FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
Commission file number: 0-23598
NATIONAL WIRELESS HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3735316
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
249 Royal Palm Way, Suite 301, Palm Beach, Florida 33480
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(Address of principal executive offices) (Zip Code)
(407) 832-0981
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [_]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 3,253,000 shares as of March 13, 1997.
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NATIONAL WIRELESS HOLDINGS INC.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Contents
Page(s)
-------
Condensed Consolidated Balance Sheets as of January 31, 1997
and October 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months ended January 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended January 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
2
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NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 884,941 $ 14,788,765
U.S. treasury securities 11,839,919
Trade and other receivables 347,411 119,707
Due from related parties 73,000
Prepaid expenses and other current assets 85,745 47,777
------------ ------------
Total current assets 13,158,016 15,029,249
Notes receivable from EDSS 988,000
Wireless frequency license and acquisition costs, net of accumulated
amortization of $357,634 and $311,797, respectively 2,772,022 2,720,102
Transmission and related equipment, net of accumulated
amortization of $276,287 and $226,577, respectively 1,130,511 1,175,521
Leasehold improvements, office equipment and service vehicles, net
of accumulated depreciation of $330,588 and $282,813, respectively 506,898 394,088
Intangible assets, net of accumulated amortization
of $143,961 and $102,251, respectively 3,438,443 398,096
Investments 354,500 608,800
Deposits and other assets 274,766 269,696
------------ ------------
Total Assets $ 21,635,156 $ 21,583,552
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 948,171 $ 665,448
Due to related parties 113,600 50,000
Current maturities of long-term debt 430,948 443,369
------------ ------------
Total current liabilities 1,492,719 1,158,817
------------ ------------
Long-term debt 168,600 232,247
Due to related parties 321,907
Commitments
Stockholders' equity:
Preferred stock
Common Stock $.01 par value: 20,000,000 shares authorized;
3,253,000 shares issued and outstanding 32,530 32,530
Additional paid-in capital 22,421,173 22,421,173
Accumulated deficit (2,801,773) (2,261,215)
------------ ------------
Total stockholders' equity 19,651,930 20,192,488
------------ ------------
Total liabilities and stockholders' equity $ 21,635,156 $ 21,583,552
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
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NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months
Ended January 31,
-------------------------
1997 1996
---------- ----------
Revenue:
Services $ 506,004 $ 265,356
Interest income 195,756 294,862
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Total revenue 701,760 560,218
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Expenses:
Cost of services 340,923 181,393
Market development 157,813 239,659
Professional fees 103,334 64,836
General and administrative 442,192 176,601
Depreciation and amortization 185,032 128,168
Interest 13,024 25,161
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Total expenses 1,242,318 815,818
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Net loss $ 540,558 $ 255,600
========== ==========
Net loss per common share $ 0.17 $ 0.08
========== ==========
Weighted average number of common shares
outstanding 3,253,000 3,253,000
========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
4
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NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended January 31,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (540,558) $ (255,600)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 185,032 128,168
Accretion of interest income (146,879)
Gain on sale of vehicles (13,352)
Changes in assets and liabilities:
Due from related parties 73,000 47,350
Trade receivables and other receivables (36,384) (223,846)
Prepaid expenses and other current assets 10,977 (34,390)
Deposits and other assets (33,626) (17,571)
Accounts payable and accrued expenses (10,294) (95,496)
Due to related parties 63,600 55,000
Other (8,914)
------------ -----------
Net cash used in operating activities (435,132) (418,651)
------------ -----------
Cash flows from investing activities:
Wireless frequency license and acquisition costs (97,757) (41,980)
Acquisition of transmission and related equipment (4,700) (10,169)
Acquisition of leasehold improvements, office equipment and
service vehicles (53,427) (45,756)
Proceeds on sale of vehicles 41,130
Purchases of U.S. treasury securities (11,693,040)
Acquisition of EDSS (1,543,700)
------------ -----------
Net cash used by investing activities (13,392,624) (56,775)
------------ -----------
Cash flows from financing activities:
Increase in notes receivable EDSS (140,000)
Principal payments of long-term debt (76,068) (134,708)
------------ -----------
Net cash used in financing activities (76,068) (274,708)
------------ -----------
Net decrease in cash and cash equivalents (13,903,824) (750,134)
Cash and cash equivalents, beginning of period 14,788,765 4,888,240
------------ -----------
Cash and cash equivalents, end of period $ 884,941 $ 4,138,106
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 13,024 $ 25,161
============ ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
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Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
National Wireless Holdings, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals necessary for
a fair presentation of the financial statements for these interim periods,
have been included. Operating results for the interim period are not
necessarily indicative of the results that may be expected for a full
year. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1996 (File No. 0-23598) and filed with
the Securities and Exchange Commission.
