<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-85515
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WIRELESS FACILITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7380 13-3818604
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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9805 SCRANTON ROAD, SUITE 100
SAN DIEGO, CA 92121
(858) 824-2929
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MASSIH TAYEBI, PH.D.
CHIEF EXECUTIVE OFFICER
WIRELESS FACILITIES, INC.
9805 SCRANTON ROAD, SUITE 100
SAN DIEGO, CA 92121
(858) 824-2929
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
FREDERICK T. MUTO, ESQ. BRUCE M. MCNAMARA, ESQ.
LANCE W. BRIDGES, ESQ. VIRGINIA W. WEI, ESQ.
NANCY D. KRUEGER, ESQ. ROBERT C. ATHERTON, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
4365 EXECUTIVE DRIVE, SUITE 1100 650 PAGE MILL ROAD
SAN DIEGO, CA 92121 PALO ALTO, CA 94304
(858) 550-6000 (650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 19, 1999
4,000,000 Shares
WIRELESS FACILITIES, INC.
[LOGO OF WFI]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $13.00 and $15.00
per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "WFII."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING WIRELESS
PRICE TO DISCOUNTS AND FACILITIES,
PUBLIC COMMISSIONS INC.
----------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
The date of this prospectus is , 1999.
<PAGE>
INSIDE COVER
GRAPHICS DEPICTING WFI'S SERVICE OFFERINGS WITH THE FOLLOWING TEXT:
WE MAKE WIRELESS WORK(TM)......
NETWORK PLANNING SERVICES
Our business consulting group provides strategic and business
planning for wireless telecom carriers and equipment vendors.
NETWORK DEPLOYMENT SERVICES
Our staff of consultants, engineers, project managers and site
development experts provides services for the design,
implementation and optimization of wireless communications
networks.
NETWORK MANAGEMENT SERVICES
Our network management team of managers, engineers and
technicians offers post-deployment radio frequency optimization
and day-to-day operation and maintenance of wireless networks.
[LOGO OF WFI]
<PAGE>
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TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Unaudited Pro Forma Consolidated Financial Information................... 19
Management's Discussion and Analysis of Financial Condition and Operating
Results................................................................. 20
</TABLE>
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Page
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<S> <C>
Business................................................................... 31
Management................................................................. 44
Related Party Transactions................................................. 52
Principal Stockholders..................................................... 55
Description of Capital Stock............................................... 57
Shares Eligible for Future Sale............................................ 60
Underwriting............................................................... 62
Notice to Canadian Residents............................................... 65
Legal Matters.............................................................. 66
Experts.................................................................... 66
Where You Can Find Additional Information About Us......................... 66
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in this offering. You should read the entire prospectus
carefully.
WIRELESS FACILITIES, INC.
Wireless Facilities, Inc. is an independent provider of outsourced services
for the wireless communications industry. We plan, design and deploy wireless
telecommunications networks. This work involves radio frequency engineering,
site development, project management and the installation of radio equipment
networks. We have also expanded our services to include network management,
which involves day-to-day optimization, or recalibration and tuning, and
maintenance of wireless networks. As part of our strategy, we are technology
and vendor independent. We believe that this enables us to objectively evaluate
and recommend specific products or technologies. We provide network design and
deployment services to wireless carriers, such as AT&T affiliates Telecorp and
Triton PCS; equipment vendors, such as Siemens and Lucent; and wireless
broadband data carriers, such as CommcoTec and Nextlink. These specified
customers represented our largest customers in each of these segments in 1998.
The wireless telecom industry is growing rapidly and carriers are making
large capital investments to expand their networks. As carriers deploy these
networks, they are faced with a proliferation in both the number and type of
competitors. Due to this increasingly competitive environment, carriers must
focus on satisfying customer demand for enhanced services, seamless and
comprehensive coverage, better call quality, faster data transmission and lower
prices. Carriers are also experiencing challenges managing complex networks and
new technologies. These challenges require carriers and equipment vendors to
allocate their resources effectively, which we believe has increasingly led
them to outsource network planning, deployment and management.
Our services are designed to improve our customers' competitive position
through efficient planning, deployment and management of their networks. We
have developed a methodology for planning and deploying wireless networks that
allows us to deliver reliable, scalable network solutions. We offer our
services primarily on a fixed-price basis with scheduled deadlines for
completion times, that is, on a time-certain basis. We believe this enables our
customers to more reliably forecast the costs and timing of network deployment
and management. This allows our customers to focus on their core competencies
and rely on us for planning, deploying and managing their networks. Our
services include:
Pre-Deployment Planning Services. We provide pre-deployment planning
services for developing or refining a network deployment strategy. We develop
and analyze the financial, engineering, competitive market and technology
issues applicable to a proposed network deployment. In addition, we assist
customers in determining the best equipment for a particular project, analyzing
the feasibility of a particular technology for a network plan and managing the
bidding process from multiple equipment vendors.
Design and Deployment Services. We provide services for the design and
deployment of wireless networks. These services include population, demographic
and wireless traffic analysis, radio frequency engineering, Internet and other
data network engineering, network architecture, microwave relocation, fixed
network engineering, site development and network installation and
optimization. We believe our success is largely based on our ability to provide
a package of integrated services that have traditionally been offered by
multiple subcontractors coordinated by a carrier's deployment staff.
3
<PAGE>
Network Management Services. We recently expanded our services to include
post-deployment radio frequency optimization and day-to-day operation and
maintenance of customers' wireless networks. After a network is deployed, it
must be continually updated, recalibrated and tuned. Optimization is the
process of tuning the network to take into account changing environments and
usage patterns. We manage the operation of critical network elements, including
base station equipment, mobile switching centers and network operating centers,
to the extent required by our customers. We also provide training services for
the internal network staff of our customers.
Our objective is to be the leading independent provider of outsourced
network services to the telecom industry, including network planning, design,
deployment and management services. The key elements of our strategy include:
. Focusing on customer satisfaction;
. Expanding the suite of services we offer and pursuing cross-selling
opportunities;
. Remaining at the forefront of new technologies;
. Pursuing opportunities for international growth;
. Continuing to attract and retain qualified personnel;
. Capitalizing on previous project experience; and
. Pursuing strategic acquisitions.
Since 1995, we have completed projects for more than 95 customers, ranging
in scope from the installation of a single cell site to multi-year, large-scale
deployment contracts. In the past two years, we have expanded our operations
internationally and have completed projects in 26 countries. In addition to our
U.S. operations, as of June 30, 1999, we had ongoing projects in Argentina,
Brazil, Congo, India, Kuwait, Mexico, Morocco, Oman, Puerto Rico, Spain, South
Korea, Turkey and the United Kingdom. In 1998, we were involved in the
development of over 3,000 of the approximately 14,000 cell sites built in the
United States. Since the founding of WFI in 1994, we have been involved in the
design or deployment of over 8,000 cell sites worldwide.
Our principal executive offices are located at 9805 Scranton Road, Suite
100, San Diego, California 92121. Our telephone number is (858) 824-2929. Our
Website is www.wfinet.com. The information found on our Website is not a part
of this prospectus.
4
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered..................... 4,000,000 shares
Common stock to be outstanding after the
offering................................ 39,028,169 shares
Use of proceeds.......................... For the repayment of short-term
debt, working capital, general
corporate purposes and potential
acquisitions of businesses. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol... WFII
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999, and does
not include the following:
. 5,909,286 shares subject to options outstanding as of September 30,
1999, at a weighted average exercise price of $5.35 per share;
. 6,700,000 shares that we could issue under existing stock plans;
. 1,144,381 shares subject to warrants outstanding as of September 30,
1999, at a weighted average exercise price of $2.08 per share; and
. 600,000 shares that may be purchased by the underwriters to cover over-
allotments, if any.
- --------
Except as otherwise indicated, all information in this prospectus assumes:
. no exercise of the underwriters' over-allotment option;
. a three-for-one stock split that occurred on February 25, 1999; and
. the automatic conversion of the outstanding shares of preferred stock
into shares of common stock.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following financial information should be read together with the
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Operating Results" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.......................... $15,421 $22,658 $51,909 $21,611 $33,106
Gross profit...................... 8,589 10,942 23,839 11,033 12,081
Operating income.................. 6,756 6,967 10,974 6,421 5,637
Net income........................ 6,732 6,769 4,964 6,214 2,828
======= ======= ======= ======= =======
Net income per share
Basic........................... $ 0.24 $ 0.24 $ 0.17 $ 0.21 $ 0.10
======= ======= ======= ======= =======
Diluted......................... $ 0.23 $ 0.23 $ 0.16 $ 0.20 $ 0.09
======= ======= ======= ======= =======
Weighted average shares
Basic........................... 28,500 28,661 28,374 29,408 27,126
======= ======= ======= ======= =======
Diluted......................... 29,427 29,326 30,741 30,345 32,365
======= ======= ======= ======= =======
PRO FORMA INFORMATION (UNAUDITED):
Net income........................ $ 6,732 $ 6,769 $ 4,964 $ 6,214 $ 2,828
Pro forma adjustment for income
taxes (1)........................ (2,653) (2,527) 1,050 (2,617) --
------- ------- ------- ------- -------
Pro forma net income (2).......... $ 4,079 $ 4,242 $ 6,014 $ 3,597 $ 2,828
======= ======= ======= ======= =======
Pro forma net income per share (2)
Basic........................... $ 0.20 $ 0.08
======= =======
Diluted......................... $ 0.18 $ 0.07
======= =======
Pro forma weighted average shares
Basic........................... 30,664 34,481
======= =======
Diluted......................... 33,031 39,720
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------
AS
ACTUAL ADJUSTED (3)
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED
BALANCE SHEET
DATA:
Cash and cash
equivalents... $4,027 $ 52,067
Working
capital....... 22,934 74,014
Total assets... 53,672 101,712
Total debt..... 9,407 6,367
Total
stockholders'
equity........ 32,844 83,924
</TABLE>
- --------
(1) Through August 7, 1998, we elected to be taxed as an S corporation under
the Internal Revenue Code of 1986 and comparable state laws. Accordingly,
we did not recognize any provision for federal income tax expense during
periods prior to that time. The pro forma adjustment for income taxes
reflects the adjustment for federal income taxes which we would have
recorded if we had been a C corporation during these periods.
(2) Pro forma net income for all periods except the six months ended June 30,
1999, gives effect to the adjustment for federal income taxes that we would
have recorded if we had been a C corporation during these periods. For a
description of the computation of the pro forma net income per share and
the number of shares used in the per share calculations, see Note 1 of
Notes to Consolidated Financial Statements.
(3) The As Adjusted column reflects our receipt of the net proceeds from the
offering (assuming an initial public offering price of $14.00 per share),
after deducting estimated underwriting discounts and commissions and
estimated offering expenses and application of a portion of such proceeds
to repay approximately $3.0 million of short-term debt. In addition, we
intend to use an additional $4.0 million of the proceeds to repay advances
on our revolving line of credit incurred after June 30, 1999. See
"Capitalization" and "Use of Proceeds."
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Risks and
uncertainties, in addition to those we describe below, that are not presently
known to us or that we currently believe are immaterial may also impair our
business operations. If any of the following risks occur, our business could be
harmed, the price of our common stock could decline and you may lose all or
part of your investment. See "Special Note Regarding Forward-Looking
Statements."
OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We are experiencing a period of significant expansion and anticipate that
further expansion will be required to address potential growth in the demand
for our new and existing services. From January 1, 1998 to June 30, 1999, we
increased our number of employees from 83 to 508. In order to increase our
revenues significantly, we need to add project management, engineering and
direct sales and marketing personnel in the near future. We expect this
expansion to continue to place a significant strain on our managerial,
operational and financial resources.
To manage the expected growth of our operations and personnel, we will be
required to:
. improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
. complete the implementation of a new financial management and accounting
software program and install other new management information systems;
and
. integrate, train, motivate and manage employees.
If we fail to address the issues above or if our expected growth does not
materialize, our business may be harmed.
WE MAY NOT BE ABLE TO HIRE OR RETAIN A SUFFICIENT NUMBER OF QUALIFIED ENGINEERS
AND OTHER EMPLOYEES TO SUSTAIN OUR GROWTH, MEET OUR CONTRACT COMMITMENTS OR
MAINTAIN THE QUALITY OF OUR SERVICES.
Our future success will depend on our ability to attract and retain
additional highly skilled engineering, managerial, marketing and sales
personnel. Competition for such personnel is intense, especially for engineers,
and we may be unable to attract sufficiently qualified personnel in adequate
numbers to meet the demand for our services. In addition, as of June 30, 1999,
22% of our employees in the United States were working under H-1B visas. H-1B
visas are a special class of nonimmigrant working visas for qualified aliens
working in specialty occupations, including, for example, radio frequency
engineers. We are aware that the Department of Labor has proposed new
regulations that would temporarily place greater requirements on H-1B dependent
companies, such as ours, and may restrict our ability to hire workers under the
H-1B visa category in the future. In addition, immigration policies are subject
to rapid change and any significant changes in immigration law or regulations
may further restrict our ability to continue to employ or to hire new workers
on H-1B visas and could harm our business.
WE EXPECT OUR QUARTERLY RESULTS TO FLUCTUATE. IF WE FAIL TO MEET EARNINGS
ESTIMATES, OUR STOCK PRICE COULD DECLINE.
Our quarterly and annual operating results have fluctuated in the past and
will vary in the future due to a variety of factors, many of which are outside
of our control. The factors outside of our control include:
. the timing and size of network deployment by our carrier customers and
the timing and size of orders for network equipment built by our vendor
customers;
. fluctuations in demand for our services;
7
<PAGE>
. the length of sales cycles;
. reductions in the prices of services offered by our competitors;
. costs of integrating technologies or businesses; and
. telecom market conditions and economic conditions generally.
The factors within our control include:
. changes in the actual and estimated costs and timing to complete fixed-
price, time-certain projects;
. the timing of expansion into new markets, both domestically and
internationally; and
. the timing and payments associated with possible acquisitions.
Due to these factors, quarterly revenues, expenses and results of operations
could vary significantly in the future. You should take these factors into
account when evaluating past periods, and, because of the potential variability
due to these factors, you should not rely upon results of past periods as an
indication of our future performance. In addition, the long-term viability of
our business could be negatively impacted if there were a downward trend in
these factors. Because our operating results may vary significantly from
quarter to quarter based upon the factors described above, results may not meet
the expectations of securities analysts and investors, and this could cause the
price of our common stock to decline significantly.
AN INCREASING PERCENTAGE OF OUR REVENUE IS ACCOUNTED FOR ON A PERCENTAGE-OF-
COMPLETION BASIS WHICH COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE.
An increasing percentage of our revenue is derived from fixed priced
contracts which are accounted for on a percentage of completion basis. The
portion of our revenue from fixed price contracts has grown significantly as a
percentage of revenues. For example, in 1997 fixed price contracts accounted
for only about one-third of our total revenues, while during the first six
months of 1999 fixed price contracts accounted for almost two-thirds of our
total revenues. Although our management is experienced in estimating the costs
associated with our services, prior to this offering we had not made estimates
of total cost to complete a contract during or at the end of a quarter for
purposes of determining quarterly revenues. With the percentage-of-completion
method, in each period we recognize expenses as they are incurred and we
recognize revenue based on a comparison of the current costs incurred for the
project to the then estimated total costs of the project. Accordingly, the
revenue we recognize in a given quarter depends on the costs we have incurred
for individual projects and our then current estimate of the total remaining
costs to complete individual projects. If in any period we significantly
increase our estimate of the total costs to complete a project, we may
recognize very little or no additional revenue with respect to that project. As
a result, our gross margin in such period and in future periods may be
significantly reduced and in some cases we may recognize a loss on individual
projects prior to their completion. For example, in 1999 we revised the
estimated costs to complete two large contracts which resulted in a reduction
of gross margins of 9.9% in the first quarter of 1999 and 6.9% in the second
quarter of 1999. To the extent that our estimates fluctuate over time or differ
from actual requirements, gross margins in subsequent quarters may vary
significantly from our estimates and could harm our business.
OUR BUSINESS MAY BE HARMED IF WE INCREASE OUR STAFFING LEVELS IN ANTICIPATION
OF A PROJECT AND UNDERUTILIZE OUR PERSONNEL BECAUSE SUCH PROJECT IS DELAYED,
REDUCED OR TERMINATED.
Since our business is driven by large, and sometimes multi-year, contracts,
we forecast our personnel needs for future projected business. If we increase
our staffing levels in anticipation of a project and such project is delayed,
reduced or terminated, we may underutilize these additional personnel, which
would increase our general and administrative expenses and could harm our
business.
8
<PAGE>
DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY ACCURATELY
PREDICTING REVENUES FOR FUTURE PERIODS AND APPROPRIATELY BUDGETING FOR
EXPENSES, AND, BECAUSE MOST OF OUR EXPENSES ARE INCURRED IN ADVANCE OF
ANTICIPATED REVENUES, WE MAY NOT BE ABLE TO DECREASE OUR EXPENSES IN A TIMELY
MANNER TO OFFSET ANY UNEXPECTED SHORTFALL IN REVENUES.
We have generated revenues for fewer than five years and, thus, we have only
a short history from which to predict future revenues. This limited operating
experience, combined with our recent growth and expanded services, reduces our
ability to accurately forecast our quarterly and annual revenues. Further, we
plan our operating expenses based primarily on these revenue projections.
Because most of our expenses are incurred in advance of anticipated revenues,
we may not be able to decrease our expenses in a timely manner to offset any
unexpected shortfall in revenues. For further financial information relating to
our business, see "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Operating Results."
OUR SUCCESS IS DEPENDENT ON THE CONTINUED GROWTH IN THE DEPLOYMENT OF WIRELESS
NETWORKS.
The wireless telecom industry has experienced a dramatic rate of growth both
in the United States and internationally. If the rate of growth slows and
carriers reduce their capital investments in wireless infrastructure or fail to
expand into new geographies, our business may be harmed.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED TREND TOWARD OUTSOURCING WIRELESS
TELECOM SERVICES.
Our success is dependent on the continued trend by wireless carriers and
network equipment vendors to outsource for their network design, deployment and
management needs. If wireless carriers and network equipment vendors elect to
perform more network deployment services themselves, our revenues may decline
and our business would be harmed.
OUR REVENUES WILL BE NEGATIVELY IMPACTED IF THERE ARE DELAYS IN THE DEPLOYMENT
OF NEW WIRELESS NETWORKS.
A significant portion of our revenue is generated from new licensees seeking
to deploy their networks. To date, the pace of network deployment has sometimes
been slower than expected, due in part to difficulty experienced by holders of
licenses in raising the necessary financing, and there can be no assurance that
future bidders for licenses will not experience similar difficulties. There has
also been substantial regulatory uncertainty regarding payments owed to the
U.S. Government by past successful wireless bidders, and such uncertainty has
delayed network deployments. In addition, factors adversely affecting the
demand for wireless services, such as allegations of health risks associated
with the use of cellular phones, could slow or delay the deployment of wireless
networks. These factors, as well as future legislation, legal decisions and
regulation may slow or delay the deployment of wireless networks, which, in
turn, could harm our business.
IF OUR CUSTOMERS DO NOT RECEIVE SUFFICIENT FINANCING, OUR BUSINESS MAY BE
SERIOUSLY HARMED.
Some of our customers and potential customers are new companies with limited
or no operating histories and limited financial resources. Typically less than
15% of our customers at any given time are early stage companies, with limited
financing, and historically such companies have accounted for only 5% to 7% of
our revenues, although these figures could increase in the future. These
customers often must obtain significant amounts of financing to pay for their
spectrum licenses, fund operations and deploy their networks. We frequently
work with such companies prior to their receipt of financing. If these
companies fail to receive adequate financing, particularly after we have begun
working with them, our results of operations may be harmed.
THE CONSOLIDATION OF EQUIPMENT VENDORS OR CARRIERS COULD IMPACT OUR BUSINESS.
Recently, the wireless telecom industry has been characterized by
significant consolidation activity. This consolidation may lead to a greater
ability among equipment vendors and carriers to provide a full suite of network
services, and could simplify integration and installation, which may lead to a
reduction in demand for our services. Moreover, the consolidation of equipment
vendors or carriers could have the effect of reducing the
9
<PAGE>
number of our current or potential customers which could result in increased
bargaining power. This potential increase in bargaining power could create
competitive pressures whereby a particular customer may request our exclusivity
with them in a particular market. Accordingly, we may not be able to represent
some customers who wish to retain our services.
A LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS OR DELAYS IN PROJECT TIMING FOR SUCH
CUSTOMERS COULD CAUSE A SIGNIFICANT DECREASE IN OUR NET REVENUES.
We have derived, and believe that we will continue to derive, a significant
portion of our revenues from a limited number of customers. For example, for
the six months ended June 30, 1999, we derived 18% of our revenues from
Telecorp and 10% of our revenues from Siemens, and for the year ended December
31, 1998, we derived 31% of our revenues from Telecorp, 19% of our revenues
from Qualcomm and 17% of our revenues from Triton PCS. These are our current
key customers, but we anticipate that our key customers will change in the
future as current projects are completed and new ones are begun. The services
required by any one customer can be limited by a number of factors, including
industry consolidation, technological developments, economic slowdown and
internal budget constraints. None of our customers is obligated to purchase
additional services, and as of September 23, 1999, approximately one-half of
our active customer contracts could be terminated without cause or penalty by
the customer on notice to us of 90 days or less. As a result of these factors,
the volume of work performed for specific customers is likely to vary from
period to period, and a major customer in one period may not use our services
in a subsequent period. Accordingly, we cannot be certain that present or
future customers will not terminate their network service arrangements with us
or significantly reduce or delay their contracts. Any termination, change,
reduction or delay in our projects could seriously harm our business.
OUR OPERATING RESULTS MAY SUFFER BECAUSE OF COMPETITION IN THE WIRELESS
SERVICES INDUSTRY.
The network services market is highly competitive and fragmented and is
served by numerous companies. Many of these competitors have significantly
greater financial, technical and marketing resources, generate greater revenues
and have greater name recognition and international experience than us. We do
not know of any competitors that are dominant in our industry. For a further
description of our competition, see "Business--Competition."
We believe that the principal competitive factors in our market include the
ability to deliver results within budget and on time, reputation,
accountability, project management expertise, industry experience and pricing.
In addition, expertise in new and evolving technologies, such as wireless
Internet services, has become increasingly important. We also believe our
ability to compete depends on a number of factors outside of our control,
including:
. the prices at which others offer competitive services;
. the ability and willingness of our competitors to finance customers'
projects on favorable terms;
. the ability of our customers to perform the services themselves; and
. the extent of our competitors' responsiveness to customer needs.
We may not be able to compete effectively on these or other bases, and, as a
result, our revenues or income may decline and harm our business.
OUR BUSINESS MAY BE HARMED IF OUR NEW SERVICE OFFERINGS DO NOT GAIN CUSTOMER
ACCEPTANCE.
We have expanded our suite of services to include ongoing network
optimization and management. As of June 30, 1999, we had generated a cumulative
total of only $994,000 in revenue for such services. These services, as well as
other new services we may develop, may not be favorably received by customers,
may not generate significant revenues or may not be offered in a cost-effective
or timely manner. In addition, expansion
10
<PAGE>
of our services also requires significant additional expenses and development
and may strain our managerial, financial and operational resources. If we are
unable to successfully expand our service offerings, our business may be
harmed.
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, MARKET CONDITIONS AND
INDUSTRY DEVELOPMENTS TO MAINTAIN OR GROW OUR REVENUES.
The market for wireless and other network system design, deployment and
management services is characterized by rapid change and technological
improvements. Our future success will depend in part on our ability to enhance
our current service offerings to keep pace with technological developments and
to address increasingly sophisticated customer needs. We may not be successful
in developing and marketing in a timely manner service offerings that respond
to the technological advances by others and our services may not adequately or
competitively address the needs of the changing marketplace. If we are not
successful in responding in a timely manner to technological change, market
conditions and industry developments, our revenues may decline and our business
may be harmed.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF
OUR MANAGEMENT TEAM.
Our success depends to a significant degree upon the continued contributions
of our executive officers, both individually and as a group. See "Management--
Directors, Executive Officers and Key Employees" for a listing of such
executive officers. Our future performance will be substantially dependent on
our ability to retain and motivate them. In addition, we do not carry key-
person life insurance to cover the loss of members of our management team. The
loss of the services of any of our executive officers, particularly Massih
Tayebi, our Chief Executive Officer, or Masood Tayebi, our President, could
prevent us from executing our business strategy.
WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO IDENTIFY, ACQUIRE OR INTEGRATE
ACQUISITIONS.
Our failure to manage risks associated with acquisitions could harm our
business. A component of our business strategy is to expand our presence in new
or existing markets by acquiring additional businesses. From January 1, 1998
through June 30, 1999, we acquired four businesses. We may not be able to
identify, acquire or profitably manage additional businesses or integrate
successfully any acquired businesses without substantial expense, delay or
other operational or financial problems. Acquisitions involve a number of
risks, including:
. diversion of management's attention;
. difficulty in integrating and absorbing the acquired business, its
employees, corporate culture, managerial systems and processes and
services;
. failure to retain key personnel and employee turnover;
. customer dissatisfaction or performance problems with an acquired firm;
. assumption of unknown liabilities; and
. other unanticipated events or circumstances.
WE HAVE RECENTLY EXPANDED OUR OPERATIONS INTERNATIONALLY. OUR FAILURE TO
EFFECTIVELY MANAGE OUR INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.
In the past two years, we have been engaged on projects in 26 countries, and
we currently have offices in Brazil, India, Mexico and the United Kingdom. For
the six months ended June 30, 1999, international operations accounted for
approximately 33% of our total revenues. We believe that the percentage of
total revenues attributable to international operations will continue to be
significant. Although we have no specific plans to enter into new international
markets, we intend to expand our existing international operations and may
enter additional international markets, which will require significant
management attention and financial
11
<PAGE>
resources and could adversely affect our operating margins and earnings. In
order to expand our international operations, we will need to hire additional
personnel and develop relationships with potential international customers. To
the extent that we are unable to do so on a timely basis, our growth in
international markets would be limited, and our business would be harmed.
Our international business operations are subject to a number of material
risks, including, but not limited to:
. difficulties in building and managing foreign operations;
. difficulties in enforcing agreements and collecting receivables through
foreign legal systems and addressing other legal issues;
. longer payment cycles;
. taxation issues;
. fluctuations in the value of foreign currencies; and
. unexpected domestic and international regulatory, economic or political
changes.
To date, we have encountered each of the risks set forth above in our
international operations. If we are unable to expand and manage our
international operations effectively, our business may be harmed.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD HARM OUR PROFITABILITY.
Substantially all of our international sales are currently denominated in
U.S. dollars. In the course of our international operations, we incur expenses
in a number of currencies. Fluctuations in the value of the U.S. dollar and
foreign currencies may make our services more expensive than local service
offerings. This could make our service offerings less competitive than local
service offerings, which could harm our business. To date, our experience with
this foreign currency risk has predominately related to the Brazilian real. We
do not currently engage in currency hedging activities to limit the risks of
exchange rate fluctuations. Therefore, fluctuations in the value of foreign
currencies could have a negative impact on the profitability of our global
operations, which would harm our business.
WE MAY ENCOUNTER POTENTIAL COSTS OR CLAIMS RESULTING FROM PROJECT PERFORMANCE.
Many of our engagements involve projects that are significant to the
operations of our customers' businesses. Our failure to meet a customer's
expectations in the planning or implementation of a project or the failure of
unrelated third party contractors to meet project completion deadlines could
damage our reputation and adversely affect our ability to attract new business.
We frequently undertake projects in which we guarantee performance based upon
defined operating specifications or guaranteed delivery dates. Unsatisfactory
performance or unanticipated difficulties or delays in completing such projects
may result in a direct reduction in payments to us, or payment of damages by
us, which could harm our business.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL CONTROL 73.9% OF
OUR COMMON STOCK AFTER THIS OFFERING AND, AS A RESULT, WILL BE ABLE TO EXERCISE
CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own, in the aggregate, approximately 73.9%
of our outstanding common stock. In particular, our Chief Executive Officer,
Massih Tayebi, and our President, Masood K. Tayebi, will beneficially own, in
the aggregate, approximately 53.6% of our outstanding common stock. In
addition, other members of the Tayebi families own, in the aggregate,
approximately 6.0% of our outstanding common stock. As a result, these
stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, which may have the effect of delaying or
preventing a third party from acquiring control over us. These transactions may
include those that other
12
<PAGE>
stockholders deem to be in their best interests and in which those other
stockholders might otherwise receive a premium for their shares over their
current prices. For additional information regarding our stock ownership see
"Principal Stockholders."
YEAR 2000 PROBLEMS COULD LEAD TO MALFUNCTIONS OF OUR COMPUTER AND
COMMUNICATIONS SYSTEMS, AND PREVENT US FROM RUNNING OUR BUSINESS.
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these programs cannot tell the
difference between the year 2000 and the year 1900. As a result, these programs
may malfunction or fail completely. We have not independently verified that our
customers' systems and the third party systems we use are year 2000 compliant.
If we, our customers or any other third parties with whom we have a material
relationship fail to achieve year 2000 readiness, our business may be seriously
harmed. In particular, if year 2000 problems significantly impact carriers or
equipment vendors, the demand for our services could be significantly reduced.
In some of our customer contracts, we have warranted that our services and
related technologies will be year 2000 compliant. Failure to do so, however,
could result in the termination of those contracts or liability for damages. We
have no specific contingency plan to address the effect of year 2000
noncompliance. For additional information regarding our year 2000 readiness,
see "Management's Discussion and Analysis of Financial Condition and Operating
Results--Year 2000 Readiness Disclosure."
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
and telecom companies have been extremely volatile, and have experienced
fluctuations that have often been unrelated to or disproportionate to the
operating performance of such companies. These broad market fluctuations could
adversely affect the price of our common stock.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THOSE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
Most of the net proceeds of this offering are not allocated for specific
uses. Our management has broad discretion to spend the proceeds from this
offering in ways with which stockholders may not agree. The failure of our
management to apply these funds effectively could result in unfavorable
returns. This could harm our business and could cause the price of our common
stock to decline.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR
A THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON
STOCK.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of
our company or our management. These provisions could also discourage proxy
contests and make it more difficult for you and other stockholders to elect
directors and take other corporate actions. As a result, these provisions could
limit the price that investors are willing to pay in the future for shares of
our common stock. These provisions include:
. authorizing the board of directors to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
We are also subject to certain provisions of Delaware law which could delay,
deter or prevent us from entering into an acquisition, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in a business combination with an interested stockholder unless
specific conditions are met. See "Description of Capital Stock--Preferred Stock
and Anti-Takeover Provisions."
13
<PAGE>
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading market price of our common stock may decline below the
initial public offering price. The initial public offering price has been
determined by negotiations between us and the representatives of the
underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. In addition, an active public
market for our common stock may not develop or be sustained after this
offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock immediately after
the offering. Purchasers of common stock in this offering will suffer immediate
and substantial dilution. This dilution will reduce the net tangible book value
of their shares, since these investments will be at a substantially higher per
share price than they were for our existing stockholders. The dilution will be
$11.99 per share in the net tangible book value of the common stock from the
initial public offering price. If additional shares are sold by the
underwriters following exercise of their over-allotment option, or if
outstanding options or warrants to purchase shares of common stock are
exercised, you will incur further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of common stock in the public market
following this offering could cause the market price of our common stock to
decline. After this offering, we will have outstanding 39,028,169 shares of
common stock. All the shares sold in this offering will be freely tradable. Of
the remaining 35,028,169 shares of common stock outstanding after this
offering, all of such shares will be eligible for sale in the public market
beginning 180 days after the date of this prospectus. After this offering we
also intend to register up to approximately 13,100,000 additional shares of our
common stock for sale upon the exercise of outstanding stock options and
warrants issued pursuant to compensatory benefit plans or reserved for future
issuance pursuant to our 1999 Equity Incentive Plan and 1999 Employee Stock
Purchase Plan.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "except," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
the risks described above and in other parts of this prospectus. These factors
may cause our actual results to differ materially from any forward-looking
statement. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements.
14
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock
offered by us are estimated to be $51.08 million, or $58.89 million if the
underwriters over-allotment option is exercised in full, at an assumed initial
public offering price of $14.00 per share, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us.
Our principal purposes for engaging in this offering are to:
. increase our equity capital and create a public market for our common
stock;
. provide increased visibility for us in a marketplace where our principal
business relationships are with publicly traded companies; and
. facilitate future access by us to public equity markets.
Prior to the completion of this offering, we intend to draw on our revolving
line of credit to repay notes issued in our acquisition of Entel Technologies.
We plan to use approximately $7.0 million of the proceeds of this offering to
repay short-term debt under our revolving line of credit. Indebtedness under
our revolving line of credit bears interest at LIBOR, which was 5.42% as of
September 30, 1999, plus 2.25% and has a maturity date of August 17, 2000. We
expect to use the remaining net proceeds from this offering for working capital
and general corporate purposes. In addition, we may use a portion of the net
proceeds to acquire businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations to do so. Pending the uses
described above, we intend to invest the net proceeds in interest-bearing,
investment grade securities.
DIVIDEND POLICY
Covenants in our financing arrangements prohibit or limit our ability to
declare or pay cash dividends. We currently intend to retain any future
earnings to finance the growth and development of our business and therefore do
not anticipate paying any cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the board of
directors and will be dependent upon our financial condition, results of
operations, capital requirements, general business conditions and other factors
that the board of directors may deem relevant.
While we were an S corporation, we paid dividends to our stockholders of
approximately $4.6 million in 1997 and approximately $8.6 million in 1998. Of
the 1998 dividends, $3.1 million was paid in cash. The remaining $5.5 million
was paid to three of our stockholders, Drs. Massih Tayebi, Masood Tayebi and
Sean Tayebi, in the form of short-term promissory notes. See "Related Party
Transactions."
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. On an actual basis;
. On a pro forma basis after giving effect to the conversion of all
outstanding preferred stock into 7,775,349 shares of common stock; and
. On a pro forma as adjusted basis, giving effect to our sale of the
common stock in this offering at an assumed offering price of $14.00 per
share, including the sale of our treasury stock, and the application of
the net proceeds as described under "Use of Proceeds."
This information should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion (1)........ $ 867 $ 867 $ 867
Stockholders' equity:
Convertible preferred stock; 4,482,692 shares,
$0.01 par value, authorized and 4,409,965
shares issued and outstanding, actual; no
shares issued and outstanding, pro forma;
5,000,000 shares, $0.001 par value, authorized
and no shares outstanding, pro forma as
adjusted (2).................................. 44 -- --
Common stock; 50,000,000 shares, $0.01 par
value, authorized and 27,252,820 shares issued
and outstanding, actual; 35,028,169 shares
issued and outstanding pro forma; 195,000,000
shares, $0.001 par value, authorized and
39,028,169 shares issued and outstanding,
pro forma as adjusted (2)(3).................. 305 383 39
Additional paid-in capital...................... 41,529 41,495 79,228
Retained earnings .............................. 7,570 7,570 7,570
Treasury stock at cost; 3,287,612 shares actual
and pro forma, none pro forma as adjusted...... (13,691) (13,691) --
Accumulated other comprehensive income.......... 47 47 47
------- ------- -------
Total stockholders' equity.................... 35,804 35,804 86,884
------- ------- -------
Total capitalization.......................... $36,671 $36,671 $87,751
======= ======= =======
</TABLE>
- --------
(1) See Note 4 of Notes to Consolidated Financial Statements.
(2) Immediately prior to the closing of this offering and effective upon the
filing of our restated certificate of incorporation, our authorized
preferred stock will be increased to 5,000,000 shares, $0.001 par value,
and our authorized common stock will be increased to 195,000,000 shares,
$0.001 par value.
(3) Does not include the following shares:
. 5,909,286 shares subject to options outstanding at a weighted average
exercise price of $5.35 per share; and
. 1,144,381 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $2.08 per share. See
Note 7 of Notes to Consolidated Financial Statements. See "Description
of Capital Stock."
16
<PAGE>
DILUTION
As of September 30, 1999, our pro forma net tangible book value was
approximately $27.4 million, or $0.78 per share of common stock. Pro forma net
tangible book value represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding, and
gives effect to the conversion of all outstanding preferred stock into shares
of common stock.
After giving effect to our sale of common stock in this offering at an
assumed initial public offering price of $14.00 per share, and our receipt of
the estimated net proceeds from the sale, our pro forma net tangible book value
as of September 30, 1999 would have been approximately $78.5 million, or $2.01
per share. This represents an immediate increase in pro forma net tangible book
value of $1.23 per share to existing stockholders and an immediate dilution of
$11.99 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $14.00
Pro forma net tangible book value per share before the
offering....................................................... $ 0.78
Increase per share attributable to new investors................ $ 1.23
------
Pro forma net tangible book value per share after this
offering....................................................... $ 2.01
------
Dilution per share to new investors............................. $11.99
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid before deducting the
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 35,028,169 89.8% $37,882,863 40.4% $ 1.08
New investors.................. 4,000,000 10.2% $56,000,000 59.6% $14.00
---------- ----- ----------- -----
Total.......................... 39,028,169 100.0% $93,882,863 100.0%
========== ===== =========== =====
</TABLE>
The discussion and tables above assume no exercise of stock options or
warrants outstanding as of September 30, 1999. As of September 30, 1999, there
were options outstanding to purchase a total of 5,909,286 shares of common
stock, with a weighted average exercise price of $5.35 per share, and warrants
outstanding to purchase a total of 1,144,381 shares of common stock, with a
weighted average exercise price of $2.08 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors. See "Description of Capital Stock" and Note 7 of Notes to
Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Consolidated Statement
of Operations Data" and "Consolidated Balance Sheet Data" for, and as of the
end of, each of the years in the four-year period ended December 31, 1998 and
for, and as of the end of the six-month period ended June 30, 1999, are derived
from the consolidated financial statements of Wireless Facilities, Inc., which
financial statements have been audited by KPMG LLP, our independent certified
public accountants. The audited consolidated financial statements as of
December 31, 1997 and 1998 and June 30, 1999 and for each of the years in the
three-year period ended December 31, 1998 and the six months ended June 30,
1999, and report thereon, are included elsewhere in this prospectus. The
selected data presented below for the six-month period ended June 30, 1998 are
derived from the unaudited consolidated financial statements of Wireless
Facilities, Inc. included elsewhere in this prospectus. We have prepared this
unaudited information on substantially the same basis as the audited
consolidated financial statements and included all adjustments that we consider
necessary for the fair presentation of the financial position and results of
operations for the period. When you read this selected historical financial
data, it is important that you read along with it the historical financial
statements and related notes as well as the section titled "Management's
Discussion and Analysis of Financial Condition and Operating Results" included
elsewhere in this prospectus. Historical results are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $1,085 $15,421 $22,658 $51,909 $21,611 $33,106
Cost of revenues........ 744 6,832 11,716 28,070 10,578 21,025
------ ------- ------- ------- ------- -------
Gross profit............ 341 8,589 10,942 23,839 11,033 12,081
Selling, general and
administrative
expenses............... 102 1,833 3,975 12,865 4,612 6,444
------ ------- ------- ------- ------- -------
Operating income........ 239 6,756 6,967 10,974 6,421 5,637
Total other (expense)
income................. (2) (2) 25 (484) (146) (628)
------ ------- ------- ------- ------- -------
Income before income
taxes.................. 237 6,754 6,992 10,490 6,275 5,009
Provision for income
taxes.................. -- 22 223 5,526 61 2,181
------ ------- ------- ------- ------- -------
Net income.............. $ 237 $ 6,732 $ 6,769 $ 4,964 $ 6,214 $ 2,828
====== ======= ======= ======= ======= =======
Net income per share
Basic.................. $ 0.01 $ 0.24 $ 0.24 $ 0.17 $ 0.21 $ 0.10
====== ======= ======= ======= ======= =======
Diluted................ $ 0.01 $ 0.23 $ 0.23 $ 0.16 $ 0.20 $ 0.09
====== ======= ======= ======= ======= =======
Weighted average shares
Basic.................. 28,500 28,500 28,661 28,374 29,408 27,126
====== ======= ======= ======= ======= =======
Diluted................ 28,500 29,427 29,326 30,741 30,345 32,365
====== ======= ======= ======= ======= =======
PRO FORMA INFORMATION
(UNAUDITED):
Income before income
taxes.................. $ 237 $ 6,754 $ 6,992 $10,490 $ 6,275 $ 5,009
Pro forma provision for
income taxes (1)....... 95 2,675 2,750 4,476 2,678 2,181
------ ------- ------- ------- ------- -------
Pro forma net income
(2).................... $ 142 $ 4,079 $ 4,242 $ 6,014 $ 3,597 $ 2,828
====== ======= ======= ======= ======= =======
Pro forma net income per
share (2)
Basic.................. $ 0.20 $ 0.08
======= =======
Diluted................ $ 0.18 $ 0.07
======= =======
Pro forma weighted
average shares
Basic.................. 30,664 34,481
======= =======
Diluted................ 33,031 39,720
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997 1998 1999
---- ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash....................................... $ 7 $ 333 $ 836 $ 2,866 $ 4,027
Working capital............................ 216 6,633 9,240 7,739 22,934
Total assets............................... 535 7,210 11,054 60,531 53,672
Total debt................................. -- -- -- 16,018 9,407
Total stockholders' equity................. 237 6,995 9,835 14,595 32,844
</TABLE>
- -------
(1) Through August 7, 1998, we elected to be taxed as an S corporation under
the Internal Revenue Code of 1986 and comparable state laws. Accordingly,
we did not recognize any provision for federal income tax expense during
periods prior to that time. The pro forma provision for income taxes
reflects the provision for federal income taxes which we would have
recorded if we had been a C corporation during these periods.
(2) Pro forma net income for all periods except the six months ended June 30,
1999 gives effect to the adjustment for federal income taxes which we would
have recorded if we had been a C corporation during these periods. For a
description of the computation of the pro forma net income per share and
the number of shares used in the per share calculations, see Note 1 of
Notes to Consolidated Financial Statements.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Company acquired Entel Technologies (Entel) on February 27, 1998.
Entel's results of operations for the subsequent ten months are included in the
Company's statement of operations for the year ended December 31, 1998. Had the
acquisition occurred on January 1, 1998, the following pro forma adjustments
would have been made to the audited consolidated statement of operations to
account for the operations of Entel for the period January 1, 1998 through
February 27, 1998 and to present certain pro forma adjustments: increase in
revenues of $3,919,165, increase in cost of revenues of $2,145,233, increase in
selling, general and administrative expenses of $1,445,270, including pro forma
adjustment for additional goodwill amortization of $130,049, increase in other
expense, net of $68,317 including pro forma adjustment for additional interest
expense of $75,843. These adjustments result in a net increase to historical
net income of $260,345. Pro forma earnings per share for the year ended
December 31, 1998 are $0.18 basic and $0.17 diluted.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this prospectus. See also "Special Note Regarding Forward-Looking
Statements."
OVERVIEW
We were incorporated in December 1994 and began operations in March 1995.
Since our inception, we have operated as a provider of outsourced services
related to the planning, design and deployment of wireless networks.
Additionally, we have expanded our services to offer ongoing optimization and
network management services for our customers. We contract with wireless
telecom carriers and wireless equipment vendors to provide turnkey design,
deployment and management services as well as individual services as part of
broader network deployment projects. A majority of our contracts are structured
on a fixed-price, time-certain basis. Since our business is driven by large,
and sometimes multi-year, contracts, we forecast our staffing needs for future
projected business. As a result, we may increase our staffing levels in
anticipation of beginning a project. Our business may be harmed if such a
project is delayed, reduced or terminated.
We generally offer our network planning, design and deployment services on a
fixed-price, time-certain basis. We recognize revenues for such contracts using
the percentage-of-completion method. Under the percentage-of-completion method,
in each period we recognize expenses as they are incurred and we recognize
revenue based on a comparison of the current costs incurred for the project to
the then estimated total costs of the project. Accordingly, the revenue we
recognize in a given quarter depends on the costs we have incurred for
individual projects and our then current estimate of the total remaining costs
to complete individual projects. If in any period we significantly increase our
estimate of the total costs to complete a project, we may recognize very little
or no additional revenue with respect to that project. As a result, our gross
margin in such period and in future periods may be significantly reduced and in
some cases we may recognize a loss on individual projects prior to their
completion. Our contracts are typically structured with milestone events that
dictate the timing of payments to us from our customers. Accordingly, there may
be a significant delay between the date we record revenue and the date we
receive payment from our customers. For network planning, design and deployment
contracts offered on a time and expense basis, we recognize revenues as
services are performed. We typically charge a fixed monthly fee for our ongoing
radio frequency optimization and network operations and maintenance services.
With respect to these services, we recognize revenue as services are performed.
As of June 30, 1999, we had generated a cumulative total of $994,000 in revenue
from our network management services. We expect to generate increased revenue
from our network management services as we cross-sell to our existing customers
and make this service available to new customers.
In order to meet the global needs of our clients, we have completed projects
in 26 countries to date. Since 1998, we have established corporate resource
centers in Mexico, Brazil, India and the United Kingdom. We have generated
significant revenues from our international operations and expect that those
revenues will expand as we continue to grow our business. Contracts with our
customers are typically denominated in U.S. dollars, but this may not always be
the case in the future. Additionally, we pay our international employees in
either U.S. dollars or local currency. Currently we do not enter into hedging
contracts or similar arrangements to protect against foreign currency
fluctuations. Therefore, we increasingly may be subject to currency
fluctuations, which could harm our operating results in future periods.
Our customers are large, well-established telecom carriers and wireless
telecom equipment vendors, as well as smaller, early stage telecom carriers. We
have derived, and believe that we will continue to derive, a significant
portion of our revenues from a limited number of customers. For the six months
ended June 30, 1999, we derived 18% of revenues from Telecorp and 10% of our
revenues from Siemens. For the year ended December 31, 1998, we derived 31% of
our revenues from Telecorp, 19% of our revenues from Qualcomm and 17% of our
revenues from Triton PCS. The volume of work performed for specific customers
is likely to vary from period to period, and a major customer in one period may
not use our services in a subsequent period.
