<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METAPATH SOFTWARE INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 7371 98-0195754
(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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STRAND BRIDGE HOUSE
138-142 STRAND
LONDON WC2R 1HH
UNITED KINGDOM
(44) (207) 898-8800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Clifford P. Wagner, Jr.
1755 North Collins Boulevard
Richardson, Texas 75080
(972) 644-6886
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
AKIKO MIKUMO, ESQ. DEREK L. MEADES WALTER A. LOONEY, JR., ESQ.
COREY R. CHIVERS, ESQ. METAPATH SOFTWARE SIMPSON THACHER & BARTLETT
WEIL, GOTSHAL & MANGES LLP INTERNATIONAL, INC. 99 BISHOPSGATE, 21ST FLOOR
ONE SOUTH PLACE STRAND BRIDGE HOUSE LONDON EC2M 3YH
LONDON EC2M 2WG 138-142 STRAND UNITED KINGDOM
UNITED KINGDOM LONDON WC2R 1HH (44) (207) 422-4000
(44) (207) 903-1000 UNITED KINGDOM (44) (207) 422-4022 (FAX)
(44) (207) 903-0990 (FAX) (44) (207) 898-8800
(44) (207) 898-8199 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective. 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, check
the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value............................... $172,500,000 $45,540
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase solely to
cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
--------------------------
THE 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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION--March 3, 2000
We will amend and complete the information in this prospectus. Although we are
permitted by U.S. federal securities law to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
document filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
that would not be permitted or legal.
<PAGE>
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PROSPECTUS
, 2000
[LOGO OF MSI]
METAPATH SOFTWARE INTERNATIONAL, INC.
- SHARES OF COMMON STOCK
------------------------------------------------------------
METAPATH SOFTWARE INTERNATIONAL, INC.:
- We are a leading global provider of business and operational support
systems software and services to the wireless telecommunications industry.
- Metapath Software International, Inc.
Strand Bridge House
138-142 Strand
London WC2R 1HH
United Kingdom
SYMBOL AND MARKET
- MSII/Nasdaq National Market
THE OFFERING:
- We are offering - shares of our common stock.
- The underwriters have an option to purchase up to - additional shares
from us to cover over-allotments.
- This is the initial public offering of our common stock.
- As part of this offering, we will offer to selected persons, including a
number of our employees, the right to buy up to 5% of the shares of common
stock being sold by us.
- We plan to use the proceeds from this offering for working capital, other
general corporate purposes and potential acquisitions.
- Closing: , 2000
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<S> <C> <C>
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to Metapath Software International, Inc.
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful and complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
DLJDIRECT INC.
- --------------------------------------------------------------------------------
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<PAGE>
[INSERT FRONT COVER PAGE]
<PAGE>
You should rely only on the information contained in this prospectus. We and
the underwriters have not authorized anyone to provide you with information
different from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of the prospectus or any sale of the common stock.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary..................... 2
Risk Factors........................... 6
Special Note Regarding Forward-Looking 19
Statements...........................
Use of Proceeds........................ 20
Dividend Policy........................ 20
Capitalization......................... 21
Dilution............................... 22
Selected Consolidated Financial Data... 23
Management's Discussion and Analysis of 24
Financial Condition and Results of
Operations...........................
Business............................... 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management............................. 53
Related Party Transactions............. 66
Principal Stockholders................. 72
Description of Capital Stock........... 75
Certain U.S. Federal Tax Considerations 77
for Non-U.S. Holders.................
Shares Eligible for Future Sale........ 80
Underwriting........................... 82
Legal Matters.......................... 84
Experts................................ 84
Additional Information................. 85
Index of Consolidated Financial F-1
Statements...........................
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND
OUR FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. OTHER
THAN IN THE FINANCIAL INFORMATION OR UNLESS OTHERWISE INDICATED, ALL INFORMATION
IN THIS PROSPECTUS GIVES EFFECT TO OUR RECAPITALIZATION AND REINCORPORATION AS A
DELAWARE CORPORATION PRIOR TO THIS OFFERING AND ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. ALL INFORMATION IN THIS PROSPECTUS RELATING
TO THE NUMBER OF SHARES OF OUR COMMON STOCK OR OPTIONS IS BASED UPON INFORMATION
AS OF DECEMBER 31, 1999.
METAPATH SOFTWARE INTERNATIONAL, INC.
We are a leading global provider of business and operational support
systems, or OSS, software used by the wireless telecommunications industry to
launch and support mobile voice and data services. Fixed wireless and mobile
wireless operators and service providers turn to us for software and service
solutions that support key stages of their network and business lifecycle, from
wireless license acquisition and network design and build-out to ongoing service
management and customer relationship management. We began our business in 1989
as a provider of radio frequency engineering services and network planning
software to leading wireless operators. Building on this experience, we expanded
our product and service offerings to address areas of increasing importance to
the wireless communications industry. We now have products and services that
enable our clients to create and support new and existing services, improve
network quality, evolve to third generation networks and address customer
experiences and demands. We derive substantially all of our revenue from the
sale of software product licenses, radio frequency engineering services and
other services, including customer services and customer relationship management
consulting, to these wireless operators and service providers.
We currently offer to our clients five software packages that provide
solutions for network planning, network performance management, usage data
mediation (gathering usage information for use in business operations), service
provisioning (activating and deactivating subscriber services) and customer
relationship management. In addition to our software products, we offer radio
frequency, or RF, engineering services to help our clients implement and rollout
new products and services as well as to facilitate their network build-out and
project management. We have also recently expanded our other service offerings
from traditional customer support services, such as implementation, technical,
maintenance and training services, to include consulting capabilities in the
customer relationship management and network optimization areas.
Telecommunications service providers operate in an increasingly competitive
and complex marketplace that is undergoing vast changes. Deregulation and
privatization have increased competition worldwide. At the same time, advances
in technology and increased customer demand have resulted in the proliferation
of communications services, including both traditional and Internet-based voice,
wireless, data and video services. These same factors have similarly transformed
the wireless telecommunications industry, which is experiencing rapid subscriber
growth, intense competition, consolidation, introduction of new third
generation, or 3-G, network technologies, convergence of traditional wireline,
wireless and cable television services, and the introduction of new wireless
data services.
These trends have created challenges for operators and service providers in
effectively managing their network operations, service offerings and customer
relationships. As they seek to meet these challenges, wireless service operators
and providers are increasingly turning to third-party vendors for superior
software solutions and consulting services. By utilizing commercial software
applications, operators seek state of the art solutions, capable of supporting
growth, that they can implement at significantly lower costs rather than
building these applications internally. Our software and service solutions are
targeted at the three key areas--network management, service management and
customer
2
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relationship management--where we believe operators and service providers are
focusing their attention.
Our objective is to be the leading provider of OSS software and services to
the wireless communications industry. The key elements of our strategy include:
- further penetrating our existing world-class client base;
- enhancing our products to support wireless data applications;
- pursuing acquisitions, strategic alliances and partnerships; and
- attracting new clients.
We have over 100 clients in more than 60 countries across North America,
Europe, Asia, South America and Africa. Our clients include some of the world's
leading wireless operators and service providers such as AT&T Wireless, Nextel,
PrimeCo, Sprint PCS, Vodafone AirTouch, Telstra, Diax, Connect (Austria),
various entities in China through China Telecom and SingTel Mobile. We typically
provide our software and services to our clients on a direct relationship basis.
We operate under the "MSI" trade name. Our principal executive offices are
located at Strand Bridge House, 138-142 Strand, London WC2R 1HH, United Kingdom
and our telephone number is (44) (207) 898-8800. Our Web site is
www.msi-world.com. The information on our Web site is not incorporated by
reference into this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... - shares
Common stock to be outstanding after the
offering................................... - shares
Use of proceeds.............................. For working capital, general corporate
purposes and potential acquisitions of
businesses. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... MSII
</TABLE>
The number of shares of common stock to be outstanding after this offering
includes:
- [ ] number of shares of common stock outstanding as of December 31,
1999; and
- [ ] shares of common stock issuable upon the assumed exercise of
warrants prior to the closing of this offering.
The number of shares of common stock to be outstanding after the offering
does not include:
- [ ] shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, of which options for shares are
currently exercisable; and
- [ ] shares of common stock reserved for future issuance in connection
with options that maybe granted under our stock plans as of December 31,
1999.
We have a registered trademark for "Planet" in the United States for certain
uses, and have submitted trademark applications in the United States and abroad
for the names "MSI-TM-," "Planet-TM-" (for other uses), "Maxxer-TM-,"
"Ceos-TM-," "Cerve-TM-," "Ceer-TM-," and "Customer-Adaptive-TM-." All other
trademarks and trade names appearing in this prospectus are the property of
their respective holders.
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<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 RESULTS OF OPERATIONS" INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product licenses........................................ $22,290 $ 27,725 $ 34,384
RF engineering services................................. 40,445 51,682 30,301
Other services.......................................... 7,962 14,862 27,843
------- -------- --------
Total revenue........................................... 70,697 94,269 92,528
Cost of revenues:
Product licenses........................................ 954 311 500
RF engineering services................................. 25,698 32,862 24,862
Other services.......................................... 5,152 8,072 16,497
------- -------- --------
Total cost of revenues.................................. 31,804 41,245 41,859
Gross profit.............................................. 38,893 53,024 50,669
Total operating expenses.................................. 41,833 61,522 71,293
Operating loss............................................ (2,940) (8,498) (20,624)
Net loss.................................................. (10,358) (11,128) (19,909)
Loss per share:
Basic and diluted....................................... $ (0.54) $ (0.49) $ (0.57)
Weighted-average shares outstanding:
Basic and diluted....................................... 19,095 22,561 34,766
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,105
Working capital............................................. (820)
Total assets................................................ 94,711
Long-term debt, excluding current portion................... 976
Total stockholders' equity.................................. 51,724
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. ANY OF THE FOLLOWING RISKS COULD SERIOUSLY HARM OUR
BUSINESS OR ADVERSELY AFFECT OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
AS A RESULT, THESE RISKS COULD CAUSE THE DECLINE IN THE TRADING PRICE OF OUR
COMMON STOCK. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES.
RISKS RELATED TO OUR BUSINESS
OUR REVENUE GROWTH DEPENDS ON OUR ABILITY TO DEVELOP, MARKET AND SELL OUR
CEOS, CEER, CERVE AND MAXXER SOFTWARE PRODUCTS.
We currently derive a significant part of our revenue from the licensing of
our OSS software solutions. We commercially introduced under our MSI brand name
two products in 1999 (Ceer and Cerve) and two in late 1998 (Ceos and Maxxer).
During 1999, we recognized nominal amounts of revenues from Maxxer, and no
revenues from Ceer or Cerve. In addition, in 1999, nearly half of our revenues
for our Ceos product were attributable to a single client, Sprint. We expect
that any growth in the foreseeable future will depend largely on an increase in
revenues related to these new software products and continuing revenues from
existing or enhanced versions of our other software. If we fail to generate
revenues from these new products or to market or upgrade our other software
successfully, we may not be able to increase our revenues, or our revenues may
in fact decrease, which would adversely affect our financial condition and the
value of an investment in our common stock. In addition, our ability to generate
revenues for our Ceos, Ceer, Cerve and Maxxer products is dependant upon our
ability to successfully develop and market these products. In doing so, we will
have to spend substantial resources for marketing and development. If our
marketing and development efforts are not successful, we may not be able to
increase our revenues, and, in fact, our revenues may decrease.
OUR BUSINESS MAY BE HARMED IF OUR NEW PRODUCTS DO NOT GAIN CLIENT
ACCEPTANCE.
Our clients may have to make significant expenditures to implement our new
software products. Some of these products do not perform a role necessary for
the operation of a wireless network, but rather are marketed on the basis of
their ability to provide other benefits which might lower costs or increase
revenues. To the extent our clients do not perceive our new products to be
cost-effective or preferable to products offered by our competitors or to
solutions that can be created in-house, these new products, as well as other new
products we may develop or acquire, may not be favorably received by our clients
and may not generate significant revenues.
WE HAVE A LIMITED HISTORY OF PROVIDING OSS AND CRM SOLUTIONS SINCE OUR
ACQUISITION OF THE METAPATH SOFTWARE CORPORATION AND MAY EXPERIENCE
DIFFICULTIES IN ENTERING THESE LINES OF BUSINESSES AND INTEGRATING THIS
ACQUISITION.
While we have provided network planning software since 1989, we have a
limited history of providing OSS and CRM software. We began offering our OSS and
CRM software following our acquisition in December 1998 of Metapath Software
Corporation, a company formed in 1994. Entering this line of business and
integrating a new company required us to adjust our business operations and make
a number of significant personnel changes, including changes and additions to
our sales and marketing, professional services and support, research and
development and management teams. For all these reasons, as you evaluate our
business, you must consider the risks and difficulties frequently encountered by
companies in a new and rapidly evolving market. With our limited operating
history of providing OSS and CRM solutions, it is difficult to forecast our
future operating results. As we do not have a long history upon which to base
forecasts of future operating results, any predictions about our future revenues
and expenses may not be as accurate as those made based on a longer operating
6
<PAGE>
history. Also, our status as a perceived new entrant may also affect our
competitive position to the extent our potential clients are more inclined to
implement OSS software solutions of a more established competitor.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE OUR LOSSES WILL CONTINUE.
We have incurred significant losses in the past three years, and we expect
to continue to incur losses for the foreseeable future. We reported a net loss
of approximately $19.9 million for the year ending December 31, 1999, and a net
loss of approximately $11.1 million in 1998. Our revenues may not continue to
grow or even continue at their current level. In addition, we expect our
operating expenses to increase and we expect to continue to incur negative
operating cash flow as we develop and expand our business into the OSS and CRM
areas. For example, we intend to increase our spending in research and
development, sales and marketing and capital expenditures as we expand our OSS
and CRM offerings. If our revenues do not increase as much as we expect, or if
our expenses increase at a greater pace than revenues, we may not be profitable
or, if we become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
WE RELY ON A LIMITED NUMBER OF CLIENTS FOR A SIGNIFICANT PORTION OF OUR
REVENUE AND LOSS OF A SINGLE CLIENT COULD ADVERSELY AFFECT OUR BUSINESS.
We have derived, and believe that we will continue to derive, a significant
portion of our revenues through large financial commitments by a limited number
of clients. For example, during 1999, we derived approximately 33% of our
revenues from Sprint. Our top clients for any given year may change as we
complete current projects and begin new ones or as we enter into new licenses.
Many factors can limit the software and services required by any one client,
including industry consolidation, technological developments, economic slowdown
and internal budget constraints. In addition, some of our license agreements
provide our clients with the option to renew maintenance and support services
during any given year. Thus, revenue attributable to our maintenance and support
services from existing clients can decline if our clients decide not to renew
our services. As a result of these factors, the amount of revenue we derive from
a specific client is likely to vary from period to period, and a major client in
one period may not produce significant additional revenue in a subsequent
period. To the extent that any major client terminates its relationship with us,
our revenue could decline significantly.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO ANTICIPATE THE TIMING OF
SALES, AND REVENUE MAY VARY FROM PERIOD TO PERIOD.
The sales cycle associated with the purchase of our products is lengthy, and
the time between the initial proposal to a prospective client and the signing of
a license agreement may frequently be between eight months and one year or more.
In particular, the sales cycle may be longer in those emerging markets where we
currently operate or may operate in the future. Our products involve a
commitment of capital which may be significant to the client, with attendant
delays frequently associated with large capital expenditures and implementation
procedures within an organization. These delays may reduce our revenue in a
particular period without a corresponding reduction in our costs, which could
hurt our results of operations for that period.
IF WE DO NOT CONTINUALLY ENHANCE OUR PRODUCT AND SERVICE OFFERINGS TO MEET
THE CHANGING NEEDS OF OPERATORS, WE WILL LOSE FUTURE BUSINESS TO OUR
COMPETITORS.
We believe that our future success will depend to a significant extent upon
our ability to enhance our product and service offerings and to introduce new
products and services to meet the requirements of our clients in a rapidly
developing and evolving market. We devote significant resources to refining and
expanding our products, developing additional pre-configured market-based
packages and investigating complementary products and technologies. We believe
our products currently meet our
7
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clients' need to have solutions capable of handling an increased amount of
network data and throughput, and we are working to improve our system
performance. However, our clients' requirements may change, and our present or
future products and services may not satisfy the evolving needs of the
communications market. If we are unable to anticipate or respond adequately to
client needs, we will lose business and our financial performance will suffer.
OUR QUARTERLY RESULTS MAY FLUCTUATE. IF WE FAIL TO MEET EARNINGS ESTIMATES,
OUR STOCK PRICE COULD DECLINE.
Our quarterly operating results may fluctuate and are difficult to predict.
As a result, we believe that period-to-period comparisons of our results of
operations are not good indications of our future performance. It is likely that
in some future quarter or quarters our operating results will be below the
expectations of public market analysts or investors. In such an event, the
market price of our common stock may decline significantly. A number of factors
are likely to cause our quarterly results to vary, including:
- the amount of revenue derived from individual clients;
- the length of sales cycles;
- fluctuations in demand for our products and services;
- the timing of recognition of revenues relating to significant license
agreements;
- our clients' willingness to buy, rather than build, business and OSS
software;
- reductions in the prices of products or services offered by our
competitors;
- costs of integrating technologies or businesses;
- innovation and introduction of new technologies, products and services in
the telecommunications and information technology industries;
- telecommunications market conditions and economic conditions generally;
- changes in the actual and estimated costs and time to complete fixed-price
projects;
- the timing of expansion into new markets, both domestically and
internationally;
- the utilization rate of our professional services employees and the extent
to which we use third-party subcontractors to provide consulting services;
- our annual compensation system for our sales force;
- our ability to collect outstanding accounts receivable from very large
product licenses; 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.
We forecast the volume and timing of orders for our operational planning,
but these forecasts are based on many factors and subjective judgments, and we
cannot assure their accuracy. We have hired and trained a large number of
personnel in core areas, including product development, sales and marketing and
professional services, based on our forecast of future revenues. As a result, a
significant portion of our operating expenses are fixed in the short term.
Therefore, failure to generate revenue according to our expectations in a
particular quarter could have an immediate negative effect on results for that
quarter.
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In the future, our sales may continue to involve large financial commitments
from a relatively small number of clients. As a result, the cancellation,
deferral, or failure to complete the sale of even a small number of licenses for
our products and related services could adversely affect our quarterly results.
Also, we often book a large portion of our quarterly sales in the last month of
any given quarter, and often in the last week of that month. This sales pattern
is caused by client purchasing patterns driven by quarterly capital expenditure
budgets. Accordingly, delays in the completion of sales near the end of a
quarter could contribute to the fluctuation of quarterly results. Significant
sales may also occur earlier than expected, which could cause operating results
for later quarters to compare unfavorably with operating results from earlier
quarters. In addition, our quarterly revenue profile reflects a seasonal pattern
of lower first quarter revenues, due in part to an annual compensation system
that incentivizes the sales force to close contracts in the fourth quarter
resulting fewer closings in the first quarter as the sales team rebuilds
prospects within the sales pipeline. This is also due in part to the focus of
sales and marketing staff on preparing for significant promotional events during
the first quarter.
Typically we recognize revenue from our Planet software licenses at the time
of delivery. Our other software product licenses do not qualify for revenue
recognition upon product delivery. For these products, revenue may be deferred
if significant requirements under the contract are yet to be fulfilled, express
conditions relating to product acceptance remain unsatisfied, or when collection
is not considered probable. With these uncertainties, we may not be able to
predict accurately when revenue from these contracts will be recognized.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SOFTWARE COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY.
