<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MURDOCK COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
MURDOCK COMMUNICATIONS CORPORATION
1112 29TH AVENUE S.W.
CEDAR RAPIDS, IOWA 52404
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Murdock Communications Corporation,
an Iowa corporation (hereinafter called the Corporation), will be held at the
Four Points Sheraton Inn, 525 33rd Avenue S.W., Cedar Rapids, Iowa 52404, on May
25, 1999, at 2:00 p.m., local time, for the purpose of:
1. Electing seven directors for the ensuing year.
2. Considering and voting upon the approval of a proposed amendment to
the Corporation's Amended and Restated Articles of Incorporation which
increases the total number of authorized shares of the Corporation's no par
value common stock from 20,000,000 shares to 40,000,000 shares.
3. Ratifying the appointment of Deloitte & Touche LLP, independent
public accountants, as auditors of the Corporation for its fiscal year
ending December 31, 1999.
4. Taking action with respect to any other matters that may be
properly brought before the meeting and that might be considered by the
shareholders of an Iowa corporation at their annual meeting.
By order of the Board of Directors
Cedar Rapids, Iowa
April 23, 1999
PAUL C. TUNINK,
Secretary
SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL 9, 1999 ARE
ENTITLED TO VOTE AT THE MEETING. YOUR VOTE IS IMPORTANT TO ENSURE THAT A
MAJORITY OF THE STOCK IS REPRESENTED. PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING. IF YOU LATER FIND THAT YOU MAY BE PRESENT AT THE
MEETING OR FOR ANY OTHER REASON DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT
ANY TIME BEFORE IT IS VOTED.
<PAGE> 3
MURDOCK COMMUNICATIONS CORPORATION
1112 29TH AVENUE S.W.
CEDAR RAPIDS, IOWA 52404
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 1999
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Murdock Communications Corporation of proxies, in the
accompanying form, to be used at the Annual Meeting of Shareholders of the
Corporation to be held at the Four Points Sheraton Inn, 525 33rd Avenue S.W.,
Cedar Rapids, Iowa 52404, on May 25, 1999 at 2:00 p.m., local time, and any
adjournments thereof. This proxy material is being mailed on or about April 23,
1999 to shareholders of record at the close of business on April 9, 1999.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
The shares represented by each valid proxy received in time will be voted
at the meeting and, if a choice is specified on the proxy, it will be voted in
accordance with that specification. If no instructions are specified in a signed
proxy returned to the Corporation, the shares represented thereby will be voted
(1) in FAVOR of the election of the directors listed in the enclosed proxy, (2)
in FAVOR of the proposal (the "Capitalization Amendment Proposal") to approve
the Articles of Amendment to the Corporation's Amended and Restated Articles of
Incorporation in the form of Appendix A hereto (the "Articles of Amendment"),
and (3) in FAVOR of the ratification of Deloitte & Touche LLP as auditors of the
Corporation for fiscal 1999.
Shareholders may revoke proxies at any time to the extent they have not
been exercised by giving written notice to the Corporation or by a later
executed proxy. Attendance at the Annual Meeting will not automatically revoke a
proxy, but a shareholder attending the Annual Meeting may request a ballot and
vote in person, thereby revoking a prior granted proxy. The Corporation will
bear the cost of solicitation of proxies. Solicitation will be made primarily by
use of the mails; however, some solicitation may be made by employees of the
Corporation, without additional compensation therefor, by telephone, by
facsimile, or in person. Only shareholders of record at the close of business on
April 9, 1999 will be entitled to notice of and to vote at the meeting. On the
record date, the Corporation had outstanding 10,329,867 shares of no par value
common stock ("Common Stock"), entitled to one vote per share.
A majority of the votes entitled to be cast with respect to each matter
submitted to the shareholders, represented either in person or by proxy, will
constitute a quorum with respect to such matter. Approval of each matter
specified in the notice of meeting requires the affirmative vote of a majority,
or in the case of the election of directors a plurality, of the shares present
in person or by proxy at the meeting and entitled to vote on such matter.
Abstentions and broker non-votes (i.e., shares held by brokers in street name,
voting on certain matters due to discretionary authority or instructions from
the beneficial owner but not voting on other matters due to lack of authority to
vote on such matters without instructions from the beneficial owner) will count
for the purpose of establishing a quorum and will not affect the determination
of whether such matters are approved or directors are elected. The Inspector of
Election appointed by the Board of Directors will determine the presence of a
quorum and tabulate the results of shareholder voting.
