<PAGE>
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, 1998
----------------
Commission file number: 0-23598
--------
NATIONAL WIRELESS HOLDINGS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3735316
------------------------------------ ------------------------
(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
249 ROYAL PALM WAY, SUITE 301, PALM BEACH, FLORIDA 33480
- -------------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(954) 832-0981
--------------
(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: 3,283,000 shares as of March 12, 1998.
<PAGE>
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, 1998
and October 31, 1997 3
Condensed Consolidated Statements of Operations for the three months
ended January 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the three months
ended January 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
2
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1997
----------------- ----------------
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 35,359,181 $ 21,256,356
Marketable securities 38,597,434 49,598,687
Trade and other receivables 904,510 893,498
Due from related parties 1,178,093 1,178,093
Prepaid expenses and other current assets 66,080 52,447
------------------ ------------------
Total current assets 76,105,298 72,979,081
Wireless frequency license and acquisition costs, net of accumulated
amortization of $115,708 and $106,165, respectively 266,003 275,548
Transmission and related equipment, net of accumulated
amortization of $371,415 and $328,899, respectively 851,114 853,629
Leasehold improvements, office equipment and service vehicles, net
of accumulated depreciation of $447,380 and $434,372, respectively 332,959 364,113
Intangible assets, net of accumulated amortization of $495,796 and
$419,086, respectively 3,877,226 3,983,956
Investments and other assets 809,226 629,331
------------------ ------------------
Total assets $ 82,241,826 $ 79,085,658
------------------ ------------------
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 3,687,541 $ 1,890,734
Current portion of long-term debt 156,406 241,673
Marketable securities - short sale 12,112,400 16,559,375
Income taxes payable 6,150,000 --
Deferred income taxes 13,400,000 16,900,000
------------------ ------------------
Total current liabilities 35,506,347 35,591,782
Long-term debt 21,226 24,348
Note payable to related party 400,000 400,000
------------------ ------------------
Total liabilities 35,927,573 36,016,130
------------------ ------------------
Stockholders' equity:
Preferred stock -- --
Common Stock $.01 par value: 20,000,000 shares authorized;
3,283,000 shares issued and outstanding 32,830 32,830
Paid-in capital 22,647,372 22,647,372
Retained earnings 19,642,663 19,430,050
Unrealized gains on investments, net 3,991,388 959,275
------------------ ------------------
Total stockholders' equity 46,314,253 43,069,527
------------------ ------------------
Total liabilities and stockholders' equity $ 82,241,826 $ 79,085,657
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JANUARY 31,
---------------------------------
1998 1997
--------------- ---------------
Revenue:
<S> <C> <C>
Services $ 1,071,735 $ 506,004
Interest income 380,429 195,756
Dividend income 171,836 --
Gain on sale of securities, net 248,194 --
----------------- ----------------
Total revenue 1,872,194 701,760
----------------- ----------------
Expenses:
Cost of services 383,593 340,923
Wireless market and technology development 157,813
Professional fees 135,404 103,334
General and administrative 728,918 442,192
Depreciation and amortization 178,118 185,032
Interest expense 53,547 13,024
----------------- ----------------
Total expenses 1,479,580 1,242,318
----------------- ----------------
Income (loss) from operations 392,614 (540,558)
Minority interest 30,000 --
----------------- ----------------
Income (loss) before provision for income taxes 362,614 (540,558)
Provision for income taxes 150,000 --
----------------- ----------------
Net income (loss) $ 212,614 $ (540,558)
----------------- ----------------
----------------- ----------------
Net income (loss) per common share:
Basic $ 0.06 $ (0.17)
----------------- ----------------
----------------- ----------------
Diluted $ 0.06 $ (0.17)
----------------- ----------------
----------------- ----------------
Weighted average number of common shares outstanding:
Basic 3,283,000 3,179,753
----------------- ----------------
----------------- ----------------
Diluted 3,318,752 3,180,593
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JANUARY 31,
---------------- ---------------
1998 1997
---------------- ---------------
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ 212,614 $ (540,558)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 178,118 185,032
Accretion of interest income -- (146,879)
Gain on sale of securities, net (248,194)
Minority interest 30,000