The complexity of our products and the potential for undetected software
errors increase the risk of claims and claim-related costs. Due to the
mission-critical nature of our provisioning and mediation software, undetected
software errors are of particular concern. The implementation of our products,
which we accomplish through our professional services division, typically
involves working with sophisticated software, computing and communications
systems. If we experience difficulties with an implementation or do not meet
project milestones in a timely manner, we could be obligated to devote more
customer support, engineering and other resources to a particular project and to
provide these services at reduced or no charge. If our software contains
undetected errors or we fail to meet our clients' expectations or project
milestones in a timely manner, we could experience:
- delayed or lost revenues and market share due to adverse client reaction;
- loss of existing clients;
- negative publicity regarding us and our products and services, which could
adversely affect our ability to attract new clients or retain current
clients;
- expenses associated with providing additional products and services to a
client at a reduced charge or at no charge;
- claims for substantial damages against us, regardless of our
responsibility for any failure;
- increased insurance costs; and
- diversion of development resources and management time and resources.
Our licenses with clients generally contain provisions designed to limit our
exposure to potential claims, such as disclaimers of warranties and limitations
on liability for special, consequential and incidental damages. In addition, our
license agreements usually cap the amounts recoverable for damages to the
amounts paid by the licensee to us for the product or services giving rise to
the damages. We cannot be certain that these contractual provisions will protect
us from additional liability.
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Also, our limitation of liability does not cover situations where we are found
to have infringed on the intellectual property rights of a third party.
Furthermore, our general liability insurance coverage may not continue to be
available on reasonable terms or in sufficient amounts to cover one or more
large claims, or the insurer may disclaim coverage as to any future claim. The
successful assertion of any large claim against us could adversely affect our
operating results and financial condition.
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." Our future
performance will substantially depend on our ability to retain and motivate
them. In addition, we currently 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 or members of our management team could prevent us from
executing our business strategy.
OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO
RESULTS OF OPERATIONS AND FUTURE GROWTH.
Our future success depends in large part on our ability to hire, train and
retain software developers, systems architects, project managers, radio
frequency engineers, telecommunications business process experts, systems
analysts, trainers, writers, consultants and sales and marketing professionals
of various experience levels. Skilled personnel, especially software developers,
are in short supply, and this shortage may continue. This shortage is
particularly prevalent in the international markets where we operate. As a
result, competition for these people is intense, and the industry turnover rate
for them is high. Any inability to hire, train and retain a sufficient number of
qualified employees could hinder the growth of our business. In addition, we
believe that the prospective employees that we target after the offering may
perceive that the stock option component of our compensation packages is not as
valuable as the component was prior to this offering. Consequently, we may have
difficulty hiring our desired numbers of qualified employees after this
offering. Moreover, even if we are able to expand our employee base, the
resources required to attract and retain such employees may adversely affect our
operating margins.
WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO IDENTIFY, ACQUIRE OR INTEGRATE
ADDITIONAL BUSINESSES.
A component of our business strategy is to expand our presence in new or
existing markets by acquiring additional businesses. Our failure to manage risks
associated with such acquisitions could harm our business. For example, 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, processes and services;
- failure to retain key personnel;
- client dissatisfaction or performance problems with an acquired firm;
- assumption of unknown liabilities; and
- other unanticipated events or circumstances.
Also, financing the acquisitions by issuing equity securities would dilute
our existing stockholders.
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WE HAVE INTERNATIONAL OPERATIONS, AND OUR FAILURE TO MANAGE THEM EFFECTIVELY
COULD HARM OUR BUSINESS.
We currently have 23 offices worldwide. For the year ended December 31,
1999, operations outside of the United States and Canada accounted for
approximately 46% of our total revenues. We believe that the percentage of total
revenues attributable to international operations will grow and continue to be
significant. We intend to expand our existing international operations and may
enter additional international and emerging markets, which will require
significant management attention and financial 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 clients. Our inability to do so on a timely basis
would limit our growth in international markets and harm our business.
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 sales and payment cycles;
- taxation issues;
- fluctuations in the value of foreign currencies, particularly in emerging
markets with weaker currencies;
- difficulties in hiring, training and retaining skilled employees; and
- unexpected domestic and international 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
AND COMPETITIVE ADVANTAGE.
Substantially all of our international sales are currently denominated in
U.S. dollars. For example, approximately 85% of our sales in 1999 were 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. We do not currently have any foreign
exchange contracts or other financial instruments with respect to foreign
currency to hedge against adverse exchange rate movements. Therefore,
fluctuations in the value of foreign currencies could have a negative impact on
the profitability or competitive advantage of our global operations and harm our
business.
WE MAY INCUR SIGNIFICANT COSTS TO DEFEND OR ESTABLISH OUR INTELLECTUAL
PROPERTY AND PROPRIETARY RIGHTS, AND OUR COMPETITORS MAY INFRINGE ON OUR
TECHNOLOGY.
Any misappropriation of our technology or the development of competitive
technology could seriously harm our business. We regard a substantial portion of
our software products and technology as proprietary and rely on a combination of
copyright, trademark and trade secret laws, client license agreements and
employee and third-party agreements to protect our proprietary rights. We have a
registered trademark in the United States for our Planet trademark for certain
uses. We currently have trademark applications pending in the United States and,
in many instances, abroad for our MSI, Planet, Maxxer, Ceos, Cerve, Ceer and
Customer-Adaptive marks. There can be no assurance that our
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<PAGE>
trademark applications will be granted. In addition, we currently do not own any
issued patents for our technology, but rely on unpatented trade secrets to
protect our technology. Our current steps to protect our proprietary rights may
not be adequate, and we do not know if they will prevent misappropriation of our
intellectual property, particularly in foreign countries where the laws may not
protect proprietary rights as fully as do the laws of the United States. In
addition, other companies could independently develop similar or superior
technology without violating our proprietary rights. If we have to resort to
legal proceedings to enforce our intellectual property rights, the proceedings
could be burdensome and expensive and could involve a high degree of risk and a
negative outcome could materially affect our business.
CLAIMS BY OTHERS THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD DIVERT
OUR RESOURCES, RESULT IN UNEXPECTED COSTS AND LICENSE FEES AND HARM OUR
BUSINESS.
Third parties could claim that our current or future products or technology
infringe their proprietary rights. An infringement claim against us could be
costly even if the claim is invalid, and could distract our management from the
operation of our business. Furthermore, a judgment against us could require us
to pay substantial damages and could also include an injunction or other court
order that could prevent us from selling our products. If we faced a claim
relating to proprietary technology or information, we might seek to license
technology or information, or develop our own, but we might not be able to do so
at a reasonable cost, or at all. Our failure to obtain the necessary licenses or
other rights or to develop non-infringing technology could prevent us from
selling our products and could seriously harm our business.
OUR RELIANCE ON OUR ALLIANCES AND PARTNERSHIPS COULD THREATEN OUR ABILITY TO
SELL OUR SOFTWARE PRODUCTS.
Our success relies upon our continued relationships with certain
telecommunication network infrastructure vendors, computer hardware and software
platform vendors, and software application vendors including, among others,
Nortel Networks, Siemens, Oracle, SAS Institute and Environmental Systems
Research Institute. If any of our current corporate partners breaches or
terminates its agreement or fails to perform its obligations under its
agreement, we might not be able to sustain or grow our business. In particular,
if any of these companies or our other current or future corporate partners
discontinues their support of our products, fails to address appropriately
performance issues related to their components incorporated in or used with our
products, face claims of infringement of third party intellectual property
rights with respect to technology included in our products, or fails to fulfill
or cooperate with joint marketing programs, our ability to sell our products
would be hampered. Additionally, in the event that any of our significant
relationships are terminated, we may not be able to replace them in a timely
manner, if at all. For a further discussion of our alliances and partnerships
please refer to "Business--Alliances and Partnerships."
PROBLEMS RESULTING FROM THE YEAR 2000 PROBLEM COULD REQUIRE US TO INCUR
UNANTICIPATED EXPENSE AND COULD DIVERT MANAGEMENT'S TIME AND ATTENTION.
The Year 2000 problem could harm our business and financial results. Many
currently installed computer systems and software products produced before
January 1, 2000 were coded to accept or recognize only two-digit entries in the
date code field. These systems may interpret the date code "00" as the year 1900
rather than the year 2000. As a result, computer systems and software used by
many companies and governmental agencies may need to be upgraded or replaced to
comply with Year 2000 requirements or risk failure or miscalculations causing
disruptions of normal business activities. We are not aware of any material Year
2000 problems with our software or components provided by third parties that are
incorporated into our products that have harmed or threaten to harm our
business, but we cannot assure you that no such problems will emerge. Our
failure to correct a material Year 2000 problem could result in an interruption
in, or a failure of, aspects of our normal business activities or
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<PAGE>
operations. In addition, a significant Year 2000 problem involving our products
or components provided to us by third-party vendors could cause our clients to
consider seeking alternative providers or cause an unmanageable burden on our
customer support and technical services. Any significant Year 2000 problem could
require us to incur significant unanticipated expenses to remedy these problems
and could divert management's time and attention.
IF WE FAIL TO ACCURATELY ESTIMATE THE RESOURCES NECESSARY TO COMPLETE ANY
FIXED-PRICE CONTRACT, OR IF WE FAIL TO MEET OUR PERFORMANCE OBLIGATIONS, WE
MAY BE REQUIRED TO ABSORB COST OVERRUNS AND WE MAY SUFFER LOSSES ON
PROJECTS.
In addition to time and materials contracts, we have periodically entered
into fixed-price contracts for software implementation, and we may do so in the
future. These fixed-price contracts involve risks because they require us to
absorb possible cost overruns. Our failure to accurately estimate the resources
required for a project or our failure to complete our contractual obligations in
a manner consistent with the project plan would likely cause us to have lower
margins or to suffer a loss on a project, which would negatively impact our
operating results. On occasion, we have been required to commit unanticipated
additional resources to complete projects. We may experience similar situations
in the future. In addition, for specific projects, we may fix the price before
the requirements are finalized. This could result in a fixed price that turns
out to be too low, which would cause us to suffer a loss on the project that
would negatively impact our operating results.
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 that project is delayed,
terminated or its scope reduced, we may underutilize these additional personnel,
which would increase cost of revenues expenses and could harm our business.
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 have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. Our historical
growth has placed, and will continue to place, a significant strain on our
management and our operating and financial systems to integrate these new
personnel.
Our personnel systems, procedures and controls may be inadequate to support
our future operations. In order to accommodate the increased number of
engagements, clients and size of our operations, we will need to hire, train and
retain sufficient personnel to manage our operations. We will also need to
continually improve our financial and management controls, reporting systems and
operating systems as we grow. We may encounter difficulties in developing and
implementing these controls and other systems. If we encounter such
difficulties, we may not be able to successfully focus on serving our clients'
needs and our financial results will suffer.
RISKS RELATED TO OUR INDUSTRY
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, MARKET CONDITIONS AND
INDUSTRY DEVELOPMENTS TO MAINTAIN OR GROW OUR REVENUES.
Over the last decade, the market for telecommunications products and
services has been characterized by rapid technological developments, evolving
industry standards, dramatic changes in the regulatory environment, emerging
companies and frequent new product and service introductions. Our future success
depends largely on our ability to enhance our existing products and services and
to
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<PAGE>
introduce new products and services that are based on leading technologies and
that are capable of adapting to changing technologies, industry standards and
client preferences. In addition, we must hire, train and retain professionals
who can fulfill the increasingly sophisticated needs of our clients. If we are
unable to successfully respond to these technological developments or do not
respond in a timely or cost-effective way, our sales could decline and our costs
for developing competitive products could increase.
New technologies, services or standards could require significant changes in
our business model, development of new products or provision of additional
services. New products and services may be expensive to develop and may result
in the introduction of additional competitors into the marketplace. Furthermore,
if the overall market for business and OSS software grows more slowly than we
anticipate, or if our products and services fail in any respect to achieve
market acceptance, our revenues would decline and operating results and
financial condition could be materially adversely affected. Our revenues may be
adversely affected if the future growth of the wireless market does not continue
as we expect, or if the outsourcing of business and OSS software and services
declines.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED TREND TOWARD OUTSOURCING WIRELESS
TELECOMMUNICATIONS BUSINESS AND OPERATIONS SUPPORT SYSTEMS SERVICES.
Our success is dependent on the continued trend by wireless operators,
wireless service providers and network equipment vendors to outsource for their
business and OSS needs. If our clients elect to perform more OSS services
themselves, our revenues may decline and our business would be harmed. In
addition, the demand for our products and services is dependent upon the
magnitude and timing of our clients' spending. Our clients' spending patterns
depend on a variety of factors, including access to financing, the status of
regulation or deregulation, changing standards for wireless technology, overall
demand for wireless services, competitive pressures and general economic
conditions. In addition, spending patterns in the wireless industry can be
subject to some degree of seasonality, with lower levels of spending in the
first calendar quarter, based on annual budget cycles. Any substantial decrease
or delay in spending by our clients could harm our business.
THE TELECOMMUNICATIONS INDUSTRY IS EXPERIENCING CONSOLIDATION, WHICH MAY
REDUCE THE NUMBER OF POTENTIAL CLIENTS FOR OUR SOFTWARE.
The telecommunications industry has experienced significant consolidation.
In the future, there may be fewer potential clients requiring business and OSS
and related services, increasing the level of competition in the industry. In
addition, larger, consolidated telecommunications companies have strengthened
their purchasing power, which could create pressure on the prices and the
margins we could realize. These companies are also striving to streamline their
operations by combining different telecommunications systems and the related
operations support systems into one system, reducing the number of vendors
needed. Although we have sought to address this situation by continuing to
market our products and services to new clients and by working with major
operators to provide products and services that they need to remain competitive,
we cannot be certain that we will not lose clients as a result of industry
consolidation.
COMPETITION FROM LARGER, BETTER CAPITALIZED OR EMERGING COMPETITORS FOR THE
TELECOMMUNICATIONS PRODUCTS AND SERVICES THAT WE OFFER COULD RESULT IN PRICE
REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET SHARE.
Competition in the telecommunications products market is intense. We compete
against other companies selling telecommunications software and services and
against the in-house development efforts of our clients. We expect competition
to persist and intensify in the future. We cannot be certain that we will be
able to compete successfully with existing or new competitors, and increased
competition could result in price reductions, reduced gross margins and loss of
market share. For
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instance, some of our current competitors include Amdocs, NCR and SLP in
customer relationship management, Comptel, Nortel and Lucent in service
management (provisioning and mediation), Metrica (ADC) in network performance
optimization, and Aethos (Logica), LCC (Ericsson) and Aircom (Nokia) in network
planning. Also, competitors in the consulting area include LCC (Ericsson),
Wireless Facilities and Andersen Consulting, all of whom supply products and
services that compete with our portfolio either directly or indirectly. In
addition, we face competition from network infrastructure vendors who supply
software products and services similar to ours on favourable prices and terms as
part of their hardware offerings. We may also face other competitors in the
future as technologies further advance and develop.
Many of our current competitors have longer operating histories, a larger
customer base, greater brand recognition and greater financial, technical,
marketing and other resources than we do. Some of our new products and services
compete in markets where these competitors already operate, and we experience
the difficulties typically associated with new entry into these markets. Both of
these factors place us at a disadvantage in responding to our competitors'
pricing strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. In addition, many of our competitors have
well-established relationships with our current and potential clients and have
extensive knowledge of our industry. As a result, our competitors may be able to
respond more quickly to new or emerging technologies and changes in client
requirements. They may also be able to devote more resources to the development,
promotion and sale of their products and services than we can. To the extent
that our competitors offer customized products that are competitive with our
more standardized product offerings, our competitors may have a substantial
competitive advantage, which may cause us to lower our prices and realize lower
margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with others to increase their
ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
products and services that are superior to, or have greater market acceptance
than, the products and related services that we offer.
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WHICH
WE OPERATE.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
and telecommunications 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.
IF OUR CLIENTS DO NOT RECEIVE SUFFICIENT FINANCING, OUR BUSINESS MAY BE
HARMED.
Some of our clients and potential clients are new entrants to the
telecommunications market and have limited or no operating histories and limited
financial resources. These clients 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.
CHANGES IN TELECOMMUNICATIONS REGULATION COULD ADVERSELY AFFECT OUR CLIENTS
AND MAY LEAD TO LOWER SALES.
Although a recent trend towards deregulation has occurred, our clients are
still subject to extensive regulation as telecommunications service providers.
Changes in legislation or regulation that adversely
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<PAGE>
affect our existing and potential clients could lead them to spend less on
business and OSS software, which would reduce our revenues, and, in turn,
seriously affect our business and financial condition.
RISKS RELATED TO THIS OFFERING
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Prior to this offering, you could not buy or sell our common stock publicly.
Accordingly, we cannot assure you that an active public trading market for our
stock will develop or be sustained after this offering. The market price after
this offering may vary significantly from the initial offering price in response
to factors including those below, some of which are beyond our control:
- variations in our quarterly operating results;
- changes in financial estimates or investment recommendations by securities
analysts relating to our stock;
- changes in market valuations of other telecommunications software
companies or telecommunications businesses in general;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major client;
- additions or departures of key personnel or members of our management
team;
- trends in industry regulations;
- the potential for future sales of our common stock; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
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.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK.
The initial public offering price of our common stock is substantially
higher than the net tangible book value of each outstanding share of common
stock immediately after the offering. As a result, 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 $[ ] 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 to purchase shares of common stock are
exercised, you will incur further dilution.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
We may need to raise additional funds to take advantage of future business
opportunities or react to changes in the markets in which we operate, and we
cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all. If we need additional capital and cannot raise it on
acceptable terms, we may not be able to:
- develop or deliver enhancements and additional features for our products;
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- develop new products and services;
- hire, train and retain skilled employees;
- enhance our infrastructure;
- respond to competitive pressures or unanticipated requirements;
- pursue international expansion; or
- pursue acquisition opportunities.
CONCENTRATION OF OWNERSHIP MAY HAVE THE EFFECT OF DELAYING OR PREVENTING A
CHANGE IN CONTROL.
Upon completion of this offering, our directors, executive officers,
existing stockholders and each of their affiliates will beneficially own, in the
aggregate, approximately [ ]% of our outstanding common stock. This percentage
will be [ ]% if the underwriters exercise their over-allotment option in full.
As a result, these stockholders will be able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. For additional
information regarding our stock ownership see "Principal Stockholders."
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY.
In the past, stockholders have often brought securities class action
litigation against companies following periods of volatility in the market price
of their securities. Due to the potential volatility of our stock price, we may
be the target of similar litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could adversely affect our operating results and financial condition.
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 for shares of our common stock. These
provisions include:
- authorizing the board of directors to issue 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;
- 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; and
- classifying our board of directors.
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."
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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 and could impair our ability to raise capital through the sale of
additional equity securities. After this offering, we will have outstanding
shares of common stock. All the shares sold in this offering will be
freely tradable. Of the remaining shares of common stock outstanding after
this offering, of these 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 additional shares of our
common stock for sale upon the exercise of outstanding stock options issued
pursuant to compensatory benefit plans or reserved for future issuance pursuant
to our 1999 Stock Option Plan.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THOSE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We have not allocated the net proceeds of this offering 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.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements relating to future events or our future financial
performance. Examples of forward-looking statements include statements we have
made about anticipated trends in the wireless telecommunications industry,
anticipated growth in the OSS and CRM software and services markets, future
trends affecting our RF engineering services and Planet software, our intention
to increase investment in new products and product development, our strategy to
build strategic alliances and engage in potential acquisitions, and the effect
these factors may have on our business. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of such terms or other comparable terminology. You
should not rely on these statements because they are only predictions about
future events and therefore by their nature are inherently uncertain. Actual
events or results may differ materially. In evaluating these statements, you
should also specifically consider various factors, including the risks described
above in "Risk Factors" and in other parts of this prospectus. These factors may
cause our actual results to differ materially from those expressed or implied by
any forward-looking statement.