2. Net Loss Per Share Data:
Net loss per share is computed based on the loss for the period divided by
the weighted average number of common shares outstanding during the
period. Common Stock equivalents are not reflected in the calculation
since they are anti-dilutive.
3. Acquisition of EDSS
On December 13, 1996, the Company exercised a warrant and an option to
purchase shares of the common stock of Electronic Data Submission Systems,
Inc. ("EDSS"), an electronic healthcare billing network operator serving
doctors and insurance companies, which when combined with its existing
share ownership represents 50% of the outstanding common stock and,
pursuant to the EDSS Shareholders Agreement dated as of July 25, 1996,
control of EDSS. The aggregate purchase price for the purchase of EDSS
shares was $1,887,500 of which an aggregate of $887,500 was paid to EDSS
and $1,000,000 was paid to the principal stockholder of EDSS. With the
proceeds received from the Company, EDSS acquired a non-interest-bearing
$1,000,000 note payable to a former stockholder for $775,000. The
acquisition has been accounted for under the purchase method of accounting
and the results of operations from the date of purchase have been
reflected in the consolidated statement of operations. The purchase price
has been allocated principally to intangible assets (goodwill) and is
being amortized over 15 years.
Continued 6
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Notes to Condensed Consolidated Financial Statements
(unaudited), Continued
The unaudited consolidated results of operations on a pro forma basis as
though EDSS had been acquired as of the beginning of fiscal year 1996 are
as follows:
Three months ended
January 31,
----------------------------
1997 1996
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Revenues $ 957,000 $ 1,070,000
Net loss 640,000 410,000
Net loss per weighted average number of
common shares outstanding 0.20 0.13
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results
that would have occurred had the acquisition been consummated as of the
above date, nor are they necessarily indicative of future operating
results.
4. Potential Sale of SFTV
On February 26, 1997, the registrant and its wholly-owned subsidiary,
South Florida Television, Inc. ("SFTV") entered into an Agreement and Plan
of Reorganization (the "Merger Agreement") with BellSouth Corporation
("BellSouth") and its wholly-owned subsidiary, Bell South South Florida
Merger Subsidiary, Inc. ("BellSouth Sub"), pursuant to which BellSouth Sub
will merge into SFTV, SFTV will become a wholly-owned subsidiary of
BellSouth and the reistrant will receive an aggregate of $48 million,
consisting of $7.2 million in cash and $40.8 million in BellSouth common
stock (the "Merger"). The Merger Agreement provides for usual conditions
of closing and receipt of certain approvals from the Federal
Communications Commission. The Merger, which is expected to close by
mid-summer 1997, will be treated as a tax-free reorganization, except as
to the cash received. The principal assets to be acquired are the wireless
frequency license and acquisition costs and transmission and related
equipment included in the accompanying consolidated balance sheet as of
January 31, 1997.
5. Consulting Agreement
On February 28, 1997, the registrant entered into a consulting agreement
with Michael J. Specchio, Inc. ("MJS Inc.") which is owned and managed by
Michael J. Specchio, Chairman of the registrant, and simultaneously
terminated its employment agreement, as amended, with Mr. Specchio. Under
said consulting agreement, MJS Inc. is retained as a consultant and is
obliged to provide the services of Mr. Specchio on substantially a
full-time basis for a term ending September 2001 for annual compensation
of $180,000, on substantially the same terms as Mr. Specchio was
previously employed under such employment agreement. Under the consulting
agreement, MJS Inc. also has the same severance benefits as previously
provided to Mr. Specchio.
7
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
National Wireless Holdings Inc. (the "Company") was incorporated in
Delaware on August 31, 1993. Since its inception, the Company has sought to
identify wireless systems for acquisition and development and to acquire
frequencies and wireless cable technology. The Company's fiscal year ends on
October 31.
The Company has acquired rights to build and operate a wireless
cable system in Miami, Florida, as well as a satellite programming uplink
facility in the same area. The Company also seeks to support, finance and
acquire new technologies for the wireless cable industry and to secure and
assemble rights to frequencies in other markets. The Company ha also acquired
interests in an educational programming distribution business and an electronic
healthcare billing system company and may acquire or invest in other businesses.
In order to execute its business plan, the Company raised
approximately $22 million through an initial public offering of two million
shares of its Common Stock on March 9, 1994.
Certain statements contained in this Annual Report on Form 10-K
constitute "forwardlooking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements.
Results of Operations
Three months ended January 31, 1997 as compared to three months ended January
31, 1996:
Service Revenue:
Service revenue increased from $265,356 for the three months ended January 31,
1996 to $506,004 for the three months ended January 31, 1997 as a result of
increased revenues from a subsidiary acquired in August 1995 and revenues of a
majority owned subsidiary, acquired in December 1996.
Interest Income:
Interest income decreased from $294,862 for the three months ended January 31,
1996 to $195,756 for the three months ended January 31, 1997 primarily as a
result of changes in cash and treasury securities balances and interest rates.