ELECTION OF DIRECTORS
It is intended that shares represented by proxies in the enclosed form will
be voted for the election of the nominees named in the following table to serve
as directors for a term of one year and until their successors are elected,
unless contrary instructions are received. As indicated below, each person
nominated by the Board of Directors is an incumbent director. The Corporation
anticipates that the nominees listed in this Proxy Statement will be candidates
when the election is held. However, if an unexpected occurrence should make it
necessary, in the judgment of the proxy holders, to substitute some other person
for any of the nominees,
<PAGE> 4
proxies will be voted for a substitute nominee selected by the proxy holders
(except where a proxy withholds authority with respect to the election of
directors).
<TABLE>
<CAPTION>
DIRECTOR
NAME, AGE, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND DIRECTORSHIPS AGE SINCE
- --------------------------------------------------------------------- --- --------
<S> <C> <C>
GUY O. MURDOCK.................................................. 43 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............................................... 47 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................................................ 44 1993
President of the Corporation since July 1996. Vice President -- Sales
and Marketing of the Corporation from 1994 to July 1996.
JOHN C. POSS.................................................... 51 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.
STEVEN R. EHLERT................................................ 41 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.................................................... 53 1997
Vice Chairman of the Board since 1998. 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. from 1996 to
1997. Mr. Wright served as an officer of U.S. Ameriphone from 1993 to
1996.
LARRY A. ERICKSON............................................... 50 1997
Vice President and Controller of the Rockwell Collins, Inc. (provider
of advanced avionics and airborne and mobile communications systems
and services to airlines, aircraft manufacturers and business
aircraft), a division 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>
2
<PAGE> 5
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
officers of the Corporation who are not directors:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION OTHER POSITIONS
---- --- ---------------- ---------------
<S> <C> <C> <C>
Bonner B. Hardegree......... 51 Senior Vice President -- Vice President and Chief
Business Development since Financial Officer of
November 1998. Also Priority International
Executive Vice President of Communications, Inc. from
Priority International January 1996 to November
Communications, Inc. (a 1998. Vice President and
wholly owned subsidiary of Chief Financial Officer of
the Corporation) since U.S. American Payphone
November 1998. Management from December
1992 to January 1996.
Paul C. Tunink.............. 40 Vice President and Chief Vice President, Chief
Financial Officer (since Financial Officer and
November 1998) Treasurer of Stuart
Entertainment, Inc. (a
manufacturer of gaming
supplies) from April 1995 to
October 1998. Divisional
Vice President-Finance of
Younkers Inc. (a retailer)
from April 1992 to April
1995.
Bill R. Wharton............. 37 Vice President-Operations Director of Operations of
(since 1995) the Corporation from 1989 to
1995
</TABLE>
DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board's Audit Committee is comprised of Messrs. Erickson, Poss and Ehlert.
The Audit Committee makes recommendations to the Board of Directors regarding
the engagement of independent public accountants to audit the books and accounts
of the Corporation and reviews and approves the scope of annual audit activities
of the auditors, approves the audit fee payable to the auditors and reviews the
audit results. The Audit Committee also consults with the independent public
accountants with respect to the annual audit scope and plan of audit and with
respect to the adequacy of the Corporation's internal controls and accounting
procedures. The Audit Committee met two times during fiscal 1998 and all
committee members were present.
The Board's Compensation Committee is comprised of Messrs. Erickson, Poss
and Ehlert. The Compensation Committee, in addition to such other duties as may
be specified by the Board of Directors, reviews and recommends to the Board of
Directors the compensation structure for the Corporation's officers and other
managerial personnel, including salary rates, participation in incentive
compensation and benefit plans, fringe benefits, noncash perquisites and other
forms of compensation. The Compensation Committee also administers the
Corporation's 1993 Stock Option Plan and the Corporation's 1997 Stock Option
Plan. The Compensation Committee met three times during fiscal 1998 and all
committee members were present.
The Board of Directors held five meetings in fiscal 1998. Each of the
directors attended at least 75% of the meetings held by the Board of Directors
and by the Committees on which such director served.
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 issues options to
purchase up to 5,000 shares of Common Stock annually to each director not
employed by the
3
<PAGE> 6
Corporation 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. During
1998, the Corporation made consulting payments in the amount of $48,250 to J.C.
Poss & Company, Inc., a corporation controlled by John C. Poss, a director of
the Corporation.