20
<PAGE>
Our cost of revenues includes direct compensation and benefits, living and
travel expenses, payments to third-party sub-contractors, allocation of
overhead, costs of expendable computer software and equipment and other direct
project-related expenses. As of June 30, 1999, we had 450 employees working on
contracted projects.
Selling, general and administrative expenses include compensation and
benefits, computer software and equipment, facilities expenses and other
expenses not related directly to projects. Our sales personnel have, as part of
their compensation package, incentives based on their productivity. We are
currently installing a new financial management and accounting software program
to better accommodate our growth. We expect to incur expenses related to the
licensing of the software package and related personnel costs associated with
its installation, testing and implementation. We may incur expenses related to
a given project in advance of the project beginning as we increase our
personnel to work on the project. New hires typically undergo training on our
systems and project management process prior to being deployed on a project.
Depreciation and amortization expenses include depreciation on our
furniture, fixtures and equipment and amortization related to our recent
acquisitions, primarily Entel in February 1998. Goodwill is being amortized
over a ten-year period.
Interest expense is primarily related to interest on notes payable to
related parties. Specifically, in connection with a dividend declared and paid
to all stockholders in July 1998, we issued promissory notes in the amount of
$5.5 million. These notes were amended in August 1999 and become due in August
2000. In addition, as part of our acquisition of Entel, we issued notes as part
of the purchase consideration in the amount of $5.2 million. Prior to
completion of this offering we expect to repay the approximately $3.0 million
outstanding under the Entel notes using our line of credit. We currently intend
to repay our line of credit with the proceeds of this offering. We may enter
into future borrowings or notes related to future acquisitions, and we may
incur additional interest expenses as a result.
In August 1998, we converted from an S corporation to a C corporation. Prior
to becoming a C corporation, our stockholders were taxed individually for their
share of our profits. In 1998, we incurred a one-time charge of $2.1 million to
establish a deferred income tax liability upon our change from an S corporation
to a C corporation. The remaining tax provision for the year ended December 31,
1998 is attributable to federal and state income taxes at the standard
statutory C corporation rates for operations from August 7, 1998 to December
31, 1998.
RECENT FINANCIAL RESULTS
The following table sets forth certain unaudited consolidated statement of
operations data for the three and nine months ended September 30, 1999,
together with comparative prior period data.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
1998 1999 1998 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Revenues................................ $14,008 $23,833 $ 35,619 $ 56,938
Cost of revenues........................ 8,021 13,102 18,600 34,126
------- ------- -------- --------
Gross profit............................ 5,987 10,731 17,019 22,812
Selling, general and administrative
expenses............................... 3,815 5,061 8,427 11,506
------- ------- -------- --------
Operating income........................ 2,172 5,670 8,592 11,306
Total other (expense) income, net....... (153) (631) (299) (1,258)
------- ------- -------- --------
Income before income taxes.............. 2,019 5,039 8,293 10,048
Net income.............................. $(1,364) $ 2,898 $ 4,755 $ 5,726
======= ======= ======== ========
</TABLE>
21
<PAGE>
Revenues. Our revenues increased 70% from $14.0 million for the three months
ended September 30, 1998 to $23.8 million for the three months ended September
30, 1999, reflecting the addition of new contracts and new service offerings,
including site development and fixed network engineering.
Revenues for the nine months ended September 30, 1999 increased 60% from the
nine months ended September 30, 1998. The $21.3 million increase was primarily
attributable to the addition of new contracts, offset by a reduction in revenue
of $5.0 million from the effects of revised cost estimates related to two
fixed-price contracts.
Cost of Revenues. Our cost of revenues increased 64% from $8.0 million for
the three months ended September 30, 1998 to $13.1 million for the three months
ended September 30, 1999, primarily due to increased staffing in support of new
contracts. Gross profit was 45% of revenues for the three months ended
September 30, 1999 compared to 43% for the three months ended September 30,
1998. Gross profit for the three months ended September 30, 1999 increased due
to the addition of new higher margin contracts.
Cost of revenues increased 83% from $18.6 million for the nine months ended
September 30, 1998 to $34.1 million for the nine months ended September 30,
1999, primarily due to increased staffing in support of new contracts. Gross
profit was 40% of revenues for the nine months ended September 30, 1999
compared to 48% for the nine months ended September 30, 1998. Gross profit for
the nine months ended September 30, 1999 were primarily reduced due to a
reduction in revenue of $5.0 million from the effects of revised cost estimates
related to two fixed-price contracts.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased 34% from $3.8 million for the three months
ended September 30, 1998 to $5.1 million for the three months ended September
30, 1999. The increase was attributable to an increase in executive,
administrative, sales and marketing personnel, as well as increases in
purchases of expendable tools and systems in support of our growth.
Selling, general and administrative expenses increased 37% from $8.4 million
for the nine months ended September 30, 1998 to $11.5 million for the nine
months ended September 30, 1999. The increase was primarily attributable to
increases in executive, administrative, sales and marketing personnel, as well
as increases in purchases of expendable tools and systems in support of our
growth. As a percentage of revenues, selling, general and administrative
expenses decreased from 24% for the nine months ended September 30, 1998 to 20%
for the nine months ended September 30, 1999, reflecting consolidation
efficiencies following the Entel acquisition.
Other Income (Expense), Net. For the three months ended September 30, 1999,
other expenses were $0.6 million as compared to $0.2 million for the three
months ended September 30, 1998. This increase was attributable to increased
interest expense and to foreign currency translation losses related to our
Brazilian subsidiary.
For the nine months ended September 30, 1999, our other expense was $1.3
million as compared to $0.3 million for the nine months ended September 30,
1998. This increase was attributable to increased interest expense, foreign
currency translation losses related to our Brazilian subsidiary, and the
minority interest in our Mexican subsidiary.
Net Income. Our net income for the three months ended September 30, 1999 was
$2.9 million, as compared to a net loss of $1.4 million for the three months
ended September 30, 1998. The $4.3 million increase was primarily due to
revenue and margin increases on new contracts offset in part by an increase in
selling, general and administrative expenses. In addition, in 1998, we incurred
a one-time charge of $2.1 million to establish a deferred income tax liability
upon our change from a S corporation to a C corporation.
22
<PAGE>
Our net income for the nine months ended September 30, 1999 was $5.7
million, as compared $4.7 million for the nine months ended September 30, 1998.
The 20% increase in net income was primarily due to revenue increases on new
contracts and the recording of the tax liability associated with our change
from a S corporation to a C corporation in 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data as a percentage of revenues. Our results of operations are
reported as a single business segment.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1995 1996 1997 1998 1998 1999
------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......... 68.6 44.3 51.7 54.1 48.9 63.5
------ ------ ------ ------ -------- --------
Gross profit.............. 31.4 55.7 48.3 45.9 51.1 36.5
Selling, general and
administrative expenses.. 9.4 11.9 17.5 24.8 21.4 19.5
------ ------ ------ ------ -------- --------
Operating income.......... 22.0 43.8 30.8 21.1 29.7 17.0
Total other (expense)
income................... (0.2) -- 0.1 (0.9) (0.7) (1.9)
------ ------ ------ ------ -------- --------
Income before income
taxes.................... 21.8 43.8 30.9 20.2 29.0 15.1
Net income................ 21.8% 43.7% 29.9% 9.6% 28.8% 8.5%
====== ====== ====== ====== ======== ========
</TABLE>
COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS
ENDED JUNE 30, 1999
Revenues. Our revenues increased 53% from $21.6 million for the six months
ended June 30, 1998 to $33.1 million for the six months ended June 30, 1999.
The increase was primarily attributable to the addition of new contracts
amounting to $16.5 million, partially offset by a reduction in revenue of $5.0
million from the effects of revised expense forecasts to complete two fixed-
price contracts. The addition of new service offerings, including site
development and fixed network engineering, contributed $11.4 million to the new
contract revenues.
Cost of Revenues. Our cost of revenues increased 98% from $10.6 million for
the six months ended June 30, 1998 to $21.0 million for the six months ended
June 30, 1999 primarily due to increased staffing in support of new contracts.
Gross margin was 51.1% of revenues for the six months ended June 30, 1998
compared to 36.5% for the six months ended June 30, 1999. Gross margins for the
six months ended June 30, 1999 were reduced by our updated estimates of higher
than anticipated costs to complete two fixed-price contracts.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased 39% from $4.6 million for the six months
ended June 30, 1998 to $6.4 million for the six months ended June 30, 1999. The
increase was attributable to an increase in executive, administrative, sales
and marketing personnel, as well as increases in purchases of expendable tools
and systems in support of our growth. As a percentage of revenues, selling,
general and administrative expenses decreased from 21.4% for the six months
ended June 30, 1998 to 19.5% for the six months ended June 30, 1999, reflecting
consolidation efficiencies following the Entel acquisition.
Other Income (Expense). For the six months ended June 30, 1998, our other
expense was $146,000 as compared to $627,000 of other expense for the six
months ended June 30, 1999. This increase was primarily attributable to
interest expense of $359,000 from the Entel acquisition, stockholder notes and
higher utilization of our bank line of credit to support working capital needs,
as well as foreign currency losses of $170,000 attributable to the Company's
expansion into Brazil and Mexico.
Net Income. Our net income decreased 55% from $6.2 million for the six
months ended June 30, 1998 to $2.8 million for the six months ended June 30,
1999. This decrease was due to increased cost of revenues,
23
<PAGE>
increased selling, general and administrative expenses as a percentage of
revenues, and an increase in the provision for income taxes, as a result of the
Company's change from a S corporation to a C corporation in August 1998, which
resulted in an increase in the effective tax rate from 1% to 44%.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1998
Revenues. Our revenues increased 129% from $22.7 million for the year ended
December 31, 1997 to $51.9 million for the year ended December 31, 1998. The
increase was attributable to revenue of $20.0 million from contracts assumed in
our acquisition of Entel at the end of February 1998 and new fixed-price
contract revenues of $11.8 million, partially offset by a $2.6 million
reduction in time and expense contracts as our product mix shifted to fixed-
price, time-certain projects. The addition of new service offerings, including
site development and fixed network engineering, contributed approximately $3.6
million to the new fixed price contract revenues.
Cost of Revenues. Our cost of revenues increased 140% from $11.7 million for
the year ended December 31, 1997 to $28.1 million for the year ended December
31, 1998, primarily due to increased staffing in support of new contracts.
Gross margin was 48.3% for the year ended December 31, 1997 compared to 45.9%
for the year ended December 31, 1998. The decrease in gross margin was
primarily due to lower margin contracts acquired in the Entel acquisition.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased 223% from $4.0 million for the year ended
December 31, 1997 to $12.9 million for the year ended December 31, 1998. As a
percentage of revenues, selling, general and administrative expenses increased
from 17.5% of revenues for the year ended December 31, 1997 to 24.8% of
revenues for the year ended December 31, 1998. The increase in selling, general
and administrative expenses in both absolute dollars and as a percentage of
revenues was primarily attributable to our acquisition of Entel at the end of
February 1998, as well as the increase in purchases of expendable tools and
systems to support our growth.
Other Income (Expense). For the year ended December 31, 1997 other income
was $25,000 as compared to $484,000 of other expense for the year ended
December 31, 1998. This change was primarily attributable to interest expense
of $630,000 from the Entel acquisition, stockholder notes and higher
utilization of our bank line of credit, and an equity loss of $66,000 on an
investment offset by an increase in interest income of $187,000 resulting from
higher cash balances. The equity investment was sold in June 1999.
Net Income. Our net income decreased 26% from $6.8 million for the year
ended December 31, 1997 to $5.0 million for the year ended December 31, 1998.
This decrease was due to significantly higher revenues resulting from the
acquisition of Entel partially offset by increased cost of revenues and
increased selling, general and administrative expenses as a percentage of
revenues, and further offset by an increase in the provision for income taxes
as a result of the Company's change from a S corporation to a C corporation in
August 1998, which resulted in an increase in the effective tax rate from 3% in
1997 to 53% in 1998.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED
DECEMBER 31, 1997
Revenues. Our revenues increased 47% from $15.4 million for the year ended
December 31, 1996 to $22.7 million for the year ended December 31, 1997. The
increase was primarily attributable to the addition of new contracts.
Cost of Revenues. Our cost of revenues increased 72% from $6.8 million for
the year ended December 31, 1996 to $11.7 million for the year ended December
31, 1997. The increase was attributable to increased staffing levels and
associated travel and living expenses in support of new contracts. Gross margin
was 55.7% for the year ended December 31, 1996 compared to 48.3% for the year
ended December 31, 1997. The decreasing gross margin was primarily attributable
to the completion of an exceptionally profitable contract in 1996 and expenses
related to our first international contract in 1997.
24
<PAGE>
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased 122% from $1.8 million for the year ended
December 31, 1996 to $4.0 million for the year ended December 31, 1997. This
represented 11.9% of revenues for the year ended December 31, 1996 and 17.5% of
revenues for the year ended December 31, 1997. The increase in selling, general
and administrative expenses in both absolute dollars and percentage of revenues
was primarily attributable to increased staffing levels, and an increase in
purchases of expendable tools and systems for support.
Other Income (Expense). For the year ended December 31, 1996 other expense
was $2,000 as compared to other income of $25,000 for the year ended December
31, 1997. This change was primarily attributable to increased earnings on cash
balances of $12,000 coupled with decreases in interest expense of $14,000 due
to higher cash balances.
Net Income. Our net income increased 1% from $6.7 million for the year ended
December 31, 1996 to $6.8 million for the year ended December 31, 1997. Net
income remained relatively unchanged as a result of increased net revenue that
was offset almost entirely by increases in cost of revenues and selling,
general and administrative expenses as a percentage of revenues.
25
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables present unaudited quarterly results, in dollars and as
a percentage of net revenue, for the ten quarters ended June 30, 1999. The ten
quarter period covers each of our two most recently completed fiscal years and
the interim period reported in the financial statements and notes thereto
included elsewhere in this prospectus. We believe that this period is
sufficiently long to reflect historical trends and fluctuations in our results
of operations.We believe this information reflects all adjustments necessary
for a fair presentation of such information in accordance with generally
accepted accounting principles. Prior to this offering, we did not prepare
financial statements on a quarterly basis. Accordingly, revenue reported for
fixed-price contracts for each quarter in 1997, 1998 and the quarter ended
March 31, 1999 using the percentage-of-completion method was based on actual or
estimated total contract costs available at the end of 1997, 1998 and June 30,
1999, respectively, as opposed to estimates at the end of each quarter. For the
quarter ended June 30, 1999, and in future quarters, revenues from fixed-price
contracts will be reported based upon estimates of the total costs to complete
the contract made during and at the end of the quarter. As a result, future
operating results may fluctuate more from quarter to quarter than those shown
below. In addition, it may not be meaningful to compare results of operations
for future quarters to those for quarters prior to June 30, 1999 and the
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $2,226 $5,991 $6,194 $8,247 $8,904 $12,707 $14,008 $16,290 $15,028 $18,078
Cost of revenues........ 2,536 2,632 3,480 3,068 3,744 6,834 8,021 9,471 9,204 11,821
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit (loss)..... (310) 3,359 2,714 5,179 5,160 5,873 5,987 6,819 5,824 6,257
Selling, general and
administrative
expenses............... 701 858 727 1,689 1,570 3,042 3,815 4,438 3,171 3,274
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Operating income
(loss)................. (1,011) 2,501 1,987 3,490 3,590 2,831 2,172 2,381 2,653 2,983
Total other (expense)
income................. 12 -- -- 13 (21) (125) (153) (185) (399) (228)
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes........... $ (999) $2,501 $1,987 $3,503 $3,569 $ 2,706 $ 2,019 $ 2,196 $ 2,254 $ 2,755
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
AS A PERCENTAGE OF
REVENUES:
Revenues................ 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 %
Cost of revenues........ 113.9 43.9 56.2 37.2 42.0 53.8 57.3 58.1 61.2 65.4
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit (loss)..... (13.9) 56.1 43.8 62.8 58.0 46.2 42.7 41.9 38.8 34.6
Selling, general and
administrative
expenses............... 31.5 14.3 11.7 20.5 17.6 23.9 27.2 27.2 21.1 18.1
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Operating income
(loss)................. (45.4) 41.8 32.1 42.3 40.4 22.3 15.5 14.7 17.7 16.5
Total other (expense)
income................. 0.5 -- -- 0.2 (0.2) (1.0) (1.1) (1.2) (2.7) (1.3)
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (44.9)% 41.8% 32.1% 42.5% 40.2% 21.3% 14.4% 13.5% 15.0% 15.2 %
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
TEN QUARTERS ENDED JUNE 30, 1999
Revenues. Over the ten quarters ended June 30, 1999, our quarterly revenue
increased from $2.2 million to $18.1 million. Our quarterly revenues have grown
in each of the ten quarters ended June 30, 1999, with the exception of the
quarter ended March 31, 1999. During the quarters ended March 31, 1999 and June
30, 1999, revenues were negatively impacted primarily due to the effects of
revised expense forecasts for the completion of two fixed-price contracts.
Cost of Revenues. Gross margins have fluctuated widely over this period
ranging from (13.9%) to 62.8%. Beginning in the quarter ended March 31, 1998,
gross margins were negatively affected by contracts assumed in connection with
the Entel acquisition. In the quarter ended March 31, 1999 gross margin was
38.8% and in
26
<PAGE>
the quarter ended June 30, 1999 gross margin was 34.6%. The lower gross margins
were primarily due to revised expense forecasts for the completion of two
fixed-price contracts. The impact of these contracts is expected to continue
through the quarter ending March 31, 2000, although such contracts are expected
to account for an increasingly smaller portion of our cost of revenues. Our
gross margins are expected to continue to fluctuate in future periods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of revenues have fluctuated
significantly over the ten quarters ended June 30, 1999. During the quarters
ended March 31, 1998 and June 30, 1998, expenses increased as a percentage of
revenues as a result of the acquisition-specific costs from the Entel
acquisition as well as the short-term duplication of some administrative
expenses.
Other Income (Expense). Interest expense has increased over the ten-quarter
period as a result of the indebtedness related to the Entel acquisition in
February 1998, stockholder notes incurred as a part of the Series A Preferred
Stock financing in July 1998, and increased utilization of our bank line of
credit for working capital needs.
Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. See "Risk Factors--We expect
our quarterly results to fluctuate. If we fail to meet earnings estimates our
stock price could decline" and "--An increasing percentage of our revenue is
accounted for on a percentage-of-completion basis which could cause our
quarterly results to fluctuate."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our operations through cash
flow from operations and from the sale of preferred and common stock. We have
raised $36.0 million through the sale of preferred stock which was used to
finance our growth and to repurchase $13.7 million of our common stock from
certain stockholders. Additionally, we have periodically drawn upon a $3.0
million bank line of credit to fund our growth and working capital
requirements.
As of June 30, 1999, we had cash and cash equivalents totaling $4.0 million.
In August 1999, we entered into a $10.0 million credit agreement with
Imperial Bank. This agreement provides a revolving credit facility of $10.0
million for working capital. The credit facility is due August 17, 2000, and
bears interest at the prime rate plus 0.25% or the London Interbank Offering
Rate, or LIBOR, plus 2.25%, as determined by us on the date we borrow funds
under the facility. As of September 30, 1999, the LIBOR rate was 5.42%. The
line of credit is secured by substantially all of our business assets, is
guaranteed by our subsidiaries and is senior to $5.8 million of subordinated
indebtedness to certain of our stockholders. Under the terms of the credit
agreement, we are required to provide the lenders with periodic budgets,
financial statements and public reports and filings, and we must meet specified
thresholds with respect to profitability and debt to net worth ratio.
Additionally, the negative covenants in the credit agreement limit our ability
to sell our assets outside the ordinary course of business, merge with or
acquire other businesses or make capital expenditures over $2,500,000. The
covenants also prohibit us from issuing dividends, creating liens or incurring
additional indebtedness, or allowing our working capital to fall below
$20,000,000. As of September 23, 1999, $4.0 million was outstanding under the
credit facility.
Cash provided by and used in operations is primarily derived from our
contracts in process and changes in working capital. Cash used in operations
was $3.2 million for the six months ended June 30, 1999 and $3.9 million for
the year ended December 31, 1998. While cash from contracts increased due to
increased collection efforts, cash paid out for taxes increased as we changed
from an S corporation to a C corporation in August of 1998. Cash provided by
operations was $4.9 million and $0.9 million for the years ended December 31,
1997 and 1996, respectively.
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Cash used in investing activities was $3.0 million for the six months ended
June 30, 1999 and $4.6 million, $0.3 million and $0.4 million for the years
ended December 31, 1998, 1997 and 1996, respectively. Investing activities
consist primarily of acquisitions, including the acquisition of Entel in
February, 1998 for $3.5 million in cash and $5.2 million paid pursuant to
promissory notes, as well as capital expenditures to support the Company's
growth.
Cash provided by financing activities for the six months ended June 30, 1999
was $7.4 million which was primarily derived from the proceeds from sales of
preferred stock totaling $15.0 million, partially offset by repayments on
borrowings totaling $7.8 million. Cash provided by financing activities for the
year ended December 31, 1998 was $10.5 million which primarily consisted of
proceeds from a sales of preferred stock totaling $21.0 million. Proceeds from
the sale of preferred stock were used to repurchase stock from major
stockholders for approximately $13.5 million. Net borrowings totaled $5.3
million, and S corporation stockholder distributions totaled $3.1 million for
the year. Cash used in financing activities for the years ended December 31,
1997 and 1996 were $4.1 million and $0.2 million, respectively, and primarily
consist of S corporation stockholder distributions.
We have no material commitments other than obligations under our credit
facilities, operating and capital leases and certain short-term notes. See
Notes 4 and 5 of Notes to Consolidated Financial Statements. Our future capital
requirements will depend upon many factors, including the timing of payments
under contracts and our increase in personnel in advance of new contracts.
We believe that our cash and cash equivalent balances, funds available under
our existing line of credit, and net proceeds from this proposed offering will
be sufficient to satisfy our cash requirements for at least the next twelve
months. If this offering is not completed, we believe that our existing
resources would be sufficient to fund our operations for the next twelve
months, although this may limit our ability to grow our business. The estimates
for the periods for which we expect the net proceeds from this offering and our
available cash balances and credit facilities to be sufficient to meet our
capital requirements are forward-looking statements that involve risks and
uncertainties as set forth under the caption "Risk Factors" in this prospectus.
Our capital requirements will depend on numerous factors, including commercial
acceptance of new service offerings, possible acquisitions of complementary
businesses or technologies, the resources we dedicate to new technologies and
new markets and demand for our suite of services.
We may need to raise additional capital if we expand more rapidly than
initially planned, to develop new technologies and/or services, to respond to
competitive pressures or to acquire complementary businesses or technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
our stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of our stockholders.
There can be no assurance that additional financing will be available or on
terms favorable to us. If adequate funds are not available or are not available
on acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities, expand our suite of services or otherwise respond
to competitive pressures could be significantly limited. Our business may be
harmed by such limitations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion contains forward-looking statements that are subject to
risks and uncertainties. Actual results could vary materially as a result of a
number of factors including those set forth in the "Risk Factors" section. The
following discusses our exposure to market risk related to changes in interest
rates, equity prices and foreign currency exchange rates. We do not believe
that our exposure to market risk is material.
As of June 30, 1999, we had cash or cash equivalents of $4.0 million.
Pending application of the proceeds of this offering, as described in "Use of
Proceeds," we intend to invest the net proceeds in interest-bearing investment
grade securities, primarily short-term, highly liquid investments with
maturities at the date of purchase of less than 90 days. These investments are
subject to interest rate risk and will decrease in value if
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market interest rates increase. A hypothetical increase or decrease in the
market interest rates by 10 percent from the rates in effect on the date of
this prospectus would cause the fair value of these short-term investments to
decline by an insignificant amount. We have the ability to hold these
investments until maturity, and therefore we do not expect the value of these
investments to be affected to any significant degree by the effect of a sudden
change in market interest rates. Declines in interest rates over time will,
however, reduce our interest income.
We do not own any investments in publicly traded equity securities.
Therefore, we do not currently have any equity price risk tied directly to
public equity markets.
Substantially all of our revenues are realized currently in U.S. dollars.
Currently, the Company does not enter into forward exchange contracts or other
financial instruments with respect to foreign currency as we do not maintain
significant asset or cash account balances in currencies other than the U.S.
dollar and we do not believe that we currently have any significant direct
foreign currency exchange rate risk.
YEAR 2000 READINESS DISCLOSURE
Many computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of these
design decisions, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as the
year 2000 approaches, and are commonly referred to as the "Year 2000 Problem."
Assessment of Internal Infrastructure. The Year 2000 Problem affects the
computers, software and other related equipment that we use, operate or
maintain for our operations. We have established a team, led by Integrated
Ventures, LLC, our information services provider, responsible for monitoring
the assessment and remediation status of our Year 2000 projects and reporting
the status of these projects to the Audit Committee of our Board of Directors.
We have contacted the vendors of the products that we use for our internal
systems in order to gauge their year 2000 compliance. All of our vendors have
provided us written assurances that they believe that the third-party hardware
and software we use are year 2000 compliant. We have not independently verified
these representations. We have, however, been testing our systems to
independently verify year 2000 compliance and we expect to complete such
testing in the fourth quarter of this year. We cannot be sure that such tests
will fully ensure year 2000 compliance of our internal systems. For this and
other reasons, we may experience unanticipated negative consequences, including
material costs, caused by undetected errors or defects in the technology used
in our internal information technology systems.
As of September 23, 1999, we had completed testing 85% of our hardware and
computer network infrastructure for year 2000 compliance. The actual costs
associated with our year 2000 compliance testing is estimated to be less than
$25,000 to set up a network test environment and pay the fees charged by our
information services provider related to conducting the tests.
In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, telephone switches, security
systems and other common devices may be affected by the year 2000 problem. We
are currently assessing the potential effect and costs of remediating the year
2000 problem on our office equipment and our facilities.
We believe that the risk to our business of not being year 2000 compliant
resides principally in the areas of billing and communications. Failure to be
fully year 2000 compliant could affect our information and accounting systems,
resulting in delayed or inaccurate customer billing, and associated payment
delays. In addition, failure to be fully year 2000 compliant could disrupt or
disable our internal and external communications systems. We do not believe,
however, that these problems would materially affect our ability to continue to
provide services to our customers.
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Costs of Remediation. We do not know if the total cost of completing any
required modifications, upgrades or replacements of our internal systems would
be material. Based on the activities described above, we do not believe that
the Year 2000 Problem will materially interfere with our ability to continue to
provide services to our customers or result in material additional costs
related to our own year 2000 compliance. However, we cannot be certain that the
Year 2000 Problem will not harm our business or operating results. In addition,
because we have warranted in some of our contracts that our deliverables will
be year 2000 compliant, failure to meet this compliance could result in
termination of the relevant contracts or even liability for our customers'
related damages. We have not deferred any material information technology
projects, nor equipment purchases, as a result of our Year 2000 Problem
activities.
Customers. We have not inquired into the year 2000 compliance efforts or
status of our customers. Our customers' deployment plans could be affected by
year 2000 issues if they need to expend significant resources to fix their
existing systems. This situation could divert funds and resources otherwise
available for outsourced network services and could harm our business. In
addition, some customers may wait to deploy networks until after the year 2000,
which may reduce our revenues in the near future. Any termination, change,
reduction or delay in our projects for key customers could seriously harm our
business. See --"Risk Factors--A loss of one or more of our key customers or
delays in project timing for such customers could cause a significant decrease
in our net revenues." Additionally, if our customers are not year 2000
compliant by December 31, 1999, they may face difficulties with their account
payment systems, which could result in delayed payments to us.
Contingency Plan. We have no specific contingency plan to address the effect
of year 2000 noncompliance. If, in the future, it comes to our attention that
certain of our third-party hardware and software are not year 2000 compliant,
then we will seek to make modifications. We cannot be sure that we will be able
to modify our systems to comply with year 2000 requirements, and failure to
make such modifications in a timely and successful manner could harm our
business.
Disclaimer. The discussion of our efforts and expectations relating to Year
2000 compliance are forward-looking statements. Our ability to achieve Year
2000 compliance, and the level of incremental costs associated therewith, could
be adversely affected by, among other things, the availability and cost of
contract personnel and external resources, third-party vendors' ability to
modify proprietary software, and unanticipated problems not identified in the
ongoing compliance review.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133, as amended, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Currently, we do not hold derivative instruments or engage in hedging
activities. The adoption of this standard is not expected to have a material
effect on our combined financial statements taken as a whole.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Public Accountants issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." In
April 1998, the same committee issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." These standards are effective for the first
quarter of the year ending December 31, 1999. The adoption of these standards
did not have a material effect on our combined financial statements taken as a
whole.
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BUSINESS
OVERVIEW
Wireless Facilities, Inc. is an independent provider of outsourced services
for the wireless communications industry. We plan, design and deploy wireless
telecommunications networks. This work involves radio frequency engineering,
site development, project management and the installation of radio equipment.
We have also expanded our services to include network management, which
involves day-to-day optimization and maintenance of wireless networks. As part
of our strategy, we are technology and vendor independent. We believe that this
aligns our goals with those of our customers and enables us to objectively
evaluate and recommend specific products or technologies. We provide network
design and deployment services to wireless carriers, such as AT&T affiliates
Telecorp and Triton PCS; equipment vendors, such as Siemens and Lucent; and
wireless broadband data carriers, such as CommcoTec and Nextlink. These
specified customers were our largest customers in each of these segments in
1998.
Our services are designed to improve our customers' competitive position
through the planning, deployment and management of their networks. We have
developed a methodology for planning and deploying wireless networks that
allows us to deliver reliable, scalable network solutions. We offer our
services primarily on a fixed-price basis with scheduled deadlines for
completion times, that is, on a time-certain basis. We believe this enables our
customers to more reliably forecast the costs and timing of network deployment
and management. This allows our customers to focus on their core competencies
and rely on us for planning, deploying and managing their networks.
Since 1995, we have completed projects for more than 95 customers, ranging
in scope from the installation of a single cell site to multi-year, large
scale-deployment contracts. In the past two years, we have expanded our
operations internationally and have completed projects in 26 countries. In
addition to our U.S. operations, as of June 30, 1999, we had ongoing projects
in Argentina, Brazil, Congo, India, Kuwait, Mexico, Morocco, Oman, Puerto Rico,
Spain, South Korea, Turkey and the United Kingdom. In 1998, we were involved in
the development of over 3,000 of the approximately 14,000 cell sites built in
the United States. Since the founding of WFI in 1994, we have been involved in
the design or deployment of over 8,000 cell sites worldwide.
INDUSTRY BACKGROUND
Wireless networks are telecom systems built using radio equipment. The
implementation of a wireless network involves several project phases, including
planning, design and deployment. During the planning phase, decisions are made
about the type of equipment to be used, where it will be located and how it
will be configured. These decisions are based on a number of analytical
considerations, including phone subscriber profiles and target markets,
forecasts of call usage, radio engineering analysis and financial modeling and
forecasting. The design phase follows, and involves the coordinated efforts of
radio engineers, site development professionals and other technical
disciplines. Potential equipment sites are identified, based on a range of
variables including radio propagation characteristics, economics, site access,
and construction feasibility. Once a network design has been accepted, land or
building rooftops must be bought or leased for towers or telecom equipment,
including radio base stations, antennas and supporting electronics. This site
development phase requires input from a number of specialists, including real
estate, land use and legal professionals who work with local jurisdictions to
get any necessary land use, zoning and construction permits. Next, construction
and equipment installation must be performed. Finally, radio frequency
engineers commission the new radio equipment, test it, integrate it with
existing networks and tune the components to optimize performance.
Once placed in service, wireless networks must be continually updated,
recalibrated and tuned. Traffic patterns change, trees or buildings may block
radio signals and interference may be encountered from neighboring or competing
networks or other radio sources. Usage patterns may change because of new rate
plans, new features or increasing sales. Optimization is the process of tuning
the network to take into account
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such changes, and often gives rise to maintenance tasks such as antenna
changes, new equipment installations or the replacement of substandard or
failed components.
Growth of the Wireless Telecom Industry
Wireless telecom is one of the most rapidly growing technologies in the
world today, driven by the dramatic increase in wireless telephone usage, as
well as strong demand for wireless Internet and other data services, also known
as wireless broadband services. Since 1992, wireless has been the fastest-
growing telecom market sector, according to Forrester Research. International
Data Corporation expects that by 2003, the U.S. wireless subscriber base will
grow to over 185 million from 111 million in 1998, generating revenues in
excess of $68 billion. In April 1999, Dataquest estimated that the number of
users of wireless handsets worldwide will grow to over 500 million by 2001. The
demand for wireless Internet access and other data services is accelerating the
adoption of new technologies such as those embodied in the emerging third-
generation (3G) standard. High speed fiber networks are being coupled with
broadband wireless technologies to deliver enhanced telecom capabilities and
features to new customers and markets. According to Dataquest in February 1999,
the market for broadband wireless access services in North America alone is
expected to generate $7.8 billion in revenue by 2002.
Wireless carriers must continuously upgrade their networks with new
technologies and expand into new geographic regions in order to remain
competitive and satisfy the demand for pervasive wireless service.
Additionally, new carriers are entering the market as a result of deregulation,
the issuance of new licenses and the demand for new services, fueling the
development of new networks. As a result, carriers are deploying new network
equipment both in the U.S. and internationally. Worldwide sales of wireless
telecom equipment are estimated to reach $31.8 billion in 1999, according to
Dataquest in April 1999. New technologies, such as broadband wireless, are
helping to fuel demand for more advanced wireless equipment. In February 1999,
Dataquest estimated that the market for broadband wireless equipment in North
America would grow from $90.7 million in 1998 to $901.3 million in 2002, a
compound annual growth rate of 77.5%.
Changes in the Wireless Telecom Industry
As carriers deploy their wireless networks, they face significant
competition. Through privatization in the 1980s and deregulation in the 1990s,
both domestically and internationally, the competitive landscape has changed
for wireless carriers. For carriers to differentiate themselves and remain
competitive in this new environment, they are deploying networks to:
. provide seamless nationwide coverage and avoid expensive roaming costs
on competitors' networks in markets where carriers do not currently own
infrastructure;
. offer PCS service in new geographic markets;
. offer enhanced services, such as one rate plans, calling party pays,
caller ID, text messaging and emergency 911 locator services;
. implement the new third-generation (3G) network standard to deliver
wireless broadband data services, including Internet access and two-way
e-mail;
. introduce other emerging data networking and broadband technologies,
such as LMDS, MMDS and other point-to-multipoint architectures, for the
provision of high speed data wireless Internet access and other
broadband services; and
. offer wireless local loop systems domestically to bypass incumbent
wireline competitors and in developing countries lacking modern wireline
telephone infrastructure.
The convergence of traditional wireless, wireline and cable services is also
adding complexity to the telecom environment as carriers deploy networks
spanning traditional wireless/wireline boundaries to offer these enhanced
services and new technologies.
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New Challenges for Wireless Carriers and Equipment Vendors
Due to this increasingly competitive environment, carriers are focused on
satisfying customer demand for enhanced services, seamless and comprehensive
coverage, better quality, faster data transmission and lower prices. The
proliferation of carriers and new technologies has created an environment where
speed to market is an important component of a wireless carrier's success.
Carriers are also faced with the challenge of managing increasingly complex
networks and technologies. For example, the introduction of wireless Internet
technologies and the growth in broadband wireless services requiring the
transmission of large amounts of data creates additional new technological
hurdles for carriers establishing or upgrading their networks. In this dynamic
environment, customer acquisition and retention are key determinants of
success. In our experience this has led carriers to increasingly prioritize
their resources, focusing on revenue generating activities and outsourcing when
they can do so effectively.
In our experience, the changing environment is also placing significant
operational challenges on carriers. Carriers must make decisions about which
geographic markets to serve and which services and technologies to offer.
Staffing challenges and process implementations can present cost uncertainties
and operational challenges for carriers to deploy and manage their networks.
Additionally, networks are being deployed with equipment from unrelated
vendors, posing system integration challenges. This situation is exacerbated by
consolidation in the industry, which often entails the integration of distinct
networks.
Equipment vendors are also facing numerous challenges, as they develop new
generations of equipment with increased features and functionality. Vendors
must provide equipment that can be deployed within a carrier's existing network
and integrate with equipment offered by other vendors. As a result of the rapid
pace of technological change, we believe that equipment vendors have
increasingly focused on offering competitive product solutions and outsourced
services such as network design, deployment and management.
The Need for Outsourcing
We believe that carriers and equipment vendors are outsourcing network
planning, deployment and management to focus on their core competencies and
refine their competitive advantage. In our experience, wireless carriers and
equipment vendors who are seeking outsourcing are looking for service providers
who:
. offer turnkey solutions;
. are technology and vendor independent;
. offer fixed-price, time-certain services; and
. have sufficient numbers of highly skilled, experienced employees capable
of handling large-scale domestic and international projects.
THE WFI SOLUTION
We provide outsourced services to telecom carriers and equipment vendors for
the planning, design, deployment and ongoing optimization and management of
wireless networks. We offer turnkey solutions on a fixed-price, time-certain
basis. We have expertise with all major wireless technologies, and we have
deployed equipment supplied by a majority of the world's leading equipment
vendors. We are able to manage large scale deployments for our customers, both
domestically and internationally. Our project management process enables us to
meet our customers needs on time and within budget without compromising
quality.
Turnkey Solutions. Traditionally, carriers engaged a number of firms or used
internal personnel to build and operate their wireless networks. In this case,
the carrier was responsible for the coordination and integration of the various
groups and defined and implemented the process to be used. The end-to-end, or
turnkey, approach that we offer allows the carrier to engage a single
responsible party who is accountable for
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delivering and managing the network under a single contract. In contrast to
traditional methods, we provide management services during each phase of the
engagement, enabling us to efficiently schedule processes and resources,
reducing the time and cost of network deployment and management. We provide our
customers with a primary point of accountability and reduce the inefficiencies
associated with coordinating multiple subcontractors. In addition, we eliminate
the need for a carrier or equipment vendor to assemble, train and retain
network deployment and management staff, resulting in cost savings. This allows
carriers and vendors to focus their resources on revenue generating activities.
Technology and Vendor Independence. We have experience in all major wireless
technologies, including analog, digital, PCS, GSM, TDMA, CDMA and iDEN, as well
as wireless Internet and emerging broadband wireless technologies such as LMDS
and MMDS. Two critical components of our ability to meet and exceed customer
expectations are our broad scope of services and our technology expertise and
independence. We are continually keeping abreast of next generation
technologies to maintain our technology expertise. We have not aligned
ourselves with the products of any particular vendor. We provide services to
many of the largest wireless carriers and are qualified and approved by nearly
every major wireless equipment vendor. Our technology and vendor independence
aligns more closely our goals with those of our customers and enables us to
make objective recommendations to best fit their needs.
Fixed-Price and Time-Certain Delivery. Our services are sold primarily on a
fixed-price, time-certain basis, where our customers pay by the cell site or
project, rather than by the hour. By selling our services primarily on a fixed-
price, time-certain basis, we enable our customers to better forecast their
capital expenditures and more accurately forecast the timing and costs of
network deployment and management. This allows them to focus on their core
competencies and rely on us for the cost-effective planning, deployment and
management of their networks.
Proven Methodology. Our project management process enables us to meet our
customers' needs on a fixed-price, time-certain basis without compromising
quality. We leverage our experience, obtained from implementing hundreds of
projects, to reduce time to market for new projects. For example, our project
managers utilize our project management process to chart project progress and
coordinate the integration of numerous specialized activities during the design
and deployment of a network. We facilitate efficient feedback of information
among the various specialized activities so that our project teams work quickly
and effectively. Through this coordinated effort and the use of Tracker, our
project tracking software tool, we are able to optimize resource deployment and
deliver solutions on time and within budget.
Depth and Scale. Our principal asset is our staff of over 500 people, over
88% of whom work directly on customer projects. We currently have more than 200
engineers, the majority of whom hold advanced degrees. Our technological
expertise and industry knowledge has enabled us to form strong customer
relationships with early stage telecom ventures, as well as established
carriers and equipment vendors. In the past two years, we have been engaged on
projects in 26 countries. In addition, we have established corporate resource
centers in Mexico, Brazil, India and the United Kingdom. We believe our
presence in these countries facilitates our ability to customize our services
to meet our international customers' specific needs.
STRATEGY
Our objective is to be the leading independent provider of complete
outsourced telecom network services, including network planning, design,
deployment and management. The key elements of our strategy include:
Focus on customer satisfaction. Our long-term success depends upon our
ability to consistently deliver value to our customers in the form of completed
projects, rendered to the highest professional standards, delivered on time and
within budget. By offering turnkey solutions on a fixed-price, time-certain
basis, we hold ourselves to the expectations we set with our customers. We
strive to exceed customer expectations on every project. We believe we have
been successful in developing customer loyalty and trust because of our high
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standards and vendor and technology independence and the fact that a majority
of our customers have used us for more than one project.
Expand the suite of services we offer and pursue cross-selling
opportunities. Since our inception, we have continually looked for new ways to
serve our customers. An example is the recent expansion of our service
offerings to include network management services, an outgrowth of our network
optimization services. Expanding our services provides new channels for
revenues and the ability to cross-sell our suite of services to existing
customers. For instance, we often utilize our pre-deployment consulting
services to establish relationships with customers as soon as a project is
conceived. Based on this relationship, we pursue opportunities for network
design and deployment. Once a network is deployed, we offer ongoing network
operations, maintenance and optimization services. Our experience with emerging
technologies also offers cross-selling opportunities for network upgrades and
deployment of a carrier's next generation network. As technologies continue to
evolve and networks become more complex, we will continue to expand our
services to meet the changing needs of our customers.
Remain at the forefront of new technologies. Emerging technologies present
numerous opportunities and challenges for existing carriers and vendors as well
as for new carriers. Our customers depend on us to draw upon our extensive
design and deployment experience to recommend optimal solutions to them. To
achieve this, we have in-house training programs for all technical personnel.
We will continue to actively market our technology expertise to wireless
carriers and equipment vendors that are deploying leading edge technologies.
This permits us to gain valuable experience deploying new technologies, while
also adding value to these customers' products and services offerings.
Additionally, our Advanced Technology Group are members of and participate with
industry standards setting bodies to develop domestic and international
standards for next generation telecom products by attending standard setting
forums and making contributions to new standards.
Pursue opportunities for international growth. International markets
represent a significant opportunity for future growth. We established corporate
resource centers in Mexico and Brazil in 1998 and have continued this expansion
in 1999 by adding corporate resource centers in India and the United Kingdom.
Initially, our international revenues have resulted from deployment contracts
with multinational equipment vendors. However, as we continue to penetrate
foreign markets, we expect to continue to capitalize on opportunities created
by privatization, new licensees and the expansion of wireless local loop
networks.
Continue to attract and retain qualified personnel. Technology drives our
industry. As a result, our engineers and site development teams are critical to
our success. We have implemented an institutional process for career
development, training and advancement. We intend to continue to attract and
retain qualified staff by offering our employees challenging projects and
opportunities to work with emerging technologies within a corporate culture
that fosters innovation and encourages learning and professional development.
We intend to continue to build our recruiting organization and to invest in
training and professional development.
Capitalization on prior project experience. We have participated in the
deployment of over 8,000 cell sites. The experience we have gained through
these projects is reflected in our project management process and proprietary
project management tools. This experience allows us to optimize the allocation
of our resources and consistently meet our customers' needs on a fixed-price,
time-certain basis without compromising quality. We will continue to refine our
processes, methodologies and project management tools, matching them to new
customer and technology requirements.
Pursue strategic acquisitions. We intend to continue to pursue acquisitions
that will supplement our technical expertise, allow us to acquire additional
human resources or strategic customer relationships or expand our presence in
key geographic markets where we could more effectively complete a project or
gain access to new contracts. From January 1, 1998 through June 30, 1999, we
acquired four companies to strengthen our ability to provide ongoing network
optimization and management services, extend our geographic reach, broaden our
technical expertise and add professional resources.
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NETWORK SERVICES
We provide a comprehensive suite of network solutions to wireless carriers
and equipment vendors, from feasibility and planning, to design, deployment and
ongoing network management.
[Graphic depicting the Company's service offerings: Pre-deployment Planning
Services, Design and Deployment Services and Network Management Services.]
PRE-DEPLOYMENT PLANNING SERVICES
We provide pre-deployment planning services for all steps involved in
developing or refining a deployment strategy.
Strategic and Business Consulting. Our business consulting group utilizes
its expertise and experience to analyze the financial, engineering, competitive
market and technology issues applicable to a proposed network deployment
project. We assist a customer's management team in analyzing various strategic
options before an execution decision has been made. Drawing on the demographic
analysis and preliminary network dimensioning performed by our geographic
information systems (GIS) team and benchmarks for deployment-related
expenditures from our various functional groups, our consultants can create new
business strategies or evaluate the deployment strategies the customer has
already developed. Services include:
. business and financial modeling;
. defining subscriber profiles and target markets;
. usage forecasting; and
. market planning, competition, regulatory, GIS and network configuration
analysis.
These services are especially important to start-up carriers that have
limited resources and access to information.
Technology Evaluation and Vendor Selection. Our Advanced Technology Group, a
group of experts in wireless telecom technologies and applications, assists
customers in determining the best equipment for a
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particular project, analyzing the feasibility of a particular technology for a
network plan and managing the bidding process from multiple equipment vendors.
Our experience in all major wireless technologies allows us to offer a broad
scope of services to meet the varied and specific needs of our customers. In
addition, because we have not aligned ourselves with the products of any
particular vendor, we believe our customers value our independent advice
regarding equipment selection.
We have worked on a number of high profile business and technology planning
projects in the wireless industry, including not only mobile services but also
broadband, point-to-multipoint and satellite technologies. Although the size of
these projects is typically smaller in scope than our design and deployment
projects, they are strategically important to us because they represent
opportunities for us to build relationships and credibility with customers
during the planning phase and enhance our experiences with leading edge
technologies. We typically offer these services on a time and materials basis.
