mr. Cahill
beneficially owns approximately 9.5% of the Common Stock outstanding on March
31, 1998. The Corporation generated revenues of $603,644 in 1997 pursuant to
its contracts with Larken, Inc., and accrued commissions of $360,000
payable to Larken, Inc. pursuant to such contracts.
On October 31, 1997, the Corporation completed its acquisition (the
"PIC Acquisition") of two affiliated companies, Priority International
Communications, Inc. ("PIC") and PIC Resources Corp. ("PICR"). Wayne Wright was
appointed as a director of the Corporation immediately following the PIC
Acquisition. Pursuant to the PIC Acquisition, Mr. Wright received the following
as a shareholder of PIC and PICR: (a) cash payments of $278,375 in the
aggregate, (b) 270,000 shares of Common Stock, (c) a 91% interest in a
promissory note issued by a wholly owned subsidiary of the Corporation in the
principal amount of $840,000 due March 1, 1998, which was subsequently extended
to June 30, 1998 (the "Short-Term Note") and (d) a promissory note issued by a
wholly owned subsidiary of the Corporation in the principal amount of
$1,664,119.39 due in installments through April 30, 1999 (the "Long-Term Note"
and, collectively with the Short-Term Note, the "PIC Notes"). The Corporation
is also obligated to issue additional shares of Common Stock to Mr. Wright and
the other PICR shareholders based upon the combined earnings before interest,
taxes, depreciation and amortization of PIC and PICR for the first two full
twelve-month periods after the closing
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of the PIC Acquisition. The Corporation granted piggyback registration rights to
the Mr. Wright and the other PICR shareholders with respect to secondary
offerings of Common Stock made within three years after the closing of the PIC
Acquisition. The obligations under the PIC Notes are subject to a security
interest in the shares of PIC stock and PICR stock acquired by the Corporation
pursuant to the PIC Acquisition. In the event of a default with respect to the
repayment of the Short-Term Note, the holders of the PIC Notes will have the
right to rescind the PIC Acquisition by surrendering the shares of Common Stock
issued in the PIC Acquisition and the PIC Notes to the Corporation in exchange
for the return of all of the shares of PIC stock and PICR stock. In addition, if
the PIC Acquisition is rescinded, the shareholders of PIC and PICR would retain
the cash payments made at closing and $400,000 advanced by the Corporation to a
subsidiary of PICR.
In September 1997, the Corporation commenced an offering of up to
$5,000,000 of its Series A Convertible Preferred Stock (the "Convertible
Preferred Stock") in a private placement exempt from the registration
requirements of the Securities Act of 1933, as amended. Shares of Convertible
Preferred Stock were sold in the offering at a price of $100 per share. Guy O.
Murdock, the Corporation's Chairman of the Board, purchased 5,500 shares of
Convertible Preferred Stock in the offering, Thomas E. Chaplin, the
Corporation's Chief Executive Officer and a director, purchased 4,000 shares of
Convertible Preferred Stock in the offering, and Larry A. Cahill, the beneficial
owner of approximately 9.5% of the outstanding Common Stock as of March 31,
1998, purchased 5,000 shares of Convertible Preferred Stock in the offering.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-KSB/A to be
signed on its behalf by the undersigned, thereunto duly authorized.
MURDOCK COMMUNICATIONS
CORPORATION
By /s/ Guy O. Murdock
--------------------------
Guy O. Murdock
Chairman of the Board
Date: April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
/s/ Guy O. Murdock Chairman of the Board of April 30, 1998
- --------------------------- Directors (Principal
Guy O. Murdock Executive Officer)
* President and Director April 30, 1998
- ---------------------------
Colin P. Halford
* Chief Executive Officer and April 30, 1998
- --------------------------- Director (Principal Financial
Thomas E. Chaplin Officer and Principal
Accounting Officer)
* Director April 30, 1998
- ---------------------------
John C. Poss
* Director April 30, 1998
- ---------------------------
Steven R. Ehlert
* Director April 30, 1998
- ---------------------------
Larry A. Erickson
* Director April 30, 1998
- ---------------------------
Wayne Wright
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*Guy O. Murdock hereby signs this Form 10-KSB/A on April 30, 1998 on
behalf of each of the indicated persons for whom he is attorney-in-fact pursuant
to a power of attorney filed with the Company's Form 10-KSB on April 10, 1998.
*By: /s/ Guy O. Murdock
------------------------
Guy O. Murdock
12