Cost of Services:
Cost of services increased from $181,393 for the three months ended January 31,
1996 to $340,923 for the three months ended January 31, 1997 as a result of
increased operating costs and the acquisitions referred to above.
8
<PAGE>
Market Development:
Market development expenses decreased from $239,659 for the three months ended
January 31, 1996 to $157,813 for the three months ended January 31, 1997 as a
result of less activity in the development of the Miami market due to the
proposed sale of SFTV as described below.
Professional Fees:
Professional fees increased from $64,836 in the three months ended January 31,
1996 to $103,334 in the three months ended January 31, 1997 as a result of
additional activity.
General and Administrative:
General and administrative expense increased from $176,601 in the three months
ended January 31, 1996 to $442,192 in the three months ended January 31, 1997
primarily as a result of the acquisition, proposed sale and other costs.
Depreciation and Amortization:
Depreciation and amortization increased from $128,168 in the three months ended
January 31, 1996 to $185,032 in the three months ended January 31, 1997
primarily as a result of the EDSS acquisition.
Interest Expense:
Interest expense decreased from $25,161 in the three months ended January 31,
1996 to $13,024 in the three months ended January 31, 1997 due to principal
repayment of long-term debt.
Net Loss:
As a result of the foregoing events, net loss increased from $255,600 in three
months ended January 31, 1996 to $540,558 in the three months ended January 31,
1997.
Liquidity and Capital Resources
The Company has funded its operations with the net proceeds from a
$500,000 private placement of the Company's Series A Preferred Stock and its
initial public offering of 2,000,000 shares of Common Stock aggregating, after
payment of offering costs, approximately $22,000,000. The proceeds have been and
will be used to fund construction and development of wireless cable systems,
acquisitions of wireless cable frequency rights and development and acquisition
of new technologies and businesses in other areas. Such amount, with interest
thereon, is expected to be sufficient to implement the business plan of the
Company through October 1998, or for a shorter period if the Company determines
to invest a substantial portion of its assets in major acquisitions or equity
investments. The development of wireless cable systems entails substantial
capital investment and will require additional funding. The future availability
and terms of equity and debt financing to meet future capital needs could force
the Company to modify, curtail, delay or suspend some or all aspects of its
planned operations.
The Company has obtained rights to a sufficient number of
frequencies in Miami, Florida to commence development of a wireless cable system
when digital technology becomes available on an economic basis. The Company
believes that the overall cost of developing such a system in Miami would be in
excess of $100,000,000, and the initial capital investment required, including
acquisition and early phase construction costs, is estimated to be from
$10,000,000 to $13,000,000. The actual capital investment requirements for
developing any markets may vary substantially from such estimates depending upon
which frequencies are actually acquired, the technical configuration of the
transmission systems, and regulatory issues. The balance of the required capital
will be invested as subscribers are added. There can be no assurance that the
9
<PAGE>
Company can develop the Miami market, and, as discussed below, the Company has
agreed to sell its assets in the Miami market.
The Company has capitalized the costs of obtaining the rights to
wireless frequencies in the Miami market. The recoverability of such costs is
dependent upon the successful development of a system in Miami or through the
resale of such frequency rights. Management estimates that, if it does not
complete the proposed sale of its assets in the Miami market, it will recover
the carrying amount of these costs from cash flows generated by the system once
it has been developed. However, it is reasonably possible that such estimate
will change in the near term as a result of frequency availability, technology,
regulatory or other changes.
Development of markets in which the Company has already acquired
rights, including acquisition of the additional frequencies and other related
assets which may be necessary to make development feasible, would use
substantially all its capital. The Company also plans to acquire additional, as
yet unidentified wireless frequencies or assets; however, there can be no
assurance it will be able to acquire any of them. If it does not sell its
interests in the Miami market, as discussed below, the Company plans to use its
assets to develop Miami, the market which management considers most promising at
present, and will seek additional capital to develop Miami and other markets in
which it may acquire interests through equity or debt financing, joint ventures
or other arrangements. The Company may sell frequencies to finance development
or acquisition of other markets. The failure to obtain additional funds on a
timely basis could have a material adverse affect on the Company and its
business and, if such financing is not available, the Company may be obliged to
modify or curtail its operations. The Company believes it will be able to
undertake limited development of Miami (that is, with less rapid construction
and less extensive marketing) without such additional strategic alliances with
the Company and make other acquisitions or investments.