DESIGN AND DEPLOYMENT SERVICES
We provide a range of services for the full design and deployment of
wireless networks. We believe our success is largely based on our ability to
provide a package of vertically integrated services that have traditionally
been offered separately by multiple subcontractors coordinated by a carrier's
internal deployment staff. Such services include:
GIS Analysis. Our GIS team studies and analyzes the traffic patterns,
population density, topography and propagation environment in each market under
consideration.
Radio Frequency Engineering. Our radio frequency engineers design each
integrated wireless system to meet the customer's transmission requirements.
These requirements are based upon a projected level of subscriber density and
traffic demand and the coverage area specified by the operator's license or
cost-benefit decisions. We perform the calculations, measurements and tests
necessary to determine the optimal placement of the wireless equipment. In
addition to meeting basic transmission requirements, the radio frequency
network design must make optimal use of radio frequency and result in the
highest possible signal quality for the greatest portion of subscriber usage
within existing constraints. The constraints may be imposed by cost parameters,
terrain, license limitations, interference with other operators, site
availability, applicable zoning requirements and other factors.
Microwave Relocation. To enable our customers to use the radio frequency
spectrum they have licensed, it is often necessary for them to analyze the
licensed spectrum for microwave interference and move incumbent users of this
portion of the spectrum to new frequencies. We assist our customers in
accomplishing this microwave relocation by providing complete point-to-point
and point-to-multipoint line-of-sight microwave engineering and support
services. We have engineered and constructed more than 2,000 analog and digital
microwave systems. Our engineering and support services include identifying
existing microwave paths, negotiating relocation with incumbent users, managing
and tracking relocation progress and documenting the final decommissioning of
incumbent users.
Fixed Network Engineering. Most wireless calls are ultimately routed through
a wireline network. As a result, the traffic from wireless networks must be
connected with switching centers within wireline networks. We establish the
most efficient method to connect cell sites to the wireline backbone, whether
by microwave radio or by landline connections. Our engineers are involved in
specifying, provisioning and implementing fixed network facilities.
Additionally, the convergence of voice and data networks, specifically through
broadband technologies, such as LMDS, MMDS and Fast Ethernet, has created a new
demand for specialized fixed network engineering skills. These skills include
planning, design, capacity and traffic analysis for packet-switched and
Internet protocol router-based network elements. Our engineering teams are
trained in specialized data networking and Internet protocol engineering
issues.
37
<PAGE>
Site Development. We study the feasibility of placing base stations in the
area under consideration from a zoning perspective, negotiate leases and secure
building permits, supervise and coordinate the civil engineering required to
prepare the rooftop or tower site, manage multiple construction subcontractors
and secure the proper electrical and telecom connections. We have substantial
experience in managing the teams and activities necessary to develop sites for
the rollout of wireless systems.
Installation and Optimization Services. We install radio frequency
equipment, including base station electronics and antennas, and recommend and
implement location, software and capacity changes required to meet the
customer's performance specifications. We provide installation and optimization
services for all major PCS, cellular and broadband wireless air interface
standards and equipment manufacturers. We also perform initial optimization
testing of installed networks to maximize the efficiency of these networks.
In 1998, we were involved in the deployment of over 3,000 of the
approximately 14,000 cell sites built in the United States. Since the founding
of WFI in 1994, we have been involved in the design and/or deployment of over
8,000 cell sites worldwide. These services are typically provided on a fixed-
price, time-certain basis.
NETWORK MANAGEMENT SERVICES
Network management services are comprised of post-deployment radio frequency
optimization services and network operations and maintenance services.
Post-Deployment Radio Frequency Optimization. Upon initial deployment, a
network is optimized to provide wireless service based upon a set of parameters
existing at that time, such as cell density, spectrum usage, base station site
locations and estimated calling volumes and traffic patterns. Over time, call
volumes or other parameters may change, requiring, for example, the relocation
of base stations, addition of new equipment or the implementation of system
enhancements. We offer ongoing radio frequency optimization services to
periodically test network elements, tune the network for optimal performance
and identify elements that need to be upgraded or replaced.
Network Operations and Maintenance. For customers with ongoing outsourcing
needs, we can assume responsibility for day-to-day operation and maintenance of
their wireless networks. The relationship we develop with our customers for
this type of outsourcing contract begins with a team of engineers and other
professional and support staff matched to the customer's specific needs. We
take into account such variables as grade of service and reliability
requirements, equipment manufacturer certification and geographic layout of the
system in question for determining the allocation of site maintenance and other
responsibilities between our service team and the customer's own personnel. We
provide staffing to perform the necessary services for ongoing optimization,
operations, maintenance and repair of critical network elements, including base
station equipment, mobile switching centers and network operating centers to
the extent required by our customers. We also provide training services for the
internal network staff of our customers.
To date, we have only entered into one contract to provide ongoing radio
frequency optimization and network operations and maintenance services. This
contract has a two-year term but can be terminated earlier by the customer with
30 days notice. We are paid a fixed monthly fee for our services under this
contract. Based on our experience, we believe that future contracts for these
services will typically have terms of two or more years with fixed monthly fees
for our services. We anticipate that once these services are outsourced to us,
customers will not develop them internally. As the trend toward outsourcing
continues, we expect that the opportunities for providing network management
services will expand.
38
<PAGE>
CUSTOMERS
We provide network design, deployment and management services to wireless
carriers and equipment vendors. We are also actively targeting carriers
deploying new wireless broadband networks. Additionally, we have provided
services to satellite service providers and wireless tower companies. Since
1995, we have completed projects for more than 95 customers in 26 countries.
Set forth below is a list of customers from whom we have generated at least
$100,000 in revenue to date:
<TABLE>
<S> <C> <C>
WIRELESS CARRIERS BROADBAND WIRELESS CARRIERS EQUIPMENT VENDORS
AT&T Advanced Radio Telecom Ericsson
Century CommcoTec Lucent Technologies
CFW Metricom Motorola
Clearnet Nextlink Nortel Networks
Cricket Communications Qualcomm
Leap Wireless Siemens
Nextel Partners Triton Network Systems
Omnipoint
PageNet SATELLITE SERVICES TOWER COMPANIES
Pegaso CD Radio American Tower
San Diego PCS Globalstar Crown Castle
Telecorp
Tri-Tel
Triton PCS
US West
Western Wireless
</TABLE>
REPRESENTATIVE PROJECTS
The following are examples of recent projects which are representative of
the scope of services we provide and the size of customers we provide such
services to:
Siemens, AG. Siemens is a PCS network equipment manufacturer, primarily
focused on GSM technologies. We began working with Siemens in 1998. Based on
our project performance, we were awarded a Worldwide Master Services agreement
to provide network design and radio frequency engineering to Siemens and its
customers. To date, we have done work with Siemens and its customers in Spain,
Morocco, Turkey, Venezuela, South Africa and Oman.
Triton PCS, Inc. Triton PCS is a member of the AT&T Wireless Services Inc.
network of affiliates. Triton PCS is building and operating an advanced digital
wireless network in a contiguous territory in Virginia, North and South
Carolina, northern Georgia and northeastern Tennessee. We began providing
Triton PCS with microwave relocation services in 1998. Since then, we have
grown that relationship to include fixed network engineering, radio frequency
design, optimization and maintenance services. We recently signed a multi-year
contract with Triton PCS to provide radio frequency design, optimization and
performance engineering services for all of the cell sites in the Triton PCS
network through 2001.
Metricom, Inc. Metricom is a provider of wireless mobile data networking and
technology. Metricom's Ricochet service provides mobile professionals with
wireless access to the Internet, private intranets, local-area networks, e-mail
and other online services. We began our relationship with Metricom in 1998 with
an engagement to perform radio frequency engineering services. Metricom
subsequently awarded us a nationwide, turnkey radio frequency engineering
contract.
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<PAGE>
METHODOLOGY AND TECHNOLOGY
Project Management Process. We believe that our project management process
is critical for the successful execution of our business model. Our project
managers use our methodology and proprietary tools to coordinate the various
specialized activities involved in bidding, planning, designing, deploying and
optimizing networks on an ongoing basis. Through the coordination of our
project managers and functional experts, we are able to integrate and account
for the various pieces of a turnkey engagement.
We have built upon our past experiences in developing an analytical
framework that enables us to provide scalable solutions to clients. We have
found that while there are features unique to each project, there are often
similarities among projects. Our project management process is designed to
bring the expertise developed during our prior engagements to bear on each new
project.
We continue to dedicate resources to maintaining and improving our project
management process. At the conclusion of each engagement, we incorporate
incremental knowledge gained during the course of the project into our
knowledge database. We believe that the implementation and improvement of our
project management process ultimately benefits our clients. Our methodology
enables us to leverage our technological and industry expertise to deliver
reliable networks in a rapid fashion without sacrificing quality. We are
committed to continually refining our project management process, customizing
it for each new customer and for each new technology opportunity.
Project Tracking Tool. We have acquired and implemented Tracker, a
proprietary software tool providing critical support and coordination to the
project management process. Tracker allows a project manager to view the entire
deployment process in graphical format and to keep detailed project notes. In
cooperation with Integrated Ventures, LLC, which developed Tracker, we are
currently upgrading Tracker so it will be Web-based and allow project data to
be viewed simultaneously by multiple personnel providing access to current
information. Tracker assists us in refining and building upon past experiences.
In addition, Tracker permits easy auditing of the data of a particular project
by management and customers.
Advanced Technology Group. Our Advanced Technology Group is comprised of
experts that keep abreast of a wide range of wireless products and
technologies. Our ATG members have an average 12 years of research and
practical experience and approximately 90% have a Masters degree or Ph.D. The
ATG provides a resource and focal point for keeping abreast of new telecom
technologies, including broadband point-to-multipoint services, such as LMDS
and MMDS, and new standards, such as 3G. In addition, ATG members participate
in setting new standards for wireless technologies. For example, a member of
our ATG, jointly with Qualcomm and Hughes, submitted two technical papers which
were adopted by the cdma2000 standard setting body, and were incorporated as
part of the standard. The ATG also develops our in-house training materials,
and as a result, its expertise is disseminated effectively throughout the
company.
SALES AND MARKETING
We market and sell our services through a direct sales force to wireless
carriers and equipment vendors. As of June 30, 1999, we employed eight full-
time sales and marketing staff. Our sales personnel work collaboratively with
our senior management and consulting and deployment personnel to develop new
sales leads and secure new contracts. Each salesperson is expected to generate
new sales leads and take responsibility as an account manager for specified
accounts with existing customers. As account manager, the salesperson works
with planning and deployment personnel assigned to that customer to identify
opportunities for performing additional services for that customer. Sales
personnel receive a base salary, incentives based upon new business and repeat
business from existing customers and a quarterly bonus based upon revenue goals
established by senior management.
40
<PAGE>
HUMAN RESOURCES
As of June 30, 1999, we had 508 employees, including 450 in network and
deployment services, eight in sales and marketing and 50 in general
administration. We believe that our future success will depend on our continued
ability to attract, retain, integrate and motivate qualified personnel, and
upon the continued service of our senior management and key technical
personnel.
Recruiting. We employ a Vice President of Human Resources and three full-
time internal recruiters. Our primary hiring sources include employee
referrals, print advertising, Internet job postings and direct recruiting. We
attract and retain employees by offering technical training opportunities, a
stock option award program, bonus opportunities, and competitive salaries and
benefits.
Training and Career Development. We believe that our continuous focus on
training and career development helps us to retain our employees. Upon joining
WFI, each new employee participates in an orientation program focusing on our
culture, organization and values. Employees participate in ongoing educational
programs, many of which are internally developed, to enhance their technical
and management skills through classroom and field training. Our education
reimbursement policy subsidizes employee efforts in their pursuit of advanced
degrees and professional certifications. Each employee is assigned to a
functional manager, who is responsible for that employee's career development,
training and advancement.
Career Advancement. We provide opportunities for promotion and mobility
within the company that we believe are key components of employee retention.
Upon joining WFI, an employee is designated a job classification level with
specific performance and growth targets associated with such classification.
Upon successful completion of the targets, employees are eligible for a number
of rewards, including project and year-end bonuses for superior performance,
promotions to higher levels of responsibility within a clearly defined career
path and stock option awards. Promotion candidates sit for a formal promotion
panel made up of senior managers and technical experts in the employee's area
of specialty. Panel results, along with manager recommendations and customer
feedback, are used to evaluate each candidate's suitability for promotion.
We believe our employee training, development and advancement structure
better aligns the interests of our employees with our interests and creates a
cooperative, entrepreneurial atmosphere and shared culture. We are dedicated to
maintaining an innovative, creative and empowering environment where we work as
a team to exceed the expectations of our customers and provide our employees
with personal and professional growth opportunities.
COMPETITION
Our market is highly competitive and fragmented and is served by numerous
service providers. However, our primary competitors are often the internal
engineering departments of our carrier and equipment vendor customers. With
respect to radio frequency engineering services we compete with service
providers that include CelPlan Technologies, Comsearch (a subsidiary of Allen
Telecom Inc.), LCC International, Manpower Inc. and Metapath Software
International. We compete with site acquisition service providers that include
Cellular Realty Advisors, Inc. and Whalen & Company, Inc. (a subsidiary of
Tetra Tech, Inc.). These companies have also engaged in some site management
activities. Competitors that perform civil engineering work during a buildout
are normally regional construction companies. We compete with engineering and
project management companies like Bechtel Group, Inc., Black & Veatch and Fluor
Daniel Inc. for the deployment of wireless networks. They are significant
competitors given their project finance capabilities, reputations and
international experience. Many of these competitors have significantly greater
financial, technical and marketing resources, generate greater revenues and
have greater name recognition than us.
We believe the principal competitive factors in our market include the
ability to deliver results within budget and on time, reputation,
accountability, project management expertise, industry experience and
competitive pricing. In addition, expertise in new and evolving technologies,
such as broadband wireless, has
41
<PAGE>
become increasingly important. We believe that the ability to integrate these
technologies, as well as equipment from multiple vendors, gives us a
competitive advantage as we can offer the best technology and equipment to meet
a customer's needs. We believe our ability to compete also depends on a number
of additional factors which are outside of our control, including:
. the prices at which others offer competitive services;
. the willingness of our competitors to finance customers' projects on
favorable terms;
. the ability of our customers to perform the services themselves; and
. the extent of our competitors' responsiveness to customer needs.
FACILITIES
Our principal executive offices are located in approximately 25,300 square
feet of office space in San Diego, California. The lease for such space expires
September 30, 2003. We also lease office space in: Reston, Virginia; Blackwood,
New Jersey; Sacramento, California; Santa Fe, New Mexico; Mexico City; London
and Sao Paulo. We are in the process of negotiating a lease for a larger
headquarters facility to accommodate our growth. We believe we will be able to
finalize these negotiations or locate alternative space on commercially
reasonable terms.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. For example, in
April 1999, a former employee filed a complaint against us. Our management
believes this claim is without merit and that resolution of this claim will not
have a material adverse effect on our financial position or statements of
operations. However, litigation is subject to inherent uncertainties, and an
adverse result in this or other matters may arise from time to time that may
harm our business.
ADVISORY BOARD
We have established a select group of experienced individuals to advise us
on technology and strategy matters. We generally consult with these advisors
individually on an informal basis on a variety of subjects, ranging from
business development issues to specific guidance on technical, personnel or
management issues. Our advisory board members are:
Anthony Acampora, Ph.D., Professor of Electrical and Computer Engineering,
University of California, San Diego (UCSD). Dr. Acampora is the Director of the
Center for Wireless Communications at UCSD. He received his Ph.D. in Electrical
Engineering from the Polytechnic Institute of Brooklyn and is a fellow of the
Institute of Electrical and Electronics Engineers (IEEE) and a former member of
the IEEE Communication Society Board of Governors.
Hamid Aghvami, Ph.D., Director of the Centre for Telecommunications
Research, King's College, London. Dr. Aghvami, founder of the International
Conference on Personal Indoor and Mobile Radio Communications, has been
internationally recognized for his contributions to modern digital
communications systems. He obtained his M.S. from King's College, London and
his Ph.D. from the University of London. Dr. Aghvami is a fellow and senior
member of the Institute of Electrical and Electronics Engineers.
Paul Boeker, President of the Institute of the Americas, University of
California, San Diego. Before joining the Institute, Ambassador Boeker's
diplomatic career spanned 27 years. Most notably, he was appointed to serve as
Ambassador to Bolivia in 1977 and the Kingdom of Jordan in 1984. Ambassador
Boeker received the Presidential Distinguished Service Award in 1985 and the
prestigious Arthur S. Fleming Award in 1975. He is a member of the Council on
Foreign Relations and the American Academy of Diplomacy. Ambassador
42
<PAGE>
Boeker received his undergraduate degree from Dartmouth College and holds a
M.A. in Economics from the University of Michigan, Ann Arbor.
William A. Hoglund, Vice President and Chief Financial Officer, Eagle River,
Inc. Mr. Hoglund is a Director of Nextel Communications, Inc. and Nextlink
Communications, Inc. Mr. Hoglund holds a B.A. from Duke University and an
M.B.A. from the Graduate School of Business of The University of Chicago.
John Major, President and Chief Executive Officer, Wireless Knowledge. Mr.
Major serves as a Director of Littlefuse and Lennox Corporations. He is a
member of the Board of Directors' Executive Committee of the Telecommunications
Industry Association and serves as Chairman for the Electronics Industry
Association. Mr. Major holds a B.S. in Mechanical and Aerospace Engineering
from the University of Rochester, an M.S. in Mechanical Engineering from the
University of Illinois, an M.B.A. from Northwestern University and a J.D.
degree from Loyola University.
The following table sets forth certain information regarding options granted
to the members of our advisory board as payment for services rendered by them.
The aggregate values based on offering price in the table below are calculated
based on the assumed initial public offering price of $14.00.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES AGGREGATE VALUE AGGREGATE VALUE
UNDERLYING EXERCISE PRICE BASED ON BASED ON
NAME OPTIONS GRANTED (#) PER SHARE ($) EXERCISE PRICE ($) OFFERING PRICE ($)
---- -------------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Anthony Acampora........ 63,000 1.33 83,790 798,210
Hamid Aghvami........... 75,000 0.0033 250 1,049,750
Paul Boeker............. 30,000 1.58 47,400 372,600
William Hoglund......... 75,000 2.00 150,000 900,000
John Major.............. 15,000 12.00 180,000 30,000
</TABLE>
43
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information about our directors,
executive officers and key employees as of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Massih Tayebi, Ph.D. ..... 39 Chief Executive Officer and Director
Masood K. Tayebi, Ph.D. .. 37 President and Director
Thomas A. Munro........... 42 Chief Financial Officer
Scott Fox................. 42 President of Network Management
Charles W. Sackley........ 40 Senior Vice President of Sales and Business Development
Michael D. Brink.......... 48 Senior Vice President of Project Management
Scott Anderson (1)(2)..... 41 Director
Bandel Carano (2)......... 38 Director
Scot Jarvis (1)(2)........ 38 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Massih Tayebi, Ph.D. co-founded Wireless Facilities, Inc. in 1994 and has
served as Chief Executive Officer and a director of the Company since its
inception. Since 1995, Dr. Tayebi has served as a technical manager for
Computer Integrated Management Systems, an Internet-based business exchange
company. From 1989 to 1994, he was a senior faculty member of the Engineering
Department of the University of Paisley, Great Britain, and served as the
Director of Computer Integrated Product Life Cycle Research for the University.
Dr. Tayebi received an M.S. in computer integrated manufacturing and a Ph.D. in
the integration of design and process planning from the University of
Strathclyde, United Kingdom. He performed post-doctorate work on the
integration of design and inspection at the University of Brunel, London.
Masood K. Tayebi, Ph.D. co-founded Wireless Facilities, Inc. in 1994 and has
served as President and a director of the Company since its inception. From
1993 to 1994, he was Senior Manager of Engineering and the head of the
Technology and Special Projects Department for LCC/TSI, a provider of network
design services and products. From 1992 to 1993, Dr. Tayebi served as a
consultant to LCC/TSI. Dr. Tayebi received an M.S. in electronics engineering
from the University of Southampton and a Ph.D. in mobile radio propagation from
the University of Liverpool, United Kingdom.
Thomas A. Munro has served as Chief Financial Officer since July 1997. Mr.
Munro founded @Market, Inc., a start-up e-commerce company, and served as Chief
Executive Officer from 1996 to 1997. From 1994 to 1996, he was Chief Financial
Officer for Precision Digital Images, a manufacturer of image processing
devices. Prior to 1994, Mr. Munro served as Chief Financial Officer of MetLife
Capital Corporation, a capital finance subsidiary of Metropolitan Life
Insurance. Mr. Munro received his B.A. and M.B.A. from the University of
Washington.
Scott Fox has been with WFI since May 1999 and currently is our President of
Network Management. From 1995 to 1999, Mr. Fox served as Chief Technology
Officer and Vice President-Technology and Strategic Planning and Vice
President-Engineering and Operations for the wireless businesses of BellSouth
Cellular Corp., a carrier company. From 1994 to 1995, he was Vice President-
Wireless Engineering for MCI, a telecommunications company, responsible for all
aspects of MCI's national and international wireless communications business.
Mr. Fox holds a B.S. in electrical engineering from the University of Florida.
Charles W. Sackley has been with WFI since February 1998 and is currently
our Senior Vice President of Sales and Business Development. From 1997 to
January 1998, he was the Executive Director of Marketing for
44
<PAGE>
North America at Broadband Networks, Inc., a broadband wireless company. From
1993 to 1997, he worked at Motorola, most recently as Senior Director of
Intelligent Network Operations. Mr. Sackley received a B.A. in business
administration from the University of Iowa and an M.B.A. from Drake University.
Michael D. Brink has been with WFI since February 1998 and currently is our
Senior Vice President of Project Management. From 1997 to 1998, he served as
Vice President, Engineering for Central Oregon Cellular, Inc., a cellular
telephone company. From 1982 to 1997, he served in various technical management
positions for McCaw Cellular/AT&T Wireless, a cellular and PCS company. He
holds a B.S. in computer science from National University.
Scott Anderson has served as a director of the Company since February 1997.
Since 1997, Mr. Anderson has been a principal of Cedar Grove Partners, LLC, an
investment and advisory partnership. Since 1998, Mr. Anderson has been a
principal in Cedar Grove Investments, LLC, an angel capital firm. From 1986 to
1997, Mr. Anderson was with McCaw Cellular/AT&T Wireless, most recently as
Senior Vice President of Acquisitions and Development. Mr. Anderson serves a
director of Triton PCS, Telecorp, TriTel, Xypoint, Telephia and PriCellular. He
holds a B.A. in history from the University of Washington and a J.D. from the
University of Washington Law School.
Bandel Carano has served as a director of the Company since August 1998.
Since 1987, he has been a general partner of Oak Investment Partners, Inc., a
venture capital firm. Mr. Carano serves on the Investment Advisory Board of the
Stanford Engineering Venture Fund. He holds a B.S. and an M.S. in electrical
engineering from Stanford University. Mr. Carano serves as a director of
Advanced Radio Telecom Corp. Mr. Carano has been nominated and elected as a
director under the terms of a voting agreement among WFI and its stockholders
in connection with the sale of WFI's Series A Preferred Stock.
Scot Jarvis has served as a director of the Company since February 1997. Mr.
Jarvis co-founded Cedar Grove Partners, LLC in 1997, an investment and
consulting/advisory partnership, and has served as a general partner since its
founding. From 1994 to 1996, he served as Vice President of Operations for
Eagle River LLC, a private investment company, where he co-founded Nextlink and
served as a director of Nextel Communications. From 1985 to 1994, Mr. Jarvis
served in a number of positions with McCaw Development Corp., most recently as
Vice President. Mr. Jarvis is on the board of directors of Leap Wireless, Inc.,
Pulsepoint Communications and Metawave Communications Corp. He holds a B.A. in
business administration from the University of Washington.
Massih Tayebi, our Chief Executive Officer, and Masood Tayebi, our
President, are brothers.
BOARD COMMITTEES
The board of directors has recently established an audit committee. The
audit committee consists of Messrs. Anderson and Jarvis. The audit committee
will make recommendations to the board of directors regarding the selection of
independent auditors, review the results and scope of the audit and other
services provided by our independent auditors and review and evaluate our audit
and control functions.
The board of directors has established a compensation committee. The
compensation committee consists of Messrs. Anderson, Jarvis and Carano. The
compensation committee makes recommendations regarding our equity compensation
plans and makes decisions concerning salaries and incentive compensation for
our employees and consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, we did not have a compensation committee. The Board of
Directors made all decisions concerning executive compensation during 1998.
45
<PAGE>
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services on
the board of directors or any committee thereof, but directors may be
reimbursed for expenses in connection with attendance at board and committee
meetings. All directors are entitled to participate in our 1999 Equity
Incentive Plan.
In order to defray the administrative costs incurred by Scott Anderson and
Scot Jarvis by virtue of their service on our board of directors, we made
monthly payments to Cedar Grove Partners during 1997, 1998 and the first eight
months of 1999 in an aggregate amount of $60,000 per year. Messrs. Anderson and
Jarvis are the general partners of Cedar Grove Partners. Our obligation to make
these payments terminated in August 1999.
The following table sets forth certain information regarding warrants to
purchase our common stock issued to members of our board of directors. The
aggregate values set forth in the table below are calculated based on the
assumed initial offering price of $14.00 and the applicable exercise price.
<TABLE>
<CAPTION>
ISSUE NUMBER EXERCISE PRICE AGGREGATE AGGREGATE
NAME DATE OF SHARES (#) PER SHARE ($) EXERCISE PRICE ($) VALUE ($)
---- ------- ------------- -------------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
Scott Anderson.......... 2/28/97 150,000 0.93 139,500 1,960,500
2/1/98 600,000 1.58 948,000 7,452,000
Bandel Carano........... -- -- -- -- --
Scot Jarvis............. 2/28/97 150,000 0.93 139,500 1,960,500
2/1/98 600,000 1.58 948,000 7,452,000
Masood Tayebi, Ph.D..... -- -- -- -- --
</TABLE>
In January 1999, we granted options to purchase 20,000 shares of common
stock to each of Messrs. Anderson, Carano and Jarvis for their service on the
Board of Directors. The exercise price of these options is $4.16 per share. We
do not have a policy in place regarding the future grant of options or warrants
to directors.
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to us in all capacities
during the fiscal year ended December 31, 1998 by our chief executive officer
and the four other most highly compensated executive officers who earned more
than $100,000 in salary and bonus during the fiscal year ended December 31,
1998. These individuals are referred to as the named executive officers. The
compensation described in this table does not include medical, group life
insurance or other benefits that are available generally to all of our salaried
employees and certain perquisites and other personal benefits received that do
not exceed the lesser of $50,000 or 10% of any such officer's salary as
disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
ALL OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL COMPENSATION UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($) ($)(1) OPTIONS (#) COMPENSATION ($)(2)
------------------ -------- ------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Massih Tayebi, Ph.D. ... 215,977 -- -- -- --
Chief Executive Officer
Masood K. Tayebi,
Ph.D. ................. 216,749 -- -- -- --
President
Thomas A. Munro......... 132,502 -- -- 159,000 --
Chief Financial Officer
Charles W. Sackley...... 109,375 36,000 18,000 120,000 --
Senior Vice President
of Sales and Business
Development
Michael D. Brink........ 113,116 -- -- 120,000 68,000
Senior Vice President
of Project Management
</TABLE>
- --------
(1) Includes commissions.
(2) Represents relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, for the fiscal year ended December 31, 1998,
certain information regarding options granted to each of the named executive
officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENTAGE OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE PRICE FOR OPTION TERM ($)
GRANTED FISCAL YEAR PER SHARE EXPIRATION ---------------------
NAME (#) (%) ($) DATE 5% 10%
---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Massih Tayebi, Ph.D. ..... -- -- -- -- -- --
Masood K. Tayebi, Ph.D. .. -- -- -- -- -- --
Thomas A. Munro........... 159,000 4.6 2.00 3/2/08 3,310,380 5,447,340
Charles W. Sackley........ 120,000 3.5 2.00 3/2/08 2,738,400 4,351,200
Michael D. Brink.......... 60,000 1.7 2.00 3/2/08 1,249,200 2,055,600
60,000 1.7 4.16 7/31/08 1,119,600 1,926,000
</TABLE>
In the table above, the percentage of total options granted to employees in
the fiscal year is based on options to purchase 3,464,139 shares of common
stock granted to employees in fiscal 1998, including the
47
<PAGE>
named executive officers. The options granted to the named executive officers
were granted under our 1997 Stock Option Plan. Options granted under the plan
generally vest in equal yearly installments over a period of three to four
years. One half of the options issued to Mr. Sackley will vest five years from
the date of grant, although such vesting may be accelerated in the event
certain performance criteria are met. All of the options issued to Mr. Brink
and one-half of the options issued to Mr. Sackley provide for acceleration of
vesting on a sale or change in control of the Company. Options were granted at
an exercise price equal to the fair market value of our common stock, as
determined by our board of directors on the date of grant.
The potential realizable values set forth in the table above are calculated
based on the term of the option at its time of grant (ten years) and the
assumed initial public offering price of $14.00. It is calculated assuming that
the stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
These amounts represent certain assumed rates of appreciation only, in
accordance with the rules of the Commission, and do not reflect our estimates
or projections of future stock price performance. Actual gains, if any, are
dependent on the actual future performance of our common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, with respect to each of the named executive
officers, information regarding the number and value of securities underlying
unexercised options held by the named executive officers as of December 31,
1998. None of our named executive officers exercised options in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE MONEY OPTIONS AT
AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)
---------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Massih Tayebi, Ph.D. ..... -- -- -- --
Masood K. Tayebi, Ph.D. .. -- -- -- --
Thomas A. Munro........... 75,000 384,000 975,000 4,683,000
Charles W. Sackley........ -- 120,000 -- 1,440,000
Michael D. Brink.......... -- 120,000 -- 1,310,400
</TABLE>
In the table above, the value of unexercised in the-money options is based
on the difference between the assumed initial public offering price per share
of $14.00 and the exercise price.
EMPLOYEE BENEFIT PLANS
1999 Equity Incentive Plan
In August 1999, we adopted our 1999 Equity Incentive Plan. A total of
6,000,000 shares of common stock has initially been authorized for issuance
under the 1999 Equity Incentive Plan. In addition, the number of shares of
common stock authorized under the plan shall be increased on January 1 of each
year by the lesser of either 6,000,000 shares or 4% of our outstanding shares
on that date. Under the terms of the 1999 Equity Incentive Plan, shares subject
to stock awards that have expired or otherwise terminated without having been
exercised in full again become available for grant, but exercised shares
repurchased by us through a right of repurchase will not again become available
for grant.
The 1999 Equity Incentive Plan permits the grant of options to our
directors, officers, employees and consultants. Options may be either incentive
stock options within the meaning of Section 422 of the Internal Revenue Code to
employees or nonstatutory stock options. In addition, the 1999 Equity Incentive
Plan permits the grant of stock bonuses and rights to purchase restricted
stock. No person may be granted options covering more than 5,000,000 shares of
common stock in any calendar year.
48
<PAGE>
The 1999 Equity Incentive Plan is administered by the board or a committee
appointed by the board. The board has delegated the authority to administer the
1999 Equity Incentive Plan to the compensation committee. Subject to the
limitations set forth in the 1999 Equity Incentive Plan, the administrator has
the authority to select the eligible persons to whom award grants are to be
made, to designate the number of shares to be covered by each award, to
determine whether an option is to be an incentive stock option or a
nonstatutory stock option, to establish vesting schedules, to specify the
exercise price of options and the type of consideration to be paid upon
exercise and, subject to restrictions, to specify other terms of awards.
The maximum term of options granted under the 1999 Equity Incentive Plan is
ten years. Incentive stock options granted under the 1999 Equity Incentive Plan
generally are non-transferable. Nonstatutory stock options generally are non-
transferable, although the applicable option agreement may permit transfers.
Options generally expire 30 days after the termination of an optionholder's
service. However, if an optionholder is permanently disabled or dies during his
or her service, such person's options generally may be exercised up to 12
months following disability or 18 months following death.
The exercise price of options granted under the 1999 Equity Incentive Plan
is determined by the administrator in accordance with the guidelines set forth
in the 1999 Equity Incentive Plan. The exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the grant. The exercise price of a nonstatutory stock option cannot
be less than 85% of the fair market value of the common stock on the date of
grant.
Options granted under the 1999 Equity Incentive Plan vest at the rate
determined by the administrator and specified in the option agreement. The
terms of any stock bonuses or restricted stock purchase awards granted under
the 1999 Equity Incentive Plan will be determined by the administrator. The
purchase price of restricted stock under any restricted stock purchase
agreement will not be less than 85% of the fair market value of our common
stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the 1999 Equity Incentive Plan are generally
nontransferable, although the applicable award agreement may permit transfers.
Upon changes in control in our ownership through a merger in which we are
not the surviving entity or a reverse merger, all outstanding stock awards
under the 1999 Equity Incentive Plan must either be assumed or substituted by
the surviving entity. In the event the surviving entity does not assume or
substitute such stock awards, then the vesting and exercisability of
outstanding awards will accelerate prior to the change in control and such
awards will terminate to the extent not exercised prior to the change in
control. Upon a change in control in our ownership through the sale of all or
substantially all of our assets, then all stock awards under the 1999 Equity
Incentive Plan shall continue in full force and effect. In the event of a
dissolution or liquidation, all unexercised options will terminate.
The board may amend or terminate the 1999 Equity Incentive Plan at any time.
Amendments will generally be submitted for stockholder approval only to the
extent required by applicable law.
As of September 30, 1999, we had no issued and outstanding options to
purchase shares of common stock under the 1999 Equity Incentive Plan.
1997 Stock Option Plan
Our 1997 Stock Option Plan was adopted by the board of directors in July
1997, and was amended in September 1997 and January 1999. A total of 7,500,000
shares of common stock has been authorized for issuance under the 1997 Stock
Option Plan. Pursuant to the 1997 Stock Option Plan, shares subject to stock
awards that have expired or otherwise terminated without having been exercised
in full again become available for grant, but exercised shares repurchased by
us pursuant to a right of repurchase will not again become available for grant.
49
<PAGE>
The 1997 Stock Option Plan permits the grant of options to our directors,
officers, key employees and consultants. Options may be either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code to
employees or nonstatutory stock options.
The 1997 Stock Option Plan is administered by the board or an administrator
appointed by the board. Subject to the limitations set forth in the 1997 Stock
Option Plan, the administrator has the authority to select the eligible persons
to whom award grants are to be made, to designate the number of shares to be
covered by each award, to determine whether an option is to be an incentive
stock option or a nonstatutory stock option, to establish vesting schedules, to
specify the exercise price of options and the type of consideration to be paid
upon exercise and, subject to restrictions, to specify other terms of awards.
The maximum term of options granted under the 1997 Stock Option Plan is ten
years. Options granted under the 1997 Stock Option Plan generally are non-
transferable. The expiration terms of options granted under the 1997 Stock
Option Plan are determined by the board or administrator in accordance with the
guidelines set forth in the 1997 Stock Option Plan. Options generally expire 30
days after the termination of an optionholder's service. However, if an
optionholder is permanently disabled or dies during his or her service, such
person's options generally may be exercised up to 6 months following disability
or death provided that the options were exercisable on the employee's last day
of work.
The exercise price of options granted under the 1997 Stock Option Plan is
determined by the board or administrator in accordance with the guidelines set
forth in the 1997 Stock Option Plan. The exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the grant. The exercise price of a nonstatutory stock option cannot
be less than 85% of the fair market value of the common stock on the date of
grant. The exercise price of an option granted to a person who holds more than
10% of the voting power of the Company cannot be less than 110% of the fair
market value of our common stock on the date of the grant.
Options granted under the 1997 Stock Option Plan vest at the rate determined
by the board or administrator and specified in the option agreement.
Upon changes in control in our ownership, all outstanding stock options
under the 1997 Stock Option Plan may either be substituted by the surviving
entity or terminated to the extent not exercised upon sixty days written
notice.
The board may amend or terminate the 1997 Stock Option Plan at any time.
Amendments to the 1997 Stock Option Plan will generally be submitted for
stockholder approval within 12 months before or after adoption of the
amendment.
As of September 30, 1999, we had issued and outstanding under the 1997 Stock
Option Plan options to purchase 5,909,286 shares of common stock. The per share
exercise prices of these options ranged from $1.00 to $17.00. Upon completion
of this offering, no further grants will be made under the 1997 Stock Option
Plan. As of the effective date of this offering, all future option grants will
be made under the 1999 Equity Incentive Plan.
Employee Stock Purchase Plan
In August 1999, the board adopted and the stockholders approved the 1999
Employee Stock Purchase Plan. A total of 700,000 shares of common stock has
been authorized for issuance under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. Under the Purchase Plan, eligible employees will be
able to purchase common stock at a discount in periodic offerings. The Purchase
Plan will commence on the effective date of this offering.
Unless otherwise determined by the board, all employees are eligible to
participate in the Purchase Plan so long as they are employed by us (or a
subsidiary designated by the board) for at least 20 hours per week and
50
<PAGE>
are customarily employed by us (or a subsidiary designated by the board) for at
least 5 months per calendar year.
Employees who participate in an offering may have up to 15% of their
earnings for the period of that offering withheld pursuant to the Purchase
Plan. The amount withheld is used at various purchase dates within the offering
period to purchase shares of common stock. The price paid for common stock at
each such purchase date will equal the lower of 85% of the fair market value of
the common stock at the commencement date of that offering period or 85% of the
fair market value of the common stock on the relevant purchase date. Employees
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment.
Upon changes in control in our ownership, the board has discretion to
provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor corporation or the board may
provide for all sums collected by payroll deductions to be applied to purchase
stock immediately prior to such change in control transaction.
401(k) Plan
We sponsor the WFI 401(k) Plan, a defined contribution plan intended to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended. All
employees are eligible to participate and may enter the 401(k) Plan as of the
first day of any month. Participants may make pre-tax contributions to the
401(k) Plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. We may make matching contributions at the discretion
of the board of directors. To date, we have not made matching contributions.
Each participant's contributions, and the corresponding investment earnings,
are generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Our bylaws provide that we shall indemnify our directors, officers,
employees and agents to the fullest extent permitted by Delaware law, except
with respect to certain proceedings initiated by such persons. We are also
empowered under our bylaws to enter into to purchase insurance on behalf of any
director, officer, employee or agent whether or not we would be required to
indemnify this person. Pursuant to this provision, we have entered into
indemnification agreements with each of our directors and executive officers.
In addition, our restated certificate of incorporation provides that our
directors will not be personally liable to us or our stockholders for monetary
damages for any breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
Our restated certificate of incorporation will also provide that if the
Delaware General Corporation Law is amended after the approval by our
stockholders of the restated certificate of incorporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of our directors shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law. The
provision does not affect a director's responsibilities under any other law,
such as the federal securities laws or state or federal environmental laws.
51
<PAGE>
RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1, 1996 to
which we have been a party, in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of our capital
stock had or will have a direct or indirect material interest, other than our
compensation arrangements with our directors and named executive officers that
are described under "Management."
In February 1997, we sold 600,000 shares of our common stock at $0.93 per
share. In August 1998, we sold 1,682,692 shares of our Series A preferred stock
at $12.48 per share. In February 1999, we sold 2,727,273 shares of our Series B
preferred stock at $5.50 per share. The following table illustrates the number
of shares we sold to our directors and officers, entities affiliated with our
directors or our stockholders who hold more than 5% of our capital stock. The
aggregate value is calculated based on the assumed initial offering price of
$14.00.
<TABLE>
<CAPTION>
SHARES OF PREFERRED
STOCK (1) AGGREGATE
COMMON ------------------- PURCHASE AGGREGATE
STOCK SERIES A SERIES B PRICE ($) VALUE ($)
------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Scott Anderson........... 300,000 -- -- 279,000 4,200,000
Scot Jarvis ............. 300,000 -- -- 279,000 4,200,000
ENTITIES AFFILIATED WITH
DIRECTORS
Oak Investment Partners
(2)..................... -- 1,382,211 2,323,231 30,027,764 51,876,188
OTHER 5% STOCKHOLDERS
Worldview Partners (3)... -- 240,385 404,042 5,222,236 9,021,978
DATE OF PURCHASE......... 2/28/97 8/7/98 2/26/99
PRICE PER SHARE.......... $0.93 $12.48 $5.50
</TABLE>
- --------
(1) Upon the closing of this offering, each outstanding share of our Series A
preferred stock will convert into three shares of our common stock, while
each share of our Series B preferred stock will convert into one share of
our common stock.
(2) Entities affiliated with Oak Investment Partners combined hold more than
5% of our outstanding stock. Bandel Carano, one of our directors, is a
managing member of the general partner of these entities.
(3) Entities affiliated with Worldview Partners combined held greater than 5%
of our capital stock at the time these entities purchased the Series B
preferred stock.
In February 1997, we issued warrants to purchase shares of our common stock
at an exercise price of $0.93 per share. In February 1998, we issued warrants
to purchase shares of our common stock at an exercise price of $1.58 per share.
The following table illustrates the number of warrants we issued to our
directors and officers. The aggregate value is calculated based on the assumed
initial offering price of $14.00 and the applicable exercise price. For a
further description of the warrants issued to Messrs. Anderson and Jarvis, see
"Description of Capital Stock--Warrants."
<TABLE>
<CAPTION>
COMMON STOCK
WARRANTS AGGREGATE
--------------- EXERCISE AGGREGATE
1997 1998 PRICE ($) VALUE ($)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Scott Anderson (1)....................... 150,000 600,000 1,087,500 9,412,500
Scot Jarvis (2).......................... 150,000 600,000 1,087,500 9,412,500
DATE OF ISSUE............................ 2/28/97 2/1/98
EXERCISE PRICE........................... $0.93 $1.58
</TABLE>
(1) In April 1998, Mr. Jarvis exercised his 1997 warrants to purchase 100,002
shares of common stock and his 1998 warrants to purchase 199,998 shares.
52
<PAGE>
(2) In April 1998, Mr. Anderson exercised his 1997 warrants to purchase
100,002 shares of common stock and his 1998 warrants to purchase 199,998
shares.
In August 1998, we paid a dividend of $0.19 per share to our stockholders.
In connection with the payment of the dividend, we issued notes for a total of
$5,500,000 to three of our stockholders. We issued a promissory note to Massih
Tayebi in the amount of $2,315,790, a promissory note to Masood Tayebi in the
amount of $2,605,263 and a promissory note to Sean Tayebi in the amount of
$578,947. Masood Tayebi is our President, a member of the board of directors
and a holder of more than 5% of our capital stock. Massih Tayebi is our Chief
Executive Officer, a member of our board of directors and a holder of more than
5% of our capital stock. Sean Tayebi, a brother of Masood Tayebi and Massih
Tayebi, is a holder of more than 5% of our capital stock. These notes bear
interest at 5.5% per annum and were initially due on August 2, 1999. We have
amended the notes such that they are now due on August 2, 2000, and the
interest that accrued through August 2, 1999 is now part of the principal
amount of the amended notes. We did not pay consideration to any of the
noteholders in connection with the extension of the maturity date of the notes.
In August 1998, we repurchased a total of 3,245,190 shares of common stock
from Masood Tayebi and Massih Tayebi. In connection with the repurchase, we
issued notes for a total of $13,499,990 to Masood Tayebi and Massih Tayebi. We
paid off these notes on August 9, 1998.
All of the securities sold or purchased in these transactions were sold or
purchased at prices equal to the fair market value of the securities, as
determined by our board of directors, on the date of issuance.
Holders of shares of our common stock issued in connection with the
conversion of the Series A preferred stock and Series B preferred stock and in
connection with the exercise of warrants issued to Messrs. Anderson and Jarvis
described above may require us to register such shares at our expense. For a
description of such registration rights, see "Description of Capital Stock--
Registration Rights."
Jalil Tayebi, a brother of Masood Tayebi and Massih Tayebi, is the General
Manager of WFI de Mexico. He currently receives an annual base salary of
$100,000. In connection with his employment, we have granted Mr. Tayebi options
to purchase an aggregate of 122,640 shares of our common stock. These options
vest over a period of four years and have exercise prices that range from $1.33
to $4.16 per share. We have also granted him shares of restricted stock in WFI
de Mexico, which as of June 30, 1999, were equivalent to 6% of the equity of
WFI de Mexico. The stock is subject to vesting over a four-year period.
Pursuant to the terms of the stock grant, Mr. Tayebi has a one-time election to
exchange any vested restricted stock in WFI de Mexico for shares of our common
stock at a fair market valuation, as determined by our Chief Executive Officer
and Chief Financial Officer. As of June 30, 1999, Mr. Tayebi had not exercised
this election.
Between September 1998 and December 1998, we borrowed funds from Masood
Tayebi and Massih Tayebi to fund our working capital requirements. In
connection with this, we issued short term notes to Masood Tayebi for a total
of $2,500,000 and to Massih Tayebi for a total of $1,000,000. Each note carried
an interest rate of 5.5% per year. We repaid these notes in the first quarter
of 1999.
From December 31, 1998 through June 30, 1999, we advanced an aggregate of
$221,518 to Masood Tayebi which amount he repaid on September 28, 1999. Of the
amount advanced, $61,819 was for Masood Tayebi's personal credit card debt and
$160,000 was for a personal investment made by him.
In June 1999, we sold to Masood Tayebi and Massih Tayebi our 25% ownership
interest in Sierra Towers Investment Group, LLC, an early-stage tower company
operating in Mexico. At the time, our officers and a disinterested member of
our board of directors determined that our membership units in Sierra and
Sierra's promissory note owed to us had a cumulative fair value of $262,348 as
of the date of the transaction. A majority of the disinterested members of the
Board of Directors ratified the transaction in August 1999. Masood Tayebi and
Massih Tayebi each purchased one half of our ownership interest in Sierra,
paying the fair value for such interest with promissory notes which bear
interest at a rate of 10% per annum and are due and payable on November 30,
1999.