SECURITY OWNERSHIP
The following table sets forth information as of March 31, 1999 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 Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 (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, 1999.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
------------------------ ------------ --------
<S> <C> <C>
Guy O. Murdock(2)........................................... 1,839,910 16.3
Thomas E. Chaplin(3)........................................ 1,132,056 9.9
Colin P. Halford(4)......................................... 254,030 2.4
John C. Poss(5)............................................. 63,799 *
Steven R. Ehlert(6)......................................... 120,000 1.2
Wayne Wright(7)............................................. 2,180,067 20.9
Larry A. Erickson(8)........................................ 10,000 *
Bonner B. Hardegree......................................... 313,341 3.0
Berthel Fisher & Company, Inc.(9)........................... 2,114,335 19.2
Larry A. Cahill(10)......................................... 1,086,824 9.9
All directors and executive officers as a group (10
persons)(11).............................................. 6,097,754 46.6
</TABLE>
- -------------------------
* Less than 1%.
(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 273,236 shares subject to exercise of stock options, 195,000
shares subject to the exercise of warrants and 488,889 shares subject to
the conversion of shares of Series A Preferred Stock.
(3) Includes 550,000 shares subject to exercise of stock options, 199,000
shares subject to the exercise of warrants and 355,556 shares subject to
the conversion of shares of Series A Preferred Stock.
(4) Includes 203,880 shares subject to exercise of stock options and 50,050
shares subject to exercise of warrants.
(5) Includes 53,799 shares subject to exercise of stock options.
(6) Includes 15,000 shares subject to exercise of stock options and 105,000
shares subject to exercise of warrants.
(7) Includes 80,000 shares subject to exercise of warrants.
(8) Includes 10,000 shares subject to exercise of stock options.
(9) Includes (i) 1,925,764 shares of Common Stock held by certain affiliates of
Berthel for which Berthel shares voting and investment power, including
418,982 shares subject to exercise of warrants and 192,889 shares subject
to the conversion of shares of Series A Preferred Stock, 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, January 8, 1998, May 1, 1998, June 22, 1998,
4
<PAGE> 7
August 6, 1998 and January 13, 1999. The address of Berthel is 100 Second
Street S.E., P.O. Box 74250, Cedar Rapids, Iowa 52407.
(10) Mr. Cahill's address is 3330 Southgate Court S.W., Cedar Rapids, Iowa
52404. Includes 200,000 shares subject to exercise of warrants and 444,444
shares subject to the conversion of shares of Series A Preferred Stock.
(11) Includes 1,240,466 shares subject to exercise of stock options, 679,050
shares subject to exercise of warrants and 844,445 shares subject to the
conversion of shares of Series A Preferred Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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 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 Bonner B. Hardegree filed a Form 5 on February
16, 1999 to report his appointment as an officer of the Corporation on November
1, 1998, Paul C. Tunink filed a Form 3 on February 16, 1999 to report his
appointment as an officer of the Corporation on November 30, 1998, and Guy O.
Murdock and Thomas E. Chaplin each filed a Form 5 on February 16, 1999 to report
a sale of 27,500 shares of Common Stock by Mr. Murdock to Mr. Chaplin on
November 10, 1998.
5
<PAGE> 8
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, Colin P. Halford, the Corporation's
President, and Bonner B. Hardegree, the Corporation's Senior Vice
President -- Business Development (collectively, the "named executive officers")
during the years indicated below. No other executive officer's salary and bonus
exceeded $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ---------------------
COMPENSATION OTHER
NAME AND --------------------- ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Guy O. Murdock....... 1998 $150,000 $20,000 $-- 323,236(2) --
Chairman of the 1997 150,000 20,000 -- 123,236 --
Board(1) 1996 150,000 18,750 -- -- --
Thomas E. Chaplin.... 1998 209,231 40,000 -- 600,000(4) --
Chief Executive 1997 105,962 40,000 -- 400,000 --
Officer(3) 1996 -- -- -- -- --
Colin P. Halford..... 1998 139,549 25,000 -- 211,201(5) --
President 1997 121,923 25,000 -- 136,201 --
1996 100,000 10,000 -- -- --
Bonner B.
Hardegree.......... 1998 119,204 -- -- -- --
Senior Vice 1997 21,110 -- -- -- --
President -- Business 1996 -- -- -- -- --
Development(6)
</TABLE>
- -------------------------
(1) Mr. Murdock resigned as Chief Executive Officer of the Corporation effective
April 4, 1997.
(2) Includes options to purchase 123,236 shares of Common Stock which were
originally granted in 1997 and which were repriced effective April 3, 1998.
(3) Mr. Chaplin commenced employment with the Corporation effective April 4,
1997.