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USE OF PROCEEDS
We estimate the net proceeds from the sale of the shares of common
stock offered by us to be $ million, or $ million if the
underwriters exercise their over-allotment option in full, at the initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including potential
acquisitions, increased sales and marketing expenditures, increased research and
development expenditures, material capital expenditures and the leasing of
additional facilities. With respect to acquisitions, we may acquire additional
businesses, products and technologies, or establish joint ventures that we
believe will complement our current or future business. We have no definitive
agreement with respect to any acquisition, although we regularly engage in
discussions with other companies and assess opportunities on an ongoing basis.
With respect to research and development expenditures, we expect to accelerate
the development of our products and services, particularly our new offerings in
the area of CRM and in support of 3-G technologies. The amounts that we actually
expend for working capital and other general corporate purposes will vary
significantly depending on a number of factors, including future revenue growth,
if any, competitive and technological developments and the amount of cash we
generate from operations. As a result, we will retain broad discretion in the
allocation of the net proceeds of this offering. Pending the uses described
above, we will invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividend on our common stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying cash dividends in the
foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- On an actual basis; and
- On an as adjusted basis, giving effect to our sale of the common stock in
this offering, the application of the net proceeds as described under "Use
of Proceeds," and our for stock split effected prior to the
closing of this offering as part of our recapitalization described under
"Related Party Transactions--Reincorporation and Recapitalization."
Read the following information in conjunction with our consolidated
financial statements and related notes thereto, which can be found at the end of
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
Cash and cash equivalents................................... $ 5,105
======== ========
Long-term obligations (1)................................... $ 976
Stockholders' equity:
Common stock, $0.001 par value, 75,000,000 shares
authorized, 35,103,000 shares issued, actual;
350,000,000 shares authorized, shares issued, as
adjusted (2)............................................ 35
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued, actual; 25,000,000 shares
authorized, no shares issued, as adjusted............... -- --
Additional paid-in capital................................ 78,715
Cumulative translation adjustment......................... (1,155)
Retained earnings......................................... (25,871)
-------- --------
Total stockholders' equity.............................. 51,724
-------- --------
Total capitalization.................................. $ 52,700
-------- --------
</TABLE>
- ------------------------
(1) See Note 14 of Notes to Financial Statements.
(2) Does not include shares subject to options outstanding at a weighted
average exercise price of $ per share, of which options for
shares are currently exercisable.
21
<PAGE>
DILUTION
As of December 31, 1999, our net tangible book value was approximately
$16.5 million, or $
per share of common stock. Net tangible book value represents the amount of
total tangible assets less total liabilities, divided by the number of shares of
common stock outstanding.
After giving effect to our sale of common stock in this offering at the
initial public offering price of $ per share, and our receipt of the estimated
net proceeds from the sale, our net tangible book value as of December 31, 1999
would have been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. -
Net tangible book value per share before the offering....... -
Increase per share attributable to new investors............ -
-------
Net tangible book value per share after this offering....... -
-------
Dilution per share to new investors......................... -
=======
</TABLE>
The following table summarizes, as of December 31, 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..................... - -% $78,750,000 -% $ -
New investors............................. - -% - -% -
---------- --- ----------- ---
Total..................................... - -% - -%
========== === =========== ===
</TABLE>
The discussion and tables above assume no exercise of stock options
outstanding as of December 31, 1999. As of December 31, 1999, there were options
outstanding to purchase a total of shares of common stock, with a weighted
average exercise price of $ per share, and warrants outstanding to purchase a
total of shares of common stock, with a weighted average exercise price of $
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 notes to consolidated financial statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data and the balance sheet data presented below
for, and as of the end of, each of the years in the five year period ended
December 31, 1999 are derived from our consolidated financial statements. The
consolidated financial statements for the three years ended December 31, 1999
have been audited by Arthur Andersen, our independent accountants. The audited
consolidated financial statements as of December 31, 1998 and 1999 and for each
of the years in the three year period ended December 31, 1999, and the report
thereon, are included elsewhere in this prospectus. The audited consolidated
financial statements as of December 31, 1996 and 1995 and for each of the years
in the two year period ended December 31, 1996 were audited by Price Waterhouse.
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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995(1) 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $39,048 $58,539 $ 70,697 $ 94,269 $ 92,528
Cost of revenues...................................... 5,638 28,451 31,804 41,245 41,859
Gross profit.......................................... 33,410 30,088 38,893 53,024 50,669
Operating expenses:
Research and development............................ -- 7,989 16,747 18,523 25,587
In-process research and development write-off....... -- -- -- 10,200 --
Sales and marketing................................. -- 4,060 9,277 17,720 19,431
General and administrative.......................... 23,287 11,367 15,809 14,583 19,462
Amortization of intangible assets................... -- -- -- 496 6,813
Total operating expenses.............................. 23,287 23,416 41,833 61,522 71,293
Operating profit (loss)............................... 10,123 6,672 (2,940) (8,498) (20,624)
Interest expense and other income, net................ (176) (706) 290 (2) (2,886)
Income (loss) from continuing operations before income
taxes............................................... 10,299 7,378 (3,230) (8,496) (17,738)
Provision for income taxes............................ 4,042 2,355 1,413 1,797 2,150
Income (loss) from continuing operations before
minority interests.................................. 6,257 5,023 (4,643) (10,293) (19,888)
Minority interests.................................... -- 14 226 155 (21)
Income (loss) from continuing operations.............. 6,257 5,009 (4,417) (10,138) (19,909)
Operating income (loss) from discontinued operations
less taxes of nil................................... (703) 196 (2,478) (907) --
Loss on disposal of discontinued operations less taxes
of nil.............................................. -- -- (3,463) (83) --
Net income (loss)..................................... $ 5,554 $ 4,813 $(10,358) $(11,128) $(19,909)
Earnings (loss) per share:
Basic............................................... $ 0.47 $ 0.41 $ (0.54) $ (0.49) $ (0.57)
Weighted-average shares outstanding:
Basic............................................... 11,700 11,838 19,095 22,561 34,766
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,222 $ 4,685 $ 12,176 $ 18,760 $ 5,105
Working capital....................................... 2,520 17,629 5,832 13,036 (820)
Total assets.......................................... 26,245 43,756 53,841 114,201 94,711
Long-term debt, excluding current portion............. 547 1,576 1,057 1,968 976
Total stockholders' equity............................ 12,071 24,410 13,832 71,969 51,724
</TABLE>
- --------------------------
(1) The cost of revenues, gross profit and operating expenses in 1995 are not
comparable to those in subsequent years, as certain cost of revenues and all
sales and marketing expenses and research and development costs have been
classified as general and administrative expenses in 1995.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Founded in 1989, we historically earned our revenues from RF engineering
services and license fees from our Planet software. In 1998, under the direction
of our new management team, we undertook a strategic shift in our business and
made the decision to expand significantly our software product portfolio. In
July 1998, we acquired full rights over our Maxxer product, and in
December 1998, with our acquisition of Metapath Software Corporation, we
acquired the Ceos application, which had been licensed to its first customer
Sprint PCS, and the Cerve and Ceer applications, which were nearing completion.
At the same time, in response to declining margins in our RF engineering
services business, where we have typically charged fees on a per-person, per-day
basis, we made the decision to focus on providing higher-margin value-added
services through which we could provide turnkey solutions on a fixed-price
basis.
As a result of this strategic shift and the Metapath acquisition, during
1999:
- We continued to invest significantly in developing and preparing for
market our Maxxer, Ceos, Ceer and Cerve products.
- Recognizing that the length of our sales cycles has increased with the
addition of our new software products, we invested significantly in
cross-training and expanding our global sales force and creating a
potential sales pipeline for the new products.
- We reduced significantly our RF engineering headcount and took other steps
to control operating costs.
- We took other steps such as investing in our information technology
systems, human resources and finance organizations, our global customer
support organization, our CRM consultancy business and new offices to
prepare a global infrastructure that would support substantial growth.
In addition, during March 1998 to streamline our operations we spun-off our
cellular investments business from our software and services business and
transferred the assets of this business to a separate entity, Cellular
Investments, which was under common stockholder control. The net results of the
separated business are included in our statement of operations as discontinued
operations.
The Metapath acquisition and the strategic shift in our business
significantly affect the comparability of our results for the financial periods
discussed below. In addition, the financial results of Metapath have only been
included in our results since December 1998, making it difficult to analyze the
future performance of our company and to predict future results and trends in
our operations.
We have accumulated net losses of $25.9 million at December 31, 1999. Our
operating expenses increased substantially during each of 1997, 1998 and 1999 as
we made investments related to the development, technological advances, sales
and marketing of our product line and services. The market for our software
products and services is undergoing rapid development and we therefore intend to
continue to invest in a market penetration strategy that involves increased
investments in new products and product development and additional sales and
marketing personnel. Accordingly, our ability to achieve profitability is
subject to a number of risks. See "Risk Factors."
24
<PAGE>
Our principal sources of revenue consist of software product licenses, RF
engineering services contracts and customer support contracts. Revenues from our
software product licenses are derived from licensing of our Planet, Maxxer,
Ceos, Cerve and Ceer products. Our RF engineering services revenues consist not
only of RF engineering revenues (typically over 90%) but also Geodata services
revenues. Revenues from our other services consist principally of our customer
support services, including installation, maintenance, technical consulting and
training (63.1% in 1998 and 85.7% in 1999) as well as from hardware sales made
in connection with our software's implementation. During 1999, in the other
services segment, we have also established a CRM consulting service.
Due to the strategic shift in our business and the Metapath acquisition, our
software revenues have increased as a percentage of our total revenues from
31.5% in 1997 to 37.2% in 1999. Similarly, our revenues from other services have
risen from 11.3% of total revenues to 30.1% in 1999 reflecting the increased
customer support activities associated with the sale of our new products.
Revenues from our RF engineering services have decreased both as a percentage of
revenues from 1997 to 1999 (from 57.2% to 32.7%) and in real terms as well. Our
RF engineering revenues, as well as Planet software revenues, are closely
associated with general levels of new network build-out in the wireless
industry. We believe that with the evolution of networks to incorporate 3-G
standards and the emergence of other new technologies within the wireless
industry, this segment will continue to constitute an important part of our
business.
Our main sales regions are North America and Europe (including the Middle
East and Africa). For the years ended 1997, 1998 and 1999, we derived 30.3%,
26.7% and 54.3% of our revenues from North America, respectively, and 43.1%,
51.4% and 27.5% of our revenues from Europe, respectively. The increase in North
America reflects the acquisition of Metapath whose revenues were generated
primarily in that region.
We recognize revenue for Planet when the product is delivered, there are no
significant uncertainties and collection is probable. Revenues from software
licensed under a fixed rental or fixed term is recognized ratably over the
period of the agreement. For our other products, which require significant
installation and configuration work, revenue is recognized on the
percentage-of-completion basis, subject to there being no significant doubt over
the acceptance of the software by the customer.
We supply RF engineering services both on a time-and-materials basis, in
which case we recognize revenue according to the time worked, or on a fixed
price basis, in which case we recognize revenue on a percentage-of-completion
basis. We defer revenues from our maintenance services and recognize them
ratably over the life of the contract, typically 12 months. Payments for
maintenance fees (on initial order or on renewal) are generally made in advance
and are non-refundable. Revenues for our implementation, training and technical
and CRM consulting services are recognized as the services are performed,
principally on a percentage-of-completion basis. Changes in job performance,
estimated profitability and final contract settlement may result in revisions to
costs and income in the period in which revisions are determined.
Product license revenues, RF engineering service revenues and other service
revenues that have been invoiced or prepaid but that do not yet qualify for
recognition under our policy are reflected as deferred revenues.
In May of 1999, we executed a license agreement with Sprint PCS. Under the
terms of this agreement, we licensed our Ceos and Planet software to Sprint for
a three-year term giving Sprint the ability to extend the term for an additional
three years. In addition, Sprint has contracted for certain maintenance services
during the three-year period to support the Ceos and Planet technology, and may
obtain consultancy and RF engineering services at specified rates with respect
to the Ceos and Planet software. We are recognizing the license revenues for
this contract over a three-year period on a pro-rata basis. Overall, Sprint,
both from this contract and other services, accounted for 33.0% of our 1999
revenues, and we expect that it will account for an important portion of our
revenues during the remaining two years of the contract.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data and
their percentage of revenues for the periods indicated. The gross profit data
for product licenses, RF engineering services and other services are expressed
as a percentage of the corresponding business segment revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product licenses................. $ 22,290 31.5 % $ 27,725 29.4 % $ 34,384 37.2 %
RF engineering services.......... 40,445 57.2 % 51,682 54.8 % 30,301 32.7 %
Other services................... 7,962 11.3 % 14,862 15.8 % 27,843 30.1 %
-------- ----- -------- ----- -------- -----
Total revenues................. 70,697 100 % 94,269 100 % 92,528 100 %
-------- ----- -------- ----- -------- -----
Costs of revenues:
Product licenses................. 954 1.3 % 311 0.3 % 500 0.5 %
RF engineering services.......... 25,698 36.3 % 32,862 34.9 % 24,862 26.9 %
Other services................... 5,152 7.3 % 8,072 8.6 % 16,497 17.8 %
-------- ----- -------- ----- -------- -----
Total cost of revenues......... 31,804 45.0 % 41,245 43.8 % 41,859 45.2 %
-------- ----- -------- ----- -------- -----
Gross Profit:
Product licenses................. 21,336 95.7 % 27,414 98.9 % 33,884 98.5 %
RF engineering services.......... 14,747 36.5 % 18,820 36.4 % 5,439 17.9 %
Other services................... 2,810 35.3 % 6,790 45.7 % 11,346 40.7 %
-------- ----- -------- ----- -------- -----
Total gross profit............. 38,893 55.0 % 53,024 56.2 % 50,669 54.8 %
-------- ----- -------- ----- -------- -----
Operating expenses:
Sales and marketing.............. 9,277 13.1 % 17,720 18.8 % 19,431 21.0 %
General and administrative....... 15,809 22.4 % 14,583 15.5 % 19,462 21.0 %
Research and development......... 16,747 23.7 % 18,523 19.6 % 25,587 27.7 %
In-process research and
development write-off.......... -- N/A 10,200 10.8 % -- N/A
Amortization of intangible
assets......................... -- N/A 496 0.5 % 6,813 7.4 %
Total operating expenses....... 41,833 59.2 % 61,522 65.3 % 71,293 77.1 %
-------- ----- -------- ----- -------- -----
Operating loss..................... (2,940) (4.2)% (8,498) (9.0)% (20,624) (22.3)%
Interest and other income
(expense), net................... (290) (0.4)% 2 0.0 % 2,886 (3.1)%
-------- ----- -------- ----- -------- -----
Loss from continuing operations
before income taxes.............. (3,230) (4.7)% (8,496) (9.0)% (17,738) (19.2)%
Provision for income taxes......... (1,413) (2.0)% (1,797) (1.9)% (2,150) (2.3)%
-------- ----- -------- ----- -------- -----
Loss from continuing operations
before minority interests........ (4,643) (6.6)% (10,293) (10.8)% (19,888) (21.5)%
Minority interests................. 226 0.3 % 155 0.2 % (21) (0.0)%
Loss from continuing operations.... (4,417) (6.2)% (10,138) (10.8)% (19,909) (21.5)%
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Discontinued operations:
Operating loss from discontinued
operations less taxes of nil... (2,478) (3.5)% (907) (1.0)% -- N/A
Loss on disposal of discontinued
operations less taxes of nil... (3,463) (4.9)% (83) (0.1)% -- N/A
Net loss........................... $(10,358) (14.7)% $(11,128) (11.8)% $(19,909) (21.5)%
</TABLE>
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1999
REVENUES
Our revenues decreased during 1999 by 1.8%, from $94.3 million in 1998 to
$92.5 million in 1999, due to decreases in RF engineering revenues, which were
offset in part by increases in our product licenses and other services revenues.
PRODUCT LICENSES. During 1999, our product licenses revenues increased by
24.0%, from $27.7 million in 1998 to $34.4 million in 1999, due almost entirely
to $14.7 million in Ceos license revenues, including in particular revenues from
the new Sprint contract, which was offset in part by a decrease in Planet
license revenues. This decrease resulted from reduction in new network
build-out, particularly in Europe, as well as pricing pressure on our older
Planet version due to increased competition. With the launch of Planet DMS in
December 1999 and the evolution of networks to incorporate 3-G standards, we
expect that Planet revenues will stabilize and will continue to make an
important revenue contribution. With the expansion of the product portfolio,
Planet license revenues, which accounted for substantially all of our 1998
product licence revenues, accounted for approximately 56.7% of 1999 product
licenses revenues. Initial versions of Maxxer, which were customized for
specific customers, provided small amounts of revenues in both years, and we
introduced a standardized version of Maxxer in December 1999. While we began
installation of our first Ceer and Cerve licenses in 1999, we did not recognize
any revenues from these products.
RF ENGINEERING SERVICES. Revenues in this segment decreased by 41.4% from
$51.7 million in 1998 to $30.3 million in 1999, reflecting increased competition
and lower new network build-out activity and our decision to focus on
higher-margin consulting and RF engineering turnkey services.
OTHER SERVICES. During 1999, our other services revenue increased by 87.3%
from $14.9 million in 1998 to $27.8 million in 1999, reflecting the
substantially higher customer support and maintenance fees associated with our
new software product Ceos. This segment also included nominal revenues in 1999
from our emerging CRM consultancy activities, which we believe represent a
potential growth area in the future.
COST OF REVENUES
Cost of revenues remained static across 1998 and 1999 at $41.2 million and
$41.9 million respectively, resulting in gross profit of $53.0 million in 1998,
representing a 56.2% gross profit margin and $50.7 million in 1999, representing
a 54.8% gross profit margin. The decrease in margins reflected the decreasing
margins from the engineering and planning business.
PRODUCT LICENSES. Costs for product licenses principally consist of license
fees paid to third-parties, including Oracle and SAS Institute, whose software
is bundled with some of our software products. These costs were $0.5 million in
1999 and $0.3 million in 1998, reflecting the change of the product portfolio
following the Metapath acquisition, as each of Ceos, Cerve and Ceer utilize
third-party
27
<PAGE>
software. The new version of Planet DMS also utilizes third-party software and
this will be reflected in product licenses costs going forward.
Gross profit margins for our product licenses remained relatively stable
from 1998 to 1999 at 98.9% and 98.5%, respectively. High gross margins for this
segment reflect the fact that software development costs are classified as
research and development costs and are expensed as incurred. We expect these
margins to decrease to some extent as a result of the increased software
customization costs and third-party software costs associated with sales of our
newer products which will increase these costs going forward.
RF ENGINEERING SERVICES. RF engineering services costs include direct
compensation expenses, benefits, materials and related management overhead costs
to provide our RF engineering, as well as costs of acquiring and processing
mapping data associated with Geodata services. These costs decreased by 24.3%,
from $32.9 million in 1998 to $24.9 million in 1999, due to the lower level of
activity and the reduced headcount. With respect to RF engineering our gross
profit margins decreased from 36.4% in 1998 to 17.9% in 1999, reflecting the
pricing pressure in this market due principally to greater competition combined
with lower network build-out activity.