53
<PAGE>
In connection with his employment, on April 9, 1999, we entered into a
letter agreement with Scott Fox, our President of Network Management. Under the
letter agreement, Mr. Fox's annual salary is $225,000 and he is eligible for a
minimum annual bonus of 35% of his base salary. The letter agreement also
provides for a $225,000 signing bonus, which is payable in two parts, and
guaranteed appreciation of at least $600,000 on 25% of his stock options. In
the event that we terminate Mr. Fox within the first two years of his
employment, certain of Mr. Fox's unvested options will become fully vested and
exercisable and, at his option, we will owe him either $112,500 or 20,455
shares of common stock, in connection with his signing bonus. In the event of a
change in control of WFI within the first two years of Mr. Fox's employment,
all of his unvested stock options will become fully vested and exercisable and
a signing bonus of $112,500 will be due and payable. In the event of a change
in control of WFI after the first two years of Mr. Fox's employment, 50% of his
unvested stock options will vest immediately and become exercisable. In July
1999, we loaned Mr. Fox $169,000 at an interest rate of 6% per year in
connection with a mortgage on his house.
Prior to June 30, 1999 we contracted with Total Outsourcing, Inc., a company
owned by Massih Tayebi's wife, for the leasing of computer equipment,
apartments, vehicles and other items. During 1997 and 1998, the total value of
our contracts with Total Outsourcing was $781,000 and $488,000, respectively.
We have terminated our contract and have entered into a Settlement Agreement
and Mutual General Release with Total Outsourcing effective as of June 30,
1999. Pursuant to this Settlement Agreement, we have agreed to pay $258,091 to
Total Outsourcing by December 31, 1999 in satisfaction of all amounts that we
owe to it.
Since April 1999, we have subleased approximately 4,900 square feet of
office space in our headquarters facility to QuantumThink Group, Inc., a high
technology outsourcing company which is majority-owned by the Tayebi family.
QuantumThink Group's tenancy is month-to-month. QuantumThink Group pays monthly
rent of $9,000, which is in excess of our equivalent rent expense for such
space. We believe that the rent paid by QuantumThink Group is comparable to
equivalent rents that we could obtain from unaffiliated third parties for such
space.
A member of our board of directors, Scott Anderson, is a member of the
boards of directors of Triton PCS, Telecorp and TriTel, all of which are
customers of ours. Scot Jarvis, a member of our board of directors, is a member
of the board of directors of Leap Wireless International, which is also a
customer of ours. Another member of our board of directors, Bantel Carano, is a
member of the board of directors of Advanced Radio Telecom Corp., which is also
a customer of ours.
Prior to this offering, we paid $5,000 per month to Cedar Grove Partners in
consideration of the services rendered to the Company by Scott Anderson and
Scot Jarvis as our directors. Messrs. Anderson and Jarvis are the general
partners of Cedar Grove Partners. The Company made payments to Cedar Grove
Partners equal to $60,000 in each of 1997 and 1998. Our obligation to make
these payments terminated in August 1999.
We have entered into indemnification agreements with each of our officers
and directors as described in "Management--Indemnification of Directors and
Executive Officers and Limitation on Liability."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
. each person who beneficially owns more than five percent of the common
stock;
. each of our directors;
. the named executive officers; and
. all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Wireless Facilities, Inc., 9805 Scranton Road, Suite 100, San
Diego, CA 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The percentage of beneficial
ownership is based on 35,028,169 shares of common stock outstanding as of
September 30, 1999, as adjusted to reflect the conversion of all outstanding
shares of preferred stock upon the closing of this offering and 39,028,169
shares of common stock outstanding after completion of this offering.
The table assumes no exercise of the underwriters' over-allotment option. If
the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of 600,000 additional shares of our common stock, and up to
39,628,169 shares of common stock will be outstanding after the completion of
this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
OWNED OUTSTANDING
---------------- ------------------------
BEFORE AFTER
NUMBER OFFERING OFFERING
---------------- ---------- ----------
<S> <C> <C> <C>
Masood K. Tayebi (1).................... 11,210,738 32.0% 28.7%
Massih Tayebi........................... 9,710,738 27.7% 24.9%
Oak Investment Partners VIII, L.P. (2).. 6,469,864 18.5% 16.6%
525 University Avenue, Suite 1300
Palo Alto, California 94301
Bandel Carano (3)....................... 6,469,864 18.5% 16.6%
Oak Investment Partners VIII, L.P.
525 University Avenue, Suite 1300
Palo Alto, California 94301
Sean Tayebi............................. 2,333,333 6.7% 6.0%
MeriTech Capital Partners L.P. (4)...... 2,000,000 5.7% 5.1%
428 University Avenue
Palo Alto, California 94301
Scott Anderson (5)...................... 849,996 2.4% 2.2%
Scot Jarvis (6)......................... 849,996 2.4% 2.2%
Thomas A. Munro (7)..................... 278,000 * *
Scott Fox (8)........................... 174,167 * *
Charles W. Sackley (9).................. 30,000 * *
Michael D. Brink (10)................... 40,000 * *
All directors and executive officers as
a group
(9 persons) (11)....................... 29,613,499 82.7% 73.9%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
55
<PAGE>
(1) Includes 150,000 shares held in trust for Mr. Tayebi's family.
(2) Includes 122,927 shares held by Oak VIII Affiliates Fund, L.P.
(3) Includes 6,346,937 shares held by Oak Investment Partners VIII, L.P. and
122,927 shares held by Oak VIII Affiliates Fund, L.P. Bandel Carano, one
of our directors, is a managing member of the general partners of venture
capital funds affiliated with Oak Investment Partners. Mr. Carano
disclaims beneficial ownership of the shares held by Oak Investment
Partners VIII, L.P and Oak VIII Affiliates Fund, L.P.
(4) Includes 32,000 shares held by MeriTech Capital Affiliates, L.P.
(5) Includes 249,996 shares subject to options exercisable within 60 days of
September 30, 1999.
(6) Includes 249,996 shares subject to options exercisable within 60 days of
September 30, 1999.
(7) Includes 278,000 shares subject to options exercisable within 60 days of
September 30, 1999, 75,000 of which will become immediately exercisable
upon completion of this offering.
(8) Includes 174,167 shares subject to options exercisable within 60 days of
September 30, 1999, all of which will become immediately exercisable upon
completion of this offering.
(9) Includes 30,000 shares subject to options exercisable within 60 days of
September 30, 1999.
(10) Includes 40,000 shares subject to options exercisable within 60 days of
September 30, 1999.
(11) Includes 1,022,159 shares subject to options exercisable within 60 days of
September 30, 1999, 249,167 of which will become immediately exercisable
upon completion of this offering.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of this offering and effective upon the
filing of our restated certificate of incorporation, our authorized capital
stock will consist of 195,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share. As
of September 30, 1999, after giving effect to the conversion of all outstanding
preferred stock into common stock upon the closing of this offering, there were
outstanding 35,028,169 shares of common stock held of record by 54
stockholders.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends as may be declared by the
board of directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding down, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders
of common stock have no preemptive, conversion, subscription or other rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 7,775,349 shares of common stock. See Note 7 of Notes to
Consolidated Financial Statements for a description of the currently
outstanding preferred stock. Following the conversion, our certificate of
incorporation will be amended and restated to delete all references to these
shares of preferred stock. Under the restated certificate of incorporation, the
board has the authority, without further action by stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications and restrictions granted to or
imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and reduce the likelihood that such
holders will receive dividend payments and payments upon liquidation. The
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock could have the effect of delaying,
deterring or preventing a change in control of WFI. We have no present plans to
issue any shares of preferred stock.
WARRANTS
As of September 30, 1999, there were warrants outstanding to purchase an
aggregate of 1,144,381 shares of our common stock at a weighted average
exercise price of $2.08 per share. In February 1997, we issued warrants to
purchase 150,000 shares of common stock at an exercise price of $0.93 per share
to each of Messrs. Anderson and Jarvis in exchange for their agreement to serve
as members of the board of directors. The warrants vested over a period of two
years, subject to the warrantholder remaining a director of WFI, as follows:
50,001 warrants vested on the date of grant and expire February 28, 2007;
50,001 warrants vested on February 28, 1998 and expire February 28, 2008; and
49,998 warrants vested on February 28, 1999 and expire February 28, 2009. In
February 1998, we issued warrants to purchase 600,000 shares of common stock at
an exercise price of $1.58 per share to each of Messrs. Anderson and Jarvis in
exchange for their agreement to continue to serve as members of the board of
directors. The warrants vest over a period of two years, subject to the
warrantholder remaining a director of WFI, as follows: 199,998 warrants vested
on the date of grant; 199,998 warrants vest on February 1, 1999 and expire
February 1, 2009; and 200,004 warrants vest on February 1, 2000 and expire
February 1, 2010.
57
<PAGE>
In connection with our acquisition of B. Communication International, Inc.
in January 1999, we issued warrants to purchase 138,219 shares to Farzad
Ghassemi and warrants to purchase 102,162 shares to Parviz Ghassemi. The
exercise price of such warrants is $4.16 per share. These warrants vest 25% on
each of June 1, 1999, December 1, 1999, June 1, 2000 and December 1, 2000 and
expire one year after their respective vesting date. This vesting is contingent
upon the full-time employment of the warrantholder and full compliance with the
Asset Purchase Agreement executed in connection with our acquisition of B.
Communication International, Inc.
In connection with our acquisition of C.R.D., Inc. in June 1999, we issued
warrants to purchase 2,040 shares to Daria Chaisson and warrants to purchase
1,960 shares to Errol Chaisson. The exercise price of such warrants is $5.50
per share. These warrants vest 25% on each of June 1, 1999, June 1, 2000, June
1, 2001 and June 1, 2002 and expire one year after their respective vesting
date. This vesting is conditioned upon compliance with the Asset Purchase
Agreement executed in connection with our acquisition of C.R.D., Inc.
REGISTRATION RIGHTS
After this offering, the holders of 9,775,349 shares of common stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to an Amended and Restated Investor Rights
Agreement dated February 26, 1999. Under the terms of this agreement, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, the holders are entitled to notice of the registration and
are entitled, subject to certain limitations, to include shares in the
registration. Beginning on June 12, 2000, the holders may also require us to
file a registration statement under the Securities Act with respect to their
shares on two occasions, and we are required to use our best efforts to effect
the requested registration. Furthermore, the holders may require us to register
their shares on Form S-3 when such form becomes available to us. Generally, we
are required to bear all registration expenses incurred in connection with any
such registrations, but not including any underwriting discounts and selling
commissions. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such a registration.
Scott Anderson and Scot Jarvis are entitled to certain rights with respect
to the registration under the Securities Act for their unregistered shares of
common stock held by them, pursuant to Subscription and Representation
Agreements, dated February 28, 1997. Under the Subscription and Representation
Agreements, if we propose to register any of our securities under the
Securities Act, either for our own account or for the account of any other
security holders exercising registration rights, such holders are entitled to
notice of the registration and are entitled, subject to certain limitations, to
include shares in the registration. These rights are subject to certain
conditions and limitations including the right of the underwriters to limit the
number of shares included in a registration.
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are governed by the provisions of Section 203 of the Delaware Law. In
general, Section 203 prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in our control.
58
<PAGE>
Charter and Bylaw Provisions
Our restated certificate of incorporation provides that any action required
or permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, our bylaws restrict the ability of our
stockholders to call a special meeting of stockholders. Our restated
certificate of incorporation also specifies that the authorized number of
directors may be changed only by resolution of the board of directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our restated certificate of incorporation and
bylaws could delay or discourage certain types of transactions involving an
actual or potential change in control of us or our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We have applied to list our common stock on the Nasdaq Stock Market's
National Market under the trading symbol "WFII."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, N.A.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this
offering due to certain contractual restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 39,028,169 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares, all
of the shares sold in this offering will be freely tradable without restriction
under the Securities Act unless purchased by our affiliates.
The remaining 35,028,169 of common stock held by existing stockholders are
restricted securities. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration
described below under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
. no shares may be sold prior to 180 days from the date of this
prospectus;
. 33,028,169 shares will have been held long enough to be sold under Rule
144 or Rule 701 beginning 181 days after the effective date of this
offering which we expect to be September 30, 1999; and
. the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Lock-Up Agreements. All of our stockholders and option holders have agreed
not to transfer or dispose of, directly or indirectly, any shares of our common
stock or any securities convertible into or exercisable or exchangeable for
shares of our common stock, for a period of 180 days after the date the
registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding which
will equal approximately 390,282 shares immediately after this
offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed
above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us in connection with a
compensatory stock purchase plan or option plan or other written agreement will
be eligible to resell their shares beginning 90 days after the date of this
prospectus. Non-
60
<PAGE>
affiliates will be able to sell their shares subject only to the manner-of-sale
provisions of Rule 144. Affiliates will be able to sell their shares without
compliance with the holding period requirements of Rule 144.
Registration Rights. Upon completion of this offering, the holders of
10,375,349 shares of our common stock will be entitled to rights with respect
to the registration of their shares under the Securities Act. See "Description
of Capital Stock--Registration Rights." Except for shares purchased by
affiliates, registration of their shares under the Securities Act would result
in such shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering approximately
13,100,000 shares for sale upon the exercise of outstanding stock options and
warrants issued pursuant to compensatory benefit plans or reserved for future
issuance pursuant to our 1999 Equity Incentive Plan and 1999 Employee Stock
Purchase Plan. The registration statement is expected to be filed and become
effective as soon as practicable after the closing of this offering.
Accordingly, shares registered under the registration statement will, subject
to Rule 144 volume limitations applicable to affiliates, be available for sale
in the open market beginning 180 days after the effective date of the
registrant statement of which this prospectus is a part.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation................................
Hambrecht & Quist LLC.................................................
Thomas Weisel Partners LLC............................................
---------
Total.............................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and expenses we will pay.
The compensation we will pay to the underwriters will consist solely of the
underwriting discount, which is equal to the public offering price per share of
common stock less the amount the underwriters pay to us per share of common
stock. The underwriters have not received and will not receive from us any
other item of compensation or expense in connection with this offering
considered by the National Association of Securities Dealers, Inc. to be
underwriting compensation under its Rules of Fair Practice. The underwriting
fee will be determined based on our negotiations with the underwriters at the
time the initial public offering price of our common stock is determined. We do
not expect the underwriting discount per share of common stock to exceed 7% of
the initial public offering price per share of common stock.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid
by us.................. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
62
<PAGE>
The principal components of the offering expenses payable by us will include
the fees and expenses of our accountants and attorneys, the fees of our
registrar and transfer agent, the cost of printing this prospectus, The Nasdaq
Stock Market listing fees and filing fees paid to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5.0% of the shares of common stock being offered.
We and our officers and directors and certain other stockholders have agreed
not to offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into to
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of the common stock offered hereby for employees,
directors and certain other persons associated with us who have expressed an
interest in purchasing common stock in the offering. The number of shares of
common stock available for sale to the general public in the offering will be
reduced to the extent these persons purchase the reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
Charles Schwab, a proposed member of our syndicate, contemplates offering
shares of our common stock to certain of its clients through a website and
online delivery of this prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "WFII."
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between the
underwriters and us. The principal factors to be considered in determining the
public offering price include the following: the information set forth in this
prospectus; the history and the prospects for the industry in which we will
compete; the ability of our management; the prospects for our future earnings;
the present state of our development and our current financial condition; the
general condition of the securities markets at the time of this offering; and
the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the securities originally sold by such
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
63
<PAGE>
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, however, Thomas Weisel Partners has acted as lead or co-manager
on over 30 public offerings of equity securities that have been completed, and
has acted as a syndicate member in an additional 33 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
64
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission report within ten days of the sale of any common
stock acquired by such purchaser pursuant to this offering. The report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
65
<PAGE>
LEGAL MATTERS
Cooley Godward llp, San Diego, California will pass upon the validity of the
shares of common stock offered by this prospectus and certain other legal
matters. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California will pass upon certain legal matters for the underwriters.
EXPERTS
The consolidated financial statements of Wireless Facilities, Inc. and
subsidiaries as of December 31, 1997 and 1998 and June 30, 1999 and for each of
the years in the three-year period ended December 31, 1998 and the six months
ended June 30, 1999, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Entel Technologies, Inc. for the year ended
December 31, 1997 have been audited by M.R. Weiser & Co. LLP, independent
certified public accountants, as indicated in their report with respect thereto
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to the common
stock offered by this prospectus. As permitted by the rules and regulations of
the Commission, this prospectus, which is a part of the registration statement,
omits certain information, exhibits, schedules and undertakings set forth in
the registration statement. For further information pertaining to WFI and the
common stock offered hereby, reference is made to such registration statement
and the exhibits and schedules thereto. Statements contained in this prospectus
as to the contents or provisions of any contract or other document filed as an
exhibit referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. A copy of the registration statement may be
inspected without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from such offices upon the payment of the fees prescribed by the SEC. In
addition, registration statements and certain other filings made with the
commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system, including our registration statement and all exhibits and
amendments to our registration statements, are publicly available through the
Commission's Website at http://www.sec.gov.
As a result of this offering we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
66
<PAGE>
WIRELESS FACILITIES, INC.
Index To Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1997, 1998 and June 30,
1999.................................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, 1998 and the six months ended June 30, 1998 (unaudited) and
June 30, 1999........................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997, 1998 and the six months ended June 30,
1999.................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and six months ended June 30, 1998 (unaudited) and
June 30, 1999........................................................... F-8
Notes to Consolidated Financial Statements............................... F-9
</TABLE>
ENTEL TECHNOLOGIES, INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of M.R. Weiser & Co. LLP, Independent Auditors.................... F-24
Statement of Operations and Retained Earnings for the year ended December
31, 1997................................................................ F-25
Statement of Cash Flows for the year ended December 31, 1997............. F-26
Notes to Financial Statements............................................ F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wireless Facilities, Inc.:
We have audited the accompanying consolidated balance sheets of Wireless
Facilities, Inc. and subsidiaries as of December 31, 1997 and 1998 and June 30,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998 and the six month period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wireless
Facilities, Inc. and subsidiaries as of December 31, 1997 and 1998 and June 30,
1999, and the results of their operations and their cash flows for each of the
years in the three- year period ended December 31, 1998 and the six month
period ended June 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
San Diego, California
August 13, 1999
F-2
<PAGE>
WIRELESS FACILITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash.................................... $ 836,086 $ 2,866,163 $ 4,026,774
Accounts receivable, net................ 9,142,119 24,169,212 31,385,860
Contract management receivables......... -- 24,156,326 5,863,184
Other current assets.................... 481,348 364,666 1,619,228
----------- ----------- -----------
Total current assets................ 10,459,553 51,556,367 42,895,046
Property and equipment, net............. 463,422 981,133 1,755,494
Goodwill, net........................... -- 7,178,048 8,269,908
Other assets, net....................... 130,868 815,650 751,859
----------- ----------- -----------
Total assets........................ $11,053,843 $60,531,198 $53,672,307
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 126,930 $10,263,214 $ 898,639
Accrued expenses...................... 945,766 4,883,944 1,852,721
Contract management payables.......... -- 9,338,844 4,940,527
Billings in excess of costs and
profits.............................. -- 81,908 2,280,020
Line of credit........................ -- 3,000,000 --
Officer notes payable................. -- 3,825,000 --
Subordinated stockholder notes
payable.............................. -- 5,500,000 5,500,000
Notes payable, current portion........ -- 1,573,568 3,039,866
Income taxes payable.................. 146,540 4,017,453 755,143
Deferred income tax liability......... -- 1,333,000 694,065
----------- ----------- -----------
Total current liabilities........... 1,219,236 43,816,931 19,960,981
Long-term liabilities-notes payable, net
of current portion..................... -- 2,119,385 867,257
----------- ----------- -----------
Total liabilities................... $ 1,219,236 $45,936,316 $20,828,238
----------- ----------- -----------
</TABLE>
(Continued)
F-3
<PAGE>
WIRELESS FACILITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1999 1999
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Convertible preferred
stock-Series A, $.01
par value, 1,682,692
shares authorized; 0,
1,682,692, 1,682,692
shares issued and
outstanding at 1997,
1998 and 1999
(unaudited) and none
pro forma
(unaudited).......... $ -- $ 16,827 $ 16,827 $ --
Convertible preferred
stock-Series B, $.01
par value, 2,800,000
shares authorized; 0,
0 and 2,727,273
shares issued and
outstanding at 1997,
1998 and 1999
(unaudited) and none
pro forma
(unaudited).......... -- -- 27,273 $ --
Common stock, $.01 par
value, 50,000,000
shares authorized;
29,100,000,
27,045,810 and
27,235,530 shares
issued and
outstanding at 1997,
1998 and 1999
(unaudited), and
35,010,879 pro forma
(unaudited).......... 291,000 302,982 305,059 382,812
Additional paid-in
capital.............. 533,133 25,959,350 41,466,461 41,432,808
Retained earnings..... 9,010,474 1,843,272 4,671,748 4,671,748
Treasury stock at
cost; 0, 3,252,390
and 3,270,322 shares
at 1997, 1998 and
1999, respectively... -- (13,529,942) (13,656,960) (13,656,960)
Accumulated other
comprehensive
income............... -- 2,393 13,661 13,661
----------- ------------ ------------ ------------
Total stockholders'
equity............. 9,834,607 14,594,882 32,844,069 $ 32,844,069
----------- ------------ ------------ ============
Total liabilities
and stockholders'
equity............. $11,053,843 $ 60,531,198 $ 53,672,307
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WIRELESS FACILITIES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six months Six months
Year ended Year ended Year ended ended ended
December 31, December 31, December 31, June 30, June 30,
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $15,420,544 $22,658,493 $51,909,210 $21,610,850 $33,105,729
Cost of revenues........ 6,831,923 11,716,370 28,070,323 10,578,131 21,024,405
----------- ----------- ----------- ----------- -----------
Gross profit.......... 8,588,621 10,942,123 23,838,887 11,032,719 12,081,324
Selling, general and
administrative
expenses............... 1,832,252 3,974,478 12,865,065 4,612,003 6,444,797
----------- ----------- ----------- ----------- -----------
Operating income...... 6,756,369 6,967,645 10,973,822 6,420,716 5,636,527
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income....... 12,604 25,004 212,542 43,419 101,002
Interest expense...... (14,345) (314) (630,732) (189,669) (548,411)
Foreign currency
loss................. -- -- -- -- (170,780)
Equity loss in
investment........... -- -- (65,880) -- (9,107)
----------- ----------- ----------- ----------- -----------
Total other income
(expense).......... (1,741) 24,690 (484,070) (146,250) (627,296)
----------- ----------- ----------- ----------- -----------
Income before
taxes.............. 6,754,628 6,992,335 10,489,752 6,274,466 5,009,231
Provision for income
taxes.................. 22,343 222,911 5,526,000 60,167 2,180,755
----------- ----------- ----------- ----------- -----------
Net income.......... $ 6,732,285 $ 6,769,424 $ 4,963,752 $ 6,214,299 $ 2,828,476
=========== =========== =========== =========== ===========
Net income per common
share:
Basic................. $ .24 $ .24 $ .17 $ .21 $ .10
Diluted............... $ .23 $ .23 $ .16 $ .20 $ .09
Weighted-average common
shares outstanding:
Basic................. 28,500,000 28,661,096 28,374,478 29,407,778 27,125,701
Diluted............... 29,427,474 29,326,445 30,741,436 30,344,902 32,364,805
Pro forma information
(unaudited):
Income before taxes... $ 6,754,628 $ 6,992,335 $10,489,752 $ 6,274,466 $ 5,009,231
Pro forma provision
for income taxes..... 2,675,343 2,749,911 4,476,000 2,677,167 2,180,755
----------- ----------- ----------- ----------- -----------
Pro forma net income.. $ 4,079,285 $ 4,242,424 $ 6,013,752 $ 3,597,299 $ 2,828,476
=========== =========== =========== =========== ===========
Pro forma net income per
common share:
Basic................. $ 0.20 $ 0.08
Diluted............... $ 0.18 $ 0.07
Pro forma weighted-
average common shares
outstanding:
Basic................. 30,664,335 34,481,210
Diluted............... 33,031,293 39,720,314
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK-- PREFERRED STOCK--
SERIES A SERIES B COMMON STOCK
----------------- ----------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............ -- $ -- -- $ -- 28,500,000 $285,000
Stock-based compensation............. -- -- -- -- -- --
Net income and comprehensive income.. -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance, December 31, 1996............ -- -- -- -- 28,500,000 285,000
Issuance of common stock............. -- -- -- -- 600,000 6,000
Stock-based compensation............. -- -- -- -- -- --
Stockholder distribution............. -- -- -- -- -- --
Net income and comprehensive income.. -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance, December 31, 1997............ -- -- -- -- 29,100,000 291,000
Issuance of common stock............. -- -- -- -- 1,198,200 11,982
Issuance of Series A preferred
stock............................... 1,682,692 16,827 -- -- -- --
Stock-based compensation............. -- -- -- -- -- --
S corporation distributions.......... -- -- -- -- -- --
Net income from January 1, 1998
through August 6, 1998.............. -- -- -- -- -- --
Transfer of undistributed retained
earnings to additional paid-in
capital upon termination of S
corporation......................... -- -- -- -- -- --
Purchase of treasury stock........... -- -- -- -- (3,252,390) --
Net income from August 7, 1998
through
December 31, 1998................... -- -- -- -- -- --
Foreign currency translation gain.... -- -- -- -- -- --
Comprehensive income................. -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance, December 31, 1998 1,682,692 16,827 -- -- 27,045,810 302,982
Issuance of common stock ............ -- -- -- -- 207,652 2,077
Issuance of Series B preferred stock
.................................... -- -- 2,727,273 27,273 -- --
Stock compensation .................. -- -- -- -- -- --
Issuance of warrants in acquisition
transactions........................ -- -- -- -- -- --
Purchase of treasury stock .......... -- -- -- -- (17,932) --
Net income .......................... -- -- -- -- -- --
Foreign currency translation gain ... -- -- -- -- -- --
Comprehensive income................. -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance, June 30, 1999 ............... 1,682,692 $16,827 2,727,273 $27,273 27,235,530 $305,059
========= ======= ========= ======= ========== ========
</TABLE>
(Continued)
F-6
<PAGE>
WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL TREASURY STOCK OTHER COMPRE-
PAID-IN RETAINED ----------------------- COMPREHENSIVE HENSIVE
CAPITAL EARNINGS SHARES AMOUNT INCOME INCOME TOTAL
----------- ---------- --------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995........ $ (190,000) $ 142,005 -- $ -- $ -- -- $ 237,005
Stock-based compensation......... 25,758 -- -- -- -- -- 25,758
Net income and comprehensive income.. -- 6,732,285 -- -- -- $6,732,285 6,732,285
----------- ---------- --------- ------------- ------- ========== -----------
Balance, December 31, 1996........ (164,242) 6,874,290 -- -- -- -- 6,995,048
Issuance of common stock......... 554,000 -- -- -- -- -- 560,000
Stock-based compensation......... 143,375 -- -- -- -- -- 143,375
Stockholder distribution......... -- (4,633,240) -- -- -- -- (4,633,240)
Net income and comprehensive
income.......................... -- 6,769,424 -- -- -- $6,769,424 6,769,424
----------- ---------- --------- ------------- ------- ========== -----------
Balance, December 31, 1997........ 533,133 9,010,474 -- -- -- -- 9,834,607
Issuance of common stock......... 819,585 -- -- -- -- -- 831,567
Issuance of Series A preferred
stock........................... 20,983,169 -- -- -- -- -- 20,999,996
Stock-based compensation......... 88,760 -- -- -- -- -- 88,760
S corporation distributions...... -- (8,596,251) -- -- -- -- (8,596,251)
Net income from January 1, 1998
through August 6, 1998.......... -- 3,120,480 -- -- -- 3,120,480 3,120,480
Transfer of undistributed
retained earnings to additional
paid-in capital upon termination
of S corporation................ 3,534,703 (3,534,703) -- -- -- -- --
Purchase of treasury stock....... -- -- 3,252,390 (13,529,942) -- -- (13,529,942)
Net income from August 7, 1998
through December 31, 1998....... -- 1,843,272 -- -- -- 1,843,272 1,843,272
Foreign currency translation
gain............................ -- -- -- -- 2,393 2,393 2,393
----------
Comprehensive income............. -- -- -- -- -- $4,966,145 --
----------- ---------- --------- ------------- ------- ========== -----------
Balance, December 31, 1998........ 25,959,350 1,843,272 3,252,390 (13,529,942) 2,393 -- 14,594,882
Issuance of common stock ........ 350,445 -- -- -- -- -- 352,522
Issuance of Series B preferred
stock .......................... 14,972,727 -- -- -- -- -- 15,000,000
Stock compensation .............. 61,775 -- -- -- -- -- 61,775
Issuance of warrants in
acquisition transactions ....... 122,164 -- -- -- -- -- 122,164
Purchase of treasury stock ...... -- -- 17,932 (127,018) -- -- (127,018)
Net income ...................... -- 2,828,476 -- -- -- 2,828,476 2,828,476
Foreign currency translation gain
................................ -- -- -- -- 11,268 11,268 11,268
----------
Comprehensive income............. -- -- -- -- -- $2,839,744 --
----------- ---------- --------- ------------- ------- ========== -----------
Balance, June 30, 1999 ........... $41,466,461 $4,671,748 3,270,322 $ (13,656,960) $13,661 $32,844,069
=========== ========== ========= ============= ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............. $6,732,285 $6,769,424 $ 4,963,752 $ 6,214,299 $2,828,476
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 99,568 222,223 1,098,450 732,222 1,131,568
Stock-based
compensation.......... 25,758 143,375 88,760 -- 61,775
Loss on disposal of
property and
equipment............. -- -- 1,790 -- --
Gain on sale of
investment............ -- -- -- -- (78,228)
Provision for deferred
income taxes.......... -- -- 1,333,000 -- (638,935)
Changes in assets and
liabilities, net of
the effect of
acquisitions:
Accounts receivable,
net.................. (5,828,507) (2,813,062) (12,059,022) (3,122,136) (5,963,954)
Contract management
receivables.......... -- -- (24,156,326) (10,901,000) 18,293,142
Other current assets.. (180,318) (295,111) 384,581 378,811 (936,730)
Other assets.......... -- (130,868) 23,882 (29,839) (7,912)
Accounts payable...... (98,258) 97,453 7,224,944 (1,804,834) (9,437,843)
Accrued expenses...... 163,313 782,453 3,938,178 1,097,198 (3,031,223)
Contract management
payables............. -- -- 9,338,844 11,329,132 (4,398,317)
Billings in excess of
costs and profits.... -- -- 81,908 -- 2,198,112
Income taxes payable.. 22,343 124,197 3,870,913 (58,763) (3,262,310)
---------- ---------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities.......... 936,184 4,900,084 (3,866,346) 3,835,090 (3,242,379)
---------- ---------- ----------- ----------- ----------
Investing activities:
Capital expenditures... (440,487) (344,787) (755,765) (385,185) (1,265,687)
Cash paid for
acquisitions, net of
cash acquired......... -- -- (3,293,593) (3,218,368) (1,742,422)
Cash paid for
investments........... -- -- (604,070) (451,413) (62,500)
Distributions from
investments........... -- -- -- -- 55,953
Proceeds from
disposition of
property and
equipment............. -- 21,185 31,052 -- --
---------- ---------- ----------- ----------- ----------
Net cash used in
investing
activities........... (440,487) (323,602) (4,622,376) (4,054,966) (3,014,656)
---------- ---------- ----------- ----------- ----------
Financing activities:
Proceeds from issuance
of preferred stock.... -- -- 20,999,996 -- 15,000,000
Proceeds from issuance
of common stock....... -- 560,000 831,567 819,997 352,522
Stockholder
distributions......... -- (4,633,240) (3,096,251) (2,838,330) --
Purchase of treasury
stock................. -- -- (13,529,942) -- (127,018)
Net borrowings
(repayment) under line
of credit............. -- -- 3,000,000 2,171,654 (3,000,000)
Borrowings (repayment)
from officers......... -- -- 3,825,000 -- (3,825,000)
Repayment of
acquisition notes
payable............... -- -- (1,513,964) (504,655) (994,126)
Repayment of notes
payable to
stockholders.......... (169,855) -- -- -- --
---------- ---------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities........... (169,855) (4,073,240) 10,516,406 (351,334) 7,406,378
---------- ---------- ----------- ----------- ----------
Effect of exchange rates
on cash................ -- -- 2,393 -- 11,268
---------- ---------- ----------- ----------- ----------
Net increase (decrease)
in cash................ 325,842 503,242 2,030,077 (571,210) 1,160,611
Cash at beginning of
period................. 7,002 332,844 836,086 836,086 2,866,163
---------- ---------- ----------- ----------- ----------
Cash at end of period... $ 332,844 $ 836,086 $ 2,866,163 $ 264,876 $4,026,774
========== ========== =========== =========== ==========
Noncash transactions:
Issuance of notes
payable for
stockholder
distributions......... -- -- 5,500,000 -- --
Issuance of notes for
acquisition........... -- -- 5,206,917 -- 827,000
Receipt of note for
sale of investment.... -- -- -- -- 199,848
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest... $ 16,436 $ 314 $ 104,181 $ 149,808 $ 692,142
Cash paid during the
period for income
taxes................. $ -- $ 98,714 $ 448,127 $ 339,901 $6,630,700
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
WIRELESS FACILITIES, INC.
Notes to Consolidated Financial Statements
December 31, 1996, 1997 and 1998 and June 30, 1999
(1) Organization and Summary of Significant Accounting Policies
(a) Description of Business
Wireless Facilities, Inc. (WFI) was formed in the state of New York on
December 19, 1994, began operations in March 1995 and was reincorporated on
August 30, 1998, in Delaware. WFI provides a full suite of outsourcing services
to wireless carriers and equipment vendors, including the design, deployment
and management of client networks. The Company's customers include both early-
stage and mature providers of cellular, PCS, and broadband data services and
equipment. WFI's engagements, range from smaller contracts for the deployment
of a single cell site, to large multi-year turnkey contracts. These services
are billed either on a time and materials basis or on a fixed-price, time-
certain basis.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of WFI and its
majority-owned subsidiaries. During 1998, WFI acquired a wholly owned
subsidiary (Entel Technologies, Inc.), formed a subsidiary under WFI's control
in Mexico (WFI de Mexico), and formed a wholly owned subsidiary in Brazil
(Wireless Facilities Latin America Ltda). In January 1999, WFI acquired wholly-
owned subsidiary, B. Communication International, Inc. In June 1999, WFI
acquired wholly-owned subsidiary C.R.D. Inc. WFI and its subsidiaries are
collectively referred to as the "Company." All intercompany transactions have
been eliminated in consolidation. Affiliated companies (20% to 50% owned with
no controlling interest) are accounted for on the equity method. Investments
accounted for on the cost basis include companies in which the Company owns
less than 20% and for which the Company has no significant influence.
(c) Unaudited Interim Financial Information (unaudited)
The interim financial statements of the Company for the six months ended
June 30, 1998, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The unaudited interim financial statements include all adjustments,
consisting of normal recurring adjustments considered necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted pursuant to such rules and regulations relating
to interim financial statements. In the opinion of management, the accompanying
unaudited statements reflect all adjustments, necessary to present fairly the
results of their operations and their cash flows for the six months ended June
30, 1998.
(d) Property and Equipment, Net
Property and equipment consists primarily of computer equipment. Property
and equipment is stated at cost and is depreciated using the straight-line
method over the estimated useful life of each asset, typically three years.
(e) Goodwill, Net
Goodwill represents the excess of acquisition cost over the fair value of
assets of acquired companies. Goodwill is amortized on a straight-line basis
over ten years, which is the period estimated to be benefited. In determining
the useful life of goodwill the Company considers several factors including
competition, demand and other economic factors.
F-9
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
(F) OTHER ASSETS, NET
Other assets consist primarily of equity investments. These investments are
accounted for using either the equity or cost method, as appropriate. One
investment, Sierra Towers Investment Group (25%), was accounted for using the
equity method. The Company's share of the loss for this investment is included
in equity loss in investment. The Company sold this investment effective June
1999, to two of the Company's principal stockholders. The Company uses the cost
method to account for investments where it holds less than 20% of equity and is
unable to exert significant influence. All investments are in companies whose
stock is not publicly traded. As such, it is not practicable to determine the
fair value of these investments.
Also included in other assets, net are patent costs. Amortization of patent
costs is recorded using the straight-line method over a useful life of three
years, which approximates the useful life of the underlying technology.
(G) REVENUE RECOGNITION
Revenue on time and materials contracts is recognized as services are
rendered at contract labor rates plus material and other direct costs incurred.
Revenue on fixed price contracts is recognized on the percentage-of-
completion method based on the ratio of total costs incurred to date compared
to estimated total costs to complete the contract. Estimates to complete
include material, direct labor, overhead, and allowable general and
administrative expenses. These estimates are reviewed on a contract-by-contract
basis, and are revised periodically throughout the life of the contract such
that adjustments to profit resulting from revisions are made cumulative to the
date of the revision. The full amount of an estimated loss is charged to
operations in the period it is determined that a loss will be realized from the
performance of a contract. Included on the accompanying consolidated balance
sheet is, "Billings in excess of costs and profits" which represents billings
in excess of costs and profits recognized on uncompleted contracts.
(H) CONTRACT MANAGEMENT ACTIVITIES
During 1998 and 1999, the Company managed a contract whereby the Company
paid for services rendered by third parties on behalf of one customer. The
Company passed these expenses through to the customer, who reimbursed the
Company for the expenses plus a management fee. The management fee is included
in revenues in the Consolidated Statement of Operations. Amounts receivable
from the customer or owed to third parties for these contract management
activities are shown separately on the balance sheet to distinguish them from
receivables and liabilities generated by the Company's own operations.
(I) INCOME TAXES
Through August 5, 1998, Wireless Facilities, Inc. was an S corporation
whereby income taxes were the individual responsibility of the stockholders. On
August 7, 1998, in conjunction with the private placement and sale of Series A
preferred stock, the Company elected to be taxed as a C corporation under the
internal revenue tax code. As a result, the Company recorded a net deferred tax
liability of $2,082,000 on August 7, 1998.
The Company records deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-10
<PAGE>
WIRELESS FACILITIES, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1996, 1997 and 1998 and June 30, 1999
(j) Common Stock Split
On February 22, 1999, the Company effected a 3-for-1 stock split of the
Company's common stock. All per share and shares outstanding data in the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements have been retroactively restated to reflect this stock split.
On February 25, 1999, the Company filed a Restated Certificate of
Incorporation. Among other things, the restated certificate increased the
shares of authorized common stock from 45,000,000 to 50,000,000 shares (post-
split), and decreased authorized preferred stock from 5,000,000 to 4,482,692
shares.
(k) Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 permits entities
to recognize the fair value of all stock-based awards on the date of grant as
expense over the vesting period or allows entities to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees. Under APB No. 25, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds the
exercise price, with pro forma net income disclosures as if the fair-value-
based method defined in SFAS No. 123 had been applied. The Company has elected
to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(l) Net Income per Common Share
The Company calculates net income per share in accordance with SFAS No. 128,
Earnings Per Share. Under SFAS No. 128, basic net income per common share is
calculated by dividing net income by the weighted-average number of common
shares outstanding during the reporting period. Diluted net income per common
share reflects the effects of potentially dilutive securities. Net income and
weighted average shares used to compute net income per share are presented
below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31, Six Months Ended Six Months Ended
1996 1997 1998 June 30, 1998 June 30, 1999
------------ ------------ ------------ ---------------- ----------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income.............. $ 6,732,285 $ 6,769,424 $ 4,963,752 $ 6,214,299 $ 2,828,476
=========== =========== =========== =========== ===========
Weighted average shares,
basic.................. 28,500,000 28,661,096 28,374,478 29,407,778 27,125,701
Dilutive effect of stock
options................ 927,474 626,172 1,912,407 289,427 4,368,574
Dilutive effect of
warrants............... -- 39,177 454,551 647,697 870,530
----------- ----------- ----------- ----------- -----------
Weighted average shares,
diluted................ 29,427,474 29,326,445 30,741,436 30,344,902 32,364,805
=========== =========== =========== =========== ===========
Basic net income per
share.................. $ 0.24 $ 0.24 $ 0.17 $ 0.21 $ 0.10
Diluted net income per
share.................. $ 0.23 $ 0.23 $ 0.16 $ 0.20 $ 0.09
</TABLE>
Options to purchase 0, 890,400, 250,371, 639,680 and 1,025,830 shares of
common stock, and notes payable convertible into 0, 0, 1,109,661, 783,711 and
330,420 shares at December 31, 1996, 1997 and 1998 and June 30, 1998 and 1999,
respectively, were not included in the calculation of pro forma diluted net
income per common share because the effect of these instruments was anti-
dilutive.
(m) Pro Forma Net Income per Common Share (unaudited)
In connection with the anticipated closing of the Company's initial public
offering of common stock all convertible preferred stock then outstanding will
automatically convert into shares of common stock. Each
F-11
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
share of Series A preferred stock converts into 3 shares of common stock and
each share of Series B preferred stock converts into one share of common stock.
The pro forma basic and diluted weighted average share calculations reflect the
conversion of preferred stock at the later of the beginning of the period
presented or the date of issuance. The pro forma basic and diluted weighted
average share calculations also reflect the assumed issuance of 284,456 shares
of common stock at an assumed initial public offering price of $14.00 per
share, the net proceeds of which would be sufficient to fund the distributions
to stockholders in excess of net income in 1998. The calculation of pro forma
basic and diluted income per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------------
<S> <C> <C>
PRO FORMA BASIC INCOME PER SHARE:
Pro forma net income............................. $6,013,752 $2,828,476
========== ==========
Weighted average shares.......................... 28,374,478 27,125,701
Pro forma adjustments:
Assumed conversion of preferred stock.......... 2,005,401 7,071,053
Assumed issuance of shares to replace capital
withdrawn in excess of earnings............... 284,456 284,456
---------- ----------
30,664,335 34,481,210
========== ==========
Pro forma basic net income per share............. $ 0.20 $ 0.08
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------------
<S> <C> <C>
Pro forma diluted income per share:
Adjustments to basic weighted average shares:
Effect of outstanding options.................. 1,912,407 4,368,574
Effect of outstanding warrants................. 454,551 870,530
---------- ----------
Total diluted weighted average shares......... 33,031,293 39,720,314
========== ==========
Pro forma diluted net income per share........... $ 0.18 $ 0.07
========== ==========
</TABLE>
(N) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that fair values be disclosed for the Company's financial instruments.
The carrying amounts of cash, accounts receivable, contract management
receivables, accounts payable and accrued expenses and contract management
payables,
F-12
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
approximate fair value due to the short-term nature of these instruments. The
carrying amounts reported for the Company's line of credit and notes payable
approximate their fair value because the underlying instruments earn interest
at rates comparable to current terms offered to the Company for instruments of
similar risk. The fair values of officer notes payable and subordinated
stockholder notes payable are not estimable due to their related party nature.
(P) OTHER COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130 Reporting Comprehensive
Income during the year ended December 31, 1998. This statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income for the year ended December 31, 1998 and six months ended
June 30, 1999 consists of foreign currency translation adjustments. There were
no components of other comprehensive income in the years ended December 31,
1996 and 1997.
The financial statements of the Company's foreign subsidiaries where the
functional currency has been determined to be the local currency are translated
into United States dollars using current rates of exchange, with gains or
losses included in the other comprehensive income account in the stockholders'
equity section of the consolidated balance sheets. The financial statements of
the Company's Brazilian subsidiary are not maintained in the U.S. dollar, which
has been determined to be the functional currency. Accordingly, the books of
record of the Brazilian subsidiary have been remeasured into the U.S. dollar.
Remeasurement of foreign currency financial statements produces the same result
as translation when the functional currency is the same as the reporting
currency. The Brazilian subsidiary financial statements have been translated at
either current or historical exchange rates as appropriate, with gains and
losses included in the consolidated statements of operations.
(Q) SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. An operating segment is defined
as a component of an enterprise that engages in business activities from which
it may earn revenues and incur expenses, and about which separate financial
information is regularly evaluated by the chief operating decision maker in
deciding how to allocate resources. All of the Company's business activities
are aggregated into one reportable segment given the similarities of economic
characteristics between the activities and the common nature of the Company's
services and customers.
(R) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(S) RECLASSIFICATIONS
Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform to the current presentation.
F-13
<PAGE>
WIRELESS FACILITIES, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1996, 1997 and 1998 and June 30, 1999
(2) Acquisitions and Subsidiaries
(a) Entel Technologies, Inc. (Entel)
On February 27, 1998, the Company acquired all of the outstanding shares of
stock of Entel, a Delaware wireless outsourcing company. The acquisition was
accounted for as a purchase. Consideration for the acquisition consisted of
approximately $3,500,000 in cash and $5,200,000 in notes payable to Entel
stockholders. The excess of the cost over the fair value of net assets acquired
was approximately $7,800,000, which has been recorded as goodwill. The
consolidated financial statements include the operating results for Entel from
February 28, 1998, the closing date, through December 31, 1998.
The following summary presents pro forma consolidated results of operations
as if this acquisition had occurred at the beginning of fiscal years 1997 and
1998, and includes adjustments that are directly attributable to the
transaction or are expected to have a continuing impact on the Company.
The pro forma results are for illustrative purposes only and do not purport
to be indicative of the actual results which would have occurred had the
transaction been completed at the beginning of the periods, nor are they
indicative of results of operations which may occur in the future.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net sales........................................... $32,898,316 $55,828,375
Net income.......................................... 6,611,763 5,224,097
Basic net income per share.......................... $0.23 $0.18
Diluted net income per share........................ $0.23 $0.17
</TABLE>
(b) B. Communication International, Inc. (BCI)
On January 4, 1999, the Company acquired BCI for approximately $2,900,000 in
cash, warrants and notes. BCI provided radio frequency engineering and cell
site and switch technician services in the U.S. and Latin America. The
acquisition was accounted for as a purchase. The excess of the cost over the
fair value of net assets acquired was approximately $1,253,000, which has been
recorded as goodwill. The consolidated financial statements include the
operating results for BCI from January 5, 1999, the closing date, forward.
(c) C.R.D., Inc.
On June 25, 1999, the Company acquired CRD for approximately $540,000 in
cash, warrants, and assumption of debt. CRD installs and maintains cell site
and microwave electronics. The acquisition was accounted for as a purchase. The
excess of the cost over the fair value of net assets acquired was approximately
$318,000, which has been recorded as goodwill. The consolidated financial
statements include the results of CRD from June 26, 1999, the closing date,
forward.