Changes in assets and liabilities:
Due from related parties 73,000
Trade and other receivables (11,012) (36,384)
Prepaid expenses and other current assets (13,633) 10,977
Other assets (127,395) (33,626)
Accounts payable and accrued expenses (290,247) (10,294)
Due to related parties -- 63,600
Income taxes payable 150,000
---------------- ---------------
Net cash used in operating activities (119,749) (435,132)
---------------- ---------------
Cash flows from investing activities:
Wireless frequency license and acquisition costs -- (97,757)
Acquisition of transmission and related equipment (40,000) (4,700)
Acquisition of leasehold improvements, office equipment and
service vehicles (18,196) (53,427)
Acquisition of marketable securities (2,941,973)
Proceeds from the sale of marketable securities 5,231,586
Proceeds of marketable securities-short sale 12,132,047
Purchases of U.S. treasury securities (11,693,040)
Acquisition of EDSS (1,439,200)
Increase in investments (52,500) (104,500)
---------------- ---------------
Net cash provided by (used in) investing activities 14,310,964 (13,392,624)
---------------- ---------------
Cash flows from financing activities:
Principal payments of long-term debt (88,390) (76,068)
---------------- ---------------
Net cash used in financing activities (88,390) (76,068)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents, end of period 14,102,825 (13,903,824)
Cash and cash equivalents, beginning of period 21,256,356 14,788,765
---------------- ---------------
Cash and cash equivalents, end of period $ 35,359,181 $ 884,941
---------------- ---------------
---------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 53,547 $ 13,024
---------------- ---------------
---------------- ---------------
</TABLE>
Non-cash financing and investing activities:
The Company closed 400,000 shares of its short sale positions by delivery of
marketable securities.
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
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, 1997
(File No. 0-23598) and filed with the Securities and Exchange
Commission.
2. NET INCOME (LOSS) PER SHARE DATA:
The Company adopted the provisions of SFAS No. 128 "Earnings per Share"
effective for the three months ended January 31, 1998, with restatement
of all prior periods presented. Basic earnings per share is computed by
dividing net income by the weighted-average number of common shares
outstanding. Diluted earnings per share reflects the potential dilution
if securities (stock options) were exercised or converted into common
stock.
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"), 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 Joseph D. Truscelli, a principal stockholder of
EDSS 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. 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. On
September 10, 1997 the Company purchased an additional 5% of the common
stock of EDSS from the president of EDSS for $750,000.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
4. 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, as amended, (the "Merger Agreement") which
became effective on June 27, 1997 with BellSouth Corporation
("BellSouth") and its wholly-owned subsidiary, Bell South South Florida
Merger Subsidiary, Inc. ("BellSouth Sub"), pursuant to which BellSouth
Sub merged into SFTV. SFTV became a wholly-owned subsidiary of BellSouth
and the registrant received an aggregate of $48 million in BellSouth
common stock (the "Merger") which resulted in a gain of approximately
$44.4 million. The Merger has been treated as a tax-free reorganization.
5. CONSULTING AGREEMENTS:
On April 1, 1997, the Company entered into a one year consulting
agreement with BellSouth to provide expertise in the wireless
communication industry for a monthly fee of $50,000.
On February 28, 1997, the Company 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.
6. DUE FROM RELATED PARTIES:
On July 9, 1997 the Company loaned $1.1 million to an officer of the
Company under a note receivable which bears interest at 8% and is due on
July 9, 1998. The officer pledged 100,000 shares of the Company's common
stock as collateral.
7. SUBSEQUENT EVENTS:
On March 4, 1998, the Company agreed to purchase by July 31, 1998, for
$1,200,000, shares of Series A Preferred Stock of Electronic Data
Submission Systems, Inc. ("EDSS"), which when combined with its existing
share ownership represents 58% of the outstanding common stock and, with
additional voting rights, 82% control of EDSS. The Company will pay for
such securities with $1,000,000 in cash and $200,000 reduction in the
principal amount of a note outstanding pursuant to a loan agreement
between EDSS and the Company, dated June 19, 1995. After such
transaction, the Company will have outstanding loans to EDSS of
$788,000. The President of EDSS, also agreed to convert $200,000 of
indebtedness owed to him by EDSS into Series B Convertible Preferred
Stock of EDSS.