(4) Includes options to purchase 400,000 shares of Common Stock which were
originally granted in 1997 and which were repriced effective April 3, 1998
(of which 75,000 were subsequently repriced again effective May 29, 1998 and
75,000 were subsequently repriced again effective December 31, 1998).
(5) Includes options to purchase 136,201 shares of Common Stock which were
originally granted in 1997 and which were repriced effective April 3, 1998.
(6) Mr. Hardegree was appointed as an executive officer of the Corporation
effective December 1, 1998.
6
<PAGE> 9
OPTIONS GRANTED DURING 1998
The following table provides certain information regarding stock options
granted to the named executive officers of the Corporation during the year ended
December 31, 1998.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED TO
SECURITIES UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE
---- --------------------- ------------------ -------- ----------
<S> <C> <C> <C> <C>
Guy O. Murdock....................... 200,000(1) 13.8% $2.75 April 9, 2008
Guy O. Murdock....................... 123,236(2) 8.5 2.25 April 3, 2007
Thomas E. Chaplin.................... 200,000(1) 13.8 2.75 April 9, 2008
Thomas E. Chaplin.................... 250,000(3) 17.2 2.25 April 3, 2007
Thomas E. Chaplin.................... 75,000(4) 5.2 2.94 April 3, 2007
Thomas E. Chaplin.................... 75,000(5) 5.2 3.50 April 3, 2007
Colin P. Halford..................... 75,000(6) 5.2 2.75 April 9, 2008
Colin P. Halford..................... 136,201(7) 9.4 2.25 April 9, 2007
Bonner B. Hardegree.................. -- -- -- --
</TABLE>
- -------------------------
(1) Options with respect to 100,000 shares were exercisable on the date of
grant, options with respect to 50,000 shares became exercisable on April 9,
1999 and options with respect to 50,000 shares become exercisable on April
9, 2000.
(2) Consists of options originally granted in 1997 and repriced effective April
3, 1998. All of these options are currently exercisable.
(3) Consists of options originally granted in 1997 and repriced effective April
3, 1998. Options with respect to 200,000 shares were exercisable at December
31, 1998 and options with respect to 50,000 shares became exercisable on
April 3, 1999.
(4) Consists of options originally granted in 1997, repriced effective April 3,
1998 to $2.25 per share and repriced again effective May 29, 1998 to $2.94
per share. All of these options are currently exercisable.
(5) Consists of options originally granted in 1997, repriced effective April 3,
1998 to $2.25 per share and repriced again effective December 31, 1998 to
$3.50 per share. All of these options are currently exercisable.
(6) Options with respect to 25,000 shares became exercisable on the date of
grant, options with respect to 25,000 shares became exercisable on April 8,
1999 and options with respect to 25,000 shares become exercisable on April
8, 2000.
(7) Consists of options originally granted in 1997 and repriced effective April
3, 1998. Options with respect to 93,961 shares were exercisable at December
31, 1998, options with respect to 21,120 shares became exercisable on April
3, 1999 and options with respect to 21,120 shares become exercisable on
April 3, 2000.
7
<PAGE> 10
FISCAL YEAR-END OPTION VALUES
The following table provides certain information regarding the unexercised
options held by the named executive officers at December 31, 1998. No named
executive officer exercised any options during the year ended December 31, 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Guy. O. Murdock................................ 223,236 100,000 $ 89,523 $12,500
Thomas E. Chaplin.............................. 450,000 150,000 137,500 43,750
Colin P. Halford............................... 157,760 92,240 100,456 32,650
Bonner B. Hardegree............................ -- -- -- --
</TABLE>
- -------------------------
(1) Based on the reported closing bid price of $2.875 per share of Common Stock
on the Nasdaq Bulletin Board on December 31, 1998.
Employment Agreements. On October 1, 1998, the Corporation entered into an
Amended and Restated Employment Agreement with each of Thomas E. Chaplin and Guy
O. Murdock. Each of the Amended and Restated Employment Agreements has a term
through December 31, 2001. Pursuant to the Amended and Restated Employment
Agreements, Messrs. Chaplin and Murdock will receive base salaries of not less
than $250,000 and $150,000, respectively. In addition, each of them will be
eligible to participate in the Corporation's bonus plan and other executive
compensation plans. Each Amended and Restated Employment Agreement contains a
provision restricting competition with the Corporation for a period of two years
following termination of employment. Mr. Chaplin's Amended and Restated
Employment Agreement provides that if his employment is terminated by the
Corporation for any reason other than for cause, Mr. Chaplin will be entitled to
receive severance at an annual rate of $150,000 for two years, provided,
however, that if his employment is terminated by the Corporation or by Mr.