(d) WFI de Mexico (WFIM)
On September 18, 1998, the Company formed and acquired an 88% ownership
interest in a Mexican subsidiary (WFIM). WFIM acquired all the assets of Cable
and Wireless Services, S.C., a Mexican wireless communications company.
Consideration for the acquisition consisted of $75,000 in cash. The remaining
12% of WFIM's stock is held by directors of WFIM pursuant to agreements which
permit WFIM to repurchase such shares upon certain events.
The Company granted the brother of the Company's two principal executive
officers shares of restricted stock equivalent to approximately 6% of the
equity of WFI de Mexico. The stock is subject to vesting over a four-year
period. Pursuant to the terms of the stock grant, the Company granted a one-
time election to exchange any vested restricted stock in WFI de Mexico for
shares of the Company's common stock at fair valuation. As of June 30, 1999,
this election had not been exercised.
F-14
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
(E) WIRELESS FACILITIES LATIN AMERICA LTDA. (WFLA)
In August 1998, the Company formed WFLA as a wholly owned subsidiary in Sao
Paulo, Brazil for the purpose of expanding operations to the Brazilian market.
(3) CONSOLIDATED BALANCE SHEET DETAILS
The Consolidated Balance Sheet consists of the following at December 31,
1997 and 1998 and at June 30, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Accounts receivable, net:
Billed contracts receivable........ $4,826,470 $ 6,079,947 $15,617,060
Unbilled contracts receivable...... 4,385,961 18,650,899 16,456,001
---------- ----------- -----------
9,212,431 24,730,846 32,073,061
Allowance for doubtful accounts.... (70,312) (561,634) (687,201)
---------- ----------- -----------
Total accounts receivable, net... $9,142,119 $24,169,212 $31,385,860
========== =========== ===========
Contract management receivables
Billed............................. $ -- $14,212,893 $ 5,863,184
Unbilled........................... -- 9,943,433 --
---------- ----------- -----------
Total contract management
receivables..................... $ -- $24,156,326 $ 5,863,184
========== =========== ===========
Property and equipment, net
Computer equipment................. $ 776,132 $ 1,494,770 $ 2,702,857
Furniture and office equipment..... 10,681 239,123 448,919
---------- ----------- -----------
786,813 1,733,893 3,151,776
Accumulated depreciation........... (323,391) (752,760) (1,396,282)
---------- ----------- -----------
Total property and equipment,
net............................. $ 463,422 $ 981,133 $ 1,755,494
========== =========== ===========
Goodwill, net
Goodwill........................... $ -- $ 7,825,738 $ 9,374,845
Accumulated amortization........... -- (647,690) (1,104,937)
---------- ----------- -----------
Total goodwill, net.............. $ -- $ 7,178,048 $ 8,269,908
========== =========== ===========
Other assets, net:
Investments........................ $ 100,000 $ 610,533 $ 95,459
Patents and other assets, net...... 30,868 205,117 656,400
---------- ----------- -----------
Total other assets, net.......... $ 130,868 $ 815,650 $ 751,859
========== =========== ===========
</TABLE>
(4) NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS
(A) LINE OF CREDIT
In April 1998, the Company executed a $3,000,000 revolving line of credit
agreement with a financial institution. The credit facility was repaid in full
in June 1999.
F-15
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
In August 1999, the Company executed a $10,000,000 revolving line of credit
agreement with a financial institution. The credit facility is due on August
17, 2000 and bears interest at either the bank prime rate plus 0.25% or at The
London Interbank Offering Rate (LIBOR) plus 2.25% at the Company's discretion.
The line of credit is secured by substantially all of the Company's assets, and
is senior to $5,800,000 of subordinated indebtedness to certain shareholders.
The agreement contains restrictive covenants, which, among other things,
requires maintenance of certain financial ratios.
(B) ENTEL NOTE PAYABLE
In consideration for the acquisition of Entel (see Note 2), the Company
issued three-year convertible notes payable for approximately $5,200,000. These
notes are convertible into common stock upon completion of an initial public
offering at a conversion price of 80% of the public offering price. These notes
bear interest at 10% annually, require the Company to make quarterly principal
and interest payments, and are due on March 1, 2001. At June 30, 1999, the
outstanding balance on these notes was $3,039,866, all of which was classified
as current due to the Company's ability and intent to repay these notes in 1999
. These notes may be repaid at any time by the Company without penalty.
(C) SUBORDINATED STOCKHOLDER NOTES PAYABLE
In August 1998, the Company issued unsecured notes payable totaling
$5,500,000 to two executives and one related stockholder. Such notes are
subordinated to the Company's line of credit, bear an interest rate of 5.5%,
and are due August 2000.
(D) BCI NOTES PAYABLE
In January 1999, the Company issued notes payable in consideration for the
BCI acquisition (See Note 2). These notes have a present value of $867,257 at
June 30, 1999. Interest is imputed on these notes at 9.62% and the notes are
due in January 2001.
(E) OFFICER NOTES PAYABLE
At December 31, 1998, the Company had unsecured notes payable to two
officers of the Company totaling $3,825,000. Interest was imputed on these
loans at 5.5%. These loans were repaid in full in 1999.
(F) MATURITIES
Maturities of notes payable and other financing arrangements as of June 30,
1999 are as follows:
<TABLE>
<S> <C>
June 30,
---------------------------------------------------------------
2000........................................................... 8,539,866
2001........................................................... 867,257
----------
Total...................................................... $9,407,123
==========
</TABLE>
F-16
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
(5) LEASE COMMITMENTS
The Company leases certain facilities and equipment under leases accounted
for as operating leases that expire over five years. Future minimum lease
payments under noncancelable operating leases as of June 30, 1999 are as
follows:
<TABLE>
<S> <C>
June 30,
---------------------------------------------------------------
2000.......................................................... 597,581
2001.......................................................... 534,770
2002.......................................................... 553,060
2003.......................................................... 430,041
2004.......................................................... 96,814
----------
Total...................................................... $2,212,266
==========
</TABLE>
The Company leased certain property and equipment on a month-to-month basis
from a related party during the years ended December 31, 1997 and 1998 and the
six months ended June 30, 1999. The Company recorded lease expense related to
these leases of $781,000, $488,000 and $243,693 for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999, respectively. Amounts
totaling $176,000, $295,000 and $258,000 remained payable at December 31, 1997
and 1998 and June 30, 1999, respectively, and are recorded in accounts payable
and accrued expenses in the accompanying balance sheet.
Rent expense under operating leases for the years ended December 31, 1996,
1997 and 1998 and for the six months ended June 30, 1999 was $62,912, $858,063,
$664,199 and $322,211, respectively.
(6) INCOME TAXES
Prior to August 8, 1998, the Company elected, with the consent of its
stockholders, to be taxed as an S corporation, whereby federal and most state
income taxes were the individual responsibility of the stockholders. The
Company incurred $22,343 and $222,911 in various state taxes for the years
ended December 31, 1996 and 1997, respectively.
The provision for income taxes for the year ended December 31, 1998 and six
months ended June 30, 1999 is comprised of the following:
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Current:
Federal............................................ $ 3,424,000 $1,874,000
State.............................................. 728,000 393,000
Foreign............................................ -- 553,000
----------- ----------
4,152,000 2,820,000
----------- ----------
Deferred:
Federal............................................ 1,145,000 (643,000)
State.............................................. 229,000 (128,000)
Foreign............................................ -- 132,000
----------- ----------
1,374,000 (639,000)
----------- ----------
$ 5,526,000 $2,181,000
=========== ==========
</TABLE>
F-17
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
A reconciliation of total income tax expense to the amount computed by
applying the statutory federal income tax rate of 35% to income before income
tax expense for the year ended December 31, 1998 and six months ended June 30,
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Income taxes at federal statutory rate.............. $3,671,000 $1,753,000
State taxes, net of federal tax benefit............. 622,000 175,000
Foreign taxes, net of federal benefit............... -- 112,000
Establishment of deferred income tax upon change
from S corporation to C corporation................ 2,082,000 --
S corporation earnings not subject to corporate
income tax......................................... (1,211,000) --
Other, net.......................................... 362,000 141,000
---------- ----------
$5,526,000 $2,181,000
========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1998 and June 30, 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................. $ 244,000 $ 270,000
Vacation accruals............................... 191,000 226,000
Property and equipment, principally due to
differences in depreciation.................... 70,000 477,000
Other........................................... -- 14,000
----------- -----------
Total deferred tax assets..................... 505,000 987,000
Deferred tax liabilities:
Change from cash to accrual method of accounting
for income taxes............................... (1,838,000) (1,549,000)
Foreign deferred tax liability.................. -- (132,000)
----------- -----------
Net deferred tax liability.................... $(1,333,000) $ (694,000)
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income, management believes it is more
likely than not the Company will realize the deferred tax assets. As such, no
valuation allowance was established during the year ended December 31, 1998.
(7) STOCKHOLDERS' EQUITY
(A) PREFERRED STOCK
At December 31, 1998, the Company was authorized to issue a total of
4,482,682 shares of preferred stock, each having a par value of $0.01. On
August 8, 1998, the Company issued 1,682,692 shares of Series A convertible
preferred stock in a private placement for approximately $21,000,000. Series A
preferred shares are convertible at the option of the holder into shares of
common stock at an initial conversion rate of 1-to-1 (3-to-1 after the 3-for-1
Common Stock split). The conversion rate is subject to adjustment to prevent
dilution in the event of any further common stock splits. Conversion will be
automatic upon the closing of a public offering
F-18
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
above a specified price or upon approval by 2/3 of the Series A stockholders.
Series A stockholders also have a liquidating preference equal to their
original purchase price plus all declared and unpaid dividends. No Series A
convertible preferred stock dividends were declared or paid during 1998.
In February 1999, the Board of Directors authorized the issuance of
2,800,000 shares of par value $0.01 Series B preferred stock. Shortly
thereafter, the Company sold 2,727,273 Series B preferred shares for
$15,000,000, or $5.50 per share. Series B preferred shares are convertible at
the option of the holder into shares of common stock at the initial conversion
rate of 1-to-1 conversion will be automatic upon the closing of a public
offering above a specified price or upon approval of 2/3 of the Series B
stockholders.
(B) DIVIDENDS
On April 15, 1998, the Company paid cash dividends to all common
stockholders of record totaling $1,773,000, or $0.06 per share. On June 15,
1998, the Company paid cash dividends to all common stockholders of record
totaling $1,065,000, or $0.04 per share. On July 31, 1998, the Company paid
dividends to all common stockholders of record totaling $5,758,000, or $0.19
per share. Of this, $258,000 was paid in cash. The Company issued promissory
notes for the remaining $5,500,000 to two executives and one related
stockholder (see Note 5).
(C) TREASURY STOCK
On August 5, 1998, the Company purchased 3,252,390 shares of common stock
for $13,529,942. Treasury stock is recorded at cost.
(D) UNDISTRIBUTED EARNINGS
On August 7, 1998, in connection with sales of its preferred stock, the
Company elected to be taxed as a C corporation. This change assumed a
constructive distribution to the owners of the former S corporation followed by
a contribution to the capital of the C corporation. Accordingly, undistributed
earnings on August 7, 1998 are included in the consolidated financial
statements as additional paid-in capital.
(E) COMMON STOCK WARRANTS
In February, 1997, the Company issued warrants to purchase 300,000 shares of
common stock to two Company directors. One-third of these warrants vest at the
date of issuance, and then annually for the following two years. These warrants
are exercisable at $0.93 per share of common stock, which was the fair value of
the stock at the date of issuance.
In February 1998, the Company issued warrants to purchase 1,200,000 shares
of common stock to two Company directors. One-third of these warrants vest at
the date of issuance, and then annually for the following two years. These
warrants are exercisable at $1.58 per share of common stock, which was the fair
value of the stock at the date of issuance.
Total warrants outstanding for these two directors was 300,000, 900,000 and
900,000 at December 31, 1997 and 1998 and June 30, 1999, respectively.
In connection with the acquisition of BCI in January 1999, the Company
issued 240,381 common stock warrants exercisable at $4.16 per share. Shares
purchased under this warrant agreement are subject to a put right at the
exercise price. This right is terminated upon completion of an initial public
offering if the holders remain employed with the Company.
F-19
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
(F) STOCK OPTION PLANS
During the years ended 1996 and 1997, the Board of Directors approved the
1996 Stock Option Plan (the 1996 Plan) and the 1997 Stock Option Plan (the 1997
Plan). All stock options under the 1996 Plan were fully vested at June 1, 1998,
and have been exercised or canceled upon employee termination as of December 1,
1998. Stock options granted under the 1997 Plan may be incentive stock options
or nonstatutory stock options and are exercisable for up to ten years following
the date of grant. Stock option exercise prices for the 1997 Plan must be equal
to or greater than the fair market value of the common stock on the grant date.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its 1996 Plan and 1997 Plan. The Company recorded compensation expense totaling
$25,758, $143,375, $88,760 and $61,775 for the years ended December 31, 1996,
1997 and 1998 and six months ended June 30, 1999, respectively, related to
options granted under the plans.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
1996 EXERCISE EXERCISE
PLAN PRICE 1997 PLAN PRICE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996........ -- $ -- -- $ --
Granted............................. 955,500 0.01 -- --
Exercised........................... -- -- -- --
Canceled............................ (21,000) 0.01 -- --
-------- ---------
Outstanding at January 1, 1997........ 934,500 0.01 -- --
Granted............................. 57,000 0.01 929,700 1.39
Exercised........................... -- -- -- --
Canceled............................ (333,000) 0.01 (39,300) 1.33
-------- ---------
Outstanding at December 31, 1997...... 658,500 0.01 890,400 1.39
Granted............................. -- -- 3,464,139 2.51
Exercised........................... (591,000) 0.01 (7,200) 1.33
Canceled............................ (67,500) 0.01 (773,691) 2.30
-------- ---------
Outstanding at December 31, 1998...... -- $ -- 3,573,648 $ 2.26
Granted............................. -- -- 2,333,924 6.53
Exercised........................... -- -- (207,653) 1.74
Canceled............................ -- -- (534,478) 2.87
--------
Outstanding at June 30, 1999........ -- -- 5,165,441 4.09
======== =========
</TABLE>
F-20
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
Under SFAS No. 123, the weighted-average fair value of the options granted
during 1996, 1997, 1998 and first six months of 1999 was $1.12, $0.48, $0.72
and $1.74, respectively, on the date of grant. Fair value under SFAS No. 123 is
determined using the Black-Scholes option-pricing model with the following
assumptions: no dividend yields, expected volatility of 0% as Company is
privately held, risk-free interest rates of 7.0%, 7.0%, 5.5% and 5.5%, and an
expected life of 7, 7, 6 and 6 years for options granted in 1996, 1997, 1998
and in the first six months of 1999, respectively. Had compensation expense
been recognized for stock-based compensation plans in accordance with SFAS No.
123, the Company would have reported the following net income and net income
per common share amounts (these amounts do not include any of the pro forma
adjustments described in note 1(m) to the consolidated financial statements):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------- JUNE 30,
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income.......................... $6,732,285 $6,621,254 $4,270,488 $2,506,279
Income per common share:
Basic............................. $ 0.24 $ 0.23 $ 0.15 $ 0.09
Diluted........................... $ 0.23 $ 0.23 $ 0.14 $ 0.08
</TABLE>
The following table summarizes information as of June 30, 1999 concerning
options outstanding and exercisable:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.67 754,789 7 $1.36 292,889 $1.27
$2.00 1,579,842 7 2.00 497,893 2.00
$4.16 1,571,188 9 4.16 92,022 4.16
$5.50 - $7.00 293,530 8 5.87 5,000 5.50
$8.50 754,624 9 8.50 -- --
$10.00 93,500 10 10.00 -- --
$11.50 117,968 10 11.50 654 11.50
--------- --- -------
5,165,441 $4.09 888,458 $2.01
========= === =======
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
In 1996, the Company implemented a savings plan pursuant to Section 401(k)
of the Internal Revenue Code (the Code), covering substantially all employees.
Participants in the plan may contribute a percentage of compensation, but not
in excess of the maximum allowed under the Code. The Company may make
contributions at the discretion of its Board of Directors. The Company made no
contributions in 1996, 1997, 1998, or in the first six months of 1999.
(9) CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, accounts receivable
and contract management receivable. At times, cash balances held in financial
institutions are in excess of federally insured limits. The Company performs
periodic evaluations of the relative credit standing of financial institutions
and limits the amount of risk by selecting financial institutions with a strong
relative credit standing.
F-21
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
The Company had sales to three separate customers, which comprised 31%, 19%,
and 17% of the Company's total sales for the year ended December 31, 1998. At
December 31, 1998, accounts receivable from these customers totaled $2,099,585,
$1,957,990 and $2,076,975, respectively.
The Company had sales to two separate customers, which comprised 18% and 10%
of the Company's total sales for the six months ended June 30, 1999. At June
30, 1999, accounts receivable from these customers totaled $1,251,386 and
$1,358,463, respectively.
(10) SEGMENT INFORMATION
Revenues derived by geographic segment are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------------------- JUNE 30,
1996 1997 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. ........................... $15,420,544 $20,489,996 $39,729,678 $22,079,519
Foreign......................... -- 2,168,497 12,179,532 11,026,210
----------- ----------- ----------- -----------
$15,420,544 $22,658,493 $51,909,210 $33,105,729
=========== =========== =========== ===========
</TABLE>
Long-lived assets by geographic region are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- ---------- -----------
<S> <C> <C> <C>
United States................................... $594,290 $8,938,117 $10,666,882
Mexico.......................................... -- $ 36,714 $ 110,379
-------- ---------- -----------
$594,290 $8,974,831 $10,777,261
======== ========== ===========
</TABLE>
(11) PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS (UNAUDITED)
The unaudited consolidated balance sheet at June 30, 1999 gives effect to
the assumed conversion of 4,409,965 shares of preferred stock that will
automatically convert into 7,775,349 shares of common stock upon the closing of
the Company's initial public offering.
Through August 6, 1998, Wireless Facilities, Inc. was an S corporation
whereby federal income taxes were the individual responsibility of the
stockholders. On August 7, 1998, in conjunction with the private placement and
sale of Series A preferred stock, the Company elected to be taxed as a C
corporation under the Internal Revenue Code. As a result, the Company recorded
a net deferred tax liability of $2,082,000 on August 7, 1998.
The consolidated statement of operations for the years ended December 31,
1996, 1997 and 1998 and the six months ended June 30, 1998 have been presented
to give pro forma effect assuming the Company was taxed as a C corporation.
F-22
<PAGE>
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998 AND JUNE 30, 1999
The pro forma provision for income taxes consists of:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------------- JUNE 30,
1996 1997 1998 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current expense:
Federal.................. $2,135,029 $2,262,706 $3,918,171 $2,343,620
State.................... 532,714 497,988 942,424 563,673
---------- ---------- ---------- ----------
2,667,743 2,760,694 4,860,595 2,907,293
---------- ---------- ---------- ----------
Deferred expense (benefit):
Federal.................. 9,755 (20,483) (362,000) (216,571)
State.................... (2,155) 9,700 (22,595) (13,555)
---------- ---------- ---------- ----------
7,600 (10,783) (384,595) (230,126)
---------- ---------- ---------- ----------
Total pro forma provision
for income taxes.......... $2,675,343 $2,749,911 $4,476,000 $2,677,167
========== ========== ========== ==========
</TABLE>
Total pro forma provision for income taxes differs from the "expected" pro
forma tax expense (computed by applying the Federal corporate income tax rate
to the pro forma income before taxes) as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------- JUNE 30,
1996 1997 1998 1998
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Computed "expected" pro
forma income tax expense.. 34% 34% 35% 35%
State income taxes, net of
federal benefit........... 6% 5% 8% 8%
-------- -------- -------- ---
40% 39% 43% 43%
======== ======== ======== ===
</TABLE>
(12) RELATED PARTY TRANSACTIONS
In August 1998, the Company repurchased a total of 3,245,190 shares of
common stock from two officers of the Company. In connection with the
repurchase, the Company borrowed a total of $13,499,990 from the two officers.
The Company repaid these loans on August 9, 1998.
In August 1998, the Company sold 1,682,692 shares of Series A preferred
stock to various investors at a purchase price of $12.48 per share, of which
1,382,211 were sold to entities affiliated with a director of the Company.
In February 1999, the Company sold 2,727,273 shares of Series B preferred
stock to various investors at a purchase price of $5.50 per share, of which
2,323,231 were sold to entities affiliated with a director of the Company. In
addition, 404,042 shares were sold to entities which, combined, hold greater
than 5% of the Company's capital stock.
In June 1999, the Company sold its 25% ownership interest in Sierra Towers
Investment Group, LLC (Sierra) and a note receivable from Sierra to two
officers of the Company in exchange for cash and a note payable to the Company.
(13) LEGAL MATTERS
From time to time the Company is involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Management
believes, based in part through discussion with legal counsel, that the
resolution of such matters will not have a material impact on the Company's
financial position, results of operations or liquidity.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Entel Technologies, Inc.
We have audited the accompanying statements of operations and retained
earnings, and cash flows of Entel Technologies, Inc. for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the results of operations and cash flows of Entel
Technologies, Inc. for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
M.R. Weiser & Co. LLP
New York, N.Y.
February 13, 1998, except for Note 8
as to which the date is April 15, 1998
F-24
<PAGE>
ENTEL TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Project revenues.................................................... $10,239,823
Direct project costs................................................ 6,454,747
-----------
Gross profit........................................................ 3,785,076
Selling, general and administrative expenses........................ 2,755,045
-----------
Income from operations.............................................. 1,030,031
Other income:
Interest income, net of interest expense of $2,047................ 42,782
-----------
Net income before provision for income taxes........................ 1,072,813
Provision for income taxes.......................................... 424,559
-----------
Net income.......................................................... 648,254
Retained earnings, beginning of year................................ 514,950
-----------
Retained earnings, end of year...................................... $ 1,163,204
===========
</TABLE>
(See accompanying notes to financial statements)
F-25
<PAGE>
ENTEL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 648,254
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts................................. 122,650
Depreciation and amortization................................... 111,103
Deferred income taxes........................................... (10,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable............................... 1,930,057
Increase in due from affiliated company....................... (1,185,860)
Increase in costs of uncompleted contracts.................... (311,802)
Decrease in prepaid expenses and sundry receivables........... 10,595
Increase in deposits.......................................... (1,033)
(Decrease) in accounts payable................................ (1,425,222)
Increase in accrued salaries and payroll taxes................ 890,682
(Decrease) in accrued expenses and other liabilities.......... (89,098)
Increase in accrued corporate income taxes.................... 15,428
----------
Net cash provided by operating activities......................... 705,754
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... (81,477)
----------
Net cash used in investing activities............................. (81,477)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease...................................... (8,000)
----------
Net cash used in financing activities............................. (8,000)
----------
Net increase in cash and cash equivalents......................... 616,277
Cash and cash equivalents, beginning of year...................... 420,208
----------
Cash and cash equivalents, end of year............................ $1,036,485
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................................... $ 2,047
==========
Income taxes paid................................................. $ 419,131
==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Shares of Class A common stock redeemed and retired............... $ (871)
Shares of Class B common stock issued............................. 871
----------
Net change in total common stock issued and outstanding........... $ 0
==========
</TABLE>
(See accompanying notes to financial statements)
F-26
<PAGE>
ENTEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
(A) THE COMPANY
Entel Technologies, Inc. (the "Company") was organized in the State of
Delaware on April 26, 1995 under the name of Vento Communications, Inc. The
Company changed its name to Entel Technologies, Inc. on October 29, 1996. The
Company renders project management services to telecommunications providers in
connection with site acquisition, construction, and microwave relocation
projects throughout the United States.
(B) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) REVENUE RECOGNITION
The Company recognizes revenues from site acquisition and microwave
relocation projects as contractually prescribed milestones are completed.
Related costs are recognized when incurred.
The Company recognizes revenues from construction projects on the completed
contract method. This method recognizes income and related costs only as the
construction project is complete. Losses expected to be incurred on contracts
in progress are charged to operations in the period such losses are determined.
Costs incurred on incomplete projects in excess of related billings are
classified as a current asset in as much as all projects will be completed
within one year.
(D) STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(E) PROPERTY AND EQUIPMENT
Depreciation is computed on the straight-line method over the estimated
lives of these assets.
(F) INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in which deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
income tax assets and liabilities are primarily a result of the timing of
deductions for income tax and financial reporting purposes for accrued employee
compensation.
2. RELATED PARTY TRANSACTIONS
The Company provides operating support services for entities affiliated
through common management. In addition, the majority stockholder of the Company
is a stockholder in such entities. The Company charges these affiliates a fee
for such services. During the year ended December 31, 1997, the Company
incurred expenses on behalf of affiliates aggregating $1,701,000. Such amounts
were rebilled to the affiliates; fees related to such services approximated
$240,000 for the year ended December 31, 1997.
F-27
<PAGE>
ENTEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In addition, project revenues from these affiliates, net of rebilled
operating expenses, approximated $1,219,000 for the year ended December 31,
1997.
3. INCOME TAXES
The components of income tax expense for the year ended December 31, 1997
were as follows:
<TABLE>
<S> <C>
Current:
Federal.......................................................... $374,998
State and local.................................................. 59,561
--------
434,559
--------
Deferred:
Federal.......................................................... (8,000)
State and local.................................................. (2,000)
--------
(10,000)
--------
$424,559
========
</TABLE>
4. COMMON STOCK
During the year ended December 31, 1997, the Company redeemed and retired
871 shares of Class A common stock in exchange for issuance of an equal number
of shares of Class B common stock.
5. LEASES
Rent expense for the year ended December 31, 1997 amounted to $309,645.
6. PROFIT SHARING PLAN
In 1996, the Company adopted a 401(k) defined contribution retirement plan
effective January 1, 1996 which covers substantially all employees. Under the
plan, the Company is required to contribute 50% of the first 4% of eligible
employee contributions. For the years ended December 31, 1997, the Company made
contributions of $39,030.
7. SIGNIFICANT CUSTOMERS
In addition to revenues from affiliates referred to in Note 2, revenues from
three customers accounted for $5,928,391 or 57.9% of total revenues for the
year ended December 31, 1997.
8. SUBSEQUENT EVENTS
MERGER AND SALE
The Company entered an agreement of merger and sale which was consummated
February 27, 1998. Under the terms of the agreement, a wholly owned subsidiary
of the purchaser was merged into the Company. The purchaser then acquired the
Company for $3,500,000 plus a promissory note of $5,000,000, subject to
adjustments based on the Company's working capital on the closing date.
The agreement imposes restrictions on the Company in regards to certain
business practices which may not be undertaken without permission of the
purchaser.
OTHER
In January 1998, a fatality occurred at a Company job site. The victim was
an employee of a Company subcontractor. The Company may face claims brought by
the decedent's estate or under applicable workers' compensation laws. As of
April 15, 1998, to the Company's knowledge, there were no such pending claims.
F-28
<PAGE>
INSIDE BACK COVER
[GRAPHIC DEPICTING THE COMPANY'S SERVICE OFFERINGS: PRE-DEPLOYMENT PLANNING
SERVICES, DESIGN AND DEPLOYMENT SERVICES AND NETWORK MANAGEMENT SERVICES]
<PAGE>
[LOGO OF WFI]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration fee............................................. $ 19,460
NASD filing fee.................................................. 7,500
Nasdaq National Market listing fee............................... 95,000
Blue sky qualification fees and expenses......................... 2,500
Director and officer liability insurance......................... 10,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 275,000
Transfer agent and registrar fees................................ 3,000
Miscellaneous.................................................... 37,540
----------
Total........................................................ $1,000,000
==========
</TABLE>
--------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's certificate of incorporation and bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its directors and officers
to the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate the directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Registrant or its
stockholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its stockholders, for
improper
II-1
<PAGE>
transactions between the director and the Registrant and for improper
distributions to stockholders and loans to directors and officers. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require the Registrant to indemnify such
persons against all expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made
a party by reason of the fact that such person is or was a director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has an insurance policy covering the officers and directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 14, 1994 (inception), the Company has sold and issued the
following unregistered securities:
1. During the period, the Company granted incentive stock options with an
exercise price of $.0033 per share to employees, officers and directors of the
Company under its 1996 Stock Plan (the "1996 Plan") covering an aggregate of
1,012,500 shares of the Company's Common Stock. All of the options granted
under the 1996 Plan were either exercised prior to December 31, 1998 or expired
on that date. No options remain outstanding under the 1996 Plan.
2. During the period, the Company issued 29,100,000 shares of its Common
Stock to employees, board members and Sean Tayebi for $655,000, 3,245,190 of
which the Company repurchased in August of 1998. An additional 780,720 shares
were issued pursuant to the exercise of incentive stock options granted under
the 1996 and 1997 Plans and non-statutory stock options granted outside the
plans, 25,132 of which the Company repurchased at market value on the date of
repurchase, and 600,000 shares were issued pursuant to the exercise of the 1997
and 1998 Warrants.
3. In August 1998, pursuant to the terms of an equity financing of the
Company, the Company issued an aggregate of 1,682,692 shares of Series A
Preferred Stock to Oak Investment Partners VIII, Limited Partnership, Worldview
Technology Partners I, L.P., Worldview Technology International I, L.P.,
Worldview Strategic Partners I, L.P., Fred Warren and Stanford University for
$20,999,996.16.
4. In February 1999, pursuant to the terms of an equity financing of the
Company, the Company issued an aggregate of 2,727,273 shares of Series B
Preferred Stock to Oak Investment Partners VIII, Limited Partnership, Oak VIII
Affiliates Fund, LP, Worldview Technology Partners I, L.P., Worldview
Technology International I, L.P., Worldview Strategic Partners I, L.P., for
$15,000,001.50.
5. In January 1999, we entered into an agreement for the purchase of the
assets of B Communications International, Inc. The purchase price the Company
paid for such assets consisted of approximately $2,900,000 in cash and notes
and warrants to purchase 240,381 shares of its Common Stock at an exercise
price of $4.16 per share.
II-2
<PAGE>
6. In June 1999, the Company entered into an agreement for the purchase of
the assets of C.R.D., Inc. The purchase price we paid for such assets consisted
of indebtedness, approximately $540,000 in cash and warrants to purchase 4,000
shares of our Common Stock at an exercise price of $5.50 per share.
The sales and issuances of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder (in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701) or were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) and/or Regulation D promulgated thereunder.
The sales and issuances of securities in the transactions described in
paragraphs (3) through (6) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated thereunder.
The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. Similar legends were imposed in connection with any subsequent
sales of any such securities. All recipients either received adequate
information about the Company or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation, as currently in
effect.*
3.2 Form of Restated Certificate of Incorporation, to be filed and become
effective prior to the closing of this offering.*
3.3 Form of Restated Certificate of Incorporation, to be filed and become
effective upon the closing of this offering.*
3.4 Bylaws, as currently in effect.*
3.5 Form of Bylaws, as amended to become effective upon the closing of
this offering.*
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.*
5.1 Opinion of Cooley Godward LLP.
10.1 1997 Stock Option Plan.*
10.2 Form of Stock Option Agreement pursuant to the 1997 Stock Option Plan
and related terms and conditions.*
10.3 1999 Equity Incentive Plan.*
10.4 Form of Stock Option Agreement pursuant to the 1999 Equity Incentive
Plan.*
10.5 1999 Employee Stock Purchase Plan and related offering documents.*
10.6 R&D Building Lease by and between the Company and Sorrento Tech
Associates as amended.*
10.7 Credit Agreement by and among the Company, various banks and Imperial
Bank dated as of September 17, 1999.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.8 Second Amended and Restated Investor Rights Agreement by and among the
Company and certain stockholders of the Company dated as of September
17, 1999.*
10.9 Employment Offer Letter by and between the Company and Scott Fox dated
as of April 9, 1999.*
10.10 Form of Indemnity Agreement by and between the Company and certain
officers and directors of the Company.*
10.11 Amended Promissory Note from the Company to Masood K. Tayebi dated as
of August 2, 1999.*
10.12 Amended Promissory Note from the Company to Massih Tayebi dated as of
August 2, 1999.*
10.13 Amended Promissory Note from the Company to Sean Tayebi dated as of
August 2, 1999.*
10.14 Form of Warrant Agreement by and between the Company and each of Scott
Anderson and Scot Jarvis dated as of February 28, 1997.*
10.15 Form of Subscription and Representation Agreement by and between the
Company and each of Scott Anderson and Scot Jarvis dated as of
February 28, 1997.*
10.16 Form of Warrant Agreement by and between the Company and each of Scott
Anderson and Scot Jarvis dated as of February 1, 1998.*
10.17 Form of Bill of Sale and Assignment Agreement by and between the
Company and each of Massih Tayebi and Masood K. Tayebi dated as of
June 30, 1999.*
10.18 Assignment of Note by and among the Company, Masood K. Tayebi and
Massih Tayebi dated as of June 30, 1999.*
10.19 Form of Promissory Note from each of Masood K. Tayebi and Massih
Tayebi to the Company dated as of June 30, 1999.*
10.20 Form of Promissory Note from each of Masood K. Tayebi and Massih
Tayebi to the Company dated as of June 30, 1999.*
10.21 Services Agreement by and between WFI de Mexico S. de R.L. de C.V. and
Ericsson Telecom, S.A. de C.V. dated as of August 4, 1999.+*
10.22 Master Services Agreement by and between Entel Technologies, Inc. and
TeleCorp Holding Corp., Inc. dated as of February 27, 1998, as
amended.+*
10.23 Master Services Agreement by and between the Company and Nextel
Partners Operating Corp. dated as of January 18, 1999.+*
10.24 Agreement by and between the Company and Siemens Aktiengesellschaft,
Berlin and Munchen, Federal Republic of Germany, represented by the
Business Unit Mobile Networks.+*
10.25 Master Services Agreement by and between the Company and Triton PCS,
Operating Company, L.L.C. dated as of January 19, 1998, as amended.+*
10.26 Microwave Relocation Services Agreement by and between Entel
Technologies, Inc. and Triton PCS Operating Company, L.L.C. dated as
of February 11, 1998.+*
10.27 Site Development Services Agreement by and between Entel Technologies,
Inc. and Triton PCS, Inc. dated as of December 10, 1997.+*
10.28 Sales Agreement for Products and Services by and between the Company
and Integrated Ventures, LLC dated as of April 19, 1999.+*
10.29 Settlement Agreement and Mutual General Release by and between the
Company and Total Outsourcing, Inc dated as of June 30, 1999.*
10.30 Straight Note from Scott Fox and Kathleen W. Fox to the Company, dated
as of July 8, 1999.*
10.31 Master Services Agreement by and between the Company and Metricom,
Inc. entered into as of September 27, 1999. +
21.1 List of subsidiaries.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
23.1 Consent of KPMG LLP, Independent Public Accountants.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of M.R. Weiser LLP, Independent Public Accountants.
24.1 Power of Attorney. Reference is made to page II-6 of the Registration
Statement filed on August 18, 1999.
27 Financial Data Schedule.*
</TABLE>
- --------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
* Previously filed.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because they are not required, are not
applicable or the information is included in our financial statements or notes
thereto.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of San Diego, County of San Diego, State of California, on October 19,
1999.
By:
/s/ Thomas A. Munro
----------------------------------
Thomas A. Munro
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and October 19, 1999
____________________________________ Director
Massih Tayebi (Principal Executive
Officer)
* President and Director October 19, 1999
____________________________________
Masood K. Tayebi
/s/ Thomas A. Munro Chief Financial Officer October 19, 1999
____________________________________ (Principal Financial and
Thomas A. Munro Accounting Officer)
* Director October 19, 1999
____________________________________
Scott Anderson
* Director October 19, 1999
____________________________________
Bandel Carano
* Director October 19, 1999
____________________________________
</TABLE> Scot Jarvis
/s/ Thomas A. Munro
*By: __________________________
Thomas A. Munro
II-6
<PAGE>
SCHEDULE II
WIRELESS FACILITIES INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE BALANCE
AT AT END
ALLOWANCE FOR DOUBTFUL BEGINNING OTHER OF
ACCOUNTS OF YEAR PROVISIONS WRITE-OFFS ADDITIONS PERIOD
---------------------- --------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996.. -- 92,035 -- -- 92,035
Year ended December 31, 1997.. 92,035 15,894 (37,617) -- 70,312
Year ended December 31, 1998.. 70,312 491,426 (104) -- 561,634
Six months ended June 30,
1999......................... 561,634 125,567 -- -- 687,201
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation, as currently in
effect.*
3.2 Form of Restated Certificate of Incorporation, to be filed and become
effective prior to the closing of this offering.*
3.3 Form of Restated Certificate of Incorporation, to be filed and become
effective upon the closing of this offering.*
3.4 Bylaws, as currently in effect.*
3.5 Form of Bylaws, as amended to become effective upon the closing of
this offering.*
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.*
5.1 Opinion of Cooley Godward LLP.
10.1 1997 Stock Option Plan.*
10.2 Form of Stock Option Agreement pursuant to the 1997 Stock Option Plan
and related terms and conditions.*
10.3 1999 Equity Incentive Plan.*
10.4 Form of Stock Option Agreement pursuant to the 1999 Equity Incentive
Plan.*
10.5 1999 Employee Stock Purchase Plan and related offering documents.*
10.6 R&D Building Lease by and between the Company and Sorrento Tech
Associates as amended.*
10.7 Credit Agreement by and among the Company, various banks and Imperial
Bank dated as of September 17, 1999.*
10.8 Second Amended and Restated Investor Rights Agreement by and among the
Company and certain stockholders of the Company dated as of September
17, 1999.*
10.9 Employment Offer Letter by and between the Company and Scott Fox dated
as of April 9, 1999.*
10.10 Form of Indemnity Agreement by and between the Company and certain
officers and directors of the Company.*
10.11 Amended Promissory Note from the Company to Masood K. Tayebi dated as
of August 2, 1999.*
10.12 Amended Promissory Note from the Company to Massih Tayebi dated as of
August 2, 1999.*
10.13 Amended Promissory Note from the Company to Sean Tayebi dated as of
August 2, 1999.*
10.14 Form of Warrant Agreement by and between the Company and each of Scott
Anderson and Scot Jarvis dated as of February 28, 1997.*
10.15 Form of Subscription and Representation Agreement by and between the
Company and each of Scott Anderson and Scot Jarvis dated as of
February 28, 1997.*
10.16 Form of Warrant Agreement by and between the Company and each of Scott
Anderson and Scot Jarvis dated as of February 1, 1998.*
10.17 Form of Bill of Sale and Assignment Agreement by and between the
Company and each of Massih Tayebi and Masood K. Tayebi dated as of
June 30, 1999.*
10.18 Assignment of Note by and among the Company, Masood K. Tayebi and
Massih Tayebi dated as of June 30, 1999.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.19 Form of Promissory Note from each of Masood K. Tayebi and Massih
Tayebi to the Company dated as of June 30, 1999.*
10.20 Form of Promissory Note from each of Masood K. Tayebi and Massih
Tayebi to the Company dated as of June 30, 1999.*
10.21 Services Agreement by and between WFI de Mexico S. de R.L. de C.V. and
Ericsson Telecom, S.A. de C.V. dated as of August 4, 1999.+*
10.22 Master Services Agreement by and between Entel Technologies, Inc. and
TeleCorp Holding Corp., Inc. dated as of February 27, 1998, as
amended.+*
10.23 Master Services Agreement by and between the Company and Nextel
Partners Operating Corp. dated as of January 18, 1999.+*
10.24 Agreement by and between the Company and Siemens Aktiengesellschaft,
Berlin and Munchen, Federal Republic of Germany, represented by the
Business Unit Mobile Networks.+*
10.25 Master Services Agreement by and between the Company and Triton PCS,
Operating Company, L.L.C. dated as of January 19, 1998, as amended.+*
10.26 Microwave Relocation Services Agreement by and between Entel
Technologies, Inc. and Triton PCS Operating Company, L.L.C. dated as
of February 11, 1998.+*
10.27 Site Development Services Agreement by and between Entel Technologies,
Inc. and Triton PCS, Inc. dated as of December 10, 1997.+*
10.28 Sales Agreement for Products and Services by and between the Company
and Integrated Ventures, LLC dated as of April 19, 1999.+*
10.29 Settlement Agreement and Mutual General Releasee by and between the
Company and Total Outsourcing, Inc dated as of June 30, 1999.*
10.30 Straight Note from Scott Fox and Kathleen W. Fox to the Company dated
as of July 8, 1999.*
10.31 Master Services Agreement by and between the Company and Metricom,
Inc. entered into as of September 27, 1999. +
21.1 List of subsidiaries.*
23.1 Consent of KPMG LLP, Independent Public Accountants.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of M.R. Weiser LLP, Independent Public Accountants.
24.1 Power of Attorney. Reference is made to page II-6 of the Registration
Statement filed on August 18, 1999.
27 Financial Data Schedule.*
</TABLE>
- --------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
* Previously filed.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
ATTORNEYS AT LAW Boulder, CO
303 546-4000
4365 Executive Drive Denver, CO
Suite 1100 303 606-4800
San Diego, CA
92121-2128 Kirkland, WA
Main 858 550-6000 425 893-7700
Fax 858 453-3555
Menlo Park, CA
650 843-5100
Palo Alto, CA
650 843-5000
www.cooley.com Reston, VA
703 262-8000
San Francisco, CA
October 18, 1999 415 693-2000
WIRELESS FACILITIES, INC.
9805 Scranton Road, Suite 100
San Diego, CA 92121
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Wireless Facilities, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission, including a related prospectus to be filed with the
Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended (the "Prospectus"), and the underwritten
public offering of up to 4,600,000 shares of the Company's Common Stock, par
value $.001, including 600,000 shares of Common Stock for which the underwriters
have been granted an over-allotment option (the "Shares").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Restated
Certificate of Incorporation and Bylaws, and the originals or copies certified
to our satisfaction of such records, documents, certificates, memoranda and
other instruments as in our judgment are necessary or appropriate to enable us
to render the opinion expressed below, (ii) assumed that the aforementioned
Restated Certificate, as approved by the Board of Directors, will be duly
approved by the Company's stockholders and filed with the office of the Delaware
Secretary of State prior to the issuance of the Shares and (iii) assumed that
the Shares will be sold by the underwriters at a price established by the
Pricing Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
/s/ LANCE W. BRIDGES
Lance W. Bridges
<PAGE>
EXHIBIT 10.31
---------------------------------
Confidential Treatment Requested
under 17 C.F.R.(S)(S)200.80(b)(4)
200.83 and 230.406
---------------------------------
[LOGO OF METRICOM APPEARS HERE]
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement"), effective September 21, 1999
(the "Effective Date") by and between METRICOM, INC. a Delaware corporation
(hereinafter referred to as "Metricom") and WIRELESS FACILITIES, INC., a
Delaware corporation, and its affiliates (hereinafter referred to as "WFI") sets
forth the terms and conditions ("Terms and Conditions") for the acquisition of
WFI's services. Services acquired hereunder shall be described in a Statement of
Work attached hereto as an exhibit. The terms of each Statement of Work, taken
together with these Terms and Conditions, shall constitute a separate agreement
("Agreement") and shall be considered independent of any other agreements
between the parties that incorporate these Terms and Conditions. Each Statement
of Work shall incorporate these Terms and Conditions by reference. Any terms
and conditions in said Statement of Work which expressly supersedes any terms
and conditions in these Terms and Conditions shall apply only to the specific
services defined in said Statement of Work. (Metricom and WFI are each
hereinafter referred to individually as a "Party" or collectively as "Parties").
WHEREAS, Metricom intends to acquire sites and construct facilities in order to
develop and operate a wireless Mobile Data Services system (the "Project")
WHEREAS, the Parties have reached an agreement whereby WFI will provide various
business and strategic consulting, network development design and development
services to Metricom in connection with the Project as requested by Metricom and
as set forth in a Statement of Work.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound, the Parties
agree as follows:
ARTICLE I DEFINITIONS
-----------
1.1 Definitions. Unless the context clearly requires otherwise, each of the
------------
following terms, when used in this Agreement with initial capitals, shall have
the meaning set forth for such term below:
Accepted Engineering Practices means those current standards of care and
- ------------------------------
diligence normally practiced by recognized engineering firms in performing
services of nature similar to that of the Services.
Affected Party shall have the meaning as set forth in Section 11.1.
- --------------
Affiliates shall mean any entity that directly or indirectly controls, or is
- ----------
controlled by, or is under common control by a party. The term "control" in
this Section shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of an entity,
whether through the ownership of voting securities, by contract or otherwise.
Agreement means this Agreement for Engineering, Procurement and Construction
- ---------
(including all Exhibits).
Page 1 of 27
<PAGE>
Amendment means a written amendment to this Agreement executed by Metricom and
- ---------
WFI as provided in Section 2.7 (a).
Beneficial Use shall mean possession of or any commercial use of the Services by
- --------------
the Metricom whether Metricom accrues any compensation therefore or not.
Business Day means any Day on which commercial banks are not authorized or
- ------------
required to close (but, in any event, excluding Saturdays and Sundays).
Change, Changed means any change in (i) the Services, (ii) the Statement of
- ---------------
Work, (iii) the Project Cost or (iv) the Project Schedule.
Change Directive means written directive by Metricom's Representative
- ----------------
authorizing WFI to perform changed Services prior to execution of a Change
Order.
Change in Laws and Regulations has the meaning set forth for that term in
- ------------------------------
Section 2.8(b).
Change Order means a written order regarding a Change issued, accepted and
- ------------
executed by Metricom and WFI in accordance with Article IV.
Claims has the meaning set forth for that term in Article 7.
- ------
Commercial Operations Date means the first day following Provisional Acceptance.
- --------------------------
Components means any and all systems, subsystems, assemblies, subassemblies,
- ----------
materials and equipment (including parts, instruments, software, and hardware),
and every item of whatever nature, including all documentation related thereto,
incorporated into the Services or the Services and to be provided by WFI or its
Vendors or Subcontractors under this Agreement, but excluding all Construction
Aids.