OTHER SERVICES. Other services costs consist primarily of direct
compensation and travel expense and related management overhead related to
consulting, training and customer support, as well as costs associated with our
hardware sales. These costs increased from $8.1 million in 1998 to
$16.5 million in 1999, and our gross profit margins decreased from 45.7% in 1998
to 40.7% in 1999. The decrease in gross profit margins is due principally to the
increased costs associated with the global expansion of our customer support
organization and the establishment of our CRM consultancy business, both in
advance of obtaining the anticipated increase in associated revenues.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries and commissions earned by sales and marketing personnel,
travel, promotional and related sales management overhead costs. These expenses
increased by 9.7% from $17.7 million in 1998, or 18.8% of revenues, to
$19.4 million in 1999, or 21.0% of revenues. This increase was due to the
increased expenses of building a sales infrastructure to support the expanded
software portfolio and a significant sales commission on the Sprint contract in
1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and benefits for our executive, finance, legal,
human resources, facilities and information systems personnel, as well as
related corporate overhead costs. These expenses increased by 33.5% from
$14.6 million in 1998 (15.5% of revenues) to $19.5 million in 1999 (21.0% of
revenues), reflecting the increased complexity and diversity of our company
following the Metapath acquisition, a charge in 1999 of $0.65 million for
national insurance costs in the United Kingdom relating to the benefit
associated with share options awarded under the employee share option scheme and
increased professional fees due to the establishment of our new share option
scheme, the development of an international tax plan and certain litigation
costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries and benefits for software developers, testers,
publication specialists, technical researchers and business-unit management,
expenses and travel, costs associated with outsourced software development and
equipment depreciation. These costs increased by 38.1% from $18.5 million in
1998 (19.6% of revenues) to $25.6 million in 1999 (27.7% of revenues),
reflecting the full year costs of Metapath's software development activities
following the Metapath acquisition and our ongoing costs to enhance the newly
acquired software products and prepare them for commercial introduction to the
market.
IN-PROCESS RESEARCH AND DEVELOPMENT WRITE-OFF. In 1998, we made a
$10.2 million write-off for in-process research and development in connection
with the Metapath acquisition.
28
<PAGE>
AMORTIZATION OF INTANGIBLE ASSETS. The amortization of intangible assets of
$0.5 million in 1998 and $6.8 million in 1999 are due to the amortization of
goodwill and other intangible assets arising in connection with the Metapath
acquisition.
INTEREST AND OTHER INCOME (EXPENSE), NET
In 1998, we had net other income of approximately two thousand dollars,
reflecting $0.46 million of interest income on cash deposits, offset by an
equivalent amount of other expenses, consisting principally of foreign currency
translation and exchange losses. In 1999 our net other income of $2.9 million
was due primarily to a gain on the partial disposal of investments in Cellular
Investments.
PROVISION FOR INCOME TAXES
Our income tax provision increased from $1.8 million in 1998 to
$2.2 million in 1999. This was due to local entity corporation tax
($1.5 million in 1998 and $0.5 million in 1999), withholding taxes of
$1.1 million in 1999 on overseas sales, which will be partially offset against
future taxable profits, and capital gains tax of $0.6 million on the disposal of
investments. For information about our tax loss carry-forwards, see note 16 to
our financial statements.
MINORITY INTERESTS
Minority interests related to minority holdings in our subsidiaries based in
Hong Kong (43.3%), India (20%) and Dallas (0.2%), which we acquired during the
course of 1999.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1998
REVENUES
Our revenues increased during 1998 by 33.3%, from $70.7 million in 1997 to
$94.3 million in 1998, due to increases in revenues for Planet and RF
engineering services caused by new network build-out.
PRODUCT LICENSES. Our product license revenues increased by 24.4%, from
$22.3 million in 1997 to $27.7 million in 1998, due almost entirely to growth in
the Planet license fees, reflecting an increased number of licenses sold during
1998 caused by the increase in new network build-out activity.
RF ENGINEERING SERVICES. Revenues for RF engineering services increased
27.8% from $40.4 million in 1997 to $51.7 million in 1998, again reflecting the
higher level of new network build-out in 1998 which led to a corresponding
increase in the demand for RF engineering services.
OTHER SERVICES. Revenues from our other services grew by 86.7% from
$8.0 million in 1997 to $14.9 million in 1998, due primarily to a significant
hardware sale to Sprint in December 1998 following the Metapath acquisition as
well as growth in Planet-related customer support revenues.
COST OF REVENUES
Cost of revenues increased to $41.2 million in 1998 from $31.8 million in
1997, resulting in gross profit of $53.0 million in 1998, representing a 56.2%
gross profit margin, and $38.9 million in 1997, representing a 55.0% gross
profit margin. The increase in margins reflected primarily the increased margins
from the other services segment.
PRODUCT LICENSES. These costs decreased from $1.0 million in 1997 to
$0.3 million in 1998.
RF ENGINEERING SERVICES. These costs increased by 27.9% from $25.7 million
in 1997 (63.5% of related revenues) to $32.9 million in 1998 (63.6% of related
revenues), in line with the growth in related RF engineering revenues.
OTHER SERVICES. The costs for our other services increased by 56.7% from
$5.2 million in 1997 to $8.1 million in 1998. However, as a percentage of
corresponding revenue they decreased from 64.7% in 1997 to 54.3% in 1998, as we
were able to generate higher maintenance revenues from our increased
29
<PAGE>
number of Planet licenses without a corresponding increase in the cost of
maintaining our customer service organization.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$9.3 million in 1997 (13.1% of revenues) to $17.7 million in 1998 (18.8% of
revenues) due to the globalization of our sales force.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by 7.8% from $15.8 million in 1997 (22.4% of revenues) to
$14.6% million in 1998 (15.5% of revenues).
RESEARCH AND DEVELOPMENT EXPENSES. Excluding the $10.2 million write-off
described above, these costs increased by 10.6% from $16.7 million in 1997
(23.7% of revenues) to $18.5 million in 1998 (19.6%), largely due to the one
month's consolidation of Metapath's software development costs.
INTEREST AND OTHER EXPENSE Other expense of $0.3 million in 1997 consisted
principally of interest paid on loans and bank debt.
QUARTERLY OPERATING RESULTS
The following table sets forth unaudited quarterly results, in dollars and
as a percentage of revenues for the four quarters ended December 31, 1999. The
information in the table below should be read in conjunction with our annual
financial statements and related notes included elsewhere in this prospectus. We
have prepared this information on the same basis as our consolidated financial
statements and the information includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of our financial position and operating results for the quarters presented. Our
quarterly operating results have varied substantially in the past and may vary
substantially in the future. You should not draw any conclusions about our
future results for any period from the results of operations for any particular
quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product licenses...... $ 4,099 24.4 % $ 9,358 39.4 % $10,461 41.2 % $10,466 39.4 %
RF engineering
services............ 7,874 47.0 % 6,757 28.4 % 7,531 29.6 % 8,139 30.6 %
Other services........ 4,791 28.6 % 7,658 32.2 % 7,410 29.2 % 7,984 30.0 %
Total revenues...... 16,764 100.0 % 23,773 100.0 % 25,402 100.0 % 26,589 100.0 %
Costs of revenues:
Product licenses...... 80 0.0 % 226 1.0 % 21 0.0 % 173 1.0 %
RF engineering
services............ 6,510 38.8 % 5,133 21.6 % 6,004 23.6 % 7,215 27.1 %
Other services........ 3,098 18.5 % 4,606 19.4 % 4,342 17.1 % 4,451 16.7 %
Total cost of
revenues.......... 9,688 57.8 % 9,965 41.9 % 10,367 40.8 % 11,839 44.5 %
Gross profit............ 7,076 42.2 % 13,808 58.1 % 15,035 59.2 % 14,750 55.5 %
Operating expenses:
Sales and marketing... 4,344 25.9 % 5,315 22.4 % 4,766 18.8 % 5,006 18.8 %
General and
administrative:..... 4,423 26.4 % 5,184 21.8 % 4,139 16.3 % 5,716 21.5 %
Research and
development......... 6,266 37.4 % 5,815 24.5 % 6,233 24.5 % 7,273 27.4 %
Amortization of
intangible assets 1,703 10.2 % 1,703 7.2 % 1,703 6.7 % 1,704 6.4 %
------- ------ ------- ------ ------- ------ ------- ------
Total operating
expenses............ 16,736 99.9 % 18,017 75.8 % 16,841 66.3 % 19,699 74.1 %
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating loss.......... (9,660) (57.6)% (4,209) (17.7)% (1,806) (7.1)% (4,949) (18.6)%
Interest and other
income (expense),
net................... 256 1.5 % 209 1.0 % 2,897 11.4 % (476) (1.8)%
(Loss) profit from
continuing operations
before income tax..... (9,404) (56.1)% (4,000) (16.8)% 1,091 4.3 % (5,425) (20.4)%
Provision for income
taxes................. (84) (1.0)% (84) (0.0)% (696) (2.7)% (1,286) (4.8)%
(Loss) profit from
continuing operations
before minority
interests............. (9,488) (56.6)% (4,084) (17.2)% 395 1.6 % (6,711) (25.2)%
Minority interests...... -- N/A -- N/A -- N/A (21) (0.0)%
Net income (loss)....... (9,488) (56.6)% (4,084) (17.2)% 395 1.6 % (6,732) (25.3)%
</TABLE>
REVENUES
Our quarterly revenue profile reflects a seasonal pattern of lower first
quarter revenues, due in part to an annual compensation system that incentivizes
the sales force to close contracts in the fourth quarter resulting in fewer
closings in the first quarter as the sales team rebuilds prospects within the
sales pipeline. This is also due in part to the focus of sales and marketing
staff on preparing for significant promotional events during the first quarter.
PRODUCT LICENSES. The increase in our revenues that occurred in the second
quarter of 1999 was due to the renewal of the Sprint PCS Ceos contract. Sprint
utilized the Ceos software from January 1, 1999, but revenues could only be
recognized starting in the second quarter when the fee became fixed and
determinable. As a result, revenue relating to the first six months of 1999 was
recognized in the second quarter. The increased revenue earned in the third and
fourth quarters primarily reflects continuing revenue from the Sprint PCS
contract and revenue earned on other Ceos contracts.
RF ENGINEERING SERVICES. The reduction in revenue in the second quarter
follows the conclusion of two large contracts within Europe. Revenue increased
in subsequent quarters following the award of several large contracts in North
America.
OTHER SERVICES. The quarterly variations in other services revenues follows
a pattern similar to product licenses revenue, reflecting primarily the customer
service revenues associated with the Ceos licenses, as well as a higher amount
of hardware revenues in the second quarter relating to the Sprint contract.
COST OF REVENUES
PRODUCT LICENSES. The expense profile of this cost is derived from
supplying third-party software in connection with new installations.
RF ENGINEERING SERVICES. Fluctuations in these costs reflect a reduction in
headcount, including both MSI staff and contractors, from the first quarter to
the second, resulting from the completion of contracts described above. These
costs increased in the third quarter and fourth quarters, reflecting the
increased headcount needed to staff new contracts and the associated recruitment
costs.
31
<PAGE>
OTHER SERVICES. The costs in each quarter reflects the building of a global
customer support business. The large increase in the second quarter relates to
the cost of hardware associated with new installations, in particular with
Sprint.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. The second quarter reduction reflects a planned
decrease in Planet-related headcount in London. Increases in the third and
fourth quarters reflect the internal investment in, and partial outsourcing of,
an accelerated software development program relating to all products.
SALES AND MARKETING. Variations reflect the continuing growth of the sales
team, which reached its highest level in the fourth quarter, with a cost peak in
the second quarter relating to approximately $1.0 million of accrued commissions
on the Sprint PCS contract.
GENERAL AND ADMINISTRATIVE. Expenses reflect quarterly variations arising
principally from variations in professional and legal fees, costs incurred in
the second quarter relating to a corporate re-branding exercise following the
merger and a charge in the fourth quarter of $0.65 million for national
insurance costs in the United Kingdom relating to the benefit associated with
share options awarded under the employee share option scheme.
AMORTIZATION OF INTANGIBLE ASSETS. This reflects the quarterly charge for
the amortization of goodwill and other intangibles assets relating to the
acquisition of Metapath.
INTEREST AND OTHER INCOME (EXPENSES), NET. The charges reflect the net
interest income or expense and foreign currency translation gains or losses
during each quarter, with an approximately $3.0 million gain in the third
quarter relating to the partial disposal of an investment in Cellular
Investments.
INCOME TAX PROVISION. The quarterly income tax provision reflects a
$0.6 million tax charge in the third quarter, relating to the gain on the
partial disposal of the investment in Cellular Investments referred to above,
and $1.2 million withholding tax in the fourth quarter.
Our quarterly operating results have fluctuated in the past and are likely
to continue to do so in the future. See "Risk Factors--Our quarterly results may
fluctuate. If we fail to meet earnings estimates, our stock price could
decline."
BACKLOG
As of December 31, 1999, our contracted backlog orders expected to be
realized in 2000 and believed to be firm amounts to $26.7 million. This excludes
$15.4 million of additional backlog expected to be performed within twelve
months and that are cancelable upon 30 days notice. As of December 31, 1998, our
contracted backlog orders expected to be realized in 2000 and believed to be
firm amounted to $16.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $7.7 million in 1998, and net
cash used in operating activities was $0.3 million in 1997 and $14.7 million in
1999. Significant items affecting net cash used in 1997 included an increase in
accounts payable and depreciation, offset in part by an increase in accounts and
notes receivable and a loss from continuing operations. Net cash provided in
1998 was affected by the significant write-off of intangible assets, an increase
in accounts payable, depreciation and a decrease in inventories, offset in part
by the loss from continuing operations. Net cash used in 1999 was due primarily
to a net loss of $19.9 million, a decrease in accounts payable and an increase
in accounts and notes receivable, offset in part by depreciation and
amortization of intangible assets.
32
<PAGE>
Net cash used in investing activities was $2.5 million and $3.0 million in
1997 and 1999, respectively, consisting principally of capital expenditures for
information technology equipment, offset in 1999 by the partial disposal of the
investment in Cellular Investments. Net cash of $0.6 million was provided during
1998 resulting from cash acquired in connection with the Metapath acquisition,
offset in part by the continued capital expenditure in information technology
equipment.
Net cash provided by financing activities was $10.6 million and
$5.1 million in 1997 and 1999, respectively. Cash provided by financing
activities in these years consisted primarily of a private loan of
$10.0 million obtained in 1997 and bank borrowings in 1999, partially offset by
principal repayments on long term debt obligations. Net cash used in financing
activities was $1.6 million in 1998, reflecting primarily the repayment of the
$10.0 million loan obtained in 1997 and the increase in a bank overdraft
facility, offset by the private issuance of common stock.
We have a $20 million bank facility, which includes a $5.0 million term loan
facility as well as a $15.0 million revolving credit facility, of which
$6.7 million was outstanding as of December 31, 1999. The facility, which bears
interest at the bank's reference rate plus 1.5%, is secured by all of our assets
and those of our principal subsidiaries. The bank facility terminates on
February 28, 2001.
We believe that our cash and cash equivalents balances, cash flows from our
operations, funds available under our existing line of credit, and net proceeds
from this offering will be sufficient to satisfy our cash requirements for at
least the next twelve months. This view is forward-looking and involves 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 and market demand of our new products, possible
acquisitions of complementary businesses or technologies and the resources we
dedicate to enhancing or evolving our software products in response to new
technologies and changing market conditions.
We may need to raise additional capital if we expand more rapidly than
initially planned, to develop new software products, to acquire complementary
businesses or technologies or to respond to competitive pressures. There can be
no assurance that additional financing will be available on terms favorable to
us or at all. If adequate funds are not available to us or on acceptable terms,
this could limit our ability to fund our expansion, take advantage of
unanticipated opportunities, expand or enhance our software portfolio or
otherwise respond to competitive pressures. Also, the sale of additional equity
or convertible securities could result in additional dilution to our
stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which was issued in 1998 and subsequently amended by SFAS No. 137,
is effective for years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measures those instruments at
fair value. We do not expect the impact of this statement to be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At December 31, 1999, the carrying amount of our financial instruments,
including cash and cash equivalents, guarantees and long term debt, approximated
their fair values based on current market prices and rates.
We do not enter into any interest rate swaps or other financial instruments
to hedge against interest rate risk. At December 31, 1999, we had $6.7 million
of liabilities bearing interest at floating rates, which we do not believe
represents a substantial interest rate risk.
33
<PAGE>
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.
We currently invoice the substantial majority of our revenues in U.S.
dollars. Nevertheless, as of December 31, 1999, approximately 21% of our cash
and cash equivalents balances and 22% of our accounts receivable were
denominated in other currencies, primarily the Brazilian real, in the case of
cash, and pounds sterling in the case of accounts receivable. In addition, we
incur significant expenses in currencies other than the U.S. dollar in relation
to our operations outside of the United States.
We do not currently have any forward exchange contracts or other financial
instruments with respect to foreign currency to hedge against adverse exchange
rate movements, as we believe we do not currently have substantial direct
foreign currency exchange rate risk. We have experienced a foreign currency
translation loss of $0.2 million in 1997, a $0.4 million gain in 1998 and a loss
of $1.3 million in 1999, relating principally to a currency translation loss
associated with our Brazilian operations resulting from the devaluation of the
Brazilian real against the U.S. dollar. We may enter into agreements in the
future in connection with any significant agreement not denominated in U.S.
dollars. Further, we seek to balance our non-U.S. dollar liabilities and assets.
Nevertheless, because we have significant operations outside of the United
States, to the extent we hold significant amounts of assets like cash or
accounts receivable in non-U.S. currencies, we are subject to the risk that the
currencies in which these assets are denominated will depreciate relative to the
U.S. dollar, which will have a negative effect on income. Similarly, to the
extent we incur significant liabilities, such as accounts payable or bank
overdrafts, or incur significant expenses in non-U.S. currencies, then the
appreciation in those currencies relative to the U.S. dollar would also have a
negative income effect.
34
<PAGE>
BUSINESS
METAPATH SOFTWARE INTERNATIONAL, INC.
We are a leading global provider of business and OSS software used by the
wireless telecommunications industry to launch and support mobile voice and data
services. Fixed wireless and mobile wireless operators and service providers
turn to us for software and service solutions that support key stages of their
network and business lifecycle, from wireless license acquisition and network
design and build-out to ongoing service management and customer relationship
management.
We currently offer our clients five software packages, two of which we
introduced under our MSI brand name commercially in 1999 (Ceer and Cerve) and
two in late 1998 (Ceos and Maxxer). We have offered our Planet software since
1991. These product offerings include:
- network planning software, which operators use to design and plan the
build-out of a new network or to design and plan the modification of an
existing network. We provide these capabilities to our clients through our
Planet software;
- network performance management software, which provides information that a
wireless operator can use to monitor and measure the performance and the
quality of service of its network. We provide these capabilities to our
clients through our Maxxer software;
- usage data mediation software, which gathers usage information, including
call detail records and other data from network equipment and translates
it into useable form for other business and operating functions such as
billing and customer care. We provide these capabilities to our clients
through our Ceos software;
- service provisioning software, which activates services for new
subscribers or activates or deactivates additional services for existing
subscribers. We provide these capabilities to our clients through our
Cerve software; and
- customer relationship management software, which integrates and analyzes
network, business and demographic information about each customer to allow
service providers to identify their highest value customers and manage
relationships with these customers through customized and targeted service
offerings, customer service and marketing. We provide these capabilities
to our clients through our Ceer software.
In addition to our software products, we offer RF engineering services to
help our clients implement and rollout new products and services as well as to
facilitate their network build-out and project management. We have also recently
expanded our other service offerings from traditional customer support services,
such as implementation, technical, maintenance and training services, to include
consulting capabilities in the customer relationship management and network
optimization areas.