Chaplin for any reason within 180 days after a sale of the Corporation, Mr.
Chaplin will be entitled to continuation of his then effective base salary for
three years. Mr. Murdock's Amended and Restated Employment Agreement provides
that if his employment is terminated by the Corporation for any reason,
including for cause, Mr. Murdock will be entitled to receive severance at an
annual rate of $150,000 for two years, provided, however, that if his employment
is terminated by the Corporation or by Mr. Murdock for any reason within 180
days after a sale of the Corporation, Mr. Murdock will be entitled to
continuation of his then effective base salary for three years.
On January 1, 1999, the Corporation entered into an Amended and Restated
Employment Agreement with Colin P. Halford. The Amended and Restated Employment
Agreement has a term through December 31, 2001 and provides that Mr. Halford
will receive a base salary of not less than $150,000. In addition, Mr. Halford
will be eligible to participate in the Corporation's bonus plan and other
executive compensation plans. The Amended and Restated Employment Agreement
contains a provision restricting competition with the Corporation for a period
of two years following termination of employment. Mr. Halford's Amended and
Restated Employment Agreement provides that if his employment is terminated by
the Corporation for any reason, including for cause, Mr. Halford will be
entitled to receive severance at an annual rate of $150,000 for two years,
provided, however, that if his employment is terminated by the Corporation or by
Mr. Halford for any reason within 180 days after a sale of the Corporation, Mr.
Halford will be entitled to continuation of his then effective base salary for
three years.
On November 1, 1998, the Corporation and its wholly owned subsidiaries
Priority International Communications, Inc. ("PIC") and PIC Resources Corp.
("PICR") entered into an Employment Agreement with Bonner B. Hardegree. The
Employment Agreement has a three-year term, with automatic one-year renewals
unless either party gives notice of termination at least one year in advance of
the end of the
8
<PAGE> 11
term. Pursuant to the Employment Agreement, Mr. Hardegree will receive a base
salary of not less than $144,000. In addition, Mr. Hardegree will be entitled to
participate in the Corporation's bonus plans and other compensation plans and
fringe benefits for executive officers. The Employment Agreement contains a
provision restricting competition with the Corporation for a period of six
months following termination of employment unless termination is by the
Corporation without "cause" or by Mr. Hardegree for "good reason." Mr.
Hardegree's Employment Agreement provides that if his employment is terminated
by the Corporation without "cause" or by Mr. Hardegree for "good reason," Mr.
Hardegree will be entitled to continuation of his then effective base salary for
a period equal to the greater of (i) one year, or (ii) the remaining term of the
Employment Agreement, and if the Corporation terminates the Employment Agreement
due to failure to continue PIC/PICR's business or the death or disability of Mr.
Hardegree, Mr. Hardegree will be entitled to continuation of his effective base
salary for a period of one year.
Report on Option Repricing. During 1998, the Compensation Committee
determined that circumstances had made it advisable for the Corporation to offer
a one-time opportunity in 1998 for the repricing of options held by executive
officers and other employees of the Corporation. Pursuant to the repricing,
options to purchase a total of 726,337 shares of Common Stock outstanding under
the Corporation's 1993 Stock Option Plan or the Corporation's 1997 Stock Option
Plan were canceled, and new options for the same number of shares were granted
with a lower exercise price per share equal to the market price of the Common
Stock on the regrant date. All of the repricings took effect on April 3, 1998,
based on the market price of $2.25 per share on that date. Options to purchase
400,000 shares of Common Stock held by the Corporation's Chief Executive Officer
were repriced to $2.25 per share on April 3, 1998, and 75,000 of these options
were subsequently repriced to $2.94 per share effective May 29, 1998 and another
75,000 of these options were subsequently repriced to $3.50 per share effective
December 31, 1998.
The Compensation Committee determined that the option repricing was
advisable because equity incentives are a significant component of the total
compensation package of the Corporation's employees and play a substantial role
in the Corporation's ability to retain the services of individuals essential to
the Corporation's long-term financial success. Prior to the implementation of
the program, the market price of the Common Stock had fallen as the Corporation
restructured its business after completing two acquisitions at the end of 1997
and the beginning of 1998. The Compensation Committee believed that the
Corporation's ability to retain key employees would be significantly impaired
unless value were restored to their options in the form of regranted options at
the current market price of the Common Stock. All repriced options remained
subject to the vesting schedule in effect before the repricing.