Confidential Information shall mean any confidential or proprietary
- ------------------------
information, including without limitation, any design tools, designs,
schematics, source code, plans or any other information relating to any research
project, Services in process, future development, scientific, engineering,
manufacturing, marketing or business plan, or financial or personnel matter
relating to either party, its present or future services, sales, suppliers,
customers, employees, compensation, investors or business, identified and marked
by the disclosing party as "Confidential Information," whether in oral, written,
graphic or electronic form. If disclosed in oral form, such Confidential
Information must be reduced to writing and marked as Confidential Information
within thirty (30) days following disclosure.
Construction Aids means all materials, supplies, construction equipment,
- -----------------
construction tools, field office equipment, field office supplies, scaffolding
and form lumber, temporary buildings and facilities, computer software and
computer hardware used in design and other items that are required for the
Services but which are not intended to become a permanent part of the Services.
Contamination has the meaning set forth for that term in Section 3.6.
- -------------
Day means a calendar day unless otherwise stated or unless the context within
- ---
which such term is used clearly indicates another meaning.
Debtor Relief Law has the meaning set forth for that Section 10.1 (d).
- -----------------
Page 2 of 27
<PAGE>
Deliverables shall mean any agreements, products, designs, schematics,
- ------------
tools, code, technical data, inventions, know-how and associated Intellectual
Property Right created during the performance of the Services as set forth in
the applicable Statement of Work, and any Documentation related to any of the
foregoing.
Documentation shall mean any installation, operation, administrator and end
- -------------
user manuals, any site preparation guides or configuration guides, any media
containing any of the foregoing, as well as any other operations and maintenance
manuals, training materials and other technical and user documentation,
including without limitation any schematics, design documents, analyses and
technical overviews.
Effective Date means the date on which this Agreement is executed and delivered
- --------------
by the parties.
Environmental Laws means all federal, state and local laws, rules, regulations,
- ------------------
orders, standards and interpretations concerning environmental matters to the
extent applicable to the Services or the operation thereof.
Extraordinary Site Conditions means (i) any unknown man-made subsurface
- -----------------------------
obstruction or archeological artifacts not disclosed by investigations or
reports performed or provided to WFI and (ii) any contamination, hazardous
materials or waste, excluding such waste brought to the Site by WFI,
Subcontractors or Vendors in the performance of the Services.
Final Completion shall have the meaning set forth for that term in Section 9.4.
- ----------------
Final Completion Date means the date on which Final Completion occurs.
- ---------------------
Final Plans and Specifications means the final drawings, technical
- ------------------------------
specifications and operations and maintenance procedures and specifications to
be prepared by WFI with respect to the Services in accordance with the Statement
of Work.
Final Invoice has the meaning set forth for that term in Section 5.6.
- -------------
Force Majeure has the meaning set forth for that term in Section 11.1.
- -------------
Functional Tests means the various tests, if any, of the Services and its
- ----------------
Components to be completed as part of the Statement of Work.
Indemnified Persons has the meaning set forth for that term in Section 7.1.
- -------------------
Initial Term shall have the meaning as set forth in Section 2.2.
- ------------
Intellectual Property Rights shall mean any and all intellectual property
- ----------------------------
and/or proprietary rights, including without limitation, all mask Services
rights, all copyrights (including rights in audiovisual Services), moral rights,
trademarks, trade names, patent rights (including patent applications and
disclosures) and trade secret rights, now known or hereafter recognized in any
jurisdiction in the world.
Invoice means the monthly invoice to be submitted by WFI to Metricom in
- -------
accordance with and as defined in Section 5.3.
Laws and Regulations means all federal, state and local laws, rules,
- --------------------
regulations, orders, codes, standards (including building and related codes and
standards) and interpretations, including the Occupational Safety and Health Act
(1970), the Permits, all Environmental Laws and all applicable equal employment
opportunity programs.
Page 3 of 27
<PAGE>
Mechanics' or Materialmen's Lien has the meaning set forth for that term in
- --------------------------------
Section 10.3.
Metricom has the meaning set forth for that term in the Preamble to this
- --------
Agreement.
Metricom Permits means all Permits with respect to the Services required to be
- ----------------
taken out in the name of Metricom which are necessary for the performance of the
Services.
Metricom's Representative means the person(s) who, from time to time, shall be
- -------------------------
authorized by Metricom in writing to act on behalf of Metricom and with whom WFI
may consult as set forth in Section 3.1.
Milestone Payment Schedule means the schedule of the payments to be made to WFI
- --------------------------
for the performance of the Services which is set forth in Exhibit III.
Milestone Payments means the monthly payments against the Project Cost payable
- ------------------
pursuant to Section 5.5.
Miscellaneous Equipment and Furnishings means maintenance tools, maintenance
- ---------------------------------------
equipment, spare parts, and laboratory furnishings and equipment.
Network means the network described in the Statement of Work.
- -------
Notice shall have the meaning as set forth in Section 16.2.
- ------
Notice to Proceed has the meaning set forth for that term in Section 2.3.
- -----------------
Permits means the licenses and permits required for the construction and
- -------
operation of the Project
Program Director means the person designated by WFI who shall be authorized to
- ----------------
act on behalf of WFI and with whom Metricom or Metricom's Representative may
consult as set forth in Section 2.7(a).
Program Manager means the person designated by the Program Director with the
- ---------------
delegated authority to act on behalf of WFI and with whom Metricom or Metricom's
Representative may consult as set forth in Section 2.7(a).
Progress Report has the meaning set forth for that term in Section 2.7(c).
- ---------------
Project Cost means the budgeted estimated project cost price for the Services,
- ------------
as adjusted pursuant to Article IV.
Project Schedule means the schedule for the carrying out and completion of the
- ----------------
Services which is attached hereto as Exhibit II.
Property means the Services, the Project, the Site and the real property of
- --------
which the Site is a part.
Punch List Items means administrative items or other items of the Services the
- ----------------
cost of which is immaterial and the omission of which would not adversely affect
the safe Commissioning and Testing or commercial operation of any Component or
the Services as contemplated under Section 9.3(a).
Renewal Term shall have the meaning as set forth in Section 2.2.
- ------------
Risk of Loss Date means the date set forth for that term is Section 7.3.
- -----------------
Page 4 of 27
<PAGE>
Schedule of Values means the schedule in Exhibit III of the milestones in WFI's
- ------------------
performance of the Services which are to be completed as a condition to WFI's
right to receive each of the payments to be made pursuant to the Milestone
Payment Schedule.
Services means the procurement, supply or provision of all Components (including
- --------
materials, supplies and equipment), Documents and all other things, and the
performance, procurement, supply or provision of all Services (including all
labor) as set forth in the Statement of Work, in each case as necessary or
reasonably appropriate to accomplish the design, engineering, procurement,
construction management, Substantial Completion, and Final Completion of the
Services, all in accordance with Article II, the Statement of Work and the Final
Plans and Specifications.
Site means the physical location of the candidate and/or selected base station,
- ----
base station controller or mobile switching center site, as the case may be, and
all structures, improvements, foundations, towers, and other facilities
necessary to house or hold equipment and all other related third party
equipment.
Statement of Work means the total extent and general description of the Services
- -----------------
as set forth in Exhibit I.
Subcontractor(s) means those persons or companies who have a contract with WFI
- ----------------
or any other person or entity for the performance of any part of the Services,
including Subcontractors of whatever tier.
Substantial Completion means completion of the physical construction of the
- ----------------------
Services, and the completion of other Services (with the exception of Punch List
Items, Testing and delivery of as-built drawings in accordance with Exhibit I,
the Statement of Work and the Final Plans and Specifications, to such point that
the Services shall be ready for Commissioning.
Suspension Period shall have the meaning as set forth in Section 10.5.
- -----------------
Taxes has the meaning set forth for that term in Section 5.4.
- -----
Testing means the conduct of the Tests of the Services in accordance the
- -------
Statement of Work.
Vendor(s) means those persons or companies providing or supplying any materials
- ---------
and equipment to WFI or Subcontractors for the Project, but who do not perform
construction Services at the Site and who are not Subcontractors.
Warranty Services means any curative or remedial Services performed by WFI or
- -----------------
any Subcontractor or Vendor pursuant to any warranty under this Agreement or any
warranty to be obtained or administered under this Agreement.
Week shall mean five (5) calendar Days as defined herein.
- ----
WFI has the meaning set forth for that term in the preamble to this Agreement.
- ---
WFI Default has the meaning set forth for that term in Section 10.1.
- -----------
WFI Permits means all Permits to be obtained in the name of WFI and required for
- -----------
the Services and initial operation of the Services until Provisional Acceptance,
but excluding all Metricom Permits.
WFI Warranties means the warranties of WFI pursuant to Article VI.
- --------------
WFI Warranty Period has the meaning set forth for that term in Section 6.1.
- -------------------
Page 5 of 27
<PAGE>
WFI Waste Materials has the meaning set forth for that term in Section 2.12.
- -------------------
1.2 Rules of Interpretation. Defined terms include the plural as well as the
------------------------
singular. Any agreement defined or referred to above shall include each
amendment, modification and supplement thereto and waiver thereof as may become
effective from time to time, except where otherwise indicated. Any term defined
by reference to any other agreement shall have such meaning whether or not such
document is in effect. Any reference to an article, section or exhibit shall
refer to an article, section or exhibit of this Agreement unless otherwise
specified. The terms "hereof," "herein," "hereunder" and comparable terms refer
to the entire agreement with respect to which such terms are used and not to any
particular article, section or other subdivision thereof. A reference to any
law includes any amendment or modification to such law made before the relevant
date. A reference to any person includes its permitted successors and permitted
assigns. The words "include," "includes" and "including" are not limiting. If
any provision of this Agreement contemplates that the parties shall negotiate
any matter after the Effective Date, such provision shall be construed to
include an obligation of the parties to negotiate in good faith within the
spirit and intent of this Agreement.
ARTICLE II SCOPE OF SERVICES
-----------------
2.1 Description of the Services. In accordance with and subject to the terms
----------------------------
and conditions of this Agreement, WFI hereby agrees to provide Services which
may include, without limitation: program management, GIS data services, RF
engineering, site acquisition services, zoning and permitting, construction
management services, training, installation and testing for Metricom and
Metricom's customers, business consulting and network maintenance, (the
"Services") as listed in the Statement of Work. The Services will be
compensated on a fixed fee, time and material or hourly basis as agreed by the
Parties.
2.2 Term of Agreement. The term of this Agreement shall be [***] from
------------------
the Effective Date unless otherwise terminated in accordance with this Agreement
(the "Initial Term"). The Initial Term will automatically renew for additional
successive terms of [***] (each, a "Renewal Term") unless either Party
communicates its intention not to renew in writing to the other Party at least
thirty (30) days prior to expiration of the Initial Term or current Renewal
Term. The Parties agree that, for the purposes of the RF Services to be
provided by WFI under the attached Statement of Work, Exhibit I, attached
hereto, the Initial Term of the Agreement shall be [***] from
the Effective Date which shall be September 1, 1999.
2.3 Notice to Proceed. Metricom shall at any time after the Effective Date
------------------
deliver a written Notice to WFI to proceed with all or part of the Services (the
"Notice to Proceed). WFI shall not be authorized by Metricom pursuant to this
Agreement to proceed with the Services until its receipt of the Notice to
Proceed.
2.4 Performance Standards. WFI shall perform the Services, and shall provide
----------------------
Metricom with Services, such that:
(a) Components. All Components shall be new and of good quality when
-----------
installed; shall be designed and manufactured, and of a grade, in
accordance with recognized industry standards for such Components
and shall be free from defects in materials and workmanship;
(b) Services. All Services shall be performed in accordance with
---------
accepted industry standards and in a good and workmanlike manner;
and all Components shall be installed in accordance with
manufacturer's specifications; and the Services will be designed and
built to comply with all Laws and Regulations in effect at as of the
Effective Date.
2.5 Permits. WFI shall obtain at Metricom's expense all WFI Permits. WFI
--------
shall provide Metricom with engineering and design data, information and support
with respect to the design and performance characteristics of the Services to
the extent reasonably requested or required by Metricom to assist Metricom in
obtaining all
Page 6 of 27
- ---------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Metricom Permits. If the requirements of Metricom Permits issued after the
Effective Date effect a change in WFI's Statement of Work, or materially affect
WFI's cost of performance hereunder or its ability to attain the Project
Schedule or to perform by a date certain as required under this Agreement, a
Change Order shall be issued for such purpose.
2.6 Compliance with Schedule. WFI shall commence the Services as soon as
-------------------------
practicable after receipt of the Notice to Proceed. WFI shall carry on and
complete the Services in accordance with the Project Schedule as amended in
accordance with Article IV.
2.7 Management and Conduct of the Services. WFI shall manage and conduct the
---------------------------------------
Services in accordance with the terms of Exhibit I. Without limiting the
generality of the foregoing, WFI shall:
(a) Appointment of Program Director. Promptly following the Effective
--------------------------------
Date, appoint and give Metricom written Notice of the identity and
appointment of a Program Director who shall be authorized to act on
behalf of WFI and with whom Metricom may consult at all reasonable
times, and whose instructions, requests, and decisions will be
binding upon WFI as to all matters pertaining to this Agreement and
the performance of the parties hereunder (provided no amendment or
modification of this Agreement shall be effected except by a formal
written Amendment executed by both parties and no Change shall be
effected except by a Change Order and/or Change Directive). The
Program Director will give written Notice to Metricom designating
Project Managers who have the delegated authority to act on behalf
of WFI and with whom Metricom may consult at all reasonable times,
and whose instructions, requests and decisions will be binding upon
WFI as to all matters pertaining to the Work.
(b) Project Schedule. Provide Metricom with the Project Schedule, which
-----------------
shows major milestones for engineering, procurement, construction,
Testing, Substantial Completion, Commissioning, Acceptance and Final
Completion of the Services. The Project Schedule is consistent with
the expected date of delivery of the Notice to Proceed and may be
revised to reflect the actual date of delivery of the Notice to
Proceed.
(c) Consultation and Coordination with Metricom. Initially, WFI will
--------------------------------------------
consult with Metricom on a [***] basis. Thereafter, WFI will
consult with Metricom on some other regularly scheduled basis as
determined by both parties but in no event less frequently than
[***]. At the time of each consultation, WFI shall deliver to
Metricom a written report of progress achieved subsequent to the
preceding consultation (a "Progress Report"). Such written report
shall, in reasonable detail, consider material activities in the
performance of the Services and indicate milestones reached and the
occurrence of special events or circumstances affecting or related
to the Services, if any, during the period covered by the report;
the status of applications for, or other action taken to obtain,
necessary Permits pursuant to Section 2.5 hereof and the applicable
Statement of Work; leasing status, a Change Directive - Change Order
status log and an evaluation of problems and deficiencies and a
description of any planned corrective action with respect thereto.
WFI shall advise Metricom of any significant changes, developments,
or delays in the Services.
(d) Notice of Tests and Inspections. Provide Metricom with prior
--------------------------------
written Notice of the time and place for the conduct of all
equipment tests and inspections of Components on or before five (5)
Business Days' prior to the related test, or inspection or such
other period as may be agreed upon by WFI and Metricom, provided, in
the case of any retesting shortly following a failed test, such
Notice to Metricom may be verbal and within such reasonable period
prior to such retest. In the case of field tests and inspections of
the Services, WFI and Metricom will agree on the field tests and
inspections as to which Notice will be given by WFI, and with
respect to such field tests and inspections, WFI shall provide
Metricom's Representative with reasonable
Page 7 of 27
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* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Notice of, and an adequate opportunity to, attend such tests and
inspections as are customary for Site coordination in the
construction industry. WFI shall not be required to delay any
testing if Metricom fails to appear at the approximate time and
place designated by WFI. This section shall not preclude WFI from
retesting any Component or the Services.
(e) Review and Inspection. Subject to the restrictions on inspection
----------------------
set forth in Section 2.7 (d), afford Metricom the opportunity to
review and inspect all elements of the Services in a reasonable
manner. WFI agrees to consider in good faith any and all comments
made by Metricom, provided, however, WFI shall determine to what
extent such comments should be considered as respects completion of
the Services. Metricom shall have the right to require repair or
replacement of any Services which is defective or not performed in
accordance with the Statement of Work or the Final Plans and
Specifications as specified in the applicable Statement of Work or
deviates from other requirements of this Agreement, provided WFI
shall have until Provisional Acceptance to complete such repair
or replacement.
(f) Control of the Services. WFI shall be solely responsible for all
------------------------
construction means, methods, techniques, sequences, procedures and
safety and security programs in connection with the performance of
the Services.
(g) Site Acquisition Requirements and Milestones. WFI shall perform the
---------------------------------------------
Site acquisition services as more particularly described in the
applicable Statement of Work. Metricom shall execute all Site Leases
in Metricom's-name. WFI shall present all Site Leases to Metricom
for execution.
2.8 Compliance With Laws and Regulations.
-------------------------------------
(a) Performance of Services. WFI shall make every reasonable effort to
------------------------
perform the Services and its obligations pursuant to this Agreement,
and shall cause all Subcontractors and Vendors to perform all
elements of the Services to be performed by them, in compliance with
all applicable Laws and Regulations as in force as of the Effective
Date. WFI shall initiate and maintain reasonable safety precautions
and programs to conform with applicable Laws and Regulations to
prevent injury to persons or damage to property on the Site. WFI
shall take reasonable steps to erect and maintain safeguards for the
protection of workers and the public and eliminate or abate safety
hazards created by or otherwise resulting from the performance of
the Services. WFI shall take all precautions reasonably necessary
for the safety and health of, and shall provide all reasonable
protection to prevent damage, injury or loss to: (i) persons working
at the Site employed by WFI or Subcontractors in connection with the
Services, (ii) all materials and equipment to be incorporated into
the Services, whether in storage on or off the Site, under the care,
custody or control of WFI or any Subcontractor, and (iii) other
property at the Site.
(b) Change of Laws and Regulations. If there is a change in any Laws
-------------------------------
and Regulations in existence at the Effective Date or there is an
enactment of any new Laws and Regulations after the Effective Date
or if there is a change in the interpretation of any such Laws and
Regulations ("Change in Laws and Regulations"), and if any such
Change in Law and Regulations effects any change in the Statement of
Work, or materially affect WFI's cost of performance hereunder or
its ability to attain the Project Schedule or to perform by a date
certain as required under this Agreement, a Change Order shall be
issued for such purpose.
(c) Following Acceptance. From and after Acceptance, Metricom assumes
---------------------
all responsibility for compliance by the Services with all Laws and
Regulations.
Page 8 of 27
<PAGE>
2.9 Subcontractors. WFI may subcontract any portion of the Services to a
---------------
Subcontractor or Vendor. WFI agrees it is as fully responsible to Metricom for
the acts and omissions of its Subcontractors and Vendors and of persons either
directly or indirectly employed by them as it is for the acts and omissions of
persons directly employed by WFI. Notwithstanding the above, WFI may have
portions of the Services performed by its affiliated entities or their
employees, in which event WFI shall be responsible for such Services and
Metricom will look solely to WFI as if the Services were performed by WFI.
2.10 Metricom as Contracting Party with Subcontractor. If Metricom chooses to
-------------------------------------------------
contract directly with subcontractor for work performed for the Project, then
Metricom shall be solely responsible for the payment of service fees and
expenses of such subcontractors for work performed in connection therewith.
Metricom and WFI hereby acknowledge and agree that Metricom and not WFI shall be
solely responsible for the payment of fees and expenses of subcontractors
contracting directly with Metricom under this Agreement and for all purchase
orders issued to subcontractors for performance of Services hereunder, and that
Metricom shall be billed directly by such subcontractors.
Metricom agrees to include the following paragraph in its agreements with all
subcontractors it directly contracts with and retains to perform, or assist WFI
in performing, Services hereunder:
Manager. Subcontractor acknowledges that Metricom has retained Wireless
-------
Facilities, Inc., a Delaware corporation and its affiliates, including its
designated employees, contractors and agents, if any ("Manager") to manage
the Services rendered by Subcontractor at the sites. Subcontractor hereby
consents to Metricom's delegation to Manager of any or all of Metricom's
duties and responsibilities under this Agreement, with the exception of
Metricom's payment obligations to Subcontractor. Subcontractor hereby
agrees to work under the direction of Manager in performance of the
Services. Subcontractor shall be responsible to Manager, as Metricom's
designee, for the timely and accurate completion of all Services performed
by Subcontractor under this Agreement. Under no circumstances, however,
shall Subcontractor look to Manager for payment for Services under this
Agreement. Metricom and Subcontractor acknowledge and agree that Metricom
and not Manager shall be responsible for the payment of Subcontractor's
fees under this Agreement and any purchase orders issued hereunder.
2.11 Materials Management Services. At Metricom's request and written
------------------------------
authorization, WFI shall procure, pay for, receive and store equipment and
building materials for use on the Project ("Materials Management Services").
Metricom shall compensate WFI for Materials Management Services by reimbursing
WFI for the cost of such equipment and building materials, together with an
administrative fee.
2.12 Clean Up. WFI shall at all times keep the Site reasonably free from
---------
waste materials and rubbish resulting from materials and equipment procured by
WFI or Construction Aids used by WFI in the performance of the Services,
excluding waste described in Section 3.6 and hazardous waste described in clause
(ii) of the definition of Extraordinary Site Conditions ("WFI Waste Materials").
As soon as practicable after the earliest of (i) the Final Completion Date, or
(ii) the date upon which WFI shall no longer have any obligations under this
Agreement, WFI shall remove all of its Construction Aids and remove any WFI
Waste Material from and around the Site.
ARTICLE III METRICOM RESPONSIBILITIES
-------------------------
In addition to the obligations of Metricom set forth elsewhere in this
Agreement, Metricom shall, at its own expense and at such times as may be
required by WFI for the successful completion of the Services in accordance with
the Project Schedule:
Page 9 of 27
<PAGE>
3.1 Metricom's Representative. Metricom shall notify WFI, in writing, of the
--------------------------
appointment of Metricom's Representative who shall be authorized to act on
behalf of Metricom and with whom WFI may consult at all reasonable times, and
whose instructions, requests and decisions shall be binding upon Metricom as to
all matters pertaining to this Agreement and the performance of the parties
hereunder, provided no amendment or modification of this Agreement shall be
effected except by an Amendment executed by both parties and no change shall be
effected except by a Change Order or Change Directive. Metricom's
Representative will provide to WFI a written list of designated individuals who
have the delegated authority to execute Change Directives.
3.2 Access. Provide WFI and its Subcontractors rights of access to and use
-------
of any Site or other location where the Services are to be performed.
3.3 Permits. Except where obtaining such permits and/or licenses and any
--------
associated documentation are specifically identified as being the responsibility
of WFI as part of the Statement of Work, obtain the Metricom Permits and provide
WFI with such information and assistance as WFI may reasonably request in
obtaining any WFI Permits, and obtain any process and other permits and/or
licenses which are required for the Services, and provide WFI with any drawings
and specifications in connection with any such process or other license
necessary for the completion of the Services and on which WFI shall rely.
3.4 Site Rules. Abide by all reasonable Site safety rules promulgated by
-----------
WFI.
3.5 Taxes. Pay all real property taxes assessed against the Site or the
------
Services and any personal property and sales taxes on the Components, provided
Metricom shall have the right to contest any such taxes in good faith by
appropriate proceedings diligently prosecuted and (in the case of any such tax
which WFI may be legally required to pay) for the payment of which Metricom has
posted a bond or provided other security reasonably acceptable to WFI. In the
event WFI is legally required to pay any such taxes (including related interest
and penalties), amounts paid by WFI and the expenses incurred by it in
connection with such payment shall be reimbursed by Metricom to WFI within ten
(10) days of demand.
3.6 Environmental Conditions. Metricom shall, at Metricom's sole expense and
-------------------------
risk, arrange for handling, storage, transportation, treatment and delivery for
disposal of Contamination and Metricom shall be solely responsible for obtaining
a disposal site for such material. Metricom shall look to the disposal Services
and/or transporter for any responsibility or liability arising from improper
disposal or transportation of such waste. WFI shall not have or exert any
control over Metricom in Metricom's obligations or responsibilities as a
generator in the storage, transportation, treatment or disposal of any
Contamination. Metricom shall complete and execute any required governmental
forms relating to regulated activities, including, but not limited to,
generation, storage, handling, treatment, transportation, or disposal of
Contamination. In the event WFI executes or completes any required governmental
forms relating to regulated activities, including, but not limited to, storage,
generation, treatment, transportation, handling or disposal of hazardous or
toxic materials, WFI shall be and be deemed to have acted as Metricom's agent.
Metricom shall indemnify, release and save WFI harmless from all damages,
liability, expenses or penalties paid by WFI resulting from Contamination. The
term "Contamination" as used in this subsection shall mean any hazardous or
toxic substance, pollutant or contaminate as defined under applicable
Environmental Laws present at the Site, which was not brought to the site by WFI
or any Subcontractor to WFI.
ARTICLE IV WORK ORDERS AND CHANGES IN THE SERVICES
---------------------------------------
4.1 General Change Order Procedure. Metricom shall have the right to make
-------------------------------
changes in the Services, within the general scope thereof, whether such changes
be modifications, alterations or additions. Changes shall include the Project
Cost and any other compensation, the Project Schedule and any other dates for
performance by WFI hereunder, and other affected rights and obligations shall be
adjusted to reflect (1) the addition to, modification of or deletion from the
Services (performed or yet to be performed) or the Services,
Page 10 of 27
<PAGE>
(2) Metricom's request for or approval of performance of services in excess of
WFI's standard Services day or Services week or such shorter times as are
provided by applicable collective bargaining agreements or on a holiday
customarily observed by WFI (including an allowance for loss of efficiency due
to overtime or shift Services), (3) the discovery of any subsurface (including
archeological finds) or climatic conditions of an unusual nature, differing
materially from those ordinarily encountered in the jobsite area, (4) a Change
in Law and Regulations by which WFI is required to pay increased or additional
taxes, government-regulated transportation costs, or insurance not required as
of the date of this Agreement, (5) delay or suspension of, or interference with,
the Services by Metricom or by any other person or entity including, but not
limited to, national, state and local governments, (6) modifications to design
criteria or other information made during the performance of the Services and
supplied by any person or entity other than WFI, (7) the consequences of Force
Majeure.
4.2 Estimates and Authorizations.
-----------------------------
(a) Procedure for Estimates. In the event Metricom contemplates making
------------------------
a Change, Metricom shall so advise WFI. Within five (5) Business
Days following receipt of such advice, WFI shall submit to Metricom
a preliminary written estimate relating to the proposed Change,
including (i) any projected change in the cost of the performance of
the Services and any projected modification of the Project Cost
occasioned by such Change, (ii) the effect such Change could be
expected to have on the Project Schedule, or any other schedule or
dates for performance by WFI hereunder, and (iii) the potential
effect of such Change on WFI's ability to comply with any of its
obligations hereunder, including WFI's warranties. If Metricom
elects to proceed with a more detailed examination of such proposed
Change, within such period as shall be agreed upon by the parties,
WFI shall submit to Metricom a detailed estimate relating to the
contemplated Change on a written Change Order. If Metricom elects to
proceed with the proposed Change, Metricom and WFI shall agree upon
a Change Order, and the cost of WFI's detailed estimate shall be
included in such Change Order. If Metricom elects not to proceed
with such proposed Change, Metricom agrees to reimburse WFI for
WFI's reasonable expenses incurred in connection with the
preparation of the estimate of such proposed Change in accordance
with the rates and markups pursuant to Exhibit III, in full and as
part of the next monthly payment in accordance with Article V.
(b) Authorization of Change Order. Within five (5) Business Days of
------------------------------
receipt of WFI's estimate, Metricom shall review the detailed
estimate with WFI for the purpose of determining whether to proceed
with such Change and, if so, for the purpose of agreeing on the
matters set forth therein, including a mutually acceptable change in
the Project Cost, the Project Schedule and any other dates for
performance by WFI hereunder, if any. If the parties reach agreement
on the matters listed in the Change Order submitted by WFI, Metricom
shall cause Metricom's Representative, and WFI shall cause its
Program Director, to execute such form, as amended to reflect the
agreement of the parties. WFI's Program Director shall execute such
form as the originator thereof and Metricom's representative shall
sign "Accepted by"; each shall initial any changes added to the form
as originally presented. WFI shall promptly adjust the Project
Schedule, the Schedule of Values and Milestone Payment Schedule and
any other schedules or dates for performance by WFI hereunder
requiring adjustment to reflect the Change agreed upon. Except as
otherwise provided herein, in no event shall WFI undertake a Change
in the Services until it has received a Change Order or Change
Directive executed by the authority of the Metricom representative.
(c) Change Directive. In the event Metricom's Representative directs
-----------------
WFI to perform Services prior to agreement to, and execution of a
Change Order, Metricom Representative will execute a Change
Directive authorizing WFI to perform the changed Services on a
hourly rate in accordance with Exhibit V. The Services shall be
performed on the hourly rate basis until an
Page 11 of 27
<PAGE>
estimate of the impact of the Change can be prepared for Metricom
review, agreement and execution in accordance with (c) above. The
Change Directive will state the general scope of the changed
Services to be performed and rough order of magnitude (ROM) estimate
of the cost thereof.
4.3 Suspension. Metricom may notify WFI in writing to suspend its Services
-----------
on that portion of the Services affected by a contemplated Change (whether or
not such Change will require a modification to the Statement of Work) pending
Metricom's decision on such Change. There shall be an equitable adjustment of
the Project Cost and dates set forth in the Project Schedule and other dates for
performance by WFI hereunder on account of such suspension.
4.4 Force Majeure Caused Delay. In the event of a Force Majeure event or
---------------------------
other event described in Section 11.1, in accordance with Section 11.3, Metricom
shall execute and deliver to WFI a Change Order reflecting any adjustments to
the Project Cost, the Project Schedule or any other dates for performance
hereunder, or any other obligations under this Agreement.
4.5 WFI Initiated Changes. WFI shall have the right to initiate Change
----------------------
Order's and/or Change Directives independent of requests by Metricom, with
estimates to be prepared in accordance with Section 4.2. The WFI initiated
Change Order shall be handled as if initiated by Metrico m.
4.6 Disputes. If either party disputes the existence, extent, validity or
---------
affect of a Change, then either party may notify the other party that it desires
to meet and resolve the dispute. If the dispute cannot be resolved to the
mutual satisfaction of the parties within five (5) Business Days, then either
party can demand binding dispute resolution in accordance with Section XIII.
ARTICLE V COMPENSATION & PAYMENT
----------------------
5.1 Compensation. In consideration of WFI's performance of the Services,
-------------
Metricom shall pay WFI for all Services assigned by and rendered to Metricom
pursuant to this Agreement. WFI will be reimbursed only for expenses which are
expressly provided for in Exhibit III or which have been approved in advance in
writing by Metricom, provided WFI has furnished such documentation for
authorized expenses a Metricom may reasonably request. All work performed by
WFI at Metricom's request in addition to the Services specifically set forth in
this Agreement shall be compensated at the hourly rates agreed upon by the
Parties and set forth in Exhibit III.
5.2 Milestone Payment Schedule. The Milestone Payment Schedule contained in
---------------------------
Exhibit III establishes that portion of the compensation allocated to the
various milestones set forth in the Milestone Payment Schedule, identifies
portions of the Services for purposes of determining WFI's entitlement to
Milestone Payments, and to the best of WFI's knowledge and judgment is a
reasonable representation of milestones achieved during the calendar month. Upon
attainment of each milestone, WFI shall submit an invoice to Metricom in
accordance with Section 5.3.
5.3 Invoices. On or before the tenth (10th) Day of each month during the
---------
performance of the Services (except that in the case of the initial payment
under the Milestone Payment Schedule, such date shall be the expected date of
issuance of the Notice to Proceed), WFI shall submit to Metricom an invoice with
respect to (i) milestones achieved during the month (ii) a monthly Progress
Report with respect to such milestones (or reference thereto if previously
delivered to Metricom), and (iii) all other documentation required to be
submitted by WFI pursuant to this Article V. WFI shall make available such
documentation and materials as Metricom may reasonably require to substantiate
WFI's right to payment of such Invoice in accordance with this Agreement,
provided, however, WFI shall not be required to provide documentation relating
to its commercial terms, including but not limited to the make-up of WFI's
Project Cost, standard rates, fixed fees or amounts expressed as a percentage of
other costs.
Page 12 of 27
<PAGE>
5.4 Taxes. WFI shall pay or cause to be paid when due (a) all taxes,
------
governmental fees, assessments, charges or levies imposed in connection with the
Services (other than fees and charges for Metricom Permits and for sales and
property taxes on the Components, or revenues from operation of the Services),
(b) all import duties, (c) all taxes measured by wages earned by employees of
WFI, any Subcontractor or any Vendor, and payroll, withholding, social security,
workers' compensation and other similar employment taxes, and (d) all taxes
calculated on the basis of WFI's receipts or income (collectively, "Taxes");
provided WFI shall have the right to contest any such Taxes in good faith by
appropriate proceedings diligently prosecuted and, in the case of any Taxes
which Metricom may be legally required to pay or which may result in lien on the
Site, the Services or the Services for the payment of which WFI has posted a
bond or provided other security reasonably acceptable to Metricom.
5.5 Payments. Except as set forth in this subsection, undisputed invoices or
---------
undisputed portions thereof are payable in full within thirty (30) days upon
receipt of invoice. Metricom shall review each such Invoice's and may make
reasonably appropriate exceptions by providing WFI with written Notice thereof
within ten (10) Days after receipt of such Invoice. Any amount of a Invoice
which is disputed by Metricom as provided in this Article V shall be resolved in
accordance with Section 13.1 and, once resolved, shall be paid within five (5)
Business Days of the date of resolution.
5.6 Final Invoice. Upon Final Completion, WFI shall submit a final Invoice
--------------
("Final Invoice"), which shall set forth all amounts due and remaining unpaid to
it pursuant to this Agreement in respect of the Project Cost.
5.7 No Obligation of Metricom to Subcontractors. Nothing contained in this
--------------------------------------------
Agreement shall (i) create or constitute a contractual relationship between any
Vendor or Subcontractor and Metricom, or (ii) create any obligation on the part
of Metricom to any Vendor or Subcontractor. Metricom shall have no obligation
to pay or to see to the payment of any moneys to any Vendor or Subcontractor,
except as may otherwise be required by law.
5.8 No Acceptance By Payment. No partial payment made hereunder shall be
-------------------------
construed to be acceptance or approval of that part of the Services to which
such partial payment relates or to relieve WFI of any of its obligations
hereunder with respect thereto.
5.9 [***] . WFI [***]
--------------------
ARTICLE VI WARRANTIES
----------
6.1 General Warranty. WFI warrants for the period of time set forth on the
-----------------
applicable Statement of Work (the "WFI Warranty Period") that:
(a) Components. All Components shall be (i) new and of good quality
-----------
when installed, (ii) designed and manufactured, and of a grade, in
accordance with recognized industry standards for such Components,
(iii) free from defects in materials and workmanship and (iv)
installed in accordance with manufacturer's specifications; and
(b) Services. All Services shall be performed (i) in accordance with
---------
accepted industry practices, (ii) in accordance with applicable Laws
and Regulations in effect at or prior to the
Page 13 of 27
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* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
commencement of the Agreement Effective Date, (iii) in a good and
workmanlike manner, and (iv) in accordance with the Statement of
Work.
6.2 Vendor Warranties. WFI shall obtain from all Vendors from which WFI
------------------
procures materials and equipment including Components warranties with respect to
such equipment as are reasonably available. Such warranties shall obligate the
respective Vendors to repair or replace nonconforming or defective materials and
equipment. All such warranties shall be assigned to Metricom upon Acceptance.
During the WFI Warranty Period, WFI shall assume all responsibility at its
expense for administering and enforcing such Vendor warranties, and Metricom may
rely upon and deal only with WFI with respect to such warranties. WFI's
liability with respect to such warranties shall be limited to procuring
available warranties from such Vendors and rendering all reasonable assistance
to Metricom (short of litigation) for the purpose of enforcing the same.
6.3 Correction of Nonconforming or Defective Services. If Metricom shall
--------------------------------------------------
notify WFI in writing during the WFI Warranty Period that any part of the
Services does not meet the standards specified in Section 6.1 (such Notice to be
provided with reasonable promptness after acquiring knowledge of such
nonconformity or defect and, in any event, prior to ten (10) Business Days after
Metricom becomes aware of the nonconformity or defect), then WFI shall, at its
own cost, promptly reperform, repair or replace, at its option, such
nonconforming or defective part of the Services, within its original Statement
of Work. If WFI does not promptly commence to reperform or remove and replace
any nonconforming or defective Services or any part thereof, Metricom shall give
WFI at least ten (10) Business Days written Notice prior to proceeding with any
correction of nonconforming or defective Services that Metricom reasonably
believes involves a warranty claim, and if WFI fails to respond to such Notice,
Metricom may proceed with the correction of such nonconforming or defective
Services and all reasonable expenses of reperforming and removal, restoration
shall be charged to WFI.
6.4 Wear and Tear. WFI shall, in no event, warrant against and shall have no
--------------
liability for the effects of ordinary wear and tear or erosion or corrosion, or
failure of Services due to faulty operations or maintenance by Metricom or its
representatives, agents or contractors, or conditions of service more severe
than specified in the Statement of Work or other technical documents included
with this Agreement. Further, WFI shall have no warranty obligation or
liability for defects in the Services unless Metricom demonstrates the warranty
claim is not attributable to WFI's reliance upon or use of data, design
criteria, drawings, specifications or other information furnished by Metricom
and Metricom provided WFI an opportunity to promptly make such diagnostic tests
and perform such remedial services as WFI deemed appropriate in connection with
any warranty claim made by Metricom. In the event such diagnostic services do
not reveal any warranted defect in the Services, the costs of such tests,
inspections or other diagnostic services, plus a reasonable negotiated fee,
shall be paid by Metricom.
6.5 Limitation of Warranty. The obligations contained in this Article VI
-----------------------
govern and supersede any other terms in this Agreement which address warranties
or the quality of the Services or the Services and are WFI's sole warranty and
guarantee obligations and Metricom's exclusive remedies with respect to defects
in the Services and the Services after Provisional Acceptance, provided that
portion of the Services to be completed after Substantial Completion (other than
warranty services) shall be performed in accordance with Article II until such
Services is completed in accordance with the Agreement. All of the warranties
and other obligations of WFI under this Article VI relate to the WFI Warranty
Period and WFI shall not be obligated to correct or to pay for the cost of
correcting, defects or deficiencies which become apparent after the expiration
of the WFI Warranty Period. The provisions of this Article VI shall govern,
modify and supersede any other terms of this Agreement relating to the quality
of the Services and except as provided in this Article VI, there are no other
warranties, express or implied, with respect to WFI's performance under this
Agreement.
ARTICLE VII INDEMNIFICATION
---------------
Page 14 of 27
<PAGE>
7.1 WFI's General Indemnity. WFI shall defend, indemnify and hold Metricom
------------------------
and its respective affiliates, successors, assigns, employees, agents, officers
and directors (such indemnified persons or entities collectively, the
"Indemnified Persons") harmless from and against all damages, losses, costs and
expenses (including, but not limited to, court costs and fees and expenses of
counsel) (collectively, "Claims") resulting from the death or bodily injury to
any person, or damage to any property to the extent caused by the sole negligent
act, willful misconduct, tortious or otherwise unlawful act, error or omission
by WFI or any Subcontractor to WFI.
7.2 Metricom's General Indemnity. Metricom shall defend, indemnify and hold
-----------------------------
WFI and its affiliates, and each of their respective successors, assigns,
employees, agents, officers and directors (collectively, the "WFI Indemnified
Persons") harmless from and against all damages, losses, costs and expenses
(including, but not limited to, court costs and fees and expenses of counsel)
(collectively, "Claims") resulting from the death or bodily injury to any
person, or damage to any property of Site to the extent caused by the sole
negligent act, willful misconduct, tortious or otherwise unlawful act, error or
omission by Metricom or contractors under Metricom's direct supervision or
control.
7.3 Protection of the Services. WFI shall be responsible for and obligated
---------------------------
to replace, repair or reconstruct, and to furnish any Services furnished by WFI
under this Agreement which are lost, damaged, or destroyed prior to the transfer
of care, custody, and control of the Services or the affected portion thereof to
Metricom (the "Risk of Loss Date"), provided, WFI shall not be obligated to
replace, repair or reconstruct Services with respect to which proceeds of the
insurance policy maintained pursuant to Section 8.1(d) have been paid for damage
to the Services unless proceeds are available to finance that replacement,
repair or reconstruction and Metricom shall permit such proceeds to be used to
finance such replacement, repair or reconstruction. Metricom assumes all
responsibility for such loss, damage or destruction following the Risk of Loss
Date and WFI is released from all such liability.
7.4 Metricom's Property. Metricom assumes responsibility and risk for all
--------------------
loss of or damage to property owned by or in the custody of Metricom, however
such loss or damage shall occur, and agrees to maintain property damage
insurance fully covering said property from such risk naming WFI as additional
insured and does hereby and shall cause its insurers to waive rights of
subrogation against WFI and its Vendors and Subcontractors under any insurance
which Metricom may carry.
7.5 Compliance with Laws and Regulations. WFI shall indemnify and hold the
-------------------------------------
Indemnified Persons harmless from and against all Claims caused by any violation
of, any Laws and Regulations by WFI or any Subcontractor.
7.6 Notice and Defense. The indemnified party shall notify the indemnifying
-------------------
party in writing within ten (10) Days after the indemnified party becomes aware
of any Claim for which the indemnified party seeks indemnity under this Article
VII. The indemnifying party shall have charge and direction of the defense of
any such Claim and the indemnified party shall render all reasonable assistance,
at the indemnifying party's expense that may be required by WFI and its counsel
in the defense of such Claim.
7.7 Limitations. WFI shall have no obligation to Metricom with respect to
------------
any damage or loss to property referred to above caused by the perils of war,
insurrection, revolution, nuclear reaction, or other like perils as may be
excluded under the scope and limits of the insurance coverage provided pursuant
to Section 8.1 (d) and WFI's liability with respect to loss, damage or injury
shall not exceed the scope and limits of the insurance coverage provided
pursuant to Article VIII. Nothing in this Article VII shall be construed to
require WFI to indemnify any person to the extent harm results from such
person's own negligence, willful misconduct or other tortious act, error or
omission.
ARTICLE VIII INSURANCE
---------
Page 15 of 27
<PAGE>
8.1 WFI's Commitment. Commencing with the Notice to Proceed with the
-----------------
Services hereunder, and continuing until the earlier of Final Completion or
termination of this Agreement (except with regard to "Builder's Risk" Course of
Construction Insurance which shall commence and continue for the period
specified in paragraph (d) below), WFI shall maintain, at its expense, insurance
policies that are appropriate in scope and amount to properly cover WFI's
obligations under the Agreements as follows:
(a) Employees. Workers' compensation and/or all other social insurance
----------
in accordance with the statutory requirements of the state,
province, or country having jurisdiction over WFI's employees who
are engaged in the Services, with employer's liability of one
million dollars ($1,000,000) each accident;
(b) Public Liability. Commercial general liability insurance in a
-----------------
combined single limit of two million dollars ($2,000,000) each
occurrence for bodily injury to or death of persons and/or loss of
or damage to property of parties other than Metricom and excluding
the Services and the Services, which policy shall contain
contractual liability coverage;
(c) Automobile. Automobile liability insurance in a combined single
-----------
limit of one million dollars ($1,000,000) each occurrence for bodily
injury to or death of persons and/or loss of or damage to property
of parties other than Metricom and excluding the Services and the
Services, arising from the use of motor vehicles, and shall cover
operation on or off the Site of all motor vehicles licensed for
highway use, whether they are owned or non-owned;
(d) The Services. "Builder's Risk" Course of Construction insurance
-------------
protecting the respective interests of Metricom, WFI and
Subcontractors covering physical loss or damage during course of
construction and any materials and equipment while in transit (other
than in the course of ocean marine or air transit movement, which is
to be provided for pursuant to paragraph (e) below), while at the
Site, awaiting and during erection, and until the Risk of Loss Date.
This insurance shall be maintained to cover the replacement value of
the Services at risk, to the extent available. This insurance shall
not cover losses caused by the perils of war or nuclear reaction as
defined in the policy of insurance nor shall it cover loss of use,
business interruption, or loss of product. Metricom shall be
included as an additional insured. A deductible of twenty-five
thousand dollars ($25,000) shall apply to each and every covered
loss, except earthquake, flood, windstorm, hot testing, and other
deductibles as specified in the contract of insurance;
(d) Transit. Ocean Marine Cargo Insurance (if appropriate) covering any
--------
and all materials and equipment which may be in transit to the Site
by wet marine bottoms, or by air transportation, and/or by
connecting conveyances. Such insurance shall be maintained to cover
limits at risk.
8.2 Certificates. The foregoing insurance shall be maintained with carriers
-------------
reasonably satisfactory to Metricom, and the terms of coverage shall be as
evidenced by certificates to be furnished Metricom. Such certificates shall
provide that thirty (30) days' written Notice shall be given to Metricom by
insurer prior to cancellation of any policy.
8.3 Waiver of Subrogation. WFI shall require its insurance carriers, with
----------------------
respect to all insurance policies to be carried with respect to the Project to
waive all rights of subrogation against Metricom. WFI agrees to exercise its
best efforts to obtain from its Subcontractors waivers of subrogation.
ARTICLE IX TRANSFER AND ACCEPTANCE
-----------------------
9.1 Substantial Completion. When WFI deems that the Services, a Site or any
-----------------------
other portion thereof has reached Substantial Completion and is ready for
initial inspection, it shall so advise Metricom.
Page 16 of 27
<PAGE>
Within [***] of such advice, Metricom shall provide written notice (i) that
Substantial Completion has occurred; or (ii) why the Services, a Site, or any
portion thereof has not achieved Substantial Completion. If Metricom fails to
take any action within the [***], the issue shall be resolved in accordance with
Section 13.1.