Established in 1989, we have become a leading provider of network planning
software and consulting and RF engineering services to the wireless
telecommunications industry and currently have over 100 clients in more than 60
countries. Our clients include some of the world's leading wireless operators
and service providers, such as AT&T Wireless, Nextel, PrimeCo, Sprint PCS,
Vodafone AirTouch Telstra, Diax, Connect (Austria), various entities in China
through China Telecom and SingTel Mobile. We typically provide our software and
services to our clients on a direct relationship basis.
We are headquartered in London (HQ), and have operations worldwide in
Atlanta, Bethesda, Chicago, Cincinnati, Dallas, Frankfurt, Hong Kong, Kansas
City, Kuala Lumpur, New Delhi, Paris, Sao Paulo, Seattle, Shanghai, Singapore,
Stockholm, Sydney and Washington DC.
We were founded in London in 1989 as Mobile Systems International Holdings
Limited, or MSIH. On September 16, 1998, MSI was incorporated in the State of
California for the purpose of becoming a
35
<PAGE>
holding company for our group in connection with a business combination with
Metapath Software Corporation, a company established in 1994. Metapath Software
Corporation developed software for communications operators and had initially
developed and introduced our Ceos product, and was developing our Cerve and Ceer
products at the time of the acquisition. On , 2000, we
reincorporated MSI in Delaware. We continue to operate as "MSI."
During our history, we experienced several key milestones. For instance, in
the years between 1990 and 1993, we signed a contract with Mercury One2One to
design one of the world's first PCN/PCS networks, and entered into our first
European GSM contract and DCS 1800 contract. From the years between 1993 and
1996, we established and expanded our operations in the United States and abroad
by opening offices in Dallas, Atlanta and Paris. Our achievements continued in
1996 as General Atlantic Partners joined us as a strategic investor, and we
signed our first CDMA contract with Sprint PCS and won the Queen's Award for
Export Achievement. In 1997, we continued our global expansion by opening
offices in Hong Kong, Washington, D.C. and New Delhi. Thomas Butler joined our
team as our Chief Executive Officer in 1998, the same year we launched Maxxer,
offered UMTS capabilities and made Planet available on a PC format. In 1999, we
formally launched our Ceer and Cerve products, announced our relationships with
Prime Response and Environmental Systems Research Institute, and signed a major
OSS contract with Sprint PCS.
INDUSTRY OVERVIEW
Telecommunications service providers operate in an increasingly competitive
and complex marketplace that is undergoing vast changes. Deregulation and
privatization have increased competition worldwide. At the same time, advances
in technology and increased customer demand have resulted in the proliferation
of communications services, including both traditional and Internet-based voice,
wireless, data and video services.
TRENDS IN THE WIRELESS COMMUNICATIONS INDUSTRY
These same factors--deregulation, competition, technological advances and a
proliferation of services--have transformed the wireless telecommunications
industry, which is experiencing the following interrelated trends:
- RAPID SUBSCRIBER GROWTH. The wireless industry has undergone rapid growth
in the number of customers and is projected to continue its worldwide
growth. The growth in subscribers has been driven in part by increased
affordability and availability of services for the mass market as handset
and service prices have decreased. EMC (February 2000) has estimated that
the number of customers for wireless communication services will increase
from approximately 450 million at the end of 1999 to approximately
1.1 billion by the end of 2003.
- INCREASED NUMBER OF OPERATORS AND INTENSE COMPETITION. The industry has
also seen a significant increase in the number of operators resulting in
intensified competition. According to the Yankee Group (November 1999),
the global number of wireless operators will increase to 937 in 2000, up
from 875 in 1999. Wireless is one of the most deregulated telecom sectors
in the world; typically with multiple competitors in any single market.
- CONSOLIDATION. While the number of operators has increased, operators in
some markets are beginning to consolidate their businesses across regional
and international boundaries.
- NETWORK EXPANSION AND INTRODUCTION OF NEW NETWORK TECHNOLOGIES. Operators
continue to develop their networks to extend their regional, national and
in some cases international coverage, and they continue to build new
networks in emerging markets. In addition, the demand for Internet access
and data applications has led to changes in the design of traditional
wireless networks, driving the development of a new, more complex, higher
capacity network to transport both
36
<PAGE>
voice and data traffic. Operators will continue to upgrade and expand
their networks incorporating 3-G technology, which will enable continued
growth in voice and data traffic.
- CONVERGENCE. The convergence of traditional wireless, wireline and cable
services is also adding complexity to the telecommunications environment
as operators deploy networks spanning traditional wireless/wireline
boundaries to offer enhanced services.
- INTRODUCTION OF NEW WIRELESS DATA SERVICES. The implementation of digital
and high-speed wireless systems has permitted operators to introduce a
number of new wireless data services. As people become more dependent on
e-mail, the Internet and corporate intranets, the demand for wireless
access to these resources is expected to grow. According to Dataquest
(March 1999), the global market for wireless data services is expected to
reach 36 million users by 2003, up from 3 million in 1999.
CHALLENGES FOR WIRELESS SERVICE PROVIDERS
These trends have created a number of challenges for service providers in
effectively managing their network operations, service offerings and customer
relationships.
NETWORK MANAGEMENT CHALLENGES
- INTEGRATION. Convergence, consolidation and the migration to 3-G
technologies have added complexity to operators' tasks as they attempt to
deal with the challenge of integrating networks and providing services
through networks that rely on mixed technologies (second and third
generation), heterogeneous network components and existing legacy
applications.
- MAXIMIZE NETWORK PERFORMANCE. In the face of intense competition,
operators must continually enhance the quality of their network
performance, providing faster transmission capability, as well as
uninterrupted and expanded coverage. They must also ensure that network
design allows operation at maximum efficiency.
- OPTIMIZE NETWORK INVESTMENT. Operating with limited budgets for network
investment, service providers face crucial decisions as how to allocate
their resources most effectively. Operators require tools to evaluate the
financial impact of their investment decisions, and thereby maximize the
financial benefit from their network investment.
SERVICE MANAGEMENT CHALLENGES
- RAPID DELIVERY OF MULTIPLE SERVICES. To compete successfully, operators
need to deliver multiple and advanced services, introduce and connect
customers to new services quickly (often on a real-time basis), and
implement new pricing programs in a cost-effective manner. Speed-to-
market is an important competitive advantage.
- INADEQUACY OF LEGACY SYSTEMS. Operators frequently employ systems that
were developed for older networks and technologies, and for a single
service. Operators' legacy systems require significant time and resources
to modify, making it difficult for service providers to respond to
challenges such as increased, and more complex, usage data transactions
and customer behaviors quickly, cost-effectively and competitively with
new service offerings.
CUSTOMER RELATIONSHIP MANAGEMENT CHALLENGES
- RETENTION AND CHURN. Increased competition and greater sophistication
among customers has led to an increase in subscriber awareness of
alternative price and service offerings. As a result, subscribers have an
increasing tendency to switch from one wireless carrier to another, or
churn, in search of new products and better, more affordable services.
Operators face the challenge of
37
<PAGE>
retaining their most valuable customers, one of the critical success
factors of every wireless operator.
- OBTAINING COMPREHENSIVE UNDERSTANDING OF CUSTOMERS. Operators seek a fully
integrated and real-time "view" of their customers that incorporates
external market and demographic data, customer usage information and
network performance data. Customer data often resides in multiple computer
systems and is not readily accessible. To analyze this data, many
operators have attempted to integrate multiple applications, which
requires significant time and expense to implement and maintain.
- MANAGING CUSTOMERS BASED ON NEW USAGE CRITERIA. The addition of data and
other broadband services to the service portfolio in a 3-G environment
demands that operators must become knowledgeable about the nature of the
services that individual customers are accessing. For example, a
predominantly voice customer will have very different needs from a heavy
data customer.
NEED FOR THIRD-PARTY SOLUTIONS
As they seek to meet these challenges, wireless operators and service
providers are increasingly turning to third party vendors for superior software
solutions and consulting services. By utilizing commercial software
applications, operators seek state-of-the-art solutions, capable of supporting
growth, that they can implement at significantly lower costs rather than
building these applications internally. According to Insight (August 1999), the
global wireless OSS software market is expected to reach $4.5 billion by 2002
from $158 million in 1998.
NETWORK MANAGEMENT SOLUTIONS. The design, build-out, operation and
upgrading of a wireless network require both software solutions and significant
RF engineering work. Once placed in service, wireless networks must be
continually updated, recalibrated and tuned, to take into account changes in
traffic or usage patterns, which may change because of new rate plans, new
features or sales growth, or other changes in the surrounding environment, such
as radio interference from neighboring or competing networks or other radio
sources. We believe that operators are looking to experienced vendors who offer
these solutions, and who are independent of any network infrastructure provider
or technology. We also believe that the continued geographical expansion of
wireless networks, the deployment of new networks in emerging markets and by new
entrants, the upgrading of networks to implement emerging 3-G standards, and the
implementation of new generations of equipment with increased features and
functionality will continue to demand software solutions and RF engineering
expertise.
SERVICE MANAGEMENT SOLUTIONS. Operators are increasingly employing OSS
software from commercial vendors to perform mission-critical operations such as
service provisioning, usage data mediation and customer service. Based on
industry reports, we expect operators will significantly increase their OSS
expenditure. According to Insight Research (August 1999), software and
professional services will become increasingly significant components of
wireless operators' information technology systems budget. In 1998, OSS software
and professional services represented 31% and 9% of information technology
systems spending, respectively. Insight expects these spending levels to reach
35% and 10%, respectively, in 2003.
CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS. Operators and service providers
have historically devoted significantly more money to acquire a customer than to
retain one. We believe that as they begin to recognize the potential value of
effective customer relationship management, the market for third-party CRM
solutions will grow.
38
<PAGE>
THE MSI SOLUTION
We provide software and service solutions in the three key areas--network
management, service management and customer relationship management--where we
believe operators and service providers are focusing their attention. We
provide:
- network management and planning tools and RF engineering services to
enable operators to construct and maintain efficient and reliable wireless
networks for customers;
- adaptable OSS systems that meet the service requirements of networks,
including converged networks, and accommodate packages of different
communications services; and
- flexible CRM software solutions and related consulting services to enable
service providers to be more responsive to customer needs.
Because our aim is to create a superior software solution in each category,
our products are designed to operate as independent solutions and to integrate
with the other information system components that an operator may have or
require. Our solutions are also designed to work with each other in order to
provide one-stop shopping for clients who need a range of third-party solutions.
Below is a summary of some of the challenges or trends that wireless
operators and service providers are facing and the solutions our software and
services are designed to provide.
<TABLE>
<CAPTION>
CHALLENGE TO OPERATORS MSI SOLUTIONS
<S> <C> <C> <C>
- - Provide services through networks that - Our solutions are easily adaptable to
rely on mixed technologies, heterogeneous systems that employ multiple technologies
network components and existing legacy and equipment made by different vendors.
applications.
- Our solutions permit an expansion of
services and an increase in data volume
on networks, both increasingly required
by operators as they face convergence,
consolidation and the migration to 3-G
technologies.
- - Maximize network performance. - Our planning and optimization solutions
assist in the creation and maintenance of
increased network efficiencies.
- Our RF engineering services supply the
technical expertise necessary to assist
in the planning, building and
modification of operators' networks.
- - Optimize network investment. - Our solutions can help clients evaluate
the financial impact of their investment
decisions and use this information to
allocate resources more effectively.
- Our solutions permit faster network
transmission, expanded network coverage
and enhanced network design.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
CHALLENGE TO OPERATORS MSI SOLUTIONS
<S> <C> <C> <C>
- - Rapidly provide multiple services to the - Our provisioning and usage data mediation
market. solutions reduce time to market and
permit activation of new services faster
and more easily than existing legacy
applications.
- Our network planning and optimization
solutions help increase network capacity,
which is vital for the rapid provision of
these additional services.
- - Address the inadequacy of legacy - Our provisioning and usage data mediation
services. solutions afford a cost-effective and
technically efficient alternative to many
operators' existing services.
- - Acquire and retain high value customers. - Our solutions are designed to create a
Customer-Adaptive environment, giving
service providers the tools to create
customer loyalty and reduce churn.
- Our solutions help service providers
target services to clients who will most
likely be interested in them. This
facilitates a focus on the service
provider's high-value customers.
- - Obtain a comprehensive understanding of - Our solutions permit the integration of
customers. customer usage information and network
performance data as well as external
market data.
- Our solutions then analyze and report
this data in user-friendly formats for
use by all departments in the service
provider's operations.
- - Support of 3-G technology throughout the - Our solutions are being engineered to
operator's business. allow operators to plan, deploy and
evolve mixed and 3-G technology networks.
- Our solutions are being engineered to
facilitate the operator's rapid
introduction of products and services
that utilize new bandwidth made available
from these technologies.
</TABLE>
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<PAGE>
OUR STRATEGY
Our strategy for growth includes the following elements:
- FURTHER PENETRATE OUR EXISTING WORLD-CLASS CLIENT BASE. Our clients
include approximately 36 of the top 100 wireless operators worldwide, as
defined by EMC in terms of the number of subscribers. These clients
represent an attractive target client base for the range of product
solutions that we have recently introduced. In addition to cross-selling,
we believe there is an opportunity to expand the use within these clients'
organizations of products and services currently or previously provided.
- ENHANCE PRODUCTS TO SUPPORT WIRELESS DATA APPLICATIONS. We have made
significant research and development expenditures to enhance and extend
the functionality of our customer relationship management, service
management and network management software solutions to support new
wireless data services being introduced by operators. We believe that our
extensive experience and customer base in the wireless voice market make
us well positioned to take advantage of the growth of data applications
that is occurring as operators upgrade their networks to support data
transmission. We intend to continue to leverage our experience and
expertise to offer comprehensive solutions for wireless operators.
- PURSUE ACQUISITIONS, STRATEGIC ALLIANCES AND PARTNERSHIPS. We will
actively continue to evaluate and make selected acquisitions, strategic
alliances or partnerships, where we can obtain intellectual property,
processes, human resources or competencies that complement our software
and service offerings, particularly in support of the deployment and
management of emerging 3-G and wireless local loop technologies.
- ATTRACT NEW CLIENTS. We seek to capture a higher percentage of the global
wireless market by attracting new clients and by maintaining a broad
geographic coverage in important emerging markets such as China and Latin
America. As wireline, wireless and cable services converge and new
integrated service providers develop, we aim to provide capabilities to
support existing clients in this evolution, as well as to win new clients
who may enter the wireless telecommunications market.
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<PAGE>
SOFTWARE PRODUCTS
<TABLE>
<S> <C> <C> <C> <C> <C>
PRODUCT PLANET MAXXER CEOS CERVE CEER
FUNCTIONS NETWORK DESIGN AND NETWORK OPTIMIZING SERVICE MANAGEMENT SERVICE MANAGEMENT CUSTOMER
BUILD SOLUTION SOLUTION SOLUTION SOLUTION RELATIONSHIP
MANAGEMENT
SOLUTION
* Planet is a * Maxxer is a * Ceos is a * Cerve is a * Ceer integrates
software comprehensive mediation service customer
platform for network operating provisioning demographics and
network performance system. platform. customers'
planning. management * Ceos simplifies * Cerve allows experiences with
* Planet aids platform. highly complex operators to network
operators in the * Maxxer ensures networks by activate service performance.
design, that network gathering, for new * Ceer enables
implementation performance data processing and subscribers and operators to
and ongoing is accessible to distributing introduce new measure the
support of their all facets of network usage services for impact of
networks. the operator's information in existing strategic
organization, real-time, which subscribers in business
from marketing is real-time. initiatives on
and sales to mission-critical customer
engineering for operating behavior, more
operations and functions such effectively
customer care. as billing, target the
marketing and offering of new
fraud detection. services and
* Ceos is capable take actions to
of processing 30 create customer
million CDRs per loyalty and
hour in a single reduce churn.
processor * Ceer is capable
environment, and of processing up
in excess of to 10 million
that for subscribers and
multiple up to 100
processor million CDRs per
environments. day.
DATE OF MARKET May 1991 February 1998 December 1995 June 1999 May 1999
INTRODUCTION
DATE OF FIRST June 1991 November 1998 April 1996 Currently in Currently in
IMPLEMENTATION process process
REPRESENTATIVE Sprint, Various entities Sprint, Vodafone U S WEST Triton
CLIENTS Southwestern Bell, in China through AirTouch, PrimeCo,
Diax, Connect China Telecom Comcast, CommNet,
(Austria), Unifone
Iusacell, Telstra,
SmarTone, U S WEST
</TABLE>
Ceos, Cerve and Ceer were originally developed by Metapath Software
Corporation, which we acquired in 1998. While we introduced or reintroduced all
three products under the MSI brand in 1998 and 1999, Ceos had been previously
introduced by Metapath Software Corporation in 1995.
All of our products run on UNIX platforms, and Planet, Maxxer and Ceer also
support Windows NT. Planet, Maxxer and Ceer can support the major digital and
analog standards in North America, Europe and Asia (such as CDMA, GSM, TDMA,
AMPS) and 3-G standards (such as UMTS and GPRS). Cerve and Ceos products are
able to support the CDMA wireless standard and are currently being engineered to
support the GSM standard. We have, and are currently, working with our clients
in using our products in each of these major technologies, including 11
operators who are applying 3-G technology to their markets.
Our software products are typically licensed to our clients under license
agreements that grant the client a non-exclusive license to use the software for
the client's business only. We license our products
42
<PAGE>
on a perpetual and fixed term basis, normally ranging from one to three years.
For our perpetual licenses, a one-time license fee is paid typically within a
short period after execution of the agreement. For our fixed-term licenses, the
client pays an annual license fee over the term of the license. The license for
our Maxxer, Ceos, Cerve and Ceer products can provide for additional license
revenues related to increases in the number of subscribers of the client and/or
CDRs, depending on the product. Typically, our clients contract for additional
annual maintenance and customer services at the time of the license. Our clients
can purchase maintenance and other customer services on an annual basis or for a
fixed term. Under our license agreements, we warrant that the software will
perform substantially in accordance with the product manuals subject to standard
limitations.
NETWORK DESIGN AND BUILD SOLUTION--PLANET
Planet is an integrated planning application tool that allows operators to
design, plan and operate wireless networks. We market Planet as a tool that
allows operators to reduce the network design time, which in turn allows them to
offer services more quickly. By assisting in planning an appropriate network for
each operator and its target customer base, we believe Planet also increases an
operator's network capacity and quality, thereby reducing churn, and maximizing
the use of network resources. Planet has been used to design, plan and operate
wireless networks by more than 80 operators in more than 60 countries, and, in
the past, our Planet software has been required to be used in an operator's
network design application in each of the network design centers in China.
The significant growth in demand for wireless services requires wireless
operators to constantly expand and upgrade the capacity of their networks.
Operators can significantly reduce capital expenditures by optimizing the use of
existing sites and available spectrum. Planet is designed to allow operators to
optimize their allocated spectrum to ensure maximum coverage and capacity. An
operator can add individual modules to meet specific technology and budgetary
requirements at every stage of its network evolution. At the same time, this
approach permits us to maintain the efficiencies of a standard design. With
support for 3-G, digital and analog technologies, Planet also allows operators
to take into account new voice and data services, with their variable
bandwidths, traffic demands and users. Accordingly, Planet aids operators in
planning strategies for the next generation of their network, through optimizing
existing properties, acquiring networks or bidding for additional licenses.
Planet's applications include initial design studies, license bid planning,
network design, build and rollout, and feasibility evaluation of existing sites
for analog, digital, GPRS and 3-G systems.
NETWORK OPTIMIZING SOLUTION--MAXXER
Maxxer captures, stores, refines and delivers network performance data
originating from the network, such as dropped calls caused by end-users,
antenna, or network quality reasons. This permits operators to monitor network
performance in real-time. In addition to generating reports of historical and
real-time network performance data, Maxxer creates network performance
forecasts.