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
National Wireless Holdings Inc. ("NWH" or the "Company") is a holding and
strategic resource company for telecommunications and other businesses. The
Company currently operates an electronic data interchange company, providing
links between healthcare providers and third party payors. In addition, the
Company operates a satellite programming uplink facility, an educational
programming distribution company and other early stage businesses. The Company
also seeks to support, finance and acquire new businesses and technologies in
the telecommunications and other industries. The Company recently acquired an
interest in a company organized to purchase a British telecommunications
company, and may acquire or invest in other businesses. In June 1997, the
Company sold its wireless cable assets in Miami, Florida in exchange for common
stock of BellSouth Corporation.
National Wireless Holdings Inc. (the "Company") was incorporated in
Delaware on August 31, 1993. The Company's fiscal year ends on October 31.
Results of Operations
THREE MONTHS ENDED JANUARY 31, 1998 AS COMPARED TO THREE MONTHS ENDED JANUARY
31, 1997:
Service Revenue:
Service revenue increased from $506,004 for the three months ended January 31,
1997 to $1,071,735 for the three months ended January 31, 1998 primarily as a
result of increased revenues of EDSS (as described below), a majority owned
subsidiary acquired in December 1996, and commencement of a consulting agreement
with a subsidiary of BellSouth Corporation.
Interest and Dividend Income:
Interest income increased from $195,756 for the three months ended January 31,
1997 to $380,429 for the three months ended January 31, 1998 primarily as a
result of increased cash and treasury securities balances, and dividend income
increased from $0 for the three months ended January 31, 1997 to $171,836 for
the three months ended January 31, 1998 as a result of dividends paid on
BellSouth common stock acquired in June 1997.
Gain on Sale of Securities:
Gain on sale of securities increased from $0 for the three months ended January
31, 1997 to $248,194 for the three months ended January 31, 1998 as a result of
sales of BellSouth common stock acquired in June 1997.
Cost of Services:
Cost of services increased from $340,923 for the three months ended January 31,
1997 to
<PAGE>
$383,593 for the three months ended January 31, 1998 as a result of increased
operating costs and the acquisitions referred to above.
Wireless Market and Technology Development:
Wireless market and technology development expenses decreased from $157,813 for
the three months ended January 31, 1997 to $0 for the three months ended January
31, 1998 as a result of the elimination of activity in the development of the
Miami market due to the sale of its South Florida wireless cable subsidiary as
described below.
Professional Fees:
Professional fees increased from $103,334 in the three months ended January 31,
1997 to $135,404 in the three months ended January 31, 1998 as a result of
additional activity relating to subsidiaries and corporate actions.
General and Administrative:
General and administrative expense increased from $442,192 in the three months
ended January 31, 1997 to $728,918 in the three months ended January 31, 1998
primarily as a result of increased business levels resulting from TLC and EDSS.
Depreciation and Amortization:
Depreciation and amortization decreased from $185,032 in the three months ended
January 31, 1997 to $178,118 in the three months ended January 31, 1998
primarily as a result of the sale of its South Florida wireless cable subsidiary
as described below.
Interest Expense:
Interest expense increased from $13,024 in the three months ended January 31,
1997 to $53,547 in the three months ended January 31, 1998 due to charges on
hedge positions.
Income from Operations:
As a result of the foregoing events, income from operations increased from
($540,558) in the three months ended January 31, 1997 to $392,614 in the three
months ended January 31, 1998.
Net Income:
Net income increased from a loss of ($540,558) for the three months ended
January 31, 1997 to $212,614 for the three months ended January 31, 1998 as a
result of the foregoing events.
Liquidity and Capital Resources
The Company funds its operations with the net proceeds from its initial
public offering in 1994 of 2,000,000 shares of Common Stock aggregating, after
payment of offering costs, approximately $22,000,000 and the recent sale of its
South Florida wireless cable subsidiary for $48 million in BellSouth common
stock. The proceeds have been used for, and are currently reserved to fund
acquisitions of, additional EDI (electronic data interchange) investments,
wireless telecommunications assets, media businesses, development of its other
businesses and development and acquisition of new technologies and businesses in
other areas. Such amount,
<PAGE>
with interest thereon, is expected to be sufficient to implement this business
plan through October 1999, or for a shorter period if the Company determines to
invest a substantial portion of its assets in major acquisitions or equity
investments. Following completion of the sale of its South Florida wireless
cable assets, the Company has allocated its capital to development of its other
businesses and to acquisitions.