On February 26, 1997, the registrant and its wholly-owned
subsidiary, South Florida Television, Inc. ("SFTV") entered into an Agreement
and Plan of Reorganization (the "Merger Agreement") with BellSouth Corporation
("BellSouth") and its wholly-owned subsidiary, BellSouth South Florida Merger
Subsidiary, Inc. ("BellSouth Sub"), pursuant to which BellSouth Sub will merge
into SFTV, SFTV will become a wholly-owned subsidiary of BellSouth and the
registrant will receive an aggregate of $48 million (before expenses),
consisting of $7.2 million in cash and $40.8 million in BellSouth common stock
(the "Merger"). The Merger Agreement provides for usual conditions of closing
and receipt of certain approvals from the Federal Communications Commission. The
Merger, which is expected to close by mid-summer 1997, will be treated as a
tax-free reorganization, except as to the cash received. If the Merger is
completed as proposed, the Company will have in excess of $60 million in cash
and BellSouth securities; a full-service teleport and satellite uplink facility
in Miami; a 50 percent interest in EDSS (as defined below), a provider of
software which enables physicians to transmit electronically health care claims
to over 350 insurance companies; an investment in an educational video
programming distributor; a specialized communications truck company; and a
strategic alliance with Spike Technologies, which has developed bidirectional
point-to-multipoint microwave antenna technology.
On December 13, 1996, National Wireless Holdings, Inc. (the
"Company") exercised a warrant and an option to purchase additional shares of
the common stock of Electronic Data Submission Systems, Inc. ("EDSS"), which
when combined with its existing share ownership represents 50% of the
outstanding common stock and, pursuant to the EDSS Shareholders Agreement, dated
as of July 25, 1996, control of EDSS. The aggregate purchase price for the
purchase of EDSS shares was approximately $1,887,500 of which an aggregate of
$887,500 was paid to EDSS and $1,000,000 was paid to Joseph D. Truscelli, a
principal stockholder and President of EDSS. With the proceeds received from the
Company, EDSS acquired a non-interest-bearing $1,000,000 note payable to a
former stockholder for $775,000. In addition, pursuant to a loan agreement
between
10
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EDSS and the Company, dated June 9, 1995, the Company had outstanding loans to
EDSS of approximately $988,000 as of March 13, 1997, which were eliminated from
the balance sheet in consolidation.
The Company may, when and if the opportunity arises, acquire or
invest in other business in the wireless cable industry or in unrelated areas.
If such an opportunity arises, the Company may use a portion of its funds for
that purpose. The Company has no specific arrangements with respect to any such
acquisitions or investments at the present time and is not currently involved in
any negotiations with respect to any such acquisition. There can be no assurance
that any such acquisitions or investments will be made.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
On February 28, 1997, the registrant entered into a consulting
agreement with Michael J. Specchio, Inc. ("MJS Inc.") which is owned and managed
by Michael J. Specchio, Chairman of the registrant, and simultaneously
terminated its employment agreement, as amended, with Mr. Specchio. Under said
consulting agreement, MJS Inc. is retained as a consultant and is obliged to
provide the services of Mr. Specchio on substantially a full-time basis for a
term ending September 2001 for annual compensation of $180,000, on substantially
the same terms as Mr. Specchio was previously employed under such employment
agreement. Under the consulting agreement, MJS Inc. also has the same severance
benefits as previously provided to Mr. Specchio.
11
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.38 - Consulting Agreement, dated February 28,
1997, between the registrant and Michael J. Specchio, Inc.
(b) Reports on Form 8-K.
Date of Event Subject
------------- -------
February 26, 1997 Press release concerning
definitive agreement for
sale of subsidiary to
BellSouth Corporation
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 14, 1997
NATIONAL WIRELESS HOLDINGS INC.
-------------------------------------
(Registrant)
By: /s/ Terrence S. Cassidy
-----------------------------------
Terrence S. Cassidy, President and
Principal Accounting Officer
CONSULTING AGREEMENT
This Agreement, dated the 28th day of February 1997, between MICHAEL
J. SPECCHIO, INC., a Wisconsin corporation (hereinafter "Consultant"), and
NATIONAL WIRELESS HOLDINGS INC., a Delaware corporation (hereinafter the
"Company"),
W I T N E S S E T H:
WHEREAS, the Company is a Delaware corporation organized pursuant to
the Delaware General Corporation Law; and
WHEREAS, Michael J. Specchio ("Specchio"), an individual, currently
renders services to the Company and serves as Chairman of the Company pursuant
to a Consulting Agreement, dated September 22, 1993, as amended by Amendment No.
1 dated January 1995 and Amendment No. 2 dated December 12, 1996 (the "Old
Agreement"); and
WHEREAS, effective the date hereof, Specchio is employed full time
by Consultant and serves as its President pursuant to an Employment Agreement
dated February 28, 1997; and
WHEREAS, Company desires to retain the Consultant to render
consulting services to it (the "retainment"); and
WHEREAS, the Consultant desires to serve the Company in such
capacity; and
WHEREAS, Specchio and the Company wish to terminate the Old
Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Consultant Period. Subject to the other provisions of this
Agreement hereof, this Agreement shall be effective for the term (the "Term")
from the date hereof until September 22, 2001. During the Term, (i) the
Consultant shall employ Specchio on a full time basis and (ii) Consultant shall
cause Specchio to serve the Company on a full-time basis as the Chairman of the
Company; provided that Specchio may devote a reasonable percentage of his time,
consistent with his current practices on the date of this Agreement, to other
personal investments.