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 19.2%
of the Common Stock outstanding on March 31, 1999. The Corporation paid Berthel
$1,245,329 in 1998, including $840,415 for scheduled lease payments, $188,117
for interest payments, and $216,798 in sales commissions and related fees in
connection with the Corporation's private placement of notes and warrants. The
Corporation currently makes monthly lease and debt payments to Berthel of
$133,810 in the aggregate.
Effective December 31, 1998, the Corporation and Berthel agreed to allow
Berthel to exercise warrants to purchase an aggregate of 1,100,000 shares of
Common Stock at a reduced exercise price of $1.30 per share. The original
exercise price of the warrants was $1.4375.
The Corporation provides telecommunications services to certain hotels
managed by Larken, Inc., a corporation controlled by Larry A. Cahill. Mr. Cahill
beneficially owns approximately 9.9% of the Common Stock outstanding on March
31, 1999. The Corporation generated revenues of $463,976 in 1998 pursuant to its
contracts with Larken, Inc., and accrued commissions of $360,000 payable to
Larken, Inc. pursuant to such contracts.
9
<PAGE> 12
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, a
former shareholder of PIC and PICR, was appointed as a director of the
Corporation immediately following the PIC Acquisition and Bonner B. Hardegree, a
former shareholder of PIC and PICR, was appointed as an executive officer of the
Corporation in November 1998. The Corporation's agreement for the PIC
Acquisition contained an earn-out provision (the "PIC Earn-Out") which required
that the Corporation issue additional shares of Common Stock to the former
shareholders of PIC based upon the combined earnings before interest, taxes,
depreciation and amortization of PIC and PICR for certain periods after closing.
In December 1998, the Corporation and the former shareholders of PIC agreed to
settle the PIC Earn-Out based on historical and projected financial information
with respect to PIC. Pursuant to the settlement, the Corporation issued an
aggregate of 2,300,000 shares of Common Stock to the former shareholders of PIC
in December 1998, including 1,580,067 shares to Mr. Wright and 283,341 shares to
Mr. Hardegree. The Corporation agreed to file a registration statement covering
these shares during the first half of 1999. The Corporation also agreed with Mr.
Wright and Mr. Hardegree that certain notes issued to them pursuant to the PIC
Acquisition would bear interest at an annual rate of 14% from the date of the
settlement agreement. At December 31, 1998, an aggregate of $317,203 was
outstanding under these notes. In January 1999, the notes to Mr. Wright and Mr.
Hardegree were paid in full. The Corporation also entered into a deferred
payment arrangement with Wayne Wright pursuant to which Mr. Wright will receive
$300,000 payable in 24 equal monthly installments commencing in January 1999.
THE CAPITALIZATION AMENDMENT PROPOSAL
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") currently provide that the aggregate number of all
classes of capital stock which the Corporation has authority to issue is
21,000,000 shares divided into two classes as follows: (i) 20,000,000 shares of
Common Stock and (ii) 1,000,000 shares of Preferred Stock. Pursuant to the
Articles of Incorporation, the Corporation's Board of Directors has the
authority to establish one or more series of Preferred Stock and to determine,
with respect to any series of Preferred Stock, the terms and rights of such
series. As of the date of this Proxy Statement, the only class of Preferred
Stock designated by the Corporation is the Series A Convertible Preferred Stock,
of which 18,920 shares are issued and outstanding.
PURPOSE AND EFFECT OF THE CAPITALIZATION AMENDMENT PROPOSAL
The Articles of Amendment will increase the number of shares of Common
Stock which the Corporation is authorized to issue from 20,000,000 to 40,000,000
shares. The additional 20,000,000 shares of Common Stock will be part of the
existing class of Common Stock, and if and when issued, will have the same
rights and privileges as the shares of Common Stock presently issued and
outstanding.
As of April 9, 1999, there were 10,329,867 shares of Common Stock issued
outstanding, and 8,020,099 shares reserved for issuance upon exercise of
outstanding warrants and stock options and the conversion of shares of Series A
Preferred Stock. With 20,000,000 shares of Common Stock authorized for issuance
under the Articles of Incorporation, the Corporation currently has only
1,650,034 shares of Common Stock available for issuance in future transactions.