This data can be employed for customer acquisition and retention, as well as
for network planning decisions, allowing operators to build and maintain high
levels of service quality and customer satisfaction. For example, this data
enables operators to:
- improve methods of fault identification and prevention;
- establish and monitor against benchmarks for the network;
- establish alarms to identify problems quickly and locate and identify
network bottlenecks;
- improve system planning;
- forecast new network requirements to meet system demands;
- prioritize system improvements; and
- maximize return on network investments and network efficiency.
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<PAGE>
SERVICE MANAGEMENT SOLUTIONS--CERVE AND CEOS
Cerve manages all facets of the activation chain, including service
activation at the point-of-sale, through a client's direct sales organization,
national accounts or wholesale systems, as well as the management of the related
activities in billing and customer care. We believe that Cerve will allow
operators to minimize time-to-market while maintaining control of the activation
process, which translates to increased profitability. The Cerve platform is
adaptable to different client environments and has a user-friendly interface,
allowing the operator to customize the software and integrate it with existing
applications and desktop systems. Its design also allows support for new
technologies and services. As the industry adopts Internet technologies, we
expect that Cerve will support Internet-based activation systems that will
provide subscribers with the ability to directly activate services, define the
features of their service plan and select their own rate plan.
Ceos provides operators with an operating system that organizes and
simplifies complex networks. Ceos collects CDRs in real-time from the network,
including information such as call duration, voice mail usage, customer
location, wireless data usage, short message service data, traffic data, alarm
messages and provisioning commands. It then processes this information and
distributes it to the relevant departments within the operator's business. This
centralized system allows the operator to utilize time sensitive,
mission-critical information for billing, marketing, fraud detection and
prevention, and network maintenance applications. Currently, many operators have
complex networks with a host of multiple data collection, transportation and
distribution mechanisms preventing or delaying data from reaching an operator's
mission-critical organizations. Ceos replaces these multiple systems with one
multi-functional system.
CUSTOMER RELATIONSHIP MANAGEMENT SOLUTION--CEER
Ceer is a software platform for customer relationship management and
marketing that enables operators to effectively organize and act on detailed
customer information. The Ceer solution generates a unique customer experience
record which is an integrated and comprehensive view of each customer, using
network data, market research and business systems data, such as the following:
<TABLE>
<CAPTION>
NETWORK DATA MARKET RESEARCH BUSINESS SYSTEMS DATA
<S> <C> <C>
- - Blocked and dropped calls - Credit score - Customer name and address
- - Unanswered calls - Lifestyle score - Price plan
- - Number of calls - Segment score - Monthly bill amount
- - Customer service call data - Marital status - Billable airtime usage
- - Inbound and outbound call - Income - Service area
data - Age - Promotional activity data
- - Mobility pattern (derived - Gender - Marketing campaign data
from cell used at - Geodemographic data - Marketing campaign response
initiation and termination data
of call)
- - Service quality index
- - Feature usage data
</TABLE>
With Ceer, this customer experience record is regularly updated and refined.
By offering such comprehensive information on a timely basis and the
analytical tools to help operators analyze this information, Ceer leads to
better targeting and segmentation and allows operators to study usage and
analyze how network performance and operator behavior impact each customer. This
information may be made readily available to marketing, network planning, sales
and other interested groups within a operator's organization. It also allows
operators to measure the impact of pricing decisions and the results of
marketing campaigns, which in turn makes pricing decisions easier and more
effective and gives operators the ability to focus their marketing resources
more cost effectively. It also permits operators to plan network build-out in a
way that will result in improved
44
<PAGE>
network utilization by the target customer base. We market Ceer as a product
that allows operators to manage churn more effectively by identifying those
customers who are most likely to terminate their service and the reasons for the
proposed decision. This capability permits the operator to intervene with a
targeted solution before churn occurs.
These potential results have important financial implications for our
clients. Reduced churn, more focused marketing costs, the cost effective
deployment of new services and improved network utilization have the effect of
lowering operating costs and network expenditures. Similarly, improved customer
loyalty, more effective marketing campaigns, greater service usage and longer
call duration resulting from better network performance result in higher
revenues for our clients.
RF ENGINEERING SERVICES
We believe we are one of the leading providers of RF engineering services to
established network operators and new market entrants in planning, maintaining,
expanding and optimizing the performance of their wireless networks. In
addition, the evolution of 3-G technologies also provides an important
opportunity for us. Having supported successful mobile license bidding
throughout the world for ten years, we are positioned to support the transition
to and original development and operation of wireless networks that employ
emerging 3-G technologies to provide Internet services and other broadband data
services.
Our RF engineering services throughout a network operator's lifecycle
include:
- assisting operators in their wireless license application and bidding;
- strategic consultancy on network deployment;
- infrastructure vendor evaluation and selection;
- radio frequency cell planning and optimization;
- system design and improvement;
- network performance analysis;
- acceptance testing;
- independent technology audits;
- in-building wireless services;
- technical contract support from design specification to commercial launch;
and
- post-launch support and growth planning.
As part of our RF engineering services, our clients also have access to our
Geodata Group, which offers a large selection of domestic and international maps
and associated data sets to meet detailed network design requirements in major
metropolitan areas. Our Geodata solutions include cityscapes, landscapes,
skylines and coast-to-coast databases.
The professionals in our RF engineering organization have substantial field
experience in planning, operating and optimizing high-capacity communications
networks. At December 31, 1999, we had 196 telecommunications professionals
employed in this activity. We have RF engineers in offices around the world
which enables us to respond effectively to our clients' demands in various
regions.
Our pricing for RF engineering services has historically been based on the
hours worked by our consultants. We have recently introduced fee structures
based upon long term service arrangements and the achievement of network
improvements based on measurable key performance indicators and cost savings for
our clients. During 1999, RF engineering services accounted for 32.7% of our
revenues. Based upon the ongoing demand for these services throughout the
operators' network life cycle, we anticipate that RF engineering services will
continue to constitute a significant proportion of our
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<PAGE>
revenue base. A substantial proportion of this revenue in 1999 was generated
from a few large clients, such as Nortel, Sprint and Nextel. We expect to
continue to rely on a small number of large clients for our RF engineering
services in 2000.
OTHER SERVICES
CUSTOMER SERVICES
Our Customer Services organization provides services and support to our
clients to assist them in the installation, maintenance and updating of our
products, as well as the training of their employees to use our products more
efficiently. We believe that the quality of our customer services is key to
achieving high levels of client satisfaction, strong client references, and
long-term relationships. As of December 31, 1999, we had 104 employees working
in our Customer Services organization. Revenues from these services and support
(excluding hardware sales) accounted for 25.8% of our revenues in 1999.
IMPLEMENTATION SERVICES. Our implementation services include installing,
configuring and testing real-time production systems to ensure a successful
implementation of our products. We provide support through a dedicated team of
our technical professionals, who use our proven implementation methodology that
includes extensive status reporting to the client. Finally, we use the MSI
Acceptance Test to verify the installation process, performance and integrity of
our products. Typically, our license agreements contain a fixed price allocated
to our implementation services.
TECHNICAL CONSULTING. Our technical consulting services assist clients in
maximizing and enhancing the benefits of our software products. Typically, our
technical consulting staff meets with the client prior to product implementation
to review the client's existing business processes and information technology
infrastructure. Based upon this review, our team offers solutions to improve
these processes using the best and latest industry practices. After the
implementation of our products, our clients may request additional support. We
respond with specific solutions to address performance monitoring, capacity
planning, disaster recovery planning, fraud management, data format, industry
standards, project management and operational processes development. Fees for
our technical consulting services are typically invoiced on an hourly basis.
MAINTENANCE. Our maintenance services include system monitoring, client
assistance, software maintenance and scheduled software upgrades. Our customer
support personnel are available 24 hours a day, seven days a week to monitor our
installed systems and provide help desk support for any technical questions
raised by our clients. We also provide product upgrades and customer support
through our basic maintenance programs. Each program can be customized to meet
our clients' varying business needs through our service level agreements. These
agreements define our service responsibilities and commitments, set out a
schedule for completion of such changes or maintenance, and specify the
measurement statistics used to monitor the progress of our work. Depending on
the term of the license, our maintenance fees can either be included within a
client's annual license fee or charged separately from the license fee on an
annual basis.
TRAINING. We have developed a variety of technical training programs to
provide our clients with the knowledge and skills necessary to effectively
deploy, use and maintain our software solutions. As job requirements and
technical skills vary, the training curriculum is tailored to the needs of the
various roles and user requirements. Our instructors include experienced RF
engineers and other telecommunications professionals. We provide training
programs at our major offices or at client locations as requested. Fees for our
training services are typically charged separately from our license and
consulting fees.
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<PAGE>
CRM CONSULTANCY SERVICES
Our CRM consultancy services are designed to help wireless service providers
implement and maximize the business performance of their CRM solutions, and to
ensure that a service provider's unique CRM requirements are addressed from both
a business and technical perspective. Our CRM consultancy services portfolio
currently contains offerings in three areas: CRM business consulting services,
implementation and start-up services, and customized services.
Our CRM business consulting services help service providers align their CRM
plans with their overall business strategies by offering defined CRM business
goals and assisting a client in determining how to achieve those goals, as well
as offering business case studies for process improvement, and other assistance
in mobile market modeling, campaign management and network management. Our
implementation and start-up services help educate our clients about the value of
CRM services and also help them in CRM product implementation and the operation
of their CRM solutions, including the business process reengineering usually
required within their organization. Our customized services are designed to
address an operator's unique business requirements and include market strategy
definition, information systems and OSS systems integration, links to marketing
programs and tailored CRM training.
Currently, our CRM consultants are based in North America and Europe. We
expect to expand our staff and our geographic coverage in 2000.
ALLIANCES AND PARTNERSHIPS
In order to provide comprehensive solutions to our clients, our products and
services are designed to directly support our clients irrespective of the type
of network they have installed. To ensure the delivery to our clients of up to
date and total enterprise-wide solutions, we have established strategic
relationships with organizations in three major categories:
- telecommunications network infrastructure vendors;
- computer hardware and software platform vendors; and
- complementary software application vendors.
TELECOMMUNICATIONS NETWORK INFRASTRUCTURE VENDORS
Many of the client networks we support contain equipment from multiple
network infrastructure vendors. Therefore, we believe that it is important to
have close working relationships with a number of leading network infrastructure
vendors. We have relationships with Nortel Networks, Siemens and Lucent
Technologies, among others. These relationships assist us in ensuring the
compatibility of our products and services with the latest network
infrastructure equipment, including those incorporating 3-G network technology.
In some cases, these relationships also involve infrastructure vendors
integrating our solutions with their own service and product offerings, or
infrastructure vendors reselling our solutions to network operators.
In February 1999, we signed a three-year value added reseller agreement with
Nortel Networks whereby Nortel Networks is permitted to offer Maxxer, Ceos and
Cerve as part of an integrated solution for digital mobile cellular switching
systems that allow wireless operators to adapt multi-vendor networks quickly and
cost effectively to subscriber needs. In January 1999, we entered into a
five-year license agreement with Siemens, which allows Siemens to integrate
Planet into its Mobile Network Planning Tornado-TM- system. In June 1999, we
entered an agreement with Lucent Technologies, which allows us to integrate our
products with Lucent's switches. We intend to establish additional alliances
with equipment vendors to enable the support of new services, network elements
and network technologies.
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<PAGE>
COMPUTER HARDWARE AND SOFTWARE PLATFORM VENDORS
Our product technology strategy is to focus our design and development
efforts on creating and broadening core application functionality and to deliver
complete solutions to our clients. To complement this strategy, we have formed
global partnerships and alliances with leading software and hardware platform
vendors, including Oracle and SAS Institute. We intend to establish additional
alliances to enable the support of new platforms and functions.
In September 1999, we entered into a worldwide partnership agreement with
Oracle. Under the terms of this agreement, we obtained a worldwide database
license and distribution agreement for Oracle's database software which are
integrated in our products. In addition, the terms of this agreement permit us
to work closely with Oracle's teams to ensure seamless integration and product
development. This partnership has already resulted in enhanced product family
releases of the most recent versions of Planet and Ceos.
In August 1999, we entered into a three-year global partnership with SAS
Institute. Under our agreement, the data management and data analysis of the
SAS-TM- System is integrated with our network performance management product
Maxxer, giving the product enhanced capability to process and distil vast
volumes of network data. This allows our clients to receive improved information
relating to dropped calls, traffic levels and other key performance indicators.
COMPLEMENTARY SOFTWARE APPLICATION VENDORS
We have entered into partnerships and alliances with selected leading
providers of complementary software applications whose solutions can enhance our
offerings to our clients. These relationships allow us to remain focused on our
core areas of expertise. We intend to establish alliances to improve integration
with other OSS applications such as call center applications and customer care
and billing solutions.
In June 1999, we entered into a global alliance and worldwide license and
distribution agreement with Prime Response, a marketing automation company in
the CRM industry. The alliance supports the integration of real-time customer
usage data, service quality and service information from our Ceer product with
Prime Response's Prime Vantage-TM- software which generates targeted marketing
campaigns in real-time based upon actual customer behavior and experience.
In June 1999, we entered into an agreement with Environmental Systems
Research Institute, a leading geographic information systems specialist, to
provide enhanced geographic capabilities to our product suite. We expect this
partnership to afford our clients desktop access to software embedded in our
network planning and management software applications. This agreement allows us
to extend the relationship to provide instant accessibility of mapping tools and
information through the majority of our products to allow visualization of such
parameters as customer traffic, usage patterns and network quality.
CLIENTS
A substantial majority of our clients are wireless operators or service
providers. As of December 31, 1999, we had licensed our software to more than
100 operators in North America, Asia, Australia, Europe, Middle East, Africa,
Central and South America, and had provided RF engineering and other services to
more than 100 operators in these regions.
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<PAGE>
Below is a list of representative clients in each of our market areas.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NORTH CENTRAL & LATIN EUROPE, MIDDLE EAST, ASIA
AMERICA AMERICA AFRICA PACIFIC
- ---------------------- ---------------------- ---------------------- ----------------------
AT&T Wireless BCP (Brazil) Bouygues (France) Various entities in
Clearnet (Canada) Bell South BT CellNet (U.K.) China through
PacBell (Chile, Panama) Misrphone (Egypt) China Telecom (China)
PowerTel BSE (Brazil) Connect (Austria) DDI (Japan)
PrimeCo Iusacell (Mexico) Connex (Romania) Nortel (Australia)
Sprint Nextel (Peru) Diax (Switzerland) Optus (Australia)
Telecorp Telemig (Brazil) E-Plus (Germany) SingTel Mobile
Triton Jazztel (Spain) (Singapore)
U S WEST Pannon (Hungary) SmarTone (Hong Kong)
Vodafone AirTouch Retavision (Spain) Telstra (Australia)
Siemens (Germany)
</TABLE>
During 1999, Sprint accounted for approximately 33% of our revenues.
SALES AND MARKETING
SALES
We market and sell our software, RF engineering and other services directly
through our global sales force and indirectly through our partners.
Our overall sales strategy is to develop and expand our existing direct
relationships with wireless providers and to take a proactive approach in
forming and developing long-term relationships with key target accounts. Our
sales mission is to achieve account penetration and subsequent support through
superior account management and relationship selling. We employ regional sales
teams comprised of sales engineers and business unit product specialists.
Product selling emphasis is regionally defined to reflect the market's readiness
to buy our products and our local readiness to deploy.
Our sales force is divided into four regions: North America, Central and
Latin America, Europe, Middle East and Africa, and Asia Pacific. Our global
sales and account operations force is approximately 80 sales representatives in
14 of our 23 offices.
MARKETING
We use a variety of marketing programs to build market awareness of our
products and services and our brand name, as well as to attract potential
clients. These programs include our own market research, product and strategy
updates with industry analysts, public relations activities, direct mail
programs, telemarketing and telesales, seminars, trade shows, reseller programs,
speaking engagements and Web site marketing. Our marketing organization also
produces materials that support sales to prospective clients including
brochures, data sheets, white papers, presentations and demonstrations.
COMPETITION
Competition in our markets is intense and involves rapidly changing
technologies and customer requirements, as well as evolving industry standards
and frequent product introductions.
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<PAGE>
We compete primarily on the basis of:
- the quality, cost-effectiveness and performance of our software and
services;
- the "world class" reputation of our telecommunications professionals;
- our ability to provide solutions for the dynamic needs of our clients;
- the appeal to our clients that we are not owned by any specific equipment
vendors;
- the overall value and financial benefit that our solutions provide to our
clients; and
- the references of our clients.
Certain of our clients are price sensitive and, at times, some of our
competitors offer products and services at prices lower than ours.
Competitors vary in size and scope. We also compete with the internal
information technology departments of large telecommunications service
providers. In each product area, we have a number of separate competitors,
including Amdocs, NCR and SLP in customer relationship management, Comptel,
Nortel and Lucent in service management (provisioning and mediation), Metrica
(ADC) in network performance optimization and Aethos (Logica), LCC (Ericsson)
and Aircom (Nokia) in network planning. Competitors in the consulting area
include LCC (Ericsson), Wireless Facilities and Andersen Consulting, all of whom
supply products and services that compete in the above sectors either directly
or indirectly.
We are aware that numerous telecommunications service providers and software
developers are focusing significant resources on developing and marketing
products and services that will compete with our software. We anticipate that
continued growth in the wireless telecommunications industry and the
attractiveness of the market opportunity will mean that the market for our
products and services will remain intensely competitive.
RESEARCH AND DEVELOPMENT
Research and development forms an important part of our business. In order
to successfully compete in a dynamic marketplace, we are continually evaluating
our software solutions and developing them both in anticipation of and in
response to new developments. We maintain a detailed development plan for our
software, which includes the introduction of new versions of our software that
provide additional or improved functions, accommodate the introduction of new
technological standards or adapt to new services offered by wireless providers
or other industry developments.
Our research and development expenditures totaled approximately:
- $25.6 million for the year ended December 31, 1999;
- $18.5 million for the year ended December 31, 1998; and
- $16.7 million for the year ended December 31, 1997.
As of December 31, 1999, 135 employees were engaged in research and
development. We intend to expand our in-house development organization both
through continued recruitment and the acquisition of highly skilled development
organizations.
In order to help us deliver our product releases, we engage third parties to
assist with some of our products' components. Our use of these developers
improves our development capacity, reduces our in-house dependence on often
scarce development skills and improves our ability to staff projects. At the
times when we require such third-party development, we establish processes to
coordinate the work and quality control mechanisms to help ensure that our
intellectual property is not compromised.
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We have chosen our development partners based upon their industry skills and
experience. Under an agreement with Wipro of India, Wipro is providing network
element interfacing components for our Ceos product, and we can extend the
relationship to cover our Cerve and Maxxer products. As of January 2000, we
entered into a one-year agreement with Wizcom of Bulgaria to provide us with
development and product support resources for certain releases of Maxxer. With
IBS of India, we have entered into a joint development agreement to build the
native Windows NT version of Planet. We have the flexibility in these
relationships to bring this work in-house.
INTELLECTUAL PROPERTY
To establish and protect our intellectual property, we rely on a combination
of copyright, trade secret and trademark laws, as well as confidentiality
procedures and contractual restrictions. Our Planet trademark is a registered
trademark in the United States for certain uses. In addition, we currently have
trademark applications pending in the United States for our Customer-Adaptive,
Planet (for other uses), Maxxer, Cerve, Ceos, Ceer and MSI trademarks. In
addition, our MSI, Planet and Maxxer marks are either registered trademarks or
in the process of being registered as trademarks in jurisdictions outside the
United States. We recently registered the source code for each of the latest
versions of Planet, Maxxer, Cerve, Ceos and Ceer with the United States
Copyright Office at the Library of Congress. We currently do not own any issued
patents on our technology, but prefer to rely on trade secret law to protect our
technology. While we rely on applicable law to protect our technology and
brands, we believe that such factors as the technical and creative skills of our
employees, frequent product enhancements and improved product quality are
essential to maintaining a technology-leadership position.