2. Duties. a. Consultant shall advise the Company on such matters as
may be requested by the Board of Directors, including, without limitation, the
acquisition of broadcast frequencies and programming, construction of systems
and developments in technology. Consultant shall perform such duties as are
designated to it by the Board of Directors faithfully, diligently, and to the
best of its ability consistent with the highest and best standards of the
industry of the Company. The Company further acknowledges that certain
information which would
<PAGE>
be useful to Consultant in the delivery of services might have been acquired by
Consultant through Specchio's former relationship with Preferred Entertainment,
Inc. and cannot be divulged by Consultant or Specchio to the Company. Consultant
shall have such authority as is delegated to Consultant from time to time by the
Board of Directors and as provided for in the Bylaws of the Company.
b. Specchio shall be the Chairman of the Company and shall perform
such duties and services, consistent with his title and position, as may be
assigned to him from time to time by the Board of Directors of the Company (the
"Board") and as otherwise may be provided for in the ByLaws of the Company.
Consultant agrees to cause Specchio to perform such duties faithfully,
diligently, and to the best of his ability consistent with the highest and best
standards of the industry of the Company subject to the limitations expressed in
Section 1.
3. Compensation.
a. Consultant shall receive and the Company shall pay throughout the
Term hereof a consulting fee of $180,000 per year (less all applicable
withholding and deductions therefrom), to be paid in regular semi-monthly
installments.
b. Consultant shall be eligible for such bonuses or incentives as
may be approved by the Board of Directors of the Company from time to time.
4. Conditions of Termination; Compensation in the Event of Termination.
a. Termination for Cause by Company: The Company at any time may
terminate this Agreement and Consultant's retainment by the Company, without
further obligation or liability to Consultant, in the event the Company
determines in good faith by majority vote of the entire Board of Directors then
in office that (each a termination for "cause"):
(1) Specchio is permanently disabled. For purposes of this
Agreement, Specchio may be deemed permanently disabled when so conceded by
Specchio or so certified by a physician selected by Specchio or his legal
representative, on the one hand, or by the Company, on the other, and such
certificate is delivered to the other party. In the event that within 10
days after delivery of such certificate the other party should, by written
notice to the other party, contest the finding of disability, the parties
agree to submit the determination of permanent disability to another
physician acceptable to both parties, or if a physician cannot be agreed
upon, a physician designated by the Dean of Mount Sinai Medical School;
-2-
<PAGE>
(2) Consultant or Specchio is grossly negligent in the performance
of its or his duties;
(3) Consultant or Specchio is convicted of a violation of any State
or Federal law and is fined Ten Thousand Dollars ($100,000) or more or
sentenced to prison or jail for a term of one year or more; or
(4) Consultant or Specchio commits any material violation of this
Agreement which violation is not cured within 30 days after notice of such
violation is given to Consultant by the Board of Directors of the Company.
b. Termination for Cause by Consultant: Consultant may terminate
this Agreement at any time, without further obligation or liability to Company,
in the event that Company fails to make payments of compensation as provided for
in Paragraph 3 or otherwise materially breaches its obligations to Consultant
and such failure continues for 30 days after notice of such violation(s) is
given to the Company by Consultant.
c. Other Events of Termination.
(1) Unless extended in writing by the parties hereto, this Agreement
shall terminate at the expiration of the Term.
(2) This Agreement shall terminate at any time by agreement in
writing by the Company and Consultant.
(3) This Agreement shall terminate upon the date Specchio ceases to
be employed full-time by Consultant or Specchio dies, in which case
Consultant shall be entitled to all accrued but unpaid compensation
hereunder through such date.
d. In the event Consultant is terminated for cause or in the event
Consultant terminates this Agreement, Consultant shall be entitled to, and shall
receive, no compensation excepting only such of the base compensation set forth
in Section 3 above as shall be accrued to the date of termination.
5. Termination Upon Change of Control.
a. Definitions. As used in this Section 5, the terms below shall
have the following meanings:
(1) Cash Compensation. "Cash Compensation" shall mean the sum
of (x) the higher of the Consultant's annual base consulting fee at (i) the time
the Notice of Termination provided for in Section 5(b)(2) of this Agreement is
given or
-3-
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(ii) immediately prior to a Change in Control, and (y) an amount equal to the
highest aggregate Cash Bonus Earned by the Consultant under all cash bonus plans
of the Company for any of the three fiscal years immediately preceding the year
in which the Date of Termination occurs. "Cash Bonus Earned" shall mean all
amounts actually earned for performance in a specific fiscal year without regard
to voluntary or mandatory payment deferrals if so specified in the applicable
bonus plan.