9.2 Care, Custody and Control. The care, custody and control of the Services
--------------------------
shall pass from WFI to Metricom on written agreement that the Services, a Site
or any portion thereof has reached Substantial Completion, but subject to the
warranty and other continuing obligations of WFI hereunder, including WFI's
obligation to complete all Punch List Items outstanding as of Substantial
Completion. In any event, the care, custody, and control of the Services or
portion thereof shall pass to Metricom no later than the time when Metricom
either starts Beneficial Use of or takes physical possession thereof. From and
after the date of the transfer of the care, custody, and control of the Services
or portion thereof, (a) Metricom shall assume all risks of physical loss or
damage thereto and all responsibility for compliance by the Services or portion
thereof with applicable safety and Environmental Laws and all other Laws and
Regulations and (b) Metricom shall, and does hereby, release WFI from loss or
damage to the Services, except as provided for otherwise in the Agreement, which
may thereafter occur.
9.3 Creation of Punch List.
-----------------------
(a) As soon as WFI believes the state of the Services warrants such
action, but in any event before commencing the Provisional
Acceptance Tests, WFI will give a written Notice to Metricom that
WFI is prepared to conduct a joint inspection of the Services, a
Site or any portion of the Services.
(b) Metricom and WFI will cooperate with each other in scheduling and
conducting a joint inspection of the Services, a Site or any portion
of the Services as soon as reasonably possible after Metricom's
receipt of WFI's Notice, but in any event within five (5) Days of
its receipt. At Metricom's option, Punch List Items may be prepared
and joint inspections performed on a components-by-components or
systems-by-systems basis.
(c) Within five (5) Days of completion of any such joint inspection, but
in any event within ten (10) Days of WFI's Notice to Metricom of
WFI's readiness for a joint inspection of the Services, a Site or
systems or components thereof, Metricom shall prepare and deliver to
WFI a written description of all items of the Services (other than
the Provisional Acceptance Tests or additional Services revealed by
such tests or necessary to achieve Successful Completion of such
tests) which Metricom, in its best good faith judgment, believes
have not been completed or require revision or correction to cause
them to conform with the requirements of this Agreement.
(d) Promptly following Metricom's delivery of its proposed list of Punch
List Items to WFI, WFI shall commence and thereafter diligently
pursue the completion of all items of the Services which WFI, in its
best good faith judgment, believes have not been completed or
require revision or correction to cause them to conform with the
requirements of this Agreement.
(e) It is specifically understood and agreed that WFI's acceptance of or
agreement on a list of Punch List Items shall not alter or diminish
either WFI's obligation to complete all of the Services, or
Metricom's right to require its completion, in accordance with this
Agreement.
9.4 Final Completion. The final completion of the Services ("Final
-----------------
Completion") shall occur on the last to occur of (a) the completion in its
entirety of all physical construction of the Services in accordance with this
Agreement, including, without limitation, the completion of such finish items as
final painting and insulation and completion of Punch List Items, (b) the
completion of all other Services in accordance with this Agreement, and (c) the
Successful Completion of the Provisional Acceptance Tests.
Page 17 of 27
* Confidential Treatment Requested
<PAGE>
ARTICLE X DEFAULT, TERMINATION, CANCELLATION AND SUSPENSION
-------------------------------------------------
10.1 Events of Default. A party shall be in default of its obligations
------------------
pursuant to this Agreement (a "WFI Default" in the case of WFI's obligations or
a "Metricom Default" in the case of Metricom's obligations) upon the occurrence
of any one or more of the following circumstances, unless, except as to Section
10.1 (a) below, the party's act or failure giving rise to such circumstance is
excused as being the result of an event described in Article XII (Force
Majeure).
(a) Nonpayment. A party fails to pay or causes to be paid any amount
-----------
that has become due and payable by a party to the other party
hereunder within five (5) Days after Notice of such failure;
(b) Breach of Representations or Covenant. Any material representation
--------------------------------------
made by a party pursuant to this Agreement that shall prove to have
been incorrect as of the date such representation was made or deemed
to have been made; or if a party fails duly to observe or perform
any of the other material covenants and agreements contained in this
Agreement and such failure continues for [***] after Notice to
specifying such failure, except that such failure shall not be
deemed a default if, promptly after Notice, the defaulting party
commences in good faith and thereafter diligently prosecutes
measures which may reasonably be expected to effect a cure of such
misrepresentation in such a way and by such time as shall avoid any
adverse effect on the non-defaulting party's rights under this
Agreement, or that party's ability to achieve its obligations under
this Agreement. The cure period for breach of Sections 12.3 and 16.6
shall be [***];
(c) Insolvency. A party becomes insolvent, or fails generally to pay
-----------
its debts as they become due, or admits in writing its inability to
pay its debts as they become due, or makes a general assignment for
the benefit of creditors;
(d) Voluntary Bankruptcy. A party commences any case, proceeding or
---------------------
other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of itself or its debts or
assets, or adopts an arrangement with creditors, under any
bankruptcy, moratorium, rearrangement, insolvency, reorganization or
similar law of the United States or any state thereof for the relief
of creditors or affecting the rights or remedies of creditors
generally (collectively, "Debtor Relief Laws");
(e) Involuntary Bankruptcy. There shall be instituted against a party
-----------------------
under any Debtor Relief Laws any case, proceeding or action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of that party or its debts or assets, which shall be
continuing and shall not have been terminated, stayed or dismissed
within thirty (30) Days after commencement, or a trustee, receiver,
custodian or other official is appointed for or to take possession
of all or any part of the property of that party, which action
remains undismissed for a period of thirty (30) Days;
(f) Nonperformance. A party disregards any applicable Laws and
---------------
Regulations, the disregard of which may have a material adverse
effect on the non-defaulting party's rights under this Agreement and
such disregard continues for five (5) Business Days after written
Notice from the non-defaulting party; or in the case of WFI, after
written Notice of default from Metricom, WFI fails to provide
Metricom with a cure plan and fails to commence a cure of said
default in accordance with the cure plan within five (5) Business
Days.
Page 18 of 27
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
(g) Abandonment. A party abandons the Project (except due to a
------------
suspension of the Services permitted pursuant to this Agreement),
which may have a material adverse effect on the non-defaulting
party's rights under this Agreement, and the defaulting party fails
to recommence the Project within five (5) Business Days after
written Notice from the non-defaulting party; or a party repudiates
this Agreement.
10.2 Metricom Remedies for WFI Default. In the event of a WFI Default,
----------------------------------
Metricom shall have any or all of the following rights and remedies, and WFI
shall have the following obligations:
(a) Termination. Metricom, without prejudice to any of its other rights
------------
or remedies under this Agreement, may terminate this Agreement
immediately by delivery of a Notice of termination to WFI;
(b) Withdrawal of WFI. If requested by Metricom, WFI shall withdraw
------------------
from the Project, assign to Metricom such of WFI's subcontracts and
Vendor contracts as Metricom may request, and remove such
Construction Aids, and materials and equipment used by and any
debris or waste materials generated by WFI in the performance of the
Services as Metricom may direct, and Metricom may take possession of
any and all designs, Construction Aids, and materials and equipment,
purchase orders, inquiries, schedules, drawings, and facilities of
WFI that Metricom deems necessary to complete of the Services;
(c) Equitable Remedies. Metricom may seek equitable relief to cause WFI
-------------------
to take action, or to refrain from taking action pursuant to this
Agreement, or to make restitution of amounts improperly received
under this Agreement: or
(d) Damages. Metricom may seek damages equal to the reasonable costs in
--------
excess of the Project Cost incurred by Metricom or any party acting
in Metricom's behalf in completing the Services or having the
Services completed. Metricom shall be entitled to withhold further
payments to WFI until Metricom determines that WFI is entitled under
this Agreement to further payments. Upon completion of the Services
by Metricom or third parties, the total cost of the Services shall
be determined, and Metricom shall notify WFI in writing of the
amount, if any, that WFI shall pay Metricom.
10.3 WFI Remedies for Metricom Default. In the event of an Metricom Default,
----------------------------------
WFI shall have any or all of the following rights and remedies, in addition to
those rights and remedies that may otherwise be available to WFI under this
Agreement:
(a) Suspension. WFI may suspend performance of the Services upon no
-----------
less than ten (10) Business Days' Notice to Metricom. In that event,
WFI shall be paid for all costs incurred and arising from or
connected with the suspension, including costs of demobilization,
stand-down time and remobilization.
(b) Termination. WFI may terminate this Agreement upon no less than ten
------------
(10) Business Days' Notice to Metricom;
(c) Equitable Remedies. WFI may seek equitable relief to cause Metricom
-------------------
to take action, or to refrain from taking action pursuant to this
Agreement; or
(d) Damages. WFI may seek damages for an Metricom Default for all costs
--------
incurred by WFI arising from the Metricom Default, including
demobilization and cancellation costs, including any charges by
Vendors and Subcontractors. Notwithstanding any provision in this
Agreement to the contrary or any certificates or representations
made by WFI to the contrary, the parties
Page 19 of 27
<PAGE>
agree in the event of an Metricom Default, WFI reserves its rights
under applicable law to secure any damages suffered by WFI, whether
arising from Metricom's failure to pay amount due under this
Agreement or otherwise, as allowed pursuant to any statutory or
equitable right permitting a Mechanics' or Materialmen's Lien.
10.4 Termination for Convenience. Metricom may, in its sole discretion,
----------------------------
terminate all or any part of the Services without cause at any time by giving
[***] advance written Notice of termination to WFI specifying the portion of the
Services to be terminated and the effective date of such termination.
Immediately upon the effective date of such termination, WFI shall stop
performance of the terminated Services and immediately order and commence
demobilization with regard to the terminated Services. WFI shall continue to
proceed with any part of the Services (if any) not terminated. Upon such
termination, Metricom and WFI shall have the following rights, obligations and
duties:
(a) In case of partial termination of the Services, Metricom and WFI
shall cooperate and negotiate in good faith to agree upon a Change
effecting appropriate adjustments in the Project Cost, Milestone
Payment Schedule and other relevant matters based upon such partial
termination. In that regard, WFI shall be compensated for any
additional costs arising from a partial termination, including
Vendor or Subcontractor cancellation charges. Any such Change shall
be incorporated in a Change Order or amendment of this Agreement;
(b) Upon any termination pursuant to this Article X, Metricom may, at
its option, elect to (a) assume the responsibility for and take
title to and possession of any and all Services that is terminated
at the Site, excluding Construction Aids, and/or (b) succeed to the
interests of WFI in any or all purchase orders, contracts and
subcontracts entered into by WFI with respect to such Services
provided, (i) any such assignment is subject to the concurrent
payment by Metricom of amounts due WFI under this Section 10.5, (ii)
such assignment is acceptable to the respective Subcontractor or
Vendor that is a party to such purchase order, contracts or
subcontracts and (iii) WFI is released by Metricom and such
Subcontractors and Vendors in a form acceptable to WFI from all
further obligations and liability thereunder.
10.5 Suspension by Metricom. Metricom may, at any time after issuance of the
-----------------------
Notice to Proceed and for any reason, suspend performance of the Services or any
portion thereof by giving [***] written Notice to WFI, unless WFI agrees
in writing to a shorter Notice period. Such suspension shall continue for the
period (the "Suspension Period") specified in the suspension Notice. Should the
Services be so suspended, WFI shall be paid for all costs incurred in accordance
with the provision of Article V for Services performed to the date of suspension
and through demobilization and remobilization, including any suspension or
cancellation charges by vendors and Subcontractors.
(a) Resumption of Services. In the case of any suspension under this
-----------------------
Article X, the dates set forth in this Agreement and in the Project
Schedule and other dates for performance by WFI hereunder shall be
equitably extended for the Suspension Period, any WFI rights or
obligations under the Agreement affected by the suspension shall be
equitably adjusted and the Project Cost shall be increased to
reflect substantiated increases in the cost of performance of the
Services and any additional costs incurred by WFI arising from the
suspension.
(b) Termination. If, at the end of the specified Suspension Period,
------------
Metricom has not required a resumption of the Services or has not
notified WFI of any extension of the Suspension Period, WFI may
elect to treat the suspension as a Termination for Convenience
effective as of the commencement date of the Suspension Period, and
Metricom shall pay WFI for (i) the Services performed, (ii) those
other costs attributable to the suspension and (iii) any other
amounts payable pursuant to Article X.
Page 20 of 27
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
ARTICLE XI FORCE MAJEURE
-------------
11.1 Defined. "Force Majeure" as used in this Agreement means events beyond
--------
the reasonable control of Metricom or WFI, as the case may be (an "Affected
Party"), including, but not limited to, the following events: acts of God, fire,
flood, earthquake, public disorder, war (declared or undeclared), sabotage,
governmental acts and decrees, inability to obtain or delays in obtaining
Permits, any change in Laws and Regulations, riots, labor strikes, boycotts,
work slowdowns and all other labor difficulties (whether direct or indirect),
subsurface conditions, breakdown or damage to necessary facilities or
transportation delays, hostilities or acts of terrorism, rebellion or sabotage
or damage resulting therefrom, fires, floods, explosions and accidents;
provided, however, no such event shall constitute Force Majeure in the event
such event is caused solely by the negligent or intentional acts, errors or
omissions of, or material failure to comply with any Law or Regulation by, an
Affected Party or its related and affiliated entities, or a WFI Default or an
Metricom Default, as the case may be.
(a) The more general provisions of this Section 12.1 to the contrary
notwithstanding, it is specifically agreed the following specific
events are to be treated as being, or not being, Force Majeure
events with respect to WFI, as stipulated below, for all purposes of
this Agreement:
[***]
11.2 Notice of Event. No Affected Party shall be in default under this
----------------
Agreement for failure to perform any obligation or for delay in the performance
of any obligation as a result of a Force Majeure event, with the exception of
any obligation to make payment of money due under this Agreement, provided the
Affected Party shall give written Notice to the other party of the Force Majeure
event promptly upon the Affected Party's receipt of knowledge of such event. In
the case of WFI, receipt of knowledge of such event shall occur only when such
event is brought to the attention of WFI's Representative (or any replacement of
such person or any designee of such person in such person's absence). In the
case of Metricom, receipt of knowledge of such event shall occur only when such
event is brought to the attention of Metricom's Representative (or any
replacement of such person or any designee of such person in such person's
absence). The Affected Party shall provide the other party with (i) periodic
supplemental written notices during the period of the Force Majeure regarding
any change, development, progress or other relevant information concerning the
Force Majeure event, and (ii) written Notice promptly of the termination of the
Force Majeure event. The Affected Party shall use reasonable efforts to avoid
and to minimize the effect of a Force Majeure event;
11.3 [***]. In the event [***]
------
ARTICLE XII INTELLECTUAL PROPERTY
---------------------
12.1 Title to Plans and Specifications. Drawings and specifications prepared
----------------------------------
by WFI pursuant to this Agreement, which Metricom may require WFI to supply in
accordance with the Agreement shall become the property of Metricom after
transfer of title thereto and Metricom agrees to use the information contained
therein
Page 21 of 27
<PAGE>
solely for the purpose of facilitating or completing construction, maintenance,
operation, modification and repair of the Facilities and any duplication thereof
shall be solely for Metricom's internal use, in whole or in part, and agrees not
to disclose the same or information contained therein to others for any other
purpose, without the written consent of WFI. In the event Metricom uses such
information for any other purpose, Metricom agrees to release, defend, indemnify
and hold WFI harmless from and against any liability arising out of claims or
suits asserted against WFI. Nothing herein shall be construed as limiting WFI's
ownership of all rights to use its basic know-how, experience and skills,
whether or not acquired during performance of the Services or to perform any
engineering design or other services for any other party.
12.2 Infringement. WFI shall defend, indemnify and hold Metricom and its
-------------
respective affiliates, successors, assigns, employees, agents, officers and
directors harmless from and against all damages, losses, costs and expenses
(including, but not limited to, court costs and fees and expenses of counsel)
resulting from any action brought against Metricom to the extent based on a
claim that the drawings and specifications prepared by WFI pursuant to the
Agreement infringes any patent or copyright if Metricom promptly notifies WFI of
the claim, furnishes WFI a copy of each written correspondence relating to the
claim and gives WFI authority, information and assistance (at WFI's expense)
necessary to defend or settle the claim.
12.3 Non-Disclosure Agreements. Any written agreements between WFI and
--------------------------
Metricom entered into prior to the effective date hereof relating to secrecy or
confidentiality of information exchanged between WFI and Metricom shall be
deemed incorporated herein by reference as if fully set forth in this Agreement.
The parties agree not to disclose the terms contained in this Agreement except
to the extent necessary to enable the parties to fulfill their obligations under
this Agreement.
12.4 Patents. WFI shall include, as a term or condition of each subcontract
--------
and purchase order employed by it in the performance of the Services, a patent
indemnification provision extending from the Vendor under such purchase order to
Metricom and WFI, and to render such assistance to Metricom as may be reasonably
required on a reimbursable cost basis to enforce the terms of such
indemnification by Vendors.
ARTICLE XIII DISPUTE RESOLUTION
------------------
13.1 General Disputes. In the event of a dispute between the parties arising
-----------------
under or relating to this Agreement, excluding any disputes related to Sections
12.3 and 16.6, which cannot be amicably resolved within five (5) Business Days
by the individuals appointed pursuant to Section 2.7 and Section 3.1 hereof,
such dispute shall be referred to a representative of senior management of the
parties hereto for resolution. If senior management of the parties cannot
amicably resolve the dispute within ten (10) Business Days the dispute shall be
submitted to arbitration pursuant to Section 13.2.
13.2 Disputes Involving Changes. In the event a dispute arises pursuant to
---------------------------
the provisions of Article IV, which is unresolved pursuant to Section 13.1, such
dispute shall be decided by binding arbitration with the firm of Judicial
Arbitration & Mediation Services, Inc. - Endispute ("JAMS"), acting as the sole
arbitrator in accordance with the current version of the Streamlined Arbitration
Rules and Procedures of JAMS (the "Rules"). The award is final and binding, and
no appeal may be taken on the grounds of error in the application of the law or
finding of fact. Judgment may be entered on the award, and the award may be
judicially enforced. Any other claims, disputes and other matters in question
arising out of or relating to this Agreement or the breach thereof may, if the
parties mutually agree, be decided by mediation or arbitration by JAMS.
13.3 Waiver of Jury Trial. To the full extent permitted by law, Metricom and
---------------------
WFI hereby knowingly, voluntarily and intentionally waive any rights they may
have to a trial by jury in respect to any litigation based hereon, or arising
out of, under, or in connection with, this Agreement, or any course of conduct,
course of dealing, statements (whether oral or written) or actions of Metricom
or WFI. The parties acknowledge and agree that they have received full and
sufficient consideration for this provision and that this provision is a
material inducement for each party entering into this Agreement.
Page 22 of 27
<PAGE>
13.4 Enforcement Costs. In the event of any arbitration or litigation
------------------
arising out of or in connection with this Agreement between Metricom and WFI,
the prevailing party in such arbitration or litigation shall be paid by the
nonprevailing party the costs (including reasonable attorneys' fees and
expenses) incurred by such prevailing party in connection with such arbitration
or litigation.
ARTICLE XIV INJUNCTIVE RELIEF FOR BREACH
----------------------------
14.1 Injunctive Relief for Breach. WFI's obligations of confidentiality
-----------------------------
under the Agreement are of a unique character that gives them particular value;
breach of any of such obligations will result in irreparable and continuing
damage to Metricom for which there will be no adequate remedy at law; and, in
the event of such breach, Metricom will be entitled to seek injunctive relief
and/or a decree for specific performance and such other and further relief as
may be proper (including monetary damages if appropriate).
ARTICLE XV LIMITATION OF LIABILITY
-----------------------
15.1 Exclusion of Consequential Damages. Neither Metricom or WRI shall be
-----------------------------------
liable, in any event, for any special, indirect, incidental or consequential
damages of any nature arising at any time or from any cause whatsoever,
including specifically, but without limitation, loss of profits or revenue, loss
of use of Components or the Services, non-operation or increased expense of
operation or maintenance of Components or Services, cost of capital, interest or
cost of purchased or replacement equipment or systems.
ARTICLE XVI GENERAL PROVISIONS
------------------
16.1 Independent Contractor. WFI is and shall act as an independent
-----------------------
contractor in the performance of its obligations under this Agreement.
Notwithstanding the foregoing, both Parties acknowledge and agree that WFI
employees, during the Initial Term and any Renewal Terms, shall be working at
the direction and management of Metricom; however, WFI shall retain full control
of and supervision over its own employees. WFI's personnel performing Services
are agents, employees or subcontractors of WFI and are not employees of
Metricom. Nothing herein shall be deemed to create any other relationship
between the Parties, including, without limitation, a partnership, joint or
shared venture, employer-employee or attorney-client relation. WFI shall be
solely liable for all matters relating to compensation, unemployment, disability
insurance, social security, withholding and all other federal, state and local
laws, rules and regulations governing such matters. WFI will honor Metricom's
request for the removal of any particular employee of WFI from the Project,
provided that Metricom has first submitted a written request to WFI setting
forth lawful and reasonable reasons for such request.
16.2 Notices. All notices pertaining to this Agreement shall be in writing
--------
and shall be sufficient when sent (i) by registered or certified mail, return
receipt requested, upon verification of receipt; (ii) by personal delivery when
delivered personally; (iii) by overnight courier upon written verification of
receipt; or (iv) by telecopy, or facsimile transmission (with oral
confirmation), at the following address or at such other address for either
party as it shall from time to time specify in a Notice to the other party which
complies with the requirement of this Section 16.2:
If to Metricom:
---------
[***]
General Counsel
Metricom, Inc.980 University Avenue
Los Gatos, CA 95032
Telephone: 408-399-8200
Fax: 408-399-8274
Page 23 of 27
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
If to WFI:
----
Masood Tayebi, Ph.D. President
Wireless Facilities, Inc.
San Diego Tech Center
9805 Scranton Road, Suite 100
San Diego, CA 92121
Telephone: (619) 824-2929
Fax: (619) 824-2928
16.3 Representations and Remedies. Neither party makes any representations,
----------------------------
covenants, warranties, or guarantees, express or implied, other than those
expressly set forth herein. Nothing herein shall be construed as limiting either
party's right to any other remedies at law, including recovery of damages for
breach of the Agreement.
16.4 Solicitation of Employment. WFI and Metricom agree that, during the
---------------------------
Initial Term and any Renewal Terms of this Agreement, and for [***] after the
expiration or earlier termination of this Agreement, neither Party shall solicit
nor accept for employment any employees of the other Party who have worked on or
performed Services in connection with the Project, without first obtaining the
express written consent of the other Party.
16.5 Interpretation.
---------------
(a) Waivers and Amendments. Waiver by either Party of any default
-----------------------
hereunder by the other Party shall not be deemed a waiver of any
other default. No provision of this Agreement shall be deemed
waived, amended or modified by either Party, unless such waiver,
amendment or modification is in writing and signed by the authorized
representative of each Party.
(b) Governing Law; Consent to Jurisdiction and Venue. This Agreement
-------------------------------------------------
shall be construed in accordance with the laws of the State of
California, irrespective of its conflict of law principles. Each
Party hereby agrees to submit to the in personam jurisdiction of and
--------
consents to the laying of venue in the courts in San Diego,
California for any suit, action or proceeding between the Parties
that arises out of this Agreement or the Parties' performance of
their obligations hereunder, and expressly agrees to waive any
defense thereto.
(c) Severability. If any provision or any part of a provision of this
------------
Agreement shall be held invalid or unenforceable, then the remaining
portions of that provision and the remainder of the Agreement shall
be construed as if not containing the particular invalid or
unenforceable provision or portion thereof, and the rights and
obligations of each Party shall be construed and enforced
accordingly.
(d) Survival. The terms, conditions and warranties contained in this
---------
Agreement that by their sense and context are intended to survive
the termination or expiration of this Agreement shall so survive;
including, without limitation, the provisions of Sections 5, 9, 10,
14 and 16.
(e) Assignment. This Agreement is binding upon and inures to the
-----------
benefit of the Parties and their respective permitted successors and
assigns. A Party may assign its rights and/or delegate its duties
under this Agreement to any third party only with the prior written
consent, which shall not be unreasonable withheld, of the other
Party, except that an assignment to a third party that controls, is
controlled by, is under common control with, or
Page 24 of 27
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
is the legal successor of the assigning Party shall not require the
non-assigning Party's consent provided, however, that the assignee
shall expressly assume the assigning Party's obligations hereunder
and shall be subject to all of the terms and conditions of this
Agreement. Any assignment of rights or delegation of duties under
this Agreement by a Party will not release that Party from its
obligations hereunder. Any assignment contrary to these provision
shall be null and void.
(f) Headings; Construction; Incorporation of Recitals. The headings of
--------------------------------------------------
the paragraphs of this Agreement are inserted for convenience only
and are not intended to affect its meaning or interpretation.
Throughout this Agreement, the singular shall apply to the plural
and the plural to the singular, unless the context clearly indicates
otherwise. The recitals set forth in the beginning of this Agreement
are hereby incorporated and made a material part hereof.
(g) Further Assurance. The Parties shall execute and deliver such
------------------
further documents and instruments and perform such further acts as
may be reasonably be required to carry out the intent and
purposes of this Agreement.
(h) Enforceability. Indemnities against, releases from, assumptions of
---------------
and limitations on liability expressed in this Agreement, as well as
waivers of subrogation rights, shall apply even in the event of the
fault, negligence or strict liability of the party indemnified or
released or whose liability is limited or assumed or against whom
rights of subrogation are waived and shall extend to the officers,
directors, employees, licensors, agents, partners and related
entities of such party and its partners and related entities.
(i) No Third Party Beneficiaries. The parties agree to look solely to
-----------------------------
each other with respect to the obligations and liability arising in
connection with this Agreement and the Services performed hereunder.
This Agreement and each and every provision hereof is for the
exclusive benefit of Metricom and WFI their successors and assigns
and not for the benefit of any third.
(j) Audit Rights. Metricom may audit and inspect WFI's records and
-------------
accounts covering reimbursable costs, unit rates, fixed rates, unit
prices, and time and material costs for a period of one (1) year
following the invoicing for such Services. The purpose of any such
audit shall be only for verification of such costs, and Company
shall not be required to keep records of or provide access to the
make-up of lump sums, fixed rates or amounts expressed as a
percentage of other costs.
16.6 Confidentiality. Each Party may make available ("Disclosing Party") to
----------------
the other ("Receiving Party") access to certain trade secrets and other
confidential technical, business and financial information, including the
contents of this Agreement and the Exhibits thereto (collectively, "Confidential
Information"). So long as and to the extent that Confidential Information is
clearly and identifiably marked "Confidential" or "Proprietary" (if in tangible
form) or is not generally available to the public from other sources, each Party
shall safeguard such Confidential Information in the manner in which it
safeguards its own confidential information, and shall not disclose Confidential
Information to its employees, contractors and agents, except to the extent
necessary to enable it to fulfill its obligations under this Agreement. The
Parties obligations set forth in this Section 17.8 shall not apply with respect
to any portion of the Confidential Information that the Receiving Party can
document by competent proof that such portion: (a) was in the public domain at
the time it was communicated to the Receiving Party by the Disclosing Party; (b)
entered the public domain through no fault of the Receiving Party, subsequent to
the time it was communicated to the Receiving Party by the Disclosing Party; (c)
was in Receiving Party's possession free of any obligation of confidence at the
time it was communicated to Receiving Party by Disclosing Party; (d) was
rightfully communicated to Receiving Party free of any obligation of confidence
subsequent to the time it was communicated to Receiving Party by
Page 25 of 27
<PAGE>
the Disclosing Party; (e) was developed by employees or agents of Receiving
Party independently of and without reference to any information communicated to
Receiving Party by Disclosing Party; or (f) was communicated by Disclosing Party
to an unaffiliated third party free of any obligation of confidentiality. In
addition, Receiving Party may disclose the Disclosing Party's Confidential
Information in response to a valid order by a court or other governmental body,
as otherwise required by law. All Confidential Information furnished to the
Receiving Party by the Disclosing Party is the sole and exclusive property of
the Disclosing Party or its suppliers or customers.
16.7 No Conflict of Interest. During the term of this Agreement, WFI will not
------------------------
accept work, enter into a contract, or accept an obligation from any third party
which would prevent WFI from performing its obligations under this Agreement.
16.8 Exhibit List.
-------------
Exhibit I: Statement of Work/Deliverables
Exhibit II: Project Schedule
Exhibit III: Schedule of Values
16.9 Conflicting Provisions. This Agreement, as defined in this Section
-----------------------
16.9, sets forth the full and complete understanding of the parties as of the
date first above stated, and it supersedes any and all agreements and
representations made or dated prior thereto. In the event of any conflict
between the following documents, the terms and provisions shall govern in the
following order:
(i) any Amendments or Changes then in effect, in the inverse order of
their dates of effectiveness;
(ii) this Agreement, excluding all Exhibits;
(iii) the Statement of Work, Exhibit I;
(iv) all other Exhibits.
Each party shall notify the other in writing immediately upon discovering
any conflict among the documents listed above.
16.10 Entire Agreement; Modifications. This Agreement, including the
--------------------------------
Exhibits attached hereto, constitutes the entire agreement between the Parties
with respect to the subject matter hereof as of the Effective Date with respect
to the Services. All prior and contemporaneous agreements, representations,
statements, negotiations, understandings and undertakings, whether written or
oral, are superseded by this Agreement. This Agreement may be modified only in
a written document signed by both Parties.
THE PARTIES ACKNOWLEDGE AND AGREE THE TERMS AND CONDITIONS OF THIS AGREEMENT
HAVE BEEN FREELY, FAIRLY AND THOROUGHLY NEGOTIATED. FURTHER, THE PARTIES
ACKNOWLEDGE AND AGREE SUCH TERMS AND CONDITIONS, INCLUDING BUT NOT LIMITED TO
THOSE RELATING TO WAIVERS, ALLOCATIONS OF, RELEASES FROM, INDEMNITIES AGAINST
AND LIMITATIONS OF LIABILITY, WHICH MAY REQUIRE CONSPICUOUS IDENTIFICATION, HAVE
NOT BEEN SO IDENTIFIED BY MUTUAL AGREEMENT AND THE PARTIES HAVE ACTUAL KNOWLEDGE
OF THE INTENT AND EFFECT OF SUCH TERMS AND CONDITIONS. EACH PARTY ACKNOWLEDGES
THAT IN EXECUTING THIS AGREEMENT THEY RELY SOLELY ON THEIR OWN JUDGMENT, BELIEF,
AND KNOWLEDGE, AND SUCH ADVICE AS THEY MAY HAVE RECEIVED FROM THEIR OWN COUNSEL,
AND THEY HAVE NOT
Page 26 of 27
<PAGE>
BEEN INFLUENCED BY ANY REPRESENTATION OR STATEMENTS MADE BY ANY OTHER PARTY OR
ITS COUNSEL. NO PROVISION IN THIS AGREEMENT IS TO BE INTERPRETED FOR OR AGAINST
ANY PARTY BECAUSE THAT PARTY OR ITS COUNSEL DRAFTED SUCH PROVISION.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
METRICOM, INC. WIRELESS FACILITIES, INC.
/s/ Dale W. Marquart /s/ Masood K. Tayebi
- -------------------------- -------------------------------
By: Dale W. Marquart By: Masood K. Tayebi
----------------------- ----------------------------
Title: General Counsel Title: President
-------------------- -------------------------
Date: 09-27-99 Date: 09-27-99
--------------------- --------------------------
Page 27 of 27
<PAGE>
EXHIBIT I
TO
MASTER SERVICES AGREEMENT
BETWEEN METRICOM, INC. AND WIRELESS FACILITIES, INC.
DATED SEPTEMBER 21, 1999
STATEMENT OF WORK FOR RF ENGINEERING
------------------------------------
Services Description:
This scope of work describes the tasks to be performed for the turnkey RF
engineering services ("RF Engineering Services"). The task descriptions
include Metricom responsibilities, WFI responsibilities, task descriptions,
and deliverables for each phase of the project.
Warranty:
In accordance with Section 6.1 of the Agreement, the WFI Warranty Period for
this Part I will be [***] from the date of entitlement for payment
for Punch List Complete/Site Acceptance, as defined in Exhibit III of the
Agreement.
Term of Agreement:
WFI and Metricom have executed a Master Services Agreement and this Statement
of Work, which, taken together, form an exclusive agreement between WFI and
Metricom for the provisioning of RF Engineering Services as set forth in this
Statement of Work. The exclusivity of the Agreement for RF Engineering
Services expires [***], or upon completion of the [***] which occurs first, at
the following rates.
1. $[***] dollars per site up to an estimate of [***] sites
2. $[***] dollars per site after [***] sites up to an estimate of [***]
sites.
Task 1 Project Initiation
- -------------------------
A. Services Description:
This task describes the mutual tasks and responsibilities for initiation of
the RF engineering.
B. WFI Responsibilities:
[***]
Metricom Confidential and Proprietary
WFI Exhibit I to Master Services Agreement dated 09/21/99
1 of 5
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
C. Metricom responsibilities:
1. Provide network equipment specification documentation
2. Provide friendly/bulk site databases
3. Define GSA coverage boundaries
4. Network configuration and Decibel Planner tools training
5. Design criteria including link budget
6. Terrain Databases
7. Propagation tool software (Decibel Planner)
8. Supply drive test equipment
D. Project Initiation Deliverables:
1. Training complete
2. Engineers and drive test teams in market
Task 2: Preliminary Design
- --------------------------
A. Services Description:
This task describes the mutual responsibilities required for completing the
preliminary RF design.
B. WFI responsibilities:
[***]
Metricom Confidential and Proprietary
WFI Exhibit I to Master Services Agreement dated 09/21/99
2 of 5
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
C. Metricom Responsibilities:
1. Approve preliminary design
2. Attendance by approval representatives at the design review
D. Deliverables
1. Preliminary design review
2. Sign-off on primary design
Task 3: Initial Search Ring Release
- -----------------------------------
A. Service Description:
In this task RF engineering will release search area rings to the leasing
teams.
B. WFI responsibilities:
1. Prepare initial search rings
2. Release search rings to Metricom for review
3. Release search rings to site development teams as instructed by Metricom
Metricom responsibilities:
1. Provide personnel to review and approve search rings.
D. Deliverables
1. Search Ring packages issued to leasing and zoning
Metricom Confidential and Proprietary
WFI Exhibit I to Master Services Agreement dated 09/21/99
3 of 5
- -------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Task 4: Field Design And Candidate Approvals:
- ---------------------------------------------
A. Services Description:
Task 4 involves the mutual responsibilities and tasks needed for RF
engineering to approve site locations. The process is an iterative process
with all of the disciplines.
B. WFI responsibilities:
[***]
C. Metricom responsibilities:
1. Provide approval authority and sign-off for sites
D. Deliverables:
1. RF approval and sign-off of primary candidates
2. RF candidate information forms complete
Metricom Confidential and Proprietary
WFI Exhibit I to Master Services Agreement dated 09/21/99
4 of 5
- -----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Task 5: Final Site Acceptance
- -----------------------------
A. Services Description:
This task describes the mutual responsibilities and tasks needed to accept
the site.
B. WFI responsibilities:
[***]
C. Metricom responsibilities:
1. Provide final design approval authority
D. Deliverables:
1. Final design review
2. Delivery all site information Site Candidate Package to Metricom
3. RF site acceptance complete
This Statement of Work is an attachment to the Master Services Agreement between
Metricom, Inc. and Wireless Facilities, Inc. dated September 21, 1999. This
Statement of Work may not be modified except in writing by both Parties.
Accepted by:
Metricom, Inc. Wireless Facilities, Inc.
/s/ Dale W. Marquart /s/ Masood K. Tayebi
- ---------------------------------- ----------------------------------
By: Dale W. Marquart By: Masood K. Tayebi
------------------------------- -------------------------------
Title: General Counsel Title: President
---------------------------- ----------------------------
Date: 9-27-99 Date: 09-27-99
----------------------------- ----------------------------
Metricom Confidential and Proprietary Date:
WFI Exhibit I to Master Services Agreement dated 09/21/99
5 of 5
- ----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT II
- --------------------------------------------------------------------------------
EXHIBIT II: PROJECT SCHEDULE FOR RP ENGINEERING
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
r 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Task Name Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
[***] [***]
</TABLE>
<PAGE>
EXHIBIT III
TO
MASTER SERVICES AGREEMENT
BETWEEN METRICOM, INC. AND WIRELESS FACILITIES, INC.
DATED SEPTEMBER 21, 1999
RF ENGINEERING SCHEDULE OF VALUES
PART I-PRICE SCHEDULE
WFI and Metricom have executed a Master Services Agreement that is exclusive
between WFI and Metricom for all RF engineering services as follows:
1. [***] dollars per site up to an estimate of [***] sites
2. [***] dollars per site after [***] sites up to an estimate of [***]
sites.
The Exclusivity Agreement for RF engineering expires [***], or after completion
of [***], whichever occurs first.
PART II-MILESTONE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
RF ENGINEERING MILESTONE PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------
NO. MILESTONE PCT DELIVERABLE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDITIONS
<S> <C> <C>
Milestone one: [***] [***]
Milestone two: [***] [***]
Milestone three: [***] [***]
Milestone four: [***] [***]
</TABLE>
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 1 of 3
- -----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
PART III-PROFESSIONAL SERVICES HOURLY RATES
The hourly rates set forth below shall apply to all Services performed by WFI
that are in addition to those described in the Statement of Work. Metricom
shall compensate WFI on an hourly basis in accordance with the rates set forth
in the table below. WFI may invoice Metricom monthly for all hourly-billed
Services rendered the previous period.
1. These hourly rates do not include expenses or taxes.
<TABLE>
<CAPTION>
WIRELESS FACILITIES, INC.
1999 Hourly Services Rates
- --------------------------------------------------------------------------------------------------------------
Service Type Employment Category Hourly Rate Monthly Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Program Management 1 Project Manager $[***] $[***]
2 Project Coordinator $[***] $[***]
3 Administrative Assistant $[***] $[***]
RF Engineering 4 Principal Engineer $[***] $[***]
5 Senior Engineer $[***] $[***]
6 Design Engineer $[***] $[***]
7 Engineer $[***] $[***]
8 Associate Engineer $[***] $[***]
9 Technician $[***] $[***]
Network Engineering 10 Principal Engineer $[***] $[***]
11 Senior Engineer $[***] $[***]
12 Design Engineer $[***] $[***]
13 Engineer $[***] $[***]
14 Associate Engineer $[***] $[***]
15 Technician $[***] $[***]
Site Acquisition 16 Leasing Manager $[***] $[***]
17 Zoning Manager $[***] $[***]
18 Site Acquisition Specialist $[***] $[***]
19 Zoning Specialist $[***] $[***]
20 Paralegal $[***] $[***]
Construction Management 21 CM Construction Manager $[***] $[***]
22 CM Operations Manager $[***] $[***]
23 CM Construction Engineer $[***] $[***]
24 CM Project Coordinator $[***] $[***]
25 CM Utility Coordinator $[***] $[***]
26 CM Field Supervisor $[***] $[***]
Installation & Maintenance 27 Cell-site Engineer $[***] $[***]
28 Switch Engineer $[***] $[***]
29 Engineer Supervisor $[***] $[***]
30 Sr. Installer $[***] $[***]
31 Installer $[***] $[***]
Documentation 32 Document Controls Supervisor $[***] $[***]
33 Document Controls $[***] $[***]
Logistics 34 Logistics Manager $[***] $[***]
GIS 35 GIS Manager $[***] $[***]
36 GIS Specialist $[***] $[***]
Business Consulting 37 Sr. Partner $[***] $[***]
38 Partner $[***] $[***]
39 Director $[***] $[***]
40 Business Consultant $[***] $[***]
Advanced Technology 41 Principal Staff Engineer $[***] $[***]
42 Sr. Staff Engineer $[***] $[***]
43 Staff Engineer $[***] $[***]
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 2 of 3
- -----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
PART IV-ADDITIONAL EXPENSES
Expense Summary
- ---------------
The following table summarizes which expenses are included in WFI's fixed
pricing and which are considered pass-through expenses. WFI may invoice Metricom
bi-weekly for reimbursable pass-through expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
WFI Metricom Provided or
Included Reimbursed to WFI as
Pass-Through expenses
<S> <C> <C>
Expense Summary:
- ----------------
Architect and Engineering Services [***] [***]
Capital lease costs (if necessary) [***] [***]
Cellular Phones/Pagers [***] [***]
Cellular/Paging Service (project related) [***] [***]
Crane rental for drive testing [***] [***]
Construction Contractor for site construction [***] [***]
Easement Acquisition Costs (if necessary) [***] [***]
Environmental Site Assessment [***] [***]
Expert Testimony (if necessary) [***] [***]
Land-use attorney (if necessary) [***] [***]
Lease option payments [***] [***]
License & Permit Fees [***] [***]
Field Expenses (maps, deeds, film developing, etc.) [***] [***]
Formal Site Survey [***] [***]
Frequency Coordination Study (preliminary and final) [***] [***]
GIS/Mapping (as necessary) [***] [***]
Mechanical and Electrical Drawings [***] [***]
Vehicle Expenses (project related) [***] [***]
Personal Computers & Related Software [***] [***]
Office Supplies [***] [***]
CW Drive Test Equipment [***] [***]
Propagation Tools (software), terrain data bases [***] [***]
Propagation Tools (hardware computer and plotter) [***] [***]
Overnight Mail (project related) [***] [***]
Photo Simulations (as necessary) [***] [***]
Soil Tests (geotechnical testing) [***] [***]
Structural Analysis [***] [***]
Title (property ownership verification) Report Cost [***] [***]
Tower Stress and Foundation Analysis [***] [***]
Travel and Living Expenses [***] [***]
Zoning/Filing/Permitting Fees [***] [***]
EXPENSES INCLUDED IN OFFICE SPACE (See Note (1)
- ------------------------------------------------
Telephone/FAX Service (local/long distance) (1) [***] [***]
Office Rent, Furniture & Equipment (1) [***] [***]
Utilities (1) [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note(1): Office Space will be compensated at a rate of $[***] per square foot
per month, said rate will be subject to negotiation by Metricom and WFI based on
demonstrated and substantial increased actual cost in a specific market.
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 3 of 3
- ---------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Task 5: Final Site Acceptance
- -----------------------------
A. Services Description:
This task describes the mutual responsibilities and tasks needed to accept
the site.
B. WFI responsibilities:
[***]
C. Metricom responsibilities:
1. Provide final design approval authority
D. Deliverables:
1. Final design review
2. Delivery all site information Site Candidate Package to Metricom
3. RF site acceptance complete
This Statement of Work is an attachment to the Master Services Agreement between
Metricom, Inc. and Wireless Facilities, Inc. dated September 21, 1999. This
Statement of Work may not be modified except in writing by both Parties.
Accepted by:
Metricom, Inc. Wireless Facilities, Inc.
/s/ DALE W. MARQUART /s/ MASOOD K. TAYEBI
- ------------------------------------ ---------------------------------------
By: Dale W. Marquart By: Masood K. Tayebi
--------------------------------- ------------------------------------
Title: General Counsel Title: President
------------------------------ ---------------------------------
Date: 9-27-99 Date: 09-27-99
------------------------------- ----------------------------------
<PAGE>
EXHIBIT III
TO
MASTER SERVICES AGREEMENT
BETWEEN METRICOM, INC. AND WIRELESS FACILITIES, INC.
DATED SEPTEMBER 21, 1999
RF ENGINEERING SCHEDULE OF VALUES
PART I-PRICE SCHEDULE
WFI and Metricom have executed a Master Services Agreement that is exclusive
between WFI and Metricom for all RF engineering services as follows:
1. [***] dollars per site up to an estimate of [***] sites
2. [***] dollars per site after [***] sites up to an estimate of [***]
sites.
The Exclusivity Agreement for RF engineering expires [***], or after completion
of [***], whichever occurs first.
PART II-MILESTONE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
RF ENGINEERING MILESTONE PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------
NO. MILESTONE PCT DELIVERABLE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDITIONS
<S> <C> <C>
Milestone one: [***] [***]
Milestone two: [***] [***]
Milestone three: [***] [***]
Milestone four: [***] [***]
</TABLE>
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 1 of 3
- -----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
PART III-PROFESSIONAL SERVICES HOURLY RATES
The hourly rates set forth below shall apply to all Services performed by WFI
that are in addition to those described in the Statement of Work. Metricom
shall compensate WFI on an hourly basis in accordance with the rates set forth
in the table below. WFI may invoice Metricom monthly for all hourly-billed
Services rendered the previous period.
1. These hourly rates do not include expenses or taxes.
<TABLE>
<CAPTION>
WIRELESS FACILITIES, INC.