Purpose of the Capitalization Amendment Proposal. The Corporation has no
present plans, understandings or requirements for the issuance or use of the
proposed additional shares of Common Stock. However, the Board of Directors
believes that the authority to issue additional shares of Common Stock is
desirable so that, as the need may arise, the Corporation will have the
flexibility to issue shares of Common Stock, without the delay of a special
shareholders' meeting, in connection with possible future equity financings,
future opportunities for expanding the Corporation's business through
acquisitions, and management incentive or employee benefit plans. The
Corporation is engaged in efforts to identify businesses which are complementary
to the Corporation's business and which enhance shareholder value as acquisition
targets. There can be no assurance that acquisition opportunities will be
available or that the Corporation will have sufficient resources to consummate
any such acquisition.
10
<PAGE> 13
Certain Effects of the Capitalization Amendment Proposal. If the
Capitalization Amendment Proposal is approved and effected, future issuances of
shares of Common Stock may not require the approval of the Corporation's
shareholders. As a result, the Board of Directors could issue shares of Common
Stock in a manner that might have the effect of discouraging or making it more
difficult for a third party to acquire control of the Corporation through a
tender offer or proxy solicitation, or to effect a merger or other business
combination, that is not favored by the Board of Directors. In addition,
issuances of shares of Common Stock may increase the number of shares of Common
Stock that may become available for sale in the public market and could
adversely affect the price of the Common Stock in the public market. The
issuance of additional shares of Common Stock could also adversely affect the
voting power of the existing shareholders, including the loss of voting control
to others. Holders of Common Stock do not have preemptive rights or other rights
to subscribe for additional shares in the event that the Board of Directors
determines to issue additional shares of Common Stock in the future.
NO DISSENTER'S RIGHTS
Under Iowa law, shareholders are not entitled to dissenters' rights with
respect to the Capitalization Amendment Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
Capitalization Amendment Proposal. All shares of Common Stock represented by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted FOR the Capitalization Amendment Proposal unless a vote
against or an abstention with respect to such proposal is specifically
indicated. If the Capitalization Amendment Proposal is adopted by the requisite
vote of shareholders, the Board of Directors will promptly cause the Articles of
Amendment to be filed with the Secretary of State of the State of Iowa. The
Articles of Amendment will become effective upon such filing.
APPOINTMENT OF AUDITORS
The Board of Directors, upon recommendation from the Audit Committee, has
selected Deloitte & Touche LLP to be the Corporation's auditors for the 1999
fiscal year.
Although this appointment is not required to be submitted to a vote of
shareholders, the Board of Directors believes it appropriate as a matter of
policy to request that the shareholders ratify the appointment. If shareholders'
ratification is not received, the Board of Directors may reconsider the
appointment.
The Board of Directors of the Corporation recommends a vote for
ratification of Deloitte & Touche LLP as independent auditors for the purpose of
auditing the financial statements of the Corporation for fiscal 1999. A
representative of Deloitte & Touche LLP will be present at the Annual Meeting
and will have the opportunity to make a statement if he desires to do so and
will be available to respond to appropriate questions.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB
The Corporation is required to file an annual report, called a Form 10-KSB,
with the Securities and Exchange Commission. A copy of Form 10-KSB for the
fiscal year ended December 31, 1998 will be made available, without charge, to
any person entitled to vote at the Annual Meeting. Written request should be
directed to Paul C. Tunink, Secretary, Murdock Communications Corporation, 1112
29th Avenue S.W., Cedar Rapids, Iowa 52404.
11
<PAGE> 14
SHAREHOLDER PROPOSALS
Proposals which shareholders intend to present at the 2000 Annual Meeting
of Shareholders pursuant to Rule 14a-8 under the Exchange Act must be received
at the Corporation's principal offices in Cedar Rapids, Iowa no later than
December 24, 1999 for inclusion in the proxy material for that meeting.
Proposals submitted other than pursuant to Rule 14a-8 will be considered
untimely if received after March 10, 2000 and the Corporation will not be
required to present any such proposal at the 2000 Annual Meeting of
Shareholders. If the Board of Directors decides to present a proposal despite
its untimeliness, the people named in the proxies solicited by the Board of
Directors for the 2000 Annual Meeting of Shareholders will have the right to
exercise discretionary voting power with respect to such proposal.
OTHER MATTERS
The Directors of the Corporation know of no other matters to be brought
before the meeting. If any other matters properly come before the meeting,
including any adjournment or adjournments thereof, it is intended that proxies
received in response to this solicitation will be voted on such matters in the
discretion of the person or persons named in the accompanying proxy form.