(2) Change in Control. A "Change in Control" of the Company
shall mean the occurrence during the term of this Agreement of any one of the
following events:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by
any person (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), but not including Terrence S. Cassidy or Michael J.
Specchio) (each such person, a "Person"), immediately after which
such Person has "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of fifteen percent (15%)
or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, in determining
whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by
(A) an employee benefit plan (or a trust forming a part thereof)
maintained by (1) the Company or (2) any corporation or other Person
of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by
the Company (for purposes of this definition, a "Subsidiary"), (B)
the Company or its Subsidiaries, or (C) any Person in connection
with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of the date this Agreement is
approved by the Board of Directors are members of the Board (the
"Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if
the election, or nomination for election by the Company's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall
be considered a member of the Incumbent Board if such individual
initially assumed office as a result of
-4-
<PAGE>
either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving
the Company, unless such merger, consolidation or
reorganization is a "NonControl Transaction". A "Non-Control
Transaction" shall mean a merger, consolidation or
reorganization of the Company where:
(1) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own
directly or indirectly immediately following such
merger, consolidation or reorganization, at least
seventy percent (70%) of the combined voting power of
the outstanding voting securities of the corporation
resulting from such merger, consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization,
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of
the Surviving Corporation, and
(3) no Person other than (a) the Company, (b) any
Subsidiary, (c) any employee benefit plan (or any trust
forming a part thereof) maintained by the Company, the
Surviving Corporation, or any Subsidiary, or (d) any
Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership
of fifteen percent (15%) or more of the then outstanding
Voting Securities), has Beneficial Ownership of
-5-
<PAGE>
fifteen percent (15%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities.
(B) A complete liquidation or dissolution of the
Company; or
(C) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(3) Effective Date. "Effective Date" shall mean the date on
which a Change in Control is effectuated.
(4) Good Reason. The Consultant's termination of retainment
with the Company shall be deemed for "Good Reason" if it occurs within six (6)
months of any of the following without the Consultant's express written consent:
(a) the assignment to the Consultant or Specchio by the
Company of duties inconsistent with, or a substantial alteration in
the nature or status of, Consultant's or Specchio's responsibilities
immediately prior to a Change in Control of the Company other than
any such alteration primarily attributable to the fact that the
Company's securities are no longer publicly traded;
(b) a reduction by the Company in the Consultant's Cash
Compensation (as defined in Section 5(a)(1) above) as in effect on
the date of a Change in Control of the Company or as in effect
thereafter if such Cash Compensation has been increased during the
term of this Agreement;
(c) any failure by the Company to continue in effect without
substantial change any
-6-
<PAGE>
compensation, incentive, welfare or benefit plan or arrangement, as
well as any plan or arrangement whereby the Consultant or Specchio
may acquire securities of the Company, in which the Consultant or
Specchio is participating at the time of a Change in Control of the
Company (or any other plans, currently in effect or hereafter
adopted by the Company, providing the Consultant or Specchio with
substantially similar benefits) (hereinafter referred to as "Benefit
Plans"), or the taking of any action by the Company which would
adversely affect the Consultant's or Specchio's participation in or
materially reduce the Consultant's or Specchio's benefits under any
such Benefit Plan or deprive the Consultant or Specchio of any
material fringe benefit enjoyed by the Consultant or Specchio at the
time of a Change in Control of the Company unless an equitable
substitute arrangement (embodied in an ongoing substitute or
alternative Benefit Plan) has been made for the benefit of the
Consultant or Specchio with respect to the Benefit Plan in question.
For purposes of the foregoing, Benefit Plans shall include, but not
be limited to, the 1993 Stock Option Plan or any other plan or
arrangement to receive and exercise stock options or stock
appreciation rights, supplemental pension plan, insured medical
reimbursement plan, automobile benefits, executive financial
planning, group life insurance plan, personal catastrophe liability
insurance, medical, dental, accident and disability plans;
(d) relocation to any place more than 100 miles from the
office regularly occupied by the Consultant, except for required
travel by Specchio on the Company's business to an extent
substantially consistent with Specchio's business travel obligations
at the time of a Change in Control;
(e) any material breach by the Company of any provision of
this Agreement or this Agreement;
(f) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(g) any purported termination of the Consultant's retainment
by the Company which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 5(b)(2) below,
and for purposes of this Agreement, no such purported termination
shall be effective.
b. Termination Following Change in Control.
-7-
<PAGE>
(1) Termination of Retainment. If a Change in Control of the
Company as defined in Section 5(a)(2) shall have occurred while the Consultant
is still a consultant of the Company, the Consultant shall be entitled to the
compensation provided in Section 5(c) upon the subsequent termination of the
Consultant's consulting the Company by the Company or by the Consultant, unless
such termination is a result of (i) the Consultant's death; (ii) the Consultant
is permanently disabled (as more fully described in Paragraph 4(a)(1) of this
Agreement); (iii) the Consultant's termination by the Company for "cause" (as
defined in Section 4(a) of this Agreement); or (iv) the Consultant's decision to
terminate its retainment by the Company other than for Good Reason (as defined
in Section 5(a)(4) above). No compensation shall be payable and no rights shall
vest in the Consultant under this Agreement except as specifically set forth in
this Section 5(b)(1).