We generally enter into confidentiality and license agreements with our
clients and alliance partners, and generally control access to and distribution
of our software, documentation and other proprietary information. The employment
and consultancy agreements with our employees and contractors typically contain
comprehensive confidentiality restrictions, noncompetition provisions and
standard intellectual property protection provisions. We license, rather than
sell, our software and require our clients to enter into license agreements that
restrict their ability to use the software beyond the licensed use.
Despite our efforts to protect proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology to
develop products with the same or similar functions as our products. Policing
unauthorized use of our products is difficult, and we cannot be certain that the
steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect proprietary
rights as fully as they do in the United States.
EMPLOYEES
As of December 31, 1999, we had 594 full-time employees of whom:
- 135 were software developers;
- 196 were engaged in RF engineering and other professionals engaged in
consulting;
- 81 were in sales and marketing;
- 104 were in customer services; and
- 78 were in finance, administration and operations.
We aim to meet our personnel and skills needs through a mix of recruitment,
internal development and acquisitions. Our underlying approach to employee
career development and skill enhancement is to cultivate both
technical/professional and management talent throughout the organization. We
provide
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our employees and consultants with external and internal programs tailored to
enhance and expand their skill sets.
We are active in dynamic markets. We must therefore pay close attention to
the pay rates and appropriate employee benefits that will retain talented
individuals and allow us to recruit the additional personnel that we require.
We have clear performance related bonus plans and a stock option plan that
cover all staff. Stock options are awarded to employees at all levels of the
organization based upon established criteria including performance and key
skills retention.
Our employment policies and processes are contemporary and regularly
monitored to ensure they are legally appropriate. We also regularly review our
contracts of employment and such individual agreements as may be required to
maintain and protect our confidential information.
FACILITIES
We lease the properties in each of our 23 offices. The leases for our sites
in London and Seattle are for an aggregate of approximately 113,700 square feet,
and expire on various dates ranging from May 2000 to August 2009. We believe
that the facilities we lease are sufficient to meet our current needs. To the
extent we need to lease additional office space, we expect to be able to do so
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. We are not currently
a party to any material litigation outside the ordinary course of business and
are not aware of any claims or action threatened that would have a material
adverse effect on our results of operations or financial condition.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following are our directors and executive officers and their ages as of
March 1, 2000. All of our directors were appointed to our board of directors
pursuant to a stockholders agreement among our company and certain of our
stockholders. See "Related Party Transactions--Stockholders Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Sir Alan W. Rudge(1)...................... 62 Chairman of the Board of Directors
Thomas Butler............................. 47 Chief Executive Officer and Director
Derek L. Meades........................... 47 Chief Financial Officer and Secretary
Michael A. Burgess........................ 52 Senior Vice President, Asia Pacific
Graham Harrison........................... 52 Senior Vice President, Europe, Middle East
and Africa
Clifford P. Wagner, Jr.................... 39 Senior Vice President, Global Sales
Operations
Geoffrey Doy.............................. 51 Senior Vice President, Enterprise Products
and Services
Dr. John Greig............................ 44 Senior Vice President, Network Business
Unit Group
Mark Whiteside............................ 37 Senior Vice President, Customer Services
William Duncan............................ 46 Vice President, Human Resources
Mary Beth Flanders........................ 40 Vice President, Strategic Planning
Steven A. Denning(1)...................... 51 Director
G. Felda Hardymon......................... 52 Director
Dr. Mohamed Ibrahim(1).................... 53 Director
George J. Still, Jr.(2)................... 41 Director
Loek van den Boog(2)...................... 46 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
SIR ALAN W. RUDGE has been a member of our board of directors since
December 1998 and Chairman of our board of directors since April 1999. From
December 1997 to December 1998, Sir Alan Rudge served on the board of directors
of MSIH, a predecessor to our company. From November 1994 to April 1999, he was
Chairman of the Engineering and Physical Sciences Research Council and from
November 1997 to April 1999, he was Chairman of the UK Engineering Council. From
January 1987 to November 1997, Sir Alan Rudge was Deputy Chief Executive Officer
of British Telecommunications plc and a member of its Main Board. From
April 1979 to January 1987, Sir Alan Rudge was Chief Executive Officer of ERA
Technology Ltd., an independent research and technology organization. During
this period, he played a leading role in the founding of AIRTO (the Association
of Independent Research and Technology Organisations) and was its first
President. Sir Alan Rudge currently serves as Chairman of the board of directors
of W.S. Atkins and ERA Technology and as a
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<PAGE>
non-executive Director on the boards of Marconi Plc, Great Universal Stores Plc
and Mobile Systems International Cellular Investments Holdings BV.
THOMAS BUTLER has served as the Chief Executive Officer of our company since
December 1998 and a member of our board of directors since December 1998. From
January 1998 to November 1998, he served as Chief Executive Officer of MSIH.
From June 1996 to September 1997, Mr. Butler was Chief Operating Officer and
then Chief Executive Officer of Origin BV, a Philips Electronics company. From
1990 to May 1996, Mr. Butler was employed by Electronic Data Systems Corporation
(or EDS Corporation), first as Director, Manufacturing Industries until 1991,
then as Chief Executive Officer of the United Kingdom and finally as Group
Executive Officer of EDS Corporation responsible for Northern Europe.
DEREK L. MEADES has served as Chief Financial Officer and Secretary of our
company since February 1999. From May 1980 to January 1999, Mr. Meades was
employed by Cap Gemini UK plc, a European IT services and business consultancy
company, and served in a number of capacities, including as Group Financial
Controller and Company Secretary and, for the last five years of his employment,
as Financial Director.
MICHAEL A. BURGESS has served as Senior Vice President, Asia Pacific of our
company since June 1998. From February 1998 to June 1998, Mr. Burgess acted as a
consultant in the areas of competitive strategy formulation and strategic
acquisitions with Lucent Technologies in Hong Kong. From March 1995 to September
1997, Mr. Burgess was Director, Joint Venture, Marketing and Sales, for BT Asia
Pacific. From August 1991 to March 1995, Mr. Burgess was employed by Telstra,
the Australian government-owned telecommunications carrier, initially as
Business Manager in the Corporate Customer, then General Manager of the Global
Customer, National General Manager of the Corporate & Global Customer and
finally as Deputy Chief Operating Officer of the Commercial & Consumer
divisions. He has been a member of the board of directors of Infonet Services
Corporation in the United States and of British Telecommunications' joint
ventures in Japan and India.
GRAHAM HARRISON has served as Senior Vice President, Europe, Middle East and
Africa of our company since July 1999. From November 1998 to July 1999,
Mr. Harrison acted as Special Advisor to the Chairman of the SITA Foundation,
the network data communication organization servicing the air transport
community. From September 1996 to October 1998, Mr. Harrison was Director,
Financial Services Consulting, for Oracle Corporation. From July 1994 to July
1996, he was Managing Director, Financial Services Division of EDS Corporation.
From December 1989 to July 1994, Mr. Harrison was employed by Galileo
International as Managing Director of the German and Belgian subsidiaries and
then as Commercial Director.
CLIFFORD P. WAGNER, JR. has served as Senior Vice President, Global Sales
and Regional Operations of our company since April 1998. From July 1996 to
April 1998, he was Senior Vice President of Logistics Business and Business
Development of Origin BV, a Philips Electronics company. From January 1986 to
June 1996, he was employed by EDS, and served in a number of capacities,
including as President of the Vehicle Industry Division from 1993 to 1995, and
as President of the Manufacturing Business Unit and a member of the board of
directors of EDS Deutschland Gmbh from 1995 to 1996.
GEOFFREY DOY joined our company in August 1998 and has served as Vice
President and then Senior Vice President, Enterprise Products and Services since
January. From January 1995 to September 1998, Mr. Doy was a Principal Consultant
and Vice President in the telecommunications and computing practice at Gemini
Consulting, the management consulting arm of CAP Gemini Group. From May 1993 to
January 1995, he was an independent consultant and his assignments included
acting as Interim CEO for Andor International, a Silicon Valley start-up company
developing and marketing communications storage controllers based on Amdahl chip
designs, and as Vice President of Management Services for Talkand International,
a service provider in the United Kingdom wireless
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communications market. From January 1988 to April 1993, Mr. Doy was employed by
Artemis International, a United States software company, and served a number of
capacities, including as Vice President, Professional Services, and then as Vice
President, Marketing and Development.
DR. JOHN GREIG has served as Vice President, Global Planning Solutions Group
of our company since July 1998. From January 1996 to July 1998, Dr. Greig was
employed by Sema Telecoms and served in a number of capacities, including as
Technical Director of customer and billing solutions and Programme Director of
the V3000 development program in France. From July 1995 to December 1996, he was
the interim Technical Director responsible for the implementation of new
business objectives at Kingston SCL. From November 1991 to June 1995, Dr. Greig
was Director, Professional Services at Dataease International, a leading
supplier of relational products and services. In addition, Dr. Greig has been
Director, European Technical Services at Informix Software, Technology Director
for European product management at Ingres and Technical Director in the Products
Division at Aregon International (now Kapiti).
MARK WHITESIDE joined our company in June 1996 as Director of Professional
Services with Metapath Software Corporation (or Metapath) and has been Senior
Vice President, Customer Services since January 2000. From March 1988 to
June 1996, Mr. Whiteside was employed by Sequent Computers and served in a
number of capacities, including as North American Technical Support Manager,
Technical Consulting Manager for North America and as Director of Customer
Services, Asia Pacific, based in Singapore.
WILLIAM DUNCAN has served as Vice President, Human Resources of our company
since May 1998. From July 1972 to May 1998, he was employed by Cable & Wireless,
the global telecommunications group, and served in a number of senior human
resources management posts both in the United Kingdom and overseas, including
his last role before joining our company as Director of Human Resources for the
Bermuda, Caribbean and Latin America Region.
MARY BETH FLANDERS joined our company in October 1996 as Director, Business
Planning and has served as Vice President, Strategic Planning since June 1998.
From March 1995 to October 1996, Ms. Flanders was Director of Corporate
Development at Telular Corporation. From December 1992 to March 1995,
Ms. Flanders was a Wireless Technology Analyst at U S WEST Advanced
Technologies. From May 1982 to November 1992, she was involved with the
development of advanced cellular and PCS systems at Motorola Corporate Research
and Development.
STEVEN A. DENNING has been a member of our board of directors since
December 1998 and from August 1996 to December 1998, he served on the board of
directors of MSIH. Mr. Denning is the Executive Managing Member of General
Atlantic Partners, LLC, a private equity investment firm focusing exclusively on
Internet and information technology investments on a global basis, and he has
been with General Atlantic since 1980. Mr. Denning presently serves on the board
of directors of GT Interactive Software Corp., Eclipsys Corporation and a number
of private information technology companies.
G. FELDA HARDYMON has been a member of our board of directors since
December 1998. Mr. Hardymon served on the board of directors of Metapath from
its inception in December 1994 to December 1998 and from December 1996 to
December 1998, he served on the board of directors of MSIH. Mr. Hardymon has
been a general partner of funds managed by Bessemer Venture Partners since 1981.
Previously, he was a Vice President of BDSI, a venture capital subsidiary of
General Electric Company. He serves as a director of the National Venture
Capital Association and several private companies including Mobile Systems
International Cellular Investments Holdings BV. Mr. Hardymon has an appointment
to the faculty of Harvard Business School as a Senior Lecturer in Business
Administration.
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<PAGE>
DR. MOHAMED IBRAHIM has been a member of our board of directors since
December 1998 and served as Chairman of our board of directors from
December 1998 to April 1999. He founded MSIH, in 1989 and served on its board of
directors from its inception to December 1998 and as its Chairman from
November 1995 to December 1998. Previously, he was Technical Director at
Cellnet. He currently serves as Chairman for Mobile Systems International
Cellular Investments Holdings BV, and for cellular network operators, Zamtel in
Zambia, and Celtel in Malawi and Congo. He also serves as a director on the
boards of Peoples Telephone in Hong Kong, Celtel in Sierra Leone and Misrfone
SAE in Egypt.
GEORGE J. STILL, JR. has been a member of our board of directors since
December 1998 and had served on the board of directors of Metapath from
May 1996 until December 1998. Mr. Still is the Managing Partner of Norwest
Venture Partners. From July 1984 until October 1989, Mr. Still was a General
Partner with the Centennial Funds based in Denver, Colorado. Prior to
Centennial, Mr. Still was with Ernst & Whinney (now Ernst & Young) in San
Francisco. Currently, Mr. Still is a director of PeopleSoft, Inc. In addition,
Mr. Still serves as a Director of the National Venture Capital Association.
LOEK VAN DEN BOOG has been a member of our board of directors since April
1999. From July 1997 to December 1998, Mr. van den Boog served on the board of
directors of MSIH. Since July 1996, Mr. van den Boog has invested privately in
various high-tech companies throughout Europe and the United States. From 1984
to 1996, Mr. van den Boog was employed at Oracle Corporation and served in a
number of positions, including as Senior Vice President Europe, Middle East and
Africa. He currently serves as director for META 4 N.V. in Spain, a software and
service provider. In addition, he is a special advisor to General Atlantic
Partners, LLC.
BOARD COMPOSITION
Our board of directors consists of seven members. Prior to the closing of
this offering, our board of directors will be divided into three classes, with
each director serving a three-year term and one class being elected at each
year's annual meeting of stockholders. Messrs. Hardymon and Still will be in the
class of directors whose initial term expires at the 2001 annual meeting of
stockholders. Sir Alan Rudge and Messrs. Denning and van den Boog will be in the
class of directors whose initial term expires at the 2002 annual meeting of the
stockholders. Dr. Ibrahim and Mr. Butler will be in the class of directors whose
initial term expires at the 2003 annual meeting of stockholders. Following
completion of this offering, the board of directors intends to appoint at least
one additional director who is not affiliated with our company.
Executive officers are elected by the board of directors on an annual basis
and serve until their successors have been duly elected and qualified. There are
no family relationships among any of our directors, officers or key employees.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. Messrs.
Still and van den Boog are members of our audit committee. Sir Alan Rudge,
Dr. Ibrahim and Mr. Denning are members of our compensation committee. The audit
committee makes recommendations to our board of directors regarding the
selection of independent accountants, reviews the results and scope of audit and
other services provided by our independent accountants and reviews and evaluates
our audit and control functions. The compensation committee reviews and
recommends to the board of directors the compensation and benefits of all of our
officers and establishes and reviews general policies relating to compensation
and benefits of our other employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors established its compensation committee in
December 1998. Prior to establishing the compensation committee, our board of
directors as a whole performed the functions
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<PAGE>
delegated to the compensation committee. No interlocking relationship exists
between any member of our compensation committee and any member of any other
company's board of directors or compensation committee.
DIRECTOR COMPENSATION
Other than Sir Alan Rudge and Dr. Ibrahim, directors do not currently
receive any cash compensation from our company for their service as members of
our board of directors, except for reimbursement for reasonable travel expenses
in connection with attendance at board and committee meetings. Sir Alan Rudge
receives compensation of $150,000 per annum for serving as the Chairman of the
board of directors. Dr. Ibrahim receives compensation of L35,750 per annum for
serving as a member of the board. Under our 1999 stock option plan, directors
are eligible to receive stock option grants at the discretion of the board of
directors. In the fiscal year ended December 31, 1999, we granted Sir Alan Rudge
options to purchase an a total of shares of our common stock under our
1999 stock option plan, of which options for shares were granted at the
time of his appointment as Chairman of the board of directors of our company in
April 1999.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth compensation earned by our chief executive
officer and our four other most highly compensated executive officers who earned
more than $100,000 in salary and bonus for the fiscal year ended December 31,
1999. These individuals are referred to as the named executive officers.
Monetary amounts in this table for Messrs. Butler, Thompson and Taylor-Smith
have been translated from pounds sterling into dollars using the year-to-date
average exchange rate for the fiscal year ended December 31, 1999 of $1.6168 =
L1.00. 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
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(2) BONUS OPTIONS COMPENSATION(3)
- --------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Thomas Butler................................. $516,118 $99,213 $ 0
Chief Executive Officer
Clifford P. Wagner, Jr........................ 200,000 71,667 10,000
Senior Vice President, Global Sales
Operations
Mark Whiteside................................ 135,000 116,412 10,000
Senior Vice President, Customer Services
Robert Thompson(1)............................ 189,893 32,740 109,298
Senior Vice President and Chief Product
Officer
Martin Taylor-Smith(1)........................ 229,181 44,606 11,459
Senior Vice President, Change Management
</TABLE>
- ------------------------
(1) Mr. Thompson resigned his positions as Senior Vice President and Chief
Product Officer, effective December 31, 1999. Mr. Taylor-Smith resigned his
position as Senior Vice President, Change Management effective December 31,
1999.
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<PAGE>
(2) The amount for Mr. Butler includes a payment of $43,665 to Mr. Butler for
his use to fund a personal pension plan.
(3) The amount for Mr. Thompson represents a contribution made by us to his
personal pension plan of $11,077 and a payment of $93,168 in connection with
his separation from our company. The amounts for Mr. Taylor-Smith represent
contributions made by us to his personal pension plan. The amounts for
Messrs. Wagner and Whiteside represent contributions made by us under our
401(k) plan. See "Employee Benefit Plans--401(k) Plan."
OPTION GRANTS
The following table sets forth, for the fiscal year ended December 31, 1999,
certain information regarding options granted to each of the named executive
officers. All of the options were granted under our 1999 stock option plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS GRANTED PRICE APPRECIATION FOR
UNDERLYING TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(2) 1999(3) (PER SHARE) DATE 5% 10%
- ---- ---------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas Butler...............
Clifford P. Wagner, Jr......
Mark Whiteside..............
Robert Thompson(1)..........
Martin Taylor-Smith(1)......
</TABLE>
- ------------------------
(1) Mr. Thompson resigned his positions as Senior Vice President and Chief
Product Officer, effective December 31, 1999. Mr. Taylor-Smith resigned his
position as Senior Vice President, Change Management effective December 31,
1999.
(2) Options under the stock option plan vest over a four-year period, 25% on the
first anniversary of the grant and in equal quarterly increments thereafter.
(3) The percentages above are based on an aggregate of shares subject to
options we granted to employees in the year ended December 31, 1999.
(4) The potential realizable values assume that the price of the applicable
grant per share was the fair market value of the common stock on the date of
the grant and that the price of the applicable stock increases from the date
of grant until the end of the ten-year option term at the annual rates
specified. There is no assurance provided to any holder of our securities
that the actual stock price appreciation over the ten-year option term will
be at the assumed 5% or 10% levels or at any other defined level.
The exercise price per share of each option was equal to the fair market
value of the common stock as determined by the board of directors on the date of
grant. To determine fair market value, our board of directors considered, among
other things, the value of our common stock as used in the December 1998
reorganization and our revenues, product development and prospects. See "Related
Party Transactions--1998 Reorganization."
The following table sets forth information, with respect to each of the
named executive officers, concerning options exercised during 1999 and the
number and value of securities underlying unexercised options held as of
December 31, 1999.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------- ---------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ---- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas Butler....................... -- -- $ $
Clifford P. Wagner, Jr.............. -- --
Mark Whiteside......................