BY ORDER OF THE BOARD OF DIRECTORS
MURDOCK COMMUNICATIONS
CORPORATION
Thomas E. Chaplin,
Chief Executive Officer
Cedar Rapids, Iowa
April 23, 1999
12
<PAGE> 15
APPENDIX A
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
MURDOCK COMMUNICATIONS CORPORATION
MURDOCK COMMUNICATIONS CORPORATION, a corporation organized and existing
under and by virtue of the Iowa Business Corporation Act (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation has determined that
it is advisable and in the best interests of the Corporation that the Restated
Articles of Incorporation of the Corporation be amended by deleting the current
text of the first paragraph of Article III thereof and substituting in lieu
thereof the following:
ARTICLE III
The total number of shares of stock which the Corporation has authority to
issue is 41,000,000 consisting of:
(i) 40,000,000 shares of Common Stock of no par value (the "Common
Stock"); and
(ii) 1,000,000 shares of Preferred Stock of no par value (the
"Preferred Stock").
SECOND: The Articles of Amendment were approved by the shareholders of the
Corporation in accordance with section 1003 of the Iowa Business Corporation Act
at the annual meeting of shareholders held on May 25, 1999. The number of
outstanding shares of Common Stock on April 9, 1999, the record date for the
annual meeting, and the number of votes indisputedly represented at the annual
meeting is as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING SHARES REPRESENTED AT MEETING
------------------ -----------------------------
<S> <C>
</TABLE>
The total number of undisputed votes cast for the Articles of Amendment
was:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST
--------- -------------
<S> <C>
</TABLE>
THIRD: The effective date and time of this document is the date and time of
filing with the Iowa Secretary of State.
A-1
<PAGE> 16
IN WITNESS WHEREOF, the Corporation has caused the Articles of Amendment to
be signed by Thomas E. Chaplin, its Chief Executive Officer, and attested by
Paul C. Tunink, its Secretary, on this
day of , 1999.
MURDOCK COMMUNICATIONS
CORPORATION
By
------------------------------------
Thomas E. Chaplin,
Chief Executive Officer
Attest:
--------------------------------------
Paul C. Tunink, Secretary
A-2
<PAGE> 17
PROXY
MURDOCK COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas E. Chaplin and Paul C. Tunink,
or either one of them, each with full power of substitution and resubstitution,
as proxy or proxies of the undersigned to attend the Annual Meeting of
Shareholders of Murdock Communications Corporation to be held on May 25, 1999 at
2 p.m., local time, at the Four Points Sheraton Inn, 525 33rd Avenue S.W., Cedar
Rapids, Iowa 52404, and at any adjournment thereof, there to vote all shares of
Common Stock which the undersigned would be entitled to vote if personally
present as specified upon the following matters and in their discretion upon
such other matters as may properly come before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and accompanying Proxy Statement, ratifies all that said
proxies or their substitutes may lawfully do by virtue hereof, and revokes all
former proxies.
Please sign exactly as your name appears hereon, date and return this
Proxy. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO GRANT AUTHORITY
TO ELECT THE NOMINATED DIRECTORS, TO APPROVE AND ADOPT THE ARTICLES OF AMENDMENT
AND TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
AUDITORS. IF OTHER MATTERS COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES APPOINTED.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
MURDOCK COMMUNICATIONS CORPORATION ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
<S><C>
1. ELECTION OF DIRECTORS: [ ] FOR all [ ] WITHHOLD
(terms expiring at the 2000 1-GUY O. MURDOCK 2-THOMAS E. CHAPLIN nominees listed AUTHORITY to
Annual Meeting) 3-COLIN P.HALFORD 4-JOHN C. POSS 5-STEVEN R. to the left vote for all
EHLERT 6-LARRY A. ERICKSON 7-WAYNE WRIGHT (except as nominees listed
specified below). to the left.
--------------------------------------
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided
to the right.)
--------------------------------------
2. To approve and adopt Articles of Amendment to the Company's Articles of [ ] FOR [ ] AGAINST [ ] ABSTAIN
Incorporation to increase the total number of authorized
shares of the Company's no par value common stock from 20,000,000 to
40,000,000 shares.
3. To ratify the appointment of Deloitte & Touche LLP as the Company's [ ] FOR [ ] AGAINST [ ] ABSTAIN
auditors for 1999.
4. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Date NO. OF SHARES
---------------------------------------------
CHECK APPROPRIATE BOX
Indicate changes below:
Address Change? [ ] Name Change? [ ]
---------------------------------------------
---------------------------------------------
Signature(s) in Box
If signing as attorney, executor, administrator,
trustee or guardian, please add your full title
as such. If shares are held by two or more
persons, all holders must sign the Proxy.
</TABLE>