(2) Notice of Termination. Any purported termination of the
Consultant's retainment, hereunder by the Company or the Consultant hereunder
shall be communicated by a Notice of Termination to the other party as set forth
herein. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate those specific termination provisions in
this Agreement relied upon and which sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Consultant's
retainment under the provision so indicated.
(3) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company pursuant to Section 5(b)(1)(ii)
above, thirty (30) days after Notice of Termination is given to the Consultant
(provided that the Consultant shall not have returned to the performance of the
Consultant's duties on a full-time basis during such thirty (30) day period),
(ii) if the Consultant's retainment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given to the
Consultant by the Company, the Consultant notifies the Company that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if this Agreement is terminated by the Consultant, the
date on which the Consultant delivers Notice of Termination to the Company.
c. Severance Compensation upon Termination of Retainment. If
the Consultant's retainment with the Company shall be terminated as provided in
Section 3(a), then the Company shall:
-8-
<PAGE>
(1) subject to Sections 5(d) and 5(e) below, pay to the
Consultant as severance payment in a lump sum in cash, on the fifth
day following the Date of Termination, an amount equal to three
times (the "multiple") the Consultant's Cash Compensation (the
"Consultant's Severance Cash Benefit").
(2) arrange to provide the Consultant for two years (or such
shorter period as Consultant may elect) with disability, life,
accident and health insurance substantially similar to those
insurance benefits which Consultant is receiving immediately prior
to the Notice of Termination (including coverage for dependents at
the same per person cost as the Consultant is then paying). Benefits
otherwise receivable by Consultant pursuant to this Section 5(c)(2)
shall be reduced to the extent comparable benefits are actually
received by the Consultant during such two (2) year period following
his termination (or such shorter period elected by the Consultant),
and any such benefits actually received by Consultant shall be
reported by him to the Company.
d. Reduction in Benefits for "Parachute Payment".
Notwithstanding anything contained in this Agreement to the contrary, in the
event that the payments under Section 5(c) of this Agreement to the Consultant,
either alone or together with other payments the Consultant has a right to
receive from the Company, would not be deductible (in whole or in part) by the
Company as a result of such payments constituting a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code, as amended (the "Code")),
such payments shall be reduced to the largest amount as will result in no
portion of the payments under Section 5(c) not being fully deductible by the
Company as the result of Section 280G of the Code. The determination of any
reduction in the payments under Section 5(c) pursuant to the foregoing sentence
shall be made exclusively by Coopers & Lybrand, LLP, or such other firm of
certified independent public accountants as may be serving as the Company's
principal auditors immediately prior to the Effective Date (the "Auditors")
(whose fees and expenses shall be borne by the Company), and such determination
shall be conclusive and binding on the Company and the Consultant.
e. Reduction of Severance Cash Benefit in Certain Other
Circumstances. Notwithstanding anything contained in this Agreement to the
contrary, in the event that on the Effective Date the Company's Aggregate
Severance Liability (as defined below) exceeds 5% of the Company's Market
Capitalization (as defined below), the Consultant's Severance Cash Benefit shall
be reduced to the product of (a) 5% of the Company's Market Capitalization and
(b) a fraction (x) the numerator of which shall be the Consultant's Severance
Cash Benefit as of the
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<PAGE>
Effective Date and (y) the denominator of which shall be the Company's Aggregate
Severance Liability.
"The Company's Aggregate Severance Liability," as used herein, shall
mean an amount (determined by the Auditors) equal to the aggregate of the
Severance Cash Benefits payable to all employees and consultants of the Company
party to written Severance Benefit Agreements on the Effective Date, calculated
as of the Effective Date instead of as of the Dates of Termination of such
employees and consultants and in each case reduced by the applicable "parachute
payment" reduction, if any, described in Section 5(e) hereof. "The Company's
Market Capitalization," as used herein, shall mean the sum of: (i) the product
of (a) the total number of shares of common stock of the Company (the "Common
Stock") outstanding as of the Effective Date and (b) the last reported sale
price on the Nasdaq SmallCap of one share of Common Stock on the Effective Date;
plus (ii) the product of (a) the total number of shares of preferred stock of
the Company (the "Preferred Stock") outstanding on the Effective Date and (b)
the liquidation value of one share of Preferred Stock; plus (iii) the aggregate
amount of outstanding indebtedness for borrowed money of the Company on the
Effective Date; plus (iv) the aggregate amount of short and lone-term
liabilities of the discontinued operations of the Company as reflected on the
Company's most recently prepared quarterly balance sheet. "The Consultant's
Severance Cash Benefit as of the Effective Date," as used herein, shall mean an
amount (determined by the Auditors) equal to the Consultant's Severance Cash
Benefit calculated as of the Effective Date rather than as of the Date of
Termination, which calculation shall include the "parachute payment" reduction,
if any, which would be made pursuant to Section 5(e) hereof. The determination
of any reduction in the Consultant's Severance Cash Benefits pursuant to this
Section 6 shall be made exclusively by the Auditors (whose fees and expenses
shall be borne by the Company), and such determination shall be conclusive and
binding on the Company and the Consultant.