As of January 31, 1998, the Company had approximately $52 million in cash
and net marketable BellSouth common stock as well as its interest in EDSS, its
full-service teleport and satellite uplink facility in Miami, its investment in
an educational video programming distributor, its investment in Landtel, and
investments in other early stage companies.
In the three months ended January 31, 1998, the Company sold portions of
its position in BellSouth common stock. While the Company continues to review
its position in BellSouth common stock and from time to time has sold and
purchased shares and options on the position, it has not yet determined whether
it will sell or hedge its remaining BellSouth securities in the near future or
how it will invest the proceeds of any such sale.
On March 4, 1998, the Company agreed to purchase by July 31, 1998, for
$1,200,000 shares of Series A Preferred Stock of Electronic Data Submission
Systems, Inc. ("EDSS"), which when combined with its existing share ownership
represents 58% of the outstanding common stock and, with additional voting
rights, 82% control of EDSS. The Company will pay for such securities with
$1,000,000 in cash and $200,000 reduction in the principal amount of a note
outstanding pursuant to a loan agreement between EDSS and the Company, dated
June 19, 1995. After such transaction the Company will have outstanding loans
to EDSS of $988,000, which have been eliminated from the balance sheet in
consolidation. The Company may invest additional amounts in EDSS to finance its
sales growth.
The Company may, when and if the opportunity arises, acquire or invest in
other businesses in the wireless telecommunications industry, media businesses
or in unrelated areas. If such an opportunity arises, the Company may use a
portion of its funds for that purpose. For instance, the Company has invested
$240,000 in Landtel, and may invest up to an additional $9,600,000 in Landtel to
fund a possible acquisition of a British telecommunications company. Other than
Landtel, 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.
<PAGE>
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 March 4, 1998, the Company agreed to purchase by July 31, 1998, for
$1,200,000 shares of Series A Preferred Stock of Electronic Data Submission
Systems, Inc. ("EDSS"), which when combined with its existing share ownership
represents 58% of the outstanding common stock and, with additional voting
rights, 82% control of EDSS. The Company will pay for such securities with
$1,000,000 in cash and $200,000 reduction in the principal amount of a note
outstanding pursuant to a loan agreement between EDSS and the Company, dated
June 19, 1995. After such transaction the Company will have outstanding
loans to EDSS of $788,000, which have been eliminated from the balance sheet
in consolidation. Joseph D. Truscelli, President of EDSS, also agreed to
convert $200,000 of indebtedness owed to him by EDSS into Series B
Convertible Preferred Stock of EDSS.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.45 - Subscription Agreement, dated
March 4, 1998, between the Company and Joseph
D. Truscelli and EDSS
(b) Reports on Form 8-K:
None.
<PAGE>
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 12, 1998
NATIONAL WIRELESS HOLDINGS INC.
(Registrant)
By: /s/ Terrence S. Cassidy
-----------------------
Terrence S. Cassidy, President and
Principal Accounting Officer
<PAGE>
Exhibit 10.45
ELECTRONIC DATA SUBMISSION SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (the "Agreement") dated March 4, 1998, among
ELECTRONIC DATA SUBMISSION SYSTEMS, INC., a Delaware corporation (the
"Company"), National Wireless Holdings Inc. ("National") and Joseph D. Truscelli
("Truscelli", and with National, the "Investors").
R E C I T A L
WHEREAS, the Investors currently are stockholders and familiar with the
operations of the Company;
WHEREAS, the Company currently has outstanding a $300,000 principal
amount note, dated July, 1996, payable to Truscelli (the "Truscelli Note") and a
note, dated June 9, 1995, payable to National (the "National Note");
WHEREAS, the parties hereto are parties to a Stockholders Agreement,
dated September 10, 1997 (the "Stockholders Agreement");
WHEREAS, as of the Closing Date (as defined below) the Company will have
authorized two series of its serial preferred stock, $.01 par value per share,
including the Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and the Series B Convertible Preferred Stock (the "Series B Preferred
Stock"), each having the respective designations, preferences and rights set
forth on Exhibit A hereto (the "Certificate of Designation") ; and
WHEREAS, the Investors have reviewed this Agreement carefully, including
all Exhibits (collectively, the "Disclosure Material");
THE PARTIES AGREE AS FOLLOWS
1. PURCHASE AND SALE OF STOCK.
1.1. SALE AND ISSUANCE OF PREFERRED STOCK
(a) The Company shall sell to National and National shall
purchase from the Company, at a price of $100.00 per share, a total of
up to 12,000 shares of Series A Preferred Stock (the "National Shares"),
initially convertible into 930 shares of Common Stock of the Company,
$.01 par value per share (the "Common Stock").