1999 Hourly Services Rates
- --------------------------------------------------------------------------------------------------------------
Service Type Employment Category Hourly Rate Monthly Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Program Management 1 Project Manager $[***] $[***]
2 Project Coordinator $[***] $[***]
3 Administrative Assistant $[***] $[***]
RF Engineering 4 Principal Engineer $[***] $[***]
5 Senior Engineer $[***] $[***]
6 Design Engineer $[***] $[***]
7 Engineer $[***] $[***]
8 Associate Engineer $[***] $[***]
9 Technician $[***] $[***]
Network Engineering 10 Principal Engineer $[***] $[***]
11 Senior Engineer $[***] $[***]
12 Design Engineer $[***] $[***]
13 Engineer $[***] $[***]
14 Associate Engineer $[***] $[***]
15 Technician $[***] $[***]
Site Acquisition 16 Leasing Manager $[***] $[***]
17 Zoning Manager $[***] $[***]
18 Site Acquisition Specialist $[***] $[***]
19 Zoning Specialist $[***] $[***]
20 Paralegal $[***] $[***]
Construction Management 21 CM Construction Manager $[***] $[***]
22 CM Operations Manager $[***] $[***]
23 CM Construction Engineer $[***] $[***]
24 CM Project Coordinator $[***] $[***]
25 CM Utility Coordinator $[***] $[***]
26 CM Field Supervisor $[***] $[***]
Installation & Maintenance 27 Cell-site Engineer $[***] $[***]
28 Switch Engineer $[***] $[***]
29 Engineer Supervisor $[***] $[***]
30 Sr. Installer $[***] $[***]
31 Installer $[***] $[***]
Documentation 32 Document Controls Supervisor $[***] $[***]
33 Document Controls $[***] $[***]
Logistics 34 Logistics Manager $[***] $[***]
GIS 35 GIS Manager $[***] $[***]
36 GIS Specialist $[***] $[***]
Business Consulting 37 Sr. Partner $[***] $[***]
38 Partner $[***] $[***]
39 Director $[***] $[***]
40 Business Consultant $[***] $[***]
Advanced Technology 41 Principal Staff Engineer $[***] $[***]
42 Sr. Staff Engineer $[***] $[***]
43 Staff Engineer $[***] $[***]
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 2 of 3
- -----------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
PART IV-ADDITIONAL EXPENSES
Expense Summary
- ---------------
The following table summarizes which expenses are included in WFI's fixed
pricing and which are considered pass-through expenses. WFI may invoice Metricom
bi-weekly for reimbursable pass-through expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
WFI Metricom Provided or
Included Reimbursed to WFI as
Pass-Through expenses
<S> <C> <C>
Expense Summary:
- ----------------
Architect and Engineering Services [***] [***]
Capital lease costs (if necessary) [***] [***]
Cellular Phones/Pagers [***] [***]
Cellular/Paging Service (project related) [***] [***]
Crane rental for drive testing [***] [***]
Construction Contractor for site construction [***] [***]
Easement Acquisition Costs (if necessary) [***] [***]
Environmental Site Assessment [***] [***]
Expert Testimony (if necessary) [***] [***]
Land-use attorney (if necessary) [***] [***]
Lease option payments [***] [***]
License & Permit Fees [***] [***]
Field Expenses (maps, deeds, film developing, etc.) [***] [***]
Formal Site Survey [***] [***]
Frequency Coordination Study (preliminary and final) [***] [***]
GIS/Mapping (as necessary) [***] [***]
Mechanical and Electrical Drawings [***] [***]
Vehicle Expenses (project related) [***] [***]
Personal Computers & Related Software [***] [***]
Office Supplies [***] [***]
CW Drive Test Equipment [***] [***]
Propagation Tools (software), terrain data bases [***] [***]
Propagation Tools (hardware computer and plotter) [***] [***]
Overnight Mail (project related) [***] [***]
Photo Simulations (as necessary) [***] [***]
Soil Tests (geotechnical testing) [***] [***]
Structural Analysis [***] [***]
Title (property ownership verification) Report Cost [***] [***]
Tower Stress and Foundation Analysis [***] [***]
Travel and Living Expenses [***] [***]
Zoning/Filing/Permitting Fees [***] [***]
EXPENSES INCLUDED IN OFFICE SPACE (See Note (1)
- ------------------------------------------------
Telephone/FAX Service (local/long distance) (1) [***] [***]
Office Rent, Furniture & Equipment (1) [***] [***]
Utilities (1) [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note(1): Office Space will be compensated at a rate of $[***] per square foot
per month, said rate will be subject to negotiation by Metricom and WFI based on
demonstrated and substantial increased actual cost in a specific market.
Metricom Confidential and Proprietary
WFI Exhibit III to Master Services Agreement dated September 21, 1999
Page 3 of 3
- ---------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT I-A
to
MASTER SERVICES AGREEMENT
Between Metricom, Inc. and Wireless Facilities, Inc.
Dated September 21, 1999
STATEMENT OF WORK RFP #AB-003
Part I: Site Acquisition Scope of Work
- --------------------------------------
Overview:
Part I of this document describes the tasks and responsibilities of Metricom
and the Contractor to lease WAP sites.
Warranty:
In accordance with Section 6.1 of the Agreement, the Contractor Warranty
Period for this Part I will be [***] Days from the date of entitlement for
payment for lease signed, as defined in Exhibit III of the Agreement.
Part I: Task 1- Site Identification
A. Services Description:
After RF preliminary design approval and upon the Metricom release of search
areas, this task defines the responsibilities of each party to identify
potential sites.
Note that Metricom typically has utilized only existing structures for its WAP
sites (i.e., only existing buildings, water towers, communications sites, or
other similar type structures). Therefore, raw land sites upon which Metricom
would be required to build towers would not be considered except in the most
exceptional of circumstances.
B. Contractor Responsibilities
1. Upon the release of search areas, the Contractor shall meet with the
WFI RF Engineer and LGRPA and review coverage objectives and minimum
criteria for each search area.
2. The Contractor shall conduct a physical review of the search area and
identify up to three (3) potential WAP site candidates, which meet the
minimum requirements as defined by Metricom.
3. The Contractor shall make contact with the owner(s) of the potential
sites and confirm with the owner(s) a willingness to Lease the
property to Metricom for the purpose of locating a WAP facility.
4. The Contractor shall deliver to the owner(s) an information package
containing WAP facility siting information and a copy of the Metricom
standard Lease agreement.
5. The Contractor shall prepare and submit a site candidate ranking
package ("Candidate Package") for each site (containing the address,
owner/contact information, photos, maps, property data and zoning
information), in a format approved by Metricom, to the RF Manager and
LGRPA for evaluation.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 1 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
6. The contractor shall coordinate with the building owner, on an as
needed basis, to facilitate access for RF Engineering personnel for
drive testing operations.
7. Approval of a candidate site shall serve as the Contractor's notice to
proceed with all site development activity (leasing, zoning,
construction management, interconnect management and installation)
provided an Authorization to Proceed to Zoning has been received on
each WAP Site from the local LGRPA.
8. Upon approval of the candidate site, the Contractor shall be required,
at Metricom's discretion, to negotiate a Lease agreement, which meets
Metricom's legal and pricing requirements.
C. Metricom Responsibilities:
1. Issue search areas to Contractor along with issuing to Contractor its
Notice to Proceed with the Statement of Work under Section 2.3 of the
Agreement.
2. Provide LGRPA contact to approve coverage objective and minimum search
criteria for each search area.
3. Provide copy of Metricom standard lease agreement, legal and pricing
requirements
D. Deliverables:
1. Candidate Package - The Contractor shall prepare and submit a site
candidate ranking package ("Candidate Package") for each site
(containing the address, owner/contact information, photos, maps,
property data and zoning information), in a format approved by
Metricom, to the RF Manager and LGRPA for evaluation.
Part I: Task 2- Site Review & Coordination Activities
A. Services Description:
The Contractor shall schedule site visits whereby the appropriate
disciplines will evaluate the site candidate(s) to select and prioritize
the RF approved sites.
B. Contractor Responsibilities:
1. The Contractor shall work directly with the WFI RF Engineer and assist
in selecting and prioritizing acceptable sites from the candidate
list.
2. The Contractor shall be required to coordinate site visits, landlord
meetings and site tests as required. The selection of sites shall be
based on terrain, zoning, RF, construction feasibility, cost,
permitting and environmental requirements.
3. The site review process will result in 3 outcomes for a candidate
site:
a. Candidate Unconditionally Approved-A candidate site that has been
unconditionally approved by the WFI RF engineer and that meets
Metricom's leasing terms and construction requirements.
b. Candidate Conditionally Approved - A candidate site that requires
further investigation to determine whether it will be
unconditionally approved or rejected.
c. Candidate Rejected - A candidate site that does not meet the RF
design parameters and/or cannot meet acceptable Metricom business
terms/construction requirements. The person(s) who reject the
candidate will clearly describe on the Candidate Review Form the
reason for the rejection.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 2 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
. Unconditional approval of a site candidate will serve as
Metricom's Notice to Proceed ("NTP") to Contractor for
leasing, zoning, (including parallel processing of leasing
and zoning tasks) construction management and installation.
4. Each discipline in the GSA (i.e., the Contractor, WFI RF Engineer and
LGRPA) shall meet the following Candidate Review and Response Times:
a. Unconditional Approval: [***] Business Days from the date of
submission of the candidate package by Contractor.
b. Resolution of Issues for Conditional Approval or Rejection: [***]
additional Business Days (for a total of [***] business days from
date of submission of a candidate package by Contractor).
5. The Contractor's Project Manager in charge of the GSA will be
responsible for coordinating and mediating between RF Engineering,
Real Estate, Construction and LGRPA disciplines to select the primary
candidate.
6. Difficult Search Areas - In the event sites are not identified for a
search area that meet the required criteria, the Contractor shall be
required to report what sites are available and work with the WFI RF
Engineer and LGRPA to find the best site for the search area or
redesign the search area. It is the Contractors responsibility to
issue a written notice to Metricom LGRPA.
C. Metricom Responsibilities:
1. The LGRPA is Metricom's oversight person for this process and has sole
authority, in accordance with the WAP Decision Matrix, to approve
business terms that are outside of Metricom's specified parameters.
2. The Contractor's Project Manager will direct issues that cannot be
resolved in the GSA to the Metricom LGRPA.
3. Each discipline in the GSA (i.e., the Contractor, WFI RF Engineer,
Metricom LGRPA) shall meet the following Candidate Review and Response
Times:
a. Unconditional Approval: [***] Business Days from the date of
submission of the candidate package by Contractor.
b. Resolution of Issues for Conditional Approval or Rejection: [***]
additional Business Days (for a total of [***] business days from
date of submission of a candidate package by Contractor).
4. Difficult Search Areas - In the event sites are not identified for a
search area that meet the required criteria, the Contractor shall be
required to report what sites are available and work with the WFI RF
Engineer and LGRPA to find the best site for the search area or
redesign the search area. In this case it is Metricom's responsibility
to acknowledge the notice.
D. Deliverables:
1. Update Site Candidate Package
2. Search Ring Package
3. Candidate Review Form
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 3 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Part I: Task 3- Lease Acquisition
A. Services Description:
Task 3 describes the process and mutual responsibilities to obtain leases
for Metricom Sites. Also the interaction between all of the disciplines and
responsible authorities for approving the leases is addressed.
B. Contractor Responsibilities:
1. The Contractor shall negotiate the terms and conditions of the
Metricom standard Lease with the site owner in accordance with
Metricom's Standard pricing and legal requirements.
2. The Contractor shall deliver a formal Lease agreement signed by the
property owner(s) or their legal representative(s) and a Letter of
Authorization (permission to file a zoning application) for the
priority one candidate in each search area.
3. Title Search: As a general rule, Metricom will require a title search
on all sites requiring new tower construction and/or sites requiring
excavation and/or trenching for the placement of the WAP cabinet and
power and telco. Metricom will require a title search on an as-needed
basis only
a. If needed, The Contractor shall order the title search and
deliver a copy of the results to Metricom as directed by
Metricom.
b. If needed, the Contractor shall order a title search as
directed by Metricom on an exception basis for all other
site types.
4. Legal Assistance: The Contractor shall supply legal review personnel
-
for each of the markets in which Contractor is supplying WAP site
development services.
a. Contractor's legal review personnel shall use their best
efforts to assist Contractor and Metricom in obtaining
agreements in accordance with Metricom's guidelines.
b. Contractor and Metricom shall agree upon the procedures for
Metricom's review and approval of License Agreements that
are outside such guidelines.
c. Contractor shall be responsible for the performance and
turnaround times of its legal reviewers.
C. Metricom Responsibilities:
1. Title Search:
a. Metricom shall review and approve all title search
documents.
b. The cost of title reports shall be borne by Metricom.
2. Legal Assistance:
a. Metricom shall provide the standard Lease and legal
guidelines for Lease negotiations to the Contractor.
b. Metricom shall provide guidelines for negotiating non-
standard agreements.
3. Contractor and Metricom shall agree upon the procedures for Metricom's
review and approval of Lease Agreements that are outside such
guidelines.
4. Metricom shall be responsible for the performance and turnaround times
of its legal reviewers.
D. Deliverables
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 4 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
1. Update Site Candidate Package:
a. Signed Lease or Lease Option Documentation
b. Title search
Part I: Task 4- Environmental Studies
A. Services Description:
When the need occurs, Task 4 explains the process and mutual
responsibilities of working with Metricom to order environmental studies.
However, Contractor should avoid any and all sites requiring NEPA
certification and/or Phase 1 Review unless no other qualified sites are
available and only after discussion with local LGRPA.
B. Contractor Responsibilities:
1. The Contractor shall order environmental studies (typically limited to
NEPA Compliance Review and Phase 1 Environmental Review) from Metricom
approved vendors where required by the site criteria guidelines issued
approved by Metricom.
2. Identify sites where environmental studies are needed and communicate
to Metricom.
3. Receive authorization by Metricom to proceed with environmental
studies.
C. Metricom Responsibilities:
1. Approval to proceed, within two business days, with the initiation of
environmental studies.
2. Provide Legal guidelines and practices for Environmental Studies in
each market.
3. Provide approval of authorized NEPA consultants.
4. The cost of environmental studies shall be borne by Metricom.
D. Deliverables:
1. An original copy of the results of the Phase 1 or II study
Part I: Task 5- Lease Exhibits
A. Services Description:
Obtain and/or create Exhibits A and B to the lease or license agreement for each
WAP site. Exhibit A is defined as the description of the property on which the
WAP site will be located. Exhibit B is defined as the depiction of Metricom's
leased premises for each WAP site
B. Contractor Responsibilities:
1. The Contractor shall prepare a legal description for the candidate
site meeting the local recording office's requirements for legal
descriptions on recorded documents (if permitted by cutting and
pasting the legal description from the title-vesting document or by
carefully typing same).
---------
2. The Contractor shall prepare or cause the Architect toot prepare a
site diagram including the equipment and antenna configuration to be
used as Exhibit B to the lease and/or for use by other disciplines.
Contractor shall coordinate with the WFI RF Engineer for their
approval of the diagram.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 5 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
3. The Contractor shall also obtain, where possible, current as-built
drawings from the landowner to aid in site design and engineering.
C. Metricom Responsibilities:
1. Site equipment layout specification guidelines.
2. Coordinate with Metricom LGRPA, Zoning and A&E personnel proper
drawings for zoning submittal package.
3. Cost of reproduction of existing as built drawings will be borne by
Metricom
D. Deliverables:
1. Lease Exhibits A and B.
Part I: Task 6- Tracking and Reporting
A. Services Description:
This task describes the mutual responsibilities required to track and record the
progress on the project.
B. Contractor Responsibilities:
1. Obtain weekly report format or forms required by Metricom.
2. Maintain current and timely reporting and records of each site
specific data as required and specified by Metricom.
3. Coordinate and manage Weekly meetings to review site status tracking.
C. Metricom Responsibilities:
1. Provide weekly report format or forms required by Metricom.
2. LGRPA will attend Weekly meetings to review site status tracking.
D. Deliverables:
1. Weekly Status Meeting.
2. Site Information Package Updates
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 6 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
Part I: Task 7- Lease Package and File Close-out
A. Services Description:
This task describes the responsibility of preparing a Lease Package
Documentation Checklist:
B. Contractor Responsibilities:
1. Obtain Three originally signed copies of an approved WAP Lease
agreement signed by a duly authorized representative (per Metricom's
guidelines) of the landlord, Lease summary form, exhibits, title and
environmental reports, draft agreements, photos, maps, correspondence,
a comprehensive negotiator's report, and any other items.
C. Metricom Responsibilities:
1. Format to be provided by Metricom on the Metricom WAP File
Documentation Checklist
D. Deliverables:
1. Obtain Three originally signed copies of an approved WAP Lease
agreement signed by a duly authorized representative (per Metricom's
guidelines) of the landlord, Lease summary form, exhibits, title and
environmental reports, draft agreements, photos, maps, correspondence,
a comprehensive negotiator's report, and any other items.
Part II: Zoning Approvals Scope of Work
- ---------------------------------------
Services Description:
Part II describes the necessary tasks and mutual responsibilities to obtain
zoning for the WAP sites.
Warranty:
In accordance with Section 6.1 of the Agreement, the Contractor Warranty
Period for this Part II will be [***] Days from the date of entitlement for
payment for zoning approved, as defined in Exhibit III of the Agreement.
Part II: Task 1- Preliminary Investigation:
A. Services Description:
In this task, the contractor works closely with RF Engineering, Site
Acquisition, and Construction to determine the zoning requirements.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 7 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
B. Contractor Responsibilities:
1. The Contractor shall obtain any and all required approvals or
zoning variances from all jurisdictions necessary to legally
operate the proposed WAP facility on the selected site.
2. The Contractor shall conduct a physical review of the search area
with all site development disciplines and provide input to
determine the priority one candidate.
3. The Contractor shall review search areas with the WFI RF Engineer
to review minimum criteria for each search area.
4. If no approvals are required, the Contractor shall provide
satisfactory evidence thereof
5. The Contractor shall visit the local zoning jurisdiction and
interpret codes and planning criteria for the search area to
determine any fast-track permit possibilities.
6. The Contractor shall coordinate all activities associated with
zoning applications, meetings and community relations.
7. The Contractor will represent Metricom at up up to [***] required
public meetings and/or hearings and conduct presentations as
required.
8. Zoning Analysis and Strategy:
a. The Contractor will develop a detailed zoning analysis of all
selected sites.
b. The analysis will be site specific and will include but not
be limited to: fees, height restrictions, building codes,
setbacks, exceptions, zoning history, abutter issues, zoning
process, timelines, methods to expedite the standard zoning
process and other pertinent zoning requirements.
c. The Contractor will submit these findings in the WAP Specific
Zoning Analysis form.
d. Together with the LGRPA shall develop a zoning strategy for
the candidate site.
C. Metricom Responsibilities:
1. Provide LGRPA representative for strategy support and approvals.
2. Provide zoning report format
3. Metricom to approve and bear the costs for expert testimony/
lobbyists
D. Deliverables:
1. Zoning ordinance process definition.
2. Detailed WAP Specific Zoning Analysis of all selected sites.
Part II: Task 2- Site Identification/Approval:
A. Services Description:
This task describes the mutual responsibilities and interaction
between all of the site development disciplines in providing input
to determine the priority one candidates.
B. Contractor Responsibilities:
1. The Contractor will perform site walks with RF Engineering,
Construction, and Leasing, and with Architect representative.
a. .
2. Applications
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 8 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED(ED)
<PAGE>
a. The Contractor shall prepare and submit the planning permit
application(s) (if required) to the appropriate
jurisdiction(s), including procurement of all associated
reports, photographs and other required visual
representations.
3. Environmental Assessments
a. The Contractor shall coordinate any activities required by
Metricom or the local jurisdiction for Phase I
Environmental Assessment or other applicable environmental
compliance (e.g., NEPA compliance) required to obtain
zoning approval of a candidate property.
b. The Contractor shall order environmental studies from
vendors approved by Metricom where required by the site
criteria guidelines issued approved by Metricom and deliver
a copy of the results to Metricom.
4. Site Plans:
a. The Contractor shall coordinate the generation of required
zoning drawings and modifications form architectural and
engineering firms approved by Metricom.
b. In addition, the Contractor will be responsible for
coordinating and obtaining the Property Owners' approval of
all final zoning plans.
5. The Contractor shall coordinate all activities associated with
zoning applications, meetings and community relations.
6. The Contractor will represent Metricom at up to [***] required
public meetings and/or hearings and conduct presentations as
required.
C. Metricom Responsibilities:
1. Metricom will provide the application fee upon submittal of a
check request from the Contractor.
2. Metricom will review and approve any environmental studies.
3. The cost of environmental studies, visual representations, and
other materials required to submit the zoning applications shall
be borne by Metricom.
4. The cost of drawings, site plans, photo simulations and other
visual representations must be pre-authorized by Metricom and will
be borne by Metricom.
5. Approval of Architectural and Engineering firms necessary to meet
the schedule.
D. Deliverables:
1. Site Plans
2. Zoning application or determination letter.
3. Zoning approval, determination or Contractor's written analysis
that Metricom's use is permitted by right.
Part II: Task 3- Tracking and Reporting:
A. Services Description:
This describes the mutual tracking and reporting responsibilities of
the permitting process.
B. Contractor Responsibilities:
1. Zoning Coordination:
a. The Contractor shall track the permit application schedule
to assure planning approval deadlines are met.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 9 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED(ED)
<PAGE>
b. In addition, the Contractor shall manage any outside
lobbyists and/or attorneys, approved in advance by Metricom
in its sole discretion, necessary to assist in obtaining
zoning approvals.
2. Zoning Package and File Close-out:
a. The Contractor shall prepare a Zoning Package (format to be
provided by Metricom) which includes, either:
1. Convincing written evidence that Metricom may install
its WAP by right, or
2. A document evidencing the formal approval of the
appropriate jurisdiction(s) (whether through an
administrative approval process or otherwise) with
zoning conditions acceptable to Metricom, copies of
all correspondence, photos, photo simulations,
applications, conditions, staff reports, plans,
drawings, contacts, agendas and other pertinent
information, a comprehensive negotiator's report, and
any other items as detailed on Metricom's Zoning File
Documentation Checklist.
3. In addition, the Contractor will complete the
Metricom WAP Zoning File Documentation Checklist for
hand-off to Metricom's LGRPA.
3. Tracking and Reporting
a. The Contractor shall submit timely reports addressing
progress in a format provided or approved by Metricom and
attend any necessary meetings with Metricom or its
designated representative(s) no less than weekly.
b. The Contractor will keep Metricom informed of the
scheduling of all-public meetings and/or hearings.
C. Metricom Responsibilities:
1. Provide dedicated LGRPA representative in each market to attend
weekly meetings.
2. Provide local decision making authority for all zoning decisions.
3. Provide zoning package and file close-out format.
D. Deliverables:
1. Weekly report
2. The Contractor will keep Metricom informed of the scheduling of
all-public meetings and/or hearings.
3. Zoning Package and File Close-out
Part III: Construction Management:
Services Description:
Part III describes the construction management tasks and mutual
responsibilities in determining the construction feasibility of WAP
sites and all of interaction between disciplines needed to construct
the site.
Warranty:
In accordance with Section 6.1 of the Agreement, the Contractor
Warranty Period for this Part III will be [***] Days from the date of
entitlement for payment for site construction
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 10 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED(ED)
<PAGE>
completed, WAP installed and all accepted by Metricom Representative,
as defined in Exhibit III of the Agreement.
Part III: Task 1 - Preliminary Investigation:
A. Services Description:
Task one describes the mutual responsibilities in visiting sites and
determining the construction feasibility.
B. Contractor Responsibilities:
1. Contractor shall determine the construction feasibility and layout
of each WAP site; manage all of the design and engineering
services required to produce the zoning and construction drawings;
obtain any and all required building permits and related approvals
of the plans prior to commencement of construction of the site;
manage the bidding, contracting, materials delivery, construction,
and placement of electrical service; and obtain final approval and
acceptance of each WAP site.
2. Contractor shall represent Metricom with all building departments
and related governmental officials at the municipal level and with
all contractors and utilities, except interconnect, required for
the construction and installation of the site.
3. The Contractor shall review each of the potential WAP site
candidates to determine its construction feasibility and to assist
the site acquisition representative in preparing lease exhibits
showing the optimum layout for the equipment and antennas.
4. The Contractor shall visit the local building departments and
interpret the codes to determine the process, requirements,
application forms, and drawing requirements for building permits
and other related permits required to construct each WAP site.
5. The Contractor shall discuss same as appropriate with the building
department officials.
6. The Contractor shall determine any fast track permit possibilities
and the cost and requirements of same.
7. From the preliminary investigation, the Contractor shall create a
construction feasibility report and shall assist the site
acquisition representative ensuring that the requirements of the
construction feasibility report are included in the Lease
Agreement for the WAP candidates.
8. Zoning Support - Contractor shall support the zoning process if it
is necessary for construction management personnel to appear at
any meetings or hearings to assist Metricom in obtaining the
required zoning approvals for any WAP site.
C. Metricom Responsibilities:
1. Contract A & E firms that are licensed in each GSA
2. Provide Standard Construction Equipment Specifications
3. Provide Metricom standard format for feasibility reports.
4. Provide construction approval process
D. Deliverables:
1. Construction Feasibility report utilizing the WAP Site Survey Form
Part III: Task 2- Management of Architectural & Engineering Services:
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 11 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED(ED)
<PAGE>
A. Services Description:
Task two describes the mutual responsibilities needed to engage and
manage A&E firms needed to permit and construct the sites.
B. Contractor responsibilities:
1. The Contractor shall qualify architectural & engineering services
in each of it markets and obtain Metricom's approval of the firms
and the business terms for such services.
2. The Contractor shall request such services as required to complete
the zoning and construction drawings for each WAP site, utilizing
the forms and processes as directed by Metricom.
3. Contractor shall schedule the work of the architects and engineers
4. Contractor shall manage their progress and review the drawings and
other submittals to make sure that they meet Metricom's technical
and quality standards.
5. Contractor shall obtain from the architects and engineers the
number and type of drawings and other submittals required for
Metricom to obtain the zoning approvals and building permits
required to construct each WAP site.
C. Metricom Responsibilities:
1. Provide Metricom's technical and quality standards.
2. Define the business terms for A & E services
3. Metricom shall prepare the construction contract documents for
execution by the architects, engineers and Metricom.
4. All such contracts shall be entered into directly between the
architects and engineers and Metricom.
D. Deliverables:
1. Zoning Drawings
2. Construction Drawings
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 12 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
Part III: Task 3- Building Permit Management:
A. Services Description:
Task three describes the mutual responsibilities and tasks associated
with obtaining building permits for the WAP sites.
B. Contractor Responsibilities:
1. Order construction contractor to prepare and submit the building
permit application (if required) to the appropriate jurisdictions,
including all required ancillary documents, drawings, and forms
required by the jurisdiction.
2. Contractor shall advise Metricom of the application fee and other
permit fees required to obtain the permits, which shall be paid by
Metricom.
3. Contractor shall manage the plan check process with the building
permit officials and obtain the building permit and other
ancillary permits required for construction of each WAP site.
4. Contractor shall attempt to expedite each permit process to the
fullest extent possible. To the extent such expediting requires
any additional cost or fees, Contractor shall obtain Metricom's
prior approval before authorizing any such expenditures.
5. Contractor shall ensure that the site Construction Company has all
the necessary building permit documentation and is aware of all-
specific conditions and requirements imposed by the jurisdiction.
C. Metricom Responsibilities:
1. Notice to Proceed with Construction
2. Approved Construction Drawings
3. Building Permit Approval
4. Pay permit application fees
D. Deliverables:
1. Building Permit Applications.
2. Building Permits.
Part III: Task 4- Materials Coordination:
A. Services Description:
This section describes the responsibilities of each company to deliver
site construction materials to each site.
B. Contractor Responsibilities:
1. Contractor shall submit to Metricom on a timely fashion all
requests for owner supplied materials, utilizing the forms and
processes designated by Metricom.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 13 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
<PAGE>
2. Contractor shall make such request in a timely fashion to allow the
ordering and delivery to a warehouse of such materials by Metricom as
required for the construction of each WAP site.
3. Contractor shall order the delivery and acceptance of such materials
from the warehouse to the construction company unless Metricom directs
that the materials be delivered to some other location.
4. Contractor shall report to Metricom all material deficiencies and
defects of which it becomes aware.
C. Metricom Responsibilities:
1. Metricom will order all owner supplied WAP materials and manage the
delivery of the materials to a warehouse for storage and distribution
to WAP sites
2. Metricom will provide contractor with a list of materials to be
supplied by owner, (Metricom) bulk site vendor and the construction
contractor.
3. Metricom shall manage the process of replacing material deficiencies
and defects of which it becomes aware.
D. Deliverables:
1. Materials Delivery Schedule
Part III: Task 5- Construction Contracting:
A. Services Description:
Contractor shall manage the process of identifying, selecting, and bidding
jobs for the construction of each site.
B. Contractor Responsibilities:
1. Manage construction schedule
2. Contractor shall prepare the bid package documents for submission to
contractors for the construction of each WAP site.
3. The Contractor shall obtain bids from [***] qualified contractors for
the construction of each site, unless Metricom agrees to a different
bid process or less contractors.
4. The Contractor shall prepare an analysis of the bids and submit it to
Metricom with its recommendation for the contractor to be selected.
C. Metricom Responsibilities:
1. Metricom shall prepare the construction contract documents for
execution by the Construction Company and Metricom.
2. All such contracts shall be entered into directly between the
Construction Company and Metricom.
D. Deliverables:
1. List of qualified contractors with contact names, and recommendations.
2. Construction bid responses
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 14 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
3. Construction schedule report
4. Construction bid package analysis
Part III: Task 6- Electric Utilities Coordination
A. Services Description:
This task describes the mutual responsibilities and tasks needed to order
and verify installation of electric utilities to each WAP site.
B. Contractor Responsibilities:
1. Contractor shall coordinate with the applicable electric utilities to
plan and order such utilities for each WAP site.
2. It is anticipated that electric service shall be supplied by the
landlord of the WAP site. At WAP sites where Metricom will be required
to meter or sub-meter separately, the Contractor shall advise Metricom
of this and that direct service must be obtained from the applicable
electric utility.
3. The Contractor shall submit such orders to the electric utility in a
timely fashion to provide for installation of service in connection
with the construction of the WAP site.
4. Contractor shall inspect each site for proper electrical installation.
C. Metricom Responsibilities:
1. Provide signature authority for utility agreement
D. Deliverables:
1. Order Confirmation
2. Utility delivery schedule
Part III: Task 7- Management of Civil Construction
Services Description:
Task seven describes mutual responsibilities and the tasks associated with
site civil construction. These services are included but not limited to:
A. Contractor Responsibilities:
1. File Permits
2. Scheduling of the construction of the sites and coordination with the
landlord;
3. Inspection of the work to ensure that it meets Metricom's technical
and quality standards;
4. Requiring the contractor to complete the work in accordance with all
applicable safety procedures, regulations and laws;
5. Administering the construction contract,
6. Approving request for payment, and submitting same to Metricom;
7. Report on the completing of the civil construction in accordance with
the schedule.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 15 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
8. Using Metricom provided "Standard Construction Process for Wired
Access Point" document, the Contractor shall prepare a punch list for
the civil construction work and manage the correction of all punch
list items by the Construction Company.
9. Using Metricom provided "Standard Construction Process for Wired
Access Point" document, the Contractor shall ensure that the
Construction Company obtains all required inspections and obtains
final sign off from the applicable building department.
10. Contractor shall obtain from the construction company and its subs
waivers of mechanic lien and lien releases in connection with
contractor's submission of its request for final payment.
C. Metricom Responsibilities:
1. Provide site inspection checklist/punch list
2. Payment mechanism to support construction contracting.
3. Provide construction agreement contract
4. Approve progress payments.
5. Insuring the completion of the civil construction in accordance with
the schedule.
6. The costs of permits will be borne by Metricom
D. Deliverables:
1. Completed site inspection checklist/punchlist
Part III: Task 8- Tracking and Reporting:
A. Services Description:
This task describes the mutual responsibilities and tasks needed to manage
the construction schedule, Construction Management Package, and File
Closeout.
B. Contractor Responsibilities:
1. Construction Schedule - Contractor shall perform the management
services according to the Construction Forecast submitted by
Contractor.
2. The Contractor shall prepare a construction management package (format
to be provided by Metricom) which includes approved documentation
evidencing the completion of all required construction and equipment
installation work and the final approval and inspection by the
building department and Metricom.
3. Contractor shall deliver to Metricom completed file including such
documentation, copies of all correspondence, draft documents, photos,
applications, permits, plans, drawings, maps, and lien releases.
4. In addition, the Contractor shall complete and submit the latest
version of Metricom's construction management file documentation
checklist to Metricom's property manager.
C. Metricom Responsibilities:
1. Metricom to provide equipment production forecast and delivery
interval.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 16 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
D. Deliverables:
1. Releases, payment documentation, and other pertinent information or
items as detailed in Metricom's construction management file
documentation checklist (to be supplied by Metricom).
2. In addition, the Contractor will complete and submit the latest
version of Metricom's construction management file documentation
checklist to Metricom's property manager.
3. Weekly production schedule report
Part IV: WAP Cabinet and Electronics Installation
A. Services Description:
Using the WAP Cabinet Specifications provided below, this section describes
the mutual responsibilities and tasks needed to install the WAP cabinets in
each site.
Warranty:
In accordance with Section 6.1 of the Agreement, the Contractor Warranty
Period for this Part IV will be [***] Days from the date of entitlement for
payment for site construction completed, WAP installed and all accepted by
Metricom Representative, as defined in Exhibit III of the Agreement.
The WAP Cabinet Specifications are outlined as follows:
- --------------------------------------------------------------------------------
WCS Cabinet
. WCS Outdoor Sites: [***].
. WCS Indoor Sites: [***].
. Metricom anticipates utilizing the [***], as dictated by capacity
requirements.
. WCS indoor cabinet dimensions are approximately: [***].[***].
. WCS outdoor cabinet dimensions are approximately: [***].
[***]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ISM Cabinet
. ISM Indoor : [***]. Cabinet dimensions: [***].[***].
. ISM outdoor : [***]. Cabinet dimensions: [***].[***].
- --------------------------------------------------------------------------------
B. Contractor Responsibilities
1. Contractor shall perform the installation and reasonable Installation
testing, in accordance with Metricom procedures, of the WAP equipment
at each site.
2. Contractor shall schedule with Metricom to accept the site after the
installation of the electronic equipment and completion of the testing
and optimization procedures.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 17 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
3. Contractor's completion of [***] shall be deemed the "construction
management deliverable" for purposes of Contractor's entitlement to
its construction management paypoint.
4. Responsibility for Schedule.
5. Manage and coordinate the delivery of the WAP cabinet and electronics
to the physical WAP site location and the movement from the site
location to the location where the WAP Cabinet is to be installed.
6. Field Supervision of installation services
7. Secure cabinets to floor/pad or other area or structure, as
constructed and prepared by the general construction contractor.
8. Install batteries
9. Install 4 High Power Amps (8 Amps if 8 antenna configuration used) -
WCS only.
10. Connect (wire up) the AC power (4 power cords for WCS and 2 for ISM).
11. (8 power cords if 8 antenna configuration used)
12. Install power supply (conversion) modules (4 for ISM).
13. (4 for WCS 4 antenna configuration)
14. ( 8 for WCS 8 antenna configuration)
15. Connect T-1 or DS-3 lines and 1 POTS line (to be supplied by
Metricom).
16. Connect coax (WCS) or Ethernet jumpers (ISM, which consists of
connecting 16 jumpers from the entrance protection panel to the
network switch).
17. Connect the equipment grounding system
18. Reasonable Installation testing in accordance with Metricom
procedures.
C. Metricom Responsibilities:
1. Provide documentation for Methods and Procedures for WAP equipment
installation.
2. Installation materials specifications.
3. Warehousing and delivery of all WAP electronics to the market and each
site.
4. Warehousing and delivery of all cabling kit materials to the market
and each site.
5. Warehousing and delivery of Power equipment materials to market and
each site.
6. Qualify and Select Installation subcontractors in each market.
7. Work Order documentation and procedures.
8. Quality and Safety procedures.
9. Provide DC power connection
10. T-1 or similar facilities installation to site.
11. Furnish cables and specialized test equipment for each site.
12. Furnish list of tools and test equipment required for installation
teams.
13. Furnish earthquake bracing materials as required.
14. Optimize system and test connection (including alarm functionality)
back to Network Operations Center (NOC).
15. Site Cutover management and place system or declare system ready to be
placed into service.
D. Deliverables:
1. Installation Acceptance punch list.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 18 of 20 WFI Initials: /s/ MT
------- ------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
Part V- GSA MATRIX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GSA Work Site Zoning Construction WAP # ISM # WCS Total
Completion Acq. Services Management Installation WAPs WAPs WAPs
Date Services Services Services
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phase 1 GSAs [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal [***] [***] [***]
---------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Phase 2 GSAs [***]
- --------------------------------------------------------------------------------------------------------------------------------
[***] X X X X [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal [***] [***] [***]
---------------------------------------------
Grand Total [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The numbers provided are Metricom's best estimate of the quantity of WAP sites,
ROW jurisdictions, and Utilities in each location, but they are not definitive.
Metricom reserves the right to revise these numbers, if and as necessary, in its
sole discretion.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
19 of 20
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
This Statement of Work is an attachment to the Master Services Agreement between
Metricom, Inc. and Wireless Facilities Inc. dated September 21, 1999. This
Statement of Work may not be modified except in writing by both Parties.
Accepted by:
Metricom, Inc. Wireless Facilities, Inc.
/s/ Dale W. Marquart /s/ Masood K. Tayebi
- -------------------- --------------------
By: Dale Marquart By: Masood K. Tayebi
Title: General Counsel Title: President
Date: 09/29/99 Date: 09/29/99
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit I-A to Master Services Agreement dated 09/21/99
20 OF 20
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Project Schedule For Site Development And EXHIBIT II-A: Statement Of Work RFP#AB-003
Construction/ [***]
- -----------------------------------------------------------------------------------------------------------------------------------
arter 4/th/ Quarter 1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter
ID Task Duration Start Finish Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Name
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *]
- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT III-A
to
MASTER SERVICES AGREEMENT
Between Metricom, Inc. and Wireless Facilities, Inc.
Dated September 21, 1999
SCHEDULE OF VALUES RFP #AB-003
------------------------------
PART I-PRICE SCHEDULE
Note: Please prepare one firm fixed price cost proposal for all GSAs listed in
Exhibit I-A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Task Task Description $ COST/per WAP $ TOTAL Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Site Acquisition $[***] $[***]
- -----------------------------------------------------------------------------------------------
2. Zoning Approval $[***] $[***]
- -----------------------------------------------------------------------------------------------
3. Construction Management $[***] $[***]
- -----------------------------------------------------------------------------------------------
4. WAP Installation/Testing/Stand- $[***] $[***]
alone Commissioning
- -----------------------------------------------------------------------------------------------
Total Firm Fixed Price $[***] $[***]
- -----------------------------------------------------------------------------------------------
</TABLE>
PART II -MILESTONE PAYMENT SCHEDULE (Paid per WAP)
Note: All payments are less amounts paid under letters of intent until these
amounts are fully recovered.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Activity Payment percentage Metricom Verification Metricom Approval
Based on total price per Authority Authority
WAP by type of
WAP/(note 1)/
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Search ring issued to the [***]% Local ROW Director Lee Gopadze
contractor
- -------------------------------------------------------------------------------------------------------------
Lease signed [***]% Local ROW Director Lee Gopadze
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit III-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 1 of 5 WFI Initials: /s/ MT
---------- ----------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Zoning approved [***]% Local ROW Director Lee Gopadze
- -------------------------------------------------------------------------------------------------------------
Site construction completed, [***]% Regional Operations & Bill Isbister
WAP installed and all Construction Director
accepted by Metricom Rep.
- -------------------------------------------------------------------------------------------------------------
Early Completion Incentive [***]% of the weekly Regional Operations & Bill Isbister
bonus for all WAP/(see Construction Directors
Part 2B Note 4)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PART III -INCENTIVE BONUS PAYMENT SCHEDULE (Paid per GSA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Maximum Maximum Maximum Maximum
Incentive Bonus Incentive Bonus Incentive Bonus Incentive Bonus
GSA Week 4 Week 3 Week 2 Week 1
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Phase 1 $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
TOTAL Phase 1 = $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Phase 2 $[***]
- --------------------------------------------------------------------------------------------------------------------
[***] $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
TOTAL Phase 2 = $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
GRAND TOTALs $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1. Early completion is defined as [***].
2. Additionally, early completion is calculated [***].
3. Compensation for early completion is capped at a maximum total of [***].
4. The early completion incentive allows for a maximum per GSA and per
Phase payment amount per above.
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit III-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 2 of 5 WFI Initials: /s/ MT
---------- ----------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
PART IV- PROFESSIONAL SERVICES RATE SHEET
The hourly rates set forth below shall apply to all Services performed by WFI
that are in addition to those described in the Statement of Work. Metricom
shall compensate WFI on an hourly basis in accordance with the rates set forth
in the table below. WFI may invoice Metricom monthly for all hourly-billed
Services rendered the previous period.
Terms and Conditions:
1. The monthly rates include $[***] living allowance per person, which covers
[***].
2. The hourly rate does not include any expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Wireless Facilities, Inc.
1999 Hourly Services Rates
- ---------------------------------------------------------------------------------------------------
Service Type Employment Category Hourly Rate Monthly Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Program Management 1 Project Manager $[***] $[***]
2 Project Coordinator $[***] $[***]
3 Administrative Assistant $[***] $[***]
RF Engineering 4 Principal Engineer $[***] $[***]
5 Senior Engineer $[***] $[***]
6 Design Engineer $[***] $[***]
7 Engineer $[***] $[***]
8 Associate Engineer $[***] $[***]
9 Technician $[***] $[***]
Network Engineering 10 Principal Engineer $[***] $[***]
11 Senior Engineer $[***] $[***]
12 Design Engineer $[***] $[***]
13 Engineer $[***] $[***]
14 Associate Engineer $[***] $[***]
15 Technician $[***] $[***]
Site Acquisition 16 Leasing Manager $[***] $[***]
17 Zoning Manager $[***] $[***]
18 Site Acquisition Specialist $[***] $[***]
19 Zoning Specialist $[***] $[***]
20 Paralegal $[***] $[***]
Construction Management 21 CM Construction Manager $[***] $[***]
22 CM Operations Manager $[***] $[***]
23 CM Construction Engineer $[***] $[***]
24 CM Project Coordinator $[***] $[***]
25 CM Utility Coordinator $[***] $[***]
26 CM Field Supervisor $[***] $[***]
Installation & Maintenance 27 Cell-site Engineer $[***] $[***]
28 Switch Engineer $[***] $[***]
29 Engineer Supervisor $[***] $[***]
30 Sr. Installer $[***] $[***]
31 Installer $[***] $[***]
Documentation 32 Document Controls $[***] $[***]
</TABLE>
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit III-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 3 of 5 WFI Initials: /s/ MT
--------- ----------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Supervisor
33 Document Controls $[***] $[***]
Logistics 34 Logistics Manager $[***] $[***]
GIS 35 GIS Manager $[***] $[***]
36 GIS Specialist $[***] $[***]
Business Consulting 37 Sr. Partner $[***] $[***]
38 Partner $[***] $[***]
39 Director $[***] $[***]
40 Business Consultant $[***] $[***]
Advanced Technology 41 Principal Staff Engineer $[***] $[***]
42 Sr. Staff Engineer $[***] $[***]
43 Staff Engineer $[***] $[***]
- ---------------------------------------------------------------------------------------------------
</TABLE>
Please identify what the rates include:
PART V- SCHEDULE OF ITEMS NOT COVERED BY CONTRACTOR'S PRICES
The following table summarizes which expenses are included in WFI's fixed
pricing and which are considered pass-through expenses. WFI may invoice Metricom
bi-weekly for reimbursable pass-through expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
WFI Metricom Provided or
Included Reimbursed to WFI as
Pass-Through expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expense Summary:
- ---------------------------------------------------------------------------------------------------------------
Architect and Engineering Services [***] [***]
Capital lease costs (if necessary) [***] [***]
Cellular Phones/Pagers [***] [***]
Cellular/Paging Service (project related) [***] [***]
Crane rental for drive testing [***] [***]
Construction Contractor for site construction [***] [***]
Easement Acquisition Costs (if necessary) [***] [***]
Environmental Site Assessment [***] [***]
Expert Testimony (if necessary) [***] [***]
Land-use attorney (if necessary) [***] [***]
Lease option payments [***] [***]
License & Permit Fees [***] [***]
Field Expenses (maps, deeds, film developing, etc.) [***] [***]
Formal Site Survey [***] [***]
Frequency Coordination Study (preliminary and final) [***] [***]
GIS/Mapping (as necessary) [***] [***]
Mechanical and Electrical Drawings [***] [***]
Vehicle Expenses (project related) [***] [***]
Personal Computers & Related Software [***] [***]
Office Supplies [***] [***]
CW Drive Test Equipment [***] [***]
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit III-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 4 of 5 WFI Initials: /s/ MT
---------- -----------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Propagation Tools (software), terrain data bases [***] [***]
Propagation Tools (hardware - computer and plotter) [***] [***]
Overnight Mail (project related) [***] [***]
Photo Simulations (as necessary) [***] [***]
Soil Tests (geotechnical testing) [***] [***]
Structural Analysis [***] [***]
Title (property ownership verification) Report Cost [***] [***]
Tower Stress and Foundation Analysis [***] [***]
Travel and Living Expenses [***] [***]
Zoning/Filing/Permitting Fees [***] [***]
EXPENSES INCLUDED IN OFFICE SPACE (see Note (1)
Telephone/FAX Service (local/long distance) (1) [***] [***]
Office Rent, Furniture & Equipment (1) [***] [***]
Utilities (1) [***] [***]
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Note(1): Office Space will be compensated at a rate of $[***] per square foot
per month, said rate will be subject to negotiation by Metricom and WFI based on
demonstrated and substantial increased actual cost in a specific market.
PART VI- SCHEDULE OF ITEMS NOT COVERED BY CONTRACTOR'S PRICES
List below all items not covered by the quoted prices, per this document, and
you expect to require in order to complete the requirements as stated herein.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Est.
Unit Number
Item Description Price of Units Extended Price
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miscellaneous Installation Materials:
- -----------------------------------------------------------------------------------------------------
Tie Wraps
- -----------------------------------------------------------------------------------------------------
Cable Ladder
- -----------------------------------------------------------------------------------------------------
Cables of any type [***]
- -----------------------------------------------------------------------------------------------------
Specialized Test Equipment (Laptops are included)
- -----------------------------------------------------------------------------------------------------
Specialized Installation Construction, such as Crane
- -----------------------------------------------------------------------------------------------------
Lifts, building or door modifications [***]
- -----------------------------------------------------------------------------------------------------
Crane Rental for Drive Testing [***]
- -----------------------------------------------------------------------------------------------------
No permit fees of any type
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Metricom Confidential and Proprietary
WFI Exhibit III-A to Master Services Agreement dated 09/21/99
Metricom Initials: /s/ DWM 5 of 5 WFI Initials: /s/ MT
---------- -----------
- --------------------------------------------------------------------------------
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors
Wireless Facilities, Inc.:
The audits referred to in our report dated August 13, 1999, included the
related financial statement schedule as of December 31, 1998, and for each of
the years in the three-year period ended December 31, 1998 and the six months
ended June 30, 1999, included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
San Diego, California
October 18, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and the
use of our report dated February 13, 1998, except for Note 8 as to which the
date is April 15, 1998 relating to the financial statements of Entel
Technologies, Inc. for the year ended December 31, 1997 included in
Registration Statement No. 333-85515 on Form S-1 for the registration of the
Common Stock of Wireless Facilities, Inc.
/s/ M.R. Weiser & Co. LLP
M.R. Weiser & Co. LLP
New York, New York
October 14, 1999