f. Mitigation of Damages. The Consultant shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other consulting engagements or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced by any
compensation earned by the Consultant as a result of consulting for another
company after the Date of Termination, or otherwise, except to the extent
provided in Section 5(d) above.
g. Effect of Agreement on Other Contractual Rights. The
provisions of this Agreement, and any payment provided for hereunder, shall not
reduce any amounts otherwise payable, or in any way diminish the Consultant's
existing rights, or rights which would accrue solely as a result of the passage
of time, under this Agreement, any Benefit Plan or other contract, plan or
arrangement.
-10-
<PAGE>
6. Duty of Loyalty. Consultant covenants and agrees that during the
Term of this Agreement and for a period of one year thereafter, it shall not
participate, and shall cause Specchio not to participate, as an officer,
director, partner, employee, agent, consultant, owner, stockholder,
representative, or in any other capacity with any other company or business
entity of any nature whatsoever which is directly or indirectly in competition
with the Company; provided, however, that ownership of (i) up to 10% of the
outstanding common stock of Peoples Choice TV Corp. or (ii) 5% or less of any
class of outstanding securities of a company whose securities are listed on a
national securities exchange, or which has not fewer than 1,000 shareholders,
shall not be deemed to constitute owner participation in any other company or
business entity which is directly or indirectly in competition with the
Company."
7. Term. This Agreement shall terminate, except to the extent that
any obligation of the Company hereunder remains unpaid, upon the earliest of (i)
the end of the Term, if a Change in Control has not occurred within the Term;
(ii) upon the termination of the Consultant's retainment by the Company based on
disability (as described in Section 4(a)(1)), the events described in Section
4(c)(3) or cause or by the Consultant other than for Good Reason; or (iii) three
years from the Effective Date of a Change in Control which was not approved by
the Board of Directors or two years from the Effective Date of a Change in
Control which was approved by the Board of Directors.
8. Successor to the Company. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Consultant to compensation from the Company in the same amount
and on the same terms as the Consultant would be entitled hereunder if such
succession had not occurred, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. For purposes of this Section 8, "Company" shall
mean the Company as defined above and any successor or assign to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for herein or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
9. Assignment by Consultant. The Consultant shall not assign this
Agreement or any rights contained hereunder and any such attempted assignment is
void.
-11-
<PAGE>
10. Miscellaneous. No provisions of this Agreement may be amended,
modified, waived or discharged unless such amendment, modification, waiver, or
discharge is agreed to in writing signed by the Consultant and the Company. No
waiver by either party hereto at any time of any breach by the other party of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement.
11. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. Gender. In this Agreement (unless the context requires
otherwise), the use of any masculine term shall include the feminine.
13. Binding Agreement. Except as otherwise specifically provided
herein, this Agreement shall be binding on the parties and their heirs,
executors, distributees, legal representatives, successors and assigns.
14. Notices. All notices under this Agreement shall be in writing
and shall be delivered by personal service to the parties at their respective
addresses as each party shall inform the other; provided, however, that a notice
in connection with the termination of the Consultant's engagement shall be
provided in accordance with the terms set forth in Section 5(b)(2) of this
Agreement. The effective date of any such notice shall be the date of delivery.
15. Governing Law. This Agreement shall be governed by the laws of
the State of Illinois applicable to contracts made and performed entirely
therein.
16. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subjects and matters addressed.
Except as provided herein, each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party or anyone acting on behalf of any party which are not set
forth herein and that no other agreement shall be valid or binding.
17. Agreement to Perform Necessary Acts. The parties shall execute
and deliver all documents and perform all further acts that may be reasonably
necessary to effect this Agreement.
-12-
<PAGE>
18. Headings. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to be a part
of or affect the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. Termination of Old Agreement. This Agreement supersedes the Old
Agreement in its entirety and the parties hereby agree and acknowledge that the
Old Agreement is hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
MICHAEL J. SPECCHIO, INC.
By: /s/ Michael J. Speechio, Inc.
-----------------------------
NATIONAL WIRELESS HOLDINGS INC.
By: /s/ Terrence S. Cassidy
-----------------------
Authorized Officer
Agreed as of the date first written
above solely in respect to Section 20
above:
/s/ Michael J. Speechio
- -----------------------
Michael J. Specchio
-13-
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0
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