(b) The Company shall sell to Truscelli and Truscelli shall
purchase from the Company, at a price of $100.00 per share, a total of
up to 2,000 shares of Series B Preferred Stock (the "Truscelli Shares"
and, with the National Shares, the "Purchased Shares") initially
convertible into 155 shares of Common Stock.
(c) The purchase and sale of the Purchased Shares shall take
place on up to four closings (each referred to hereafter as a "Closing")
on the dates (each referred to hereafter as a "Closing Date") set forth
in the table below:
<PAGE>
<TABLE>
<CAPTION>
AMOUNT - DELIVERY OF
-------------------------------------------------------- ------------------------------
1 2. 3. 4 5. 6.
NATIONAL
-----------------------
a. b.
PORTION PORTION
OF THE OF THE
NATIONAL TRUSCELLI
NOTE NOTE NATIONAL TRUSCELLI
CLOSING DATE CASH SURRENDERED SURRENDERED SHARES SHARES
------- ---- ---- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1. March 13, 1998 $300,000 $50,000 3,000 500
2. March 30, 1998* $300,000 50,000 3,000 500
3. May 31, 1998* $200,000 $100,000 50,000 3,000 500
4. July 31, 1998* $200,000 $100,000 50,000 3,000 500
</TABLE>
* Subject to satisfactory performance, as determined by National in its
discretion, of the business plan of the Company.
2
<PAGE>
At each Closing:
(a) National shall deliver to the Company or its designees by
wire transfer or check, or such other method of payment as the Company
shall approve, the amount set forth for such Closing in column 3a above
or a supplemental schedule to the National Notes in the form attached
hereto as EXHIBIT B reflecting the surrender by National of the portion
of principal amount of the National Note set forth for such Closing in
column 3b above, and the Company shall (i) issue and deliver to National
a certificate or certificates in form satisfactory to National for the
National Shares to be issued by the Company at such Closing and (ii), if
applicable, pay to National accrued interest on the National Note.
(b) Truscelli shall deliver to the Company or its designees the
Truscelli Note (or, at the second through fourth Closings, the amended
and restated note referred to below) for cancellation, and the Company
shall issue and deliver to Truscelli (i) a certificate or certificates
in form satisfactory to National for the Truscelli Shares to be issued
by the Company at such Closing and (ii) an executed amended and restated
note in the form attached hereto as EXHIBIT C reflecting the surrender
by Truscelli of the portion of principal amount of the Truscelli Note
set forth for such Closing in column 4 above, and shall pay to Truscelli
accrued interest on the Truscelli Note.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors that, except as disclosed in the
Disclosure Material :
2.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company:
(a) is a corporation duly organized, validly existing
and in good standing under the laws of the
jurisdiction of its incorporation;
(b) has the corporate power and authority to own or
lease its properties in the places where such
business is now conducted and to carry on its
business as now conducted; and
(c) there are no other states or jurisdictions in which
the failure of the Company to qualify to transact
business could reasonably be expected to materially
adversely affect the business, financial condition,
operations or prospects of the Company.
2.2. CAPITALIZATION. On the date hereof, the authorized capital
of the Company consists of 100,000 shares of Common Stock, $.01 par value, of
which on the date hereof, 11,632 shares are validly issued, fully paid,
non-assessable and outstanding, and as of the Closing Date the authorized
capital will also consist of 100,000 shares of Serial Preferred Stock, par value
$.01 per share, of which on the first Closing Date no shares will be issued and
outstanding. All outstanding shares were issued in compliance with all
applicable Federal and state securities laws. Except as contemplated by this
Agreement or the Stockholders Agreement, there are (i) no outstanding
subscriptions, warrants, options, conversion privileges or other rights or
agreements to purchase or otherwise acquire or issue any shares of capital stock
of the Company (or shares reserved for such purpose), (ii) no preemptive rights
or rights of first refusal with respect to the issuance of additional shares of
capital stock of the Company, including the Purchased Shares and the shares of
Common Stock into which the Purchased Shares are convertible, and (iii) no
commitments or understandings
3
<PAGE>
(oral or written) of the Company to issue any shares, warrants, options or other
rights.
2.3. VALIDITY OF PURCHASED SHARES. When issued, sold and
delivered in accordance with the terms and for the consideration expressed
herein, the Purchased Shares shall be duly authorized, validly issued, fully
paid and non-assessable.
2.4. COMMON STOCK ISSUABLE ON CONVERSION OF PURCHASED SHARES. The
shares of Common Stock initially issuable upon conversion of the Purchased
Shares have been duly authorized and have been, and at all times prior to such
conversion will have been, duly reserved for issuance upon such conversion and,
when so issued, will be validly issued, fully paid and non-assessable.
2.5. PRIVATE OFFERING. Neither the Company nor anyone acting on
its behalf has offered any of the Purchased Shares for sale to, or solicited
offers to buy any thereof from, or otherwise approached or negotiated with
respect thereto with, any prospective purchaser other than the Investors.
2.6 AUTHORIZATION. When executed and delivered by the Company,
this Agreement will constitute the valid and binding obligation of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
represents and warrants to the Company as follows:
3.1. AUTHORIZATION. When executed and delivered by each Investor,
this Agreement will constitute the valid and binding obligation of such
Investor.
3.2. BROKERS AND FINDERS. Such Investor has not retained any
investment banker, broker or finder in connection with the transactions
contemplated by this Agreement.
4. SECURITIES LAWS.
4.1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF INVESTORS.
(a) This Agreement is made with each Investor in reliance
upon such Investor's representation to the Company, which by such Investor's
execution of this Agreement such Investor hereby confirms, that the Purchased
Shares to be received by such Investor will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in or otherwise
distributing the Purchased Shares.
(b) Each Investor understands and acknowledges that the
offering of the Purchased Shares pursuant to this Agreement will not be
registered under the Securities Act of 1933, as amended (the "Securities Act")
or qualified under any state "Blue Sky" laws ("State Securities Laws") on the
grounds that the offering and sale of the Purchased Shares are exempt from
registration and qualification, respectively, under the Securities Act and the
State Securities Laws, and that the Company's reliance upon such exemption is
predicated upon such Investor's representations set forth in this Agreement.
(c) Each Investor covenants that, unless the Purchased
Shares, the shares of Common Stock issuable upon conversion of the Purchased
Shares or any shares of capital stock of the Company received in respect of the
foregoing have been registered under the Securities Act, such
4
<PAGE>
Investor will not dispose of such shares unless and until (i) such Investor
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition and (ii) such Investor shall have furnished the Company
with an opinion of counsel reasonably satisfactory in form and substance to the
Company to the effect that (x) such disposition will not require registration
under the Securities Act and (y) appropriate action necessary for compliance
with the Securities Act and any applicable state, local or foreign law has been
taken.
(d) In connection with the investment representations made
herein, each Investor represents that (i) such Investor is able to fend for
himself or itself in the transactions contemplated by this Agreement; (ii) such
Investor has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of such Investor's prospective
investment in the Purchased Shares; (iii) such Investor has the ability to bear
the economic risks of such Investor's prospective investment and can afford the
complete loss of such investment; (iv) such Investor has been furnished with and
has had access to such information as would be made available in the form of a
registration statement under the Securities Act together with such additional
information as is necessary to verify the accuracy of the information supplied;
and (v) such Investor has had access to officers of the Company and an
opportunity to ask questions of and receive answers from such officers and has
had all questions that have been asked by such Investor satisfactorily answered
by the Company.
(e) Each Investor further represents by execution of this
Agreement that such Investor is an accredited investor, as defined in Rule 501
promulgated under the Securities Act.
(f) By acceptance hereof, each Investor agrees that the
Purchased Shares, the shares of Common Stock issued on conversion of the
Purchased Shares and any shares of capital stock of the Company received in
respect of the foregoing held by it may not be sold by such Investor without
registration under the Securities Act, or an exemption therefrom, and therefore
such Investor may be required to hold such shares for an indeterminate period.
4.2. LEGENDS. All certificates for the Purchased Shares and the
shares of Common Stock issued on conversion thereof, and each certificate
representing any shares of capital stock of the Company received in respect of
the foregoing, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon or otherwise and each certificate for any such
securities issued to subsequent transferees of any such certificate (unless
otherwise permitted herein) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT,
NOR MAY SUCH SHARES BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE
WITH THE SUBSCRIPTION AGREEMENT DATED AS OF MARCH __, 1998,
PURSUANT TO WHICH THEY WERE ISSUED AND THE STOCKHOLDERS
AGREEMENT, DATED SEPTEMBER 10, 1997, AMONG THE ISSUER, THE HOLDER
OF SUCH SHARES AND THE OTHER PARTIES THERETO.
5
<PAGE>
In addition, such certificates shall bear any legend that, in the opinion of
the Company's counsel, is required under the Stockholders Agreement, the
By-laws of the Company or pursuant to any state, local or foreign law
governing the Purchased Shares or any shares of Common Stock issued on
conversion of the Purchased Shares.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT EACH CLOSING. The obligations
of the Investors under Section 1.1 of this Agreement are subject to the
fulfillment at or before each Closing of each of the following conditions, any
of which may be waived in writing by the Investors or any of them.
5.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Section 2 shall be true and correct on and as of the
Closing Date with the same effect as if made on and as of the Closing Date.
5.2. PERFORMANCE. The Company shall have performed or fulfilled
all terms, covenants and conditions contained herein required to be performed or
fulfilled by the Company before the Closing.
5.3. CERTIFICATE OF DESIGNATION. The Certificate of Designation
shall have been approved by the Board of Directors of the Company in the manner
and by the vote required by Delaware law, and shall have been duly filed with
the Secretary of State of the State of Delaware and shall have become effective.
5.4. PROCEEDINGS SATISFACTORY. All corporate and legal
proceedings taken by the Company in connection with the transactions
contemplated by this Agreement and all documents and papers relating to such
transactions shall be reasonably satisfactory in form and substance to the
Investors.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company under Section 1.1 of this Agreement are subject to
the fulfillment at or before the Closing of each of the following conditions,
any of which may be waived in writing by the Company:
6.1. WARRANTIES TRUE ON THE CLOSING DATE. The representations and
warranties of each of the Investors contained in Sections 3 and 4 shall be true
and correct on and as of the Closing Date with the same effect as if made on and
as of the Closing Date.
7. MISCELLANEOUS.
7.1. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
constitutes the entire contract between the parties relative to the subject
matter hereof and no party shall be liable or bound to the other in any manner
by any warranties, representations or covenants except as specifically set forth
herein other than the Stockholders Agreement. Any previous agreement among the
parties with respect to the sale of the Purchased Shares is superseded by this
Agreement. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective executors' administrators, heirs,
successors and assigns of the parties. Except as expressly provided herein,
nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6
<PAGE>
7.2. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.4. HEADINGS. The headings of the sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
7.5. NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given if sent by hand upon
delivery, if sent by fax upon delivery (with answer back), if sent by overnight
mail delivery, on the next day, or if sent by registered or certified mail five
days after deposit, addressed to a party at its address hereinafter shown or at
such other address as such party may designate by ten days advance written
notice to the other party. Any notice shall be sent :
if to the Company or Truscelli, to :
Electronic Data Submission Systems, Inc.
4575 Galley Road, Suite 100
Colorado Springs, CO 80915
Fax: (719) 550-9810
Attention: Joseph D. Truscelli, President
if to National, to:
National Wireless Holdings Inc.
249 Royal Palm Way, Suite 301
Palm Beach, FL 33480
Fax: 407 832 0981
Attention: Terrence S. Cassidy, President
with a copy to:
NWH Inc.
156 West 56th Street, Suite 2001
New York, NY 10019
Fax: 212 582 1022
Attention: Terrence S. Cassidy, President
and:
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Fax: 212 594 7167
Attention: James Kardon.
7
<PAGE>
7.6. AMENDMENT OF AGREEMENT. The terms and provisions of this
Agreement may not be modified or amended except in writing.
7.7. COUNSEL. Each of the parties (i) acknowledges that Hahn &
Hessen LLP has acted, and from time to time continues to act, as counsel to each
of the Investors, or affiliates thereof, as well as to the Company, (ii)
consents to the representation of the Company and such other representation of
National by Hahn & Hessen LLP and (iii) waives any conflicts of interest claim
which may arise therefrom. Without limitation on the foregoing, Hahn & Hessen
LLP is authorized to disclose all information concerning the Company and its
plans to each of the Investors.
7.8. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or any other provision of this Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
NATIONAL WIRELESS HOLDINGS INC.
By:_____________________________
---------------------------------
Joseph D. Truscelli
ELECTRONIC DATA SUBMISSION
SYSTEMS, INC.
By :_____________________________
8
<PAGE>
EXHIBIT B
SUPPLEMENTAL SCHEDULE
TO
ELECTRONIC DATA SUBMISSION SYSTEMS, INC.
NOTE DATED JUNE 9, 1995, PAYABLE TO
NATIONAL WIRELESS HOLDINGS INC.
In consideration of the issuance and delivery of 1,000 shares of Series A
Convertible Preferred Stock of Electronic Data Submission Services, Inc. on
______________, 1998, the principal amount due under the Note is hereby
reduced by $100,000.
NATIONAL WIRELESS HOLDINGS INC.
By:____________________________________
ELECTRONIC DATA SUBMISSION SYSTEMS, INC.
By:___________________________________
9
<PAGE>
EXHIBIT C
AMENDED AND RESTATED NOTE
Colorado Springs, Colorado _____________, 1998
FOR VALUE RECEIVED, the undersigned, Electronic Data Submission Systems,
Inc., a Delaware Corporation, (the "Borrower"), hereby promises to pay to the
order of Joseph D. Truscelli, ("Truscelli") at the principal office of Truscelli
or at such other place as Truscelli may from time to time designate to Borrower
in writing, (a) the principal sum of ________________, ($_______________) in
lawful money of the United States of America and in immediately available funds,
on or before March 15, 1999, and (b) interest on the unpaid principal amount
thereof, in like money and funds, for the period commencing on the date hereof
until such amount shall be paid in full, at the rate per annum provided in the
Note (the "National Note"), dated June 9, 1995 made by the Borrower payable to
National Wireless Holdings Inc. ("National"), on demand made after the National
Note has been paid in full. In no event shall interest exceed the maximum
interest rate permitted by law.
The Borrower shall pay interest on this Note or any installment thereof,
and on any other amount payable by the Borrower hereunder (to the extent
permitted by law) which shall not be paid in full when due (whether by demand,
by acceleration or otherwise) for the period commencing on the due date thereof
until the same is paid in full at the applicable Post Default Rate (as defined
in the National Note) and all such interest shall be payable upon demand.
Capitalized terms used in this Note have the respective meanings
assigned to them in the National Note.
If an Event of Default occurs which has not been cured within any
applicable cure period, the principal hereof and accrued interest hereon shall
become, or may be declared to be, forthwith due and payable in the manner, upon
the conditions and with the effect provided in the National Note; provided that
notwithstanding such acceleration repayment of this Note shall be subordinated
to the National Note and any payments received on this Note prior to the payment
in full of the National Note shall be held in trust by Truscelli and promptly
remitted to National.
The Borrower agrees to pay costs of collection and reasonable attorneys'
fees and disbursements in case default occurs in the payment of this Note.
This Note amends and restates in its entirety (and is given in
substitution for and not in satisfaction of) that certain Note between the
parties hereto, dated July, 1996, in the original principal amount of $300,000.
ELECTRONIC DATA SUBMISSION SYSTEMS, INC.
By:__________________________________________
Its President
10
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<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1998
<PERIOD-START> NOV-01-1996 NOV-01-1997
<PERIOD-END> JUL-31-1997 JAN-31-1998
<CASH> 23,849,790 35,359,181
<SECURITIES> 48,811,922 38,597,434
<RECEIVABLES> 995,128 904,510
<ALLOWANCES> 0 0
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<CURRENT-ASSETS> 74,868,949 76,105,298
<PP&E> 2,125,121 2,002,868
<DEPRECIATION> 826,853 818,795
<TOTAL-ASSETS> 80,566,373 82,241,826
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<INTEREST-EXPENSE> 51,914 53,547
<INCOME-PRETAX> 43,114,590 362,614
<INCOME-TAX> 16,900,000 150,000
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