Robert Thompson(1).................. -- --
Martin Taylor-Smith(1).............. -- --
</TABLE>
- ------------------------
(1) Mr. Thompson resigned his positions as Senior Vice President and Chief
Product Officer, effective December 31, 1999. Mr. Taylor-Smith resigned his
position as Senior Vice President, Change Management effective December 31,
1999.
The value of in-the-money options represents the positive spread between the
exercise price of the stock options and the deemed fair market value of the
common stock as of December 31, 1999, which our board of directors determined
was $ .
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
Our 1999 stock option plan was adopted by our board of directors effective
February 1999, amended in July 1999 and amended and restated in its entirety in
February 2000. Our stockholders also approved the 1999 stock option plan. A
total of shares of common stock have been reserved for issuance under the
1999 stock option plan.
The 1999 stock option plan provides for grants of stock options to our
employees, directors, officers and consultants. The purposes of the 1999 stock
option plan are to attract and retain the best available personnel for positions
of substantial responsibility, to provide additional incentive to our employees,
directors, officers and consultants and to promote the success of our business.
The stock option plan is administered by the compensation committee of the board
of directors which has the authority to grant options, determine the individuals
to whom options are granted, the number of shares subject to the options and
other terms of the options. Stock options granted under the 1999 stock option
plan may be "incentive stock options" within the meaning of the U.S. Internal
Revenue Code or non-qualified options. All options granted under the 1999 stock
option plan generally vest over a four-year period, 25% on the first anniversary
of the grant and in equal quarterly increments thereafter.
The term of the options granted under the 1999 stock option plan is stated
in the option agreement and may not exceed ten years. Generally, stock options
are granted with an exercise price not less than the fair market value per share
on the date of grant, which after this offering will be the reported closing
sale price on the Nasdaq National Market on the preceding date. In the case of
"incentive stock options" granted to any optionee who owns 10% or more of the
voting power of all classes of our stock, the exercise price of those stock
options granted must be at least 110% of the fair market value per share on the
date of grant and the term not to exceed five years.
Upon a change of control of our company, all outstanding options will become
fully vested and exercisable and assumed or substituted for an equivalent option
by the successor corporation or a parent of the successor corporation. In the
event the options are not so assumed or substituted, the options will terminate
and the option holders will have 15 days to exercise their options. The 1999
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<PAGE>
stock option plan will terminate in March 2009, unless earlier terminated by our
board of directors. Our board of directors may amend the 1999 stock option plan
at any time, subject to stockholder approval if under certain circumstances.
We intend to rely on the special transition rule in the U.S. Treasury
regulations for private corporations that complete an initial public offering
which would permit us to deduct for U.S. federal income tax purposes certain
compensation expenses related to awards or grants made under our 1999 stock
option plan through 2003. Thereafter, the deductibility of compensation expenses
related to awards or grants made under our 1999 stock option plan to the named
executive officers will depend on the amount of compensation deductions
generally in any given year and whether we and our 1999 stock option plan comply
with the performance-based exception to Section 162(m) of the U.S. Internal
Revenue Code.
As of December 31, 1999, we had outstanding options to purchase shares
of common stock under the 1999 stock option plan at a weighted average exercise
price of $ per share, of which were exercisable. shares remain
available for future grants under the 1999 stock option plan.
EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by our board of directors and
approved by our stockholders in 2000 and will become effective upon the
closing of this offering. A total of shares of common stock have been
reserved for issuance under the employee stock purchase plan. On of each
year, starting with the year 2001, the number of shares in the reserve will
automatically be increased by % of the total number of shares of our
common stock that are outstanding at that time or, if less, by shares. We
intend to use our employee stock purchase plan for employees based in the United
States and also for other employees around the world (excluding the United
Kingdom), provided that the local tax laws do not impose any material
obligations or administrative burdens on our company.
Our employee stock purchase plan is administered by the compensation
committee of our board of directors and is intended to qualify under
Section 423 of the U.S. Internal Revenue Code. Employees based in the United
States and around the world (excluding the United Kingdom), as appropriate,
including our officers and employee directors but excluding our five percent or
greater stockholders, are eligible to participate if they are customarily
employed for at least 20 hours per week and for more than five months in any
calendar year. Our employee stock purchase plan permits eligible employees to
purchase our common stock through payroll deductions, which may not exceed the
lesser of 15% of an employee's compensation, as defined on Form W-2, or $25,000
per annum.
Our employee stock purchase plan will be implemented in a series of offering
periods, with the length of each period established by the committee. The
initial offering period will begin on the effective date of this offering. Each
participant will be granted an option on the first day of the offering period
and the option will be automatically exercised on the last day of the offering
period. The purchase price of our common stock will be 85% of the lesser of the
fair market value per share on the start date of the offering period or at the
end of the offering period. Employees may end their participation in an offering
period at any time, and their participation ends automatically on termination of
employment with our company.
Our employee stock purchase plan will terminate in 2010, unless our
board of directors terminates it sooner.
SHARESAVE PLAN
Our sharesave plan was adopted by our board of directors and approved by our
stockholders in 2000. Our sharesave plan will be a save-as-you-earn share
option plan designed to be approved
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<PAGE>
by the U.K. Inland Revenue in accordance with the U.K. Income and Corporation
Taxes Act 1988. We anticipate obtaining the Inland Revenue approval by
2000 and we cannot operate the plan until we have received such approval. We
intend to use the sharesave plan for employees based in the United Kingdom, as
described below. The sharesave plan will be subject to the following overall
limits on total number of shares of our common stock which may be acquired under
the plan:
- as of any date within any period of five years, not more than 5% of our
common share capital issued immediately prior to that date may, in the
aggregate, be issued or issuable pursuant to rights under our sharesave
plan; and
- as of any date within any period of ten years, not more than 10% of our
common share capital issued immediately prior to that date may, in the
aggregate, be issued or issuable pursuant to rights under our sharesave
plan.
Our sharesave plan is administered by our board of directors. Our employees,
including our officers and employee directors, are eligible to participate if
they pay U.K. tax under certain provisions of U.K. tax law and have been
continuously employed with us or a designated subsidiary of our company for a
qualifying period determined by our board of directors not to exceed five years.
Our board of directors has the discretion to include other employees.
Our sharesave plan permits an eligible employee to purchase common stock
through a savings contract under which the eligible employee agrees to make
fixed monthly payroll deductions of between L5 and L250 for a period of either
three or five years and a bonus is added at the end of three or five years.
Our sharesave plan will be implemented in a series of invitation periods
during which eligible employees are invited to participate. These invitation
periods will ordinarily relate to periods following the announcement of our
financial results during which we are permitted to grant options with respect to
our common stock. Each participant will be granted an option over the number of
shares of our common stock as nearly as possible equal to, but not to exceed,
the number of shares of our common stock which may be purchased at the exercise
price out of the repayment proceeds of the relevant savings contract (including
interest and any bonus). The exercise price of our common stock under the
sharesave plan will be determined by our board of directors, but will not be
less than 85% of the fair market value per share on the business day immediately
preceding the date on which invitations to apply for options are issued to
employees. The options will ordinarily be exercisable for a period of six months
commencing on the completion of the related savings contract and, if not
exercised by the end of that period, will lapse. Early exercise of options
granted in our employee stock purchase plan will be permitted in certain
circumstances, including death, disability, retirement or termination of
employment by us by reason of redundancy and upon a change of control of our
company. In certain circumstances upon a change of control of our company,
participants may also be permitted to exchange their options for an equivalent
option over shares of the acquiring company or a member of its group. Employees
may withdraw from the sharesave plan at any time.
Our sharesave plan will terminate in 2010, unless our board of
directors terminates it sooner.
BONUS PLAN
We have adopted in July 1999 a bonus plan with three categories: the
executive bonus plan, which applies to our executive officers; the senior
management bonus plan, which applies to our next level of management employees;
and the staff bonus plan, which applies to all of our remaining employees other
than our sales staff who participate in a sales-specific commission plan. Our
bonus plan is performance-related and bonuses are based upon the performance of
our company as well as of the individual employee. The amount of bonus is
expressed as a percentage of the employee's annual
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<PAGE>
salary. Of the bonus amount, one-half is based on the level of our net operating
profit and is paid automatically once the base level of operating profit is
achieved, subject to the rules of the plan being satisfied. The remaining
one-half of the bonus is based on the individual employee's personal
performance, as assessed under our performance appraisal system. The principal
difference among the three categories of bonus plan is the percentage of annual
salary payable upon achieving the targeted levels of net operating profit. It is
anticipated that payments under our plan will be made during this year.
U.K. PERSONAL PENSION PLAN
We have a personal pension plan for our U.K. employees. After six months'
service all full time employees in the United Kingdom are eligible to purchase a
personal plan under a group arrangement we have with Scottish Equitable and
obtain the benefit of lower charges. Under the personal pension plan, employees
contribute 5% from salary which is matched by a 5% contribution from us. Upon
retirement, employees may elect to receive the proceeds from their personal plan
in a lump sum or arrange to use those proceeds to purchase annuities.
Mr. Butler has a personal pension plan outside this group arrangement and our
matching 5% contribution is paid directly to Mr. Butler for his use to fund his
personal pension plan.
401(K) PLAN
We have established our 401(k) plan for our employees in the United States.
Our 401(k) plan is intended to qualify under Section 401 of the U.S. Internal
Revenue Code so that contributions by employees or us, and income earned on
those contributions, are not taxable until withdrawn and so that contributions
made by us will be deductible by us when made. Our 401(k) plan provides that
each participant may reduce his or her pre-tax gross compensation by up to 15%
(up to a statutorily prescribed annual limit of $10,000 in 1999) and have that
amount contributed to our 401(k) plan. Employees become eligible to participate
in our 401(k) plan three months after commencement of their employment with our
company. Participants are fully vested in all amounts they contribute under our
401(k) plan and in the earnings on such amounts.
In addition to the employee salary contributions described above, our 401(k)
plan requires us to make matching contributions of 100% of the first 5% of
salary contributions made by each participant. Participants become 50% vested in
matching contributions after one year of service and fully-vested after two
years of service with our company.
Employee participants may elect to invest their accounts under the 401(k)
plan in various established funds.
METAPATH 1995 STOCK OPTION PLAN
The 1995 stock option plan of Metapath was terminated upon our acquisition
of the company in December 1998. See "Related Party Transactions--1998
Reorganization." The 1995 stock option plan provided for grants of stock options
to Metapath's directors, officers, employees and consultants for the purpose of
attracting and retaining experienced and able persons for these positions and to
provide additional incentives to persons in these positions to exert their best
efforts for Metapath and its stockholders.
In the merger, we assumed all stock options granted under the 1995 stock
option plan on the same terms and conditions in effect prior to the merger,
except that, at the completion of the merger, 50% of the unvested options
outstanding at that time immediately vested and became exercisable. The
remaining unvested options vest ratably on an annual basis over a four-year
period pursuant to the terms and conditions in effect prior to the merger.
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<PAGE>
As of December 31, 1999, we had issued shares of our common stock upon
the exercise of options granted under the 1995 stock option plan and we had
outstanding options to purchase shares of our common stock at a weighted
average exercise price of $ per share, of which were exercisable.
METAPATH INDEPENDENT DIRECTORS' STOCK OPTION PLAN
The Metapath independent directors' stock option plan was terminated upon
our acquisition of Metapath in December 1998. See "Related Party
Transactions--1998 Reorganization."
In the merger, we assumed all stock options granted under the independent
directors' stock option plan on the same terms and conditions in effect prior to
the merger, except that 100% of the unvested options outstanding at that time
immediately vested and became exercisable. The options may be exercised only
while the holder remains a director of our company pursuant to the terms and
conditions in effect prior to the merger.
As of December 31, 1999, we had issued shares of our common stock upon
the exercise of options granted under the independent directors' stock option
plan and we had outstanding options to purchase shares of our common stock
at a weighted average exercise price of $ per share, all of which were
exercisable.
MOBILE SYSTEMS INTERNATIONAL SHARE OPTION PLAN
The share option plan of MSIH was terminated in December 1998 when we
exchanged all outstanding options granted under the share option plan for
options to purchase shares of our common stock. See "Related Party
Transactions--1998 Reorganization." Options granted under the share option plan
vest over a four-year period, 25% on the first anniversary of the grant and in
equal quarterly increments thereafter.
As of December 31, 1999, we had issued shares of our common stock upon
the exercise of options granted under the share option plan and we had
outstanding options to purchase shares of our common stock at a weighted
average exercise price of $ per share, of which were exercisable.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Butler, Thompson and
Taylor-Smith, each with the following principal terms:
- The employee is entitled a base salary as stated below, reviewed and
increased each April, commencing April 1999, in the discretion of the
board of directors.
- The employee may be awarded, in the absolute discretion of the board of
directors, an annual bonus amount up to the percentage of the employee's
annual salary as set forth below. Beginning in 2000, bonus payments will
be made under our bonus plan. See "--Employee Benefit Plans--Bonus Plan."
- The employee was granted options to purchase shares of our common stock as
set forth below, pursuant to the MSIH share option plan, at an exercise
price of $ per share. The options immediately vest in full upon a change
of control. See "--Employee Benefit Plans--Mobile Systems International
Share Option Plan."
- The employee may be terminated at any time upon six months' notice by us
and the employee may resign at any time upon six months' notice to us. We
have the discretion to terminate the employee without notice upon payment
of six months' salary less any tax withholdings.
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- During the term of employment, the employee cannot compete with our
company. Additionally, for the six-month period (or one-year period in the
case of Mr. Butler) following the employee's termination of employment,
the employee may not compete with our company or solicit any person who
may compete with our company or assist a competitor of our company, or any
person who is likely to have confidential information with respect to our
company or customers.
We entered into Mr. Butler's employment agreement in December 1997, Mr.
Thompson's employment agreement in June 1998 and Mr. Taylor-Smith's employment
agreement in May 1998.
The following table sets forth the position, base salary and number of
shares of common stock represented by the options granted for each of
Messrs. Butler, Thompson and Taylor-Smith pursuant to their respective
employment agreements:
<TABLE>
<CAPTION>
OPTIONS TO
PURCHASE
SHARES OF
BONUS COMMON
NAME POSITION BASE SALARY PERCENTAGE(2) STOCK(3)(4)
- ---- -------------------------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Thomas Butler.................. Chief Executive Officer and L 235,000 50%
Director
Robert Thompson(1)............. Senior Vice President and Chief 116,000 30%
Product Officer
Martin Taylor-Smith(1)......... Senior Vice President, Change 140,000 50%
Management
</TABLE>
- ------------------------
(1) Mr. Thompson resigned his positions as Senior Vice President and Chief
Product Officer, effective December 31, 1999. Mr. Taylor-Smith resigned his
position as Senior Vice President, Change Management effective December 31,
1999.
(2) Mr. Thompson also received a L20,000 guaranteed bonus for his service in
1998. Mr. Taylor-Smith received a one-time signing bonus of L15,000.
(3) As adjusted in connection with the December 1998 reorganization. See
"Related Party Transactions--1998 Reorganization."
(4) The number for Mr. Butler does not include 100,000 share options of Mobile
Systems International Cellular Investment Holdings BV granted to Mr. Butler
in the demerger of our cellular investments in March 1998. See "Related
Party Transactions--Transactions with Companies which our Directors are
Associated--Cellular Investments Demerger."
We entered into an employment agreement with Mr. Wagner in March 1998 which
provides for a base salary of $200,000, reviewed annually and increased each
April. Mr. Wagner is entitled to receive bonuses at the discretion of our board
of directors and starting in 2000, in accordance with the Executive Bonus Plan.
See "--Employee Benefit Plans--Bonus Plan." In connection with his employment
agreement, Mr. Wagner was granted options to purchase shares of our common
stock, which options immediately vest in full upon a change of control. See
"--Employee Benefit Plans--Mobile Systems Share Option Plan." Mr. Wagner may be
terminated at any time upon six months' notice by us and he may resign at any
time upon six months' notice to us. During the term of his employment,
Mr. Wagner may not compete with our company. For a one-year period following the
termination of his employment, Mr. Wagner may not compete with our company or
solicit any employee or agent of our company to terminate that person's
relationship with our company.
Mr. Whiteside entered into an employment agreement with Metapath in
May 1996, which we assumed in our 1998 reorganization. See "Related Party
Transactions--1998 Reorganizations." Mr. Whiteside's employment agreement
provides for a base salary of $80,000, reviewed annually and
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<PAGE>
increased each April. Mr. Whiteside is entitled to receive bonuses at the
discretion of our board of directors and starting in 2000, in accordance with
the Executive Bonus Plan. See "--Employee Benefit Plan--Bonus Plan."
Mr. Whiteside was granted options to purchase of our common stock, which
options immediately vest in full upon a change of control. Mr. Whiteside's
employment agreement is terminable at will at any time by either Mr. Whiteside
or us. Mr. Whiteside may not compete with our company during the term of his
employment and for a one-year period following the termination of his
employment.
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RELATED PARTY TRANSACTIONS
REINCORPORATION AND RECAPITALIZATION
Prior to the consummation of this offering, we will merge with our Delaware
subsidiary by the same name for the purpose of reincorporating in the state of
Delaware. Upon the effectiveness of the merger, we will cease to be a California
corporation and each of our then outstanding shares of common stock will
automatically be converted into one share of common stock of the Delaware
company. All of our businesses, properties, assets, obligations and liabilities
will be assumed by the Delaware company by virtue of the merger. Following the
reincorporation merger and prior to the consummation of this offering, we will
effect a recapitalization through a stock split of our common stock. We
have presented all information in this prospectus other than the financial
information as if the reincorporation merger and recapitalization have occurred.
Both the reincorporation merger and the recapitalization are conditions to the
consummation of this offering.
1998 REORGANIZATION
REORGANIZATION
We were originally incorporated in California in September 1998 for the
purpose of becoming a holding company for MSIH, a company organized under the
laws of England and Wales, and for Metapath Software Corporation (or Metapath),
a Washington corporation. In December 1998, we completed a reorganization and
became the holding company of MSIH and Metapath through a series of related
transactions.
In the reorganization, we entered into a scheme of arrangement under
Section 425 of the U.K. Companies Act 1985 and option exchange offer with MSIH,
the combined effect of which was that all of the issued and outstanding ordinary
shares of MSIH were canceled in exchange for shares of our common stock
representing approximately 65% of the outstanding common stock of our company on
a fully-diluted basis. In the exchange offer, we exchanged outstanding options
to purchase MSIH ordinary shares for options to purchase our common stock, the
number of which and the related exercise price were adjusted based upon the
exchange ratio applied in the scheme of arrangement. We issued a total of
shares of our common stock in the scheme of arrangement and issued in the
exchange offer options representing the right to purchase shares of our
common stock after the reorganization.
Also in the reorganization, we acquired Metapath by means of a merger
whereby a subsidiary of our company merged with and into Metapath, with Metapath
continuing as the surviving corporation and a wholly-owned subsidiary of our
company. In the merger, we issued shares to the Metapath stockholders on the
basis of an exchange ratio pursuant to which all of the issued and outstanding
shares of Metapath's common stock on a fully-diluted basis were converted into
the right to receive 35% of the outstanding shares of our common stock on a
fully-diluted basis. We also assumed all outstanding options and warrants of
Metapath in the merger whereby upon exercise the holders would be entitled to
purchase shares of our common stock, the number of which and the related
exercise price were adjusted based upon the exchange ratio applied in the
merger. We issued a total of shares of our common stock in the merger and
assumed options and warrants which after the merger represented the right to
purchase shares of our common stock.
In connection with the Metapath merger in December 1998, we purchased
1,898,202 shares of Metapath common stock from Networks Northwest, Inc. for
shares of our common stock.
In the reorganization, Dr. Ibrahim, a director of our company, and certain
of his affiliated trusts and funds received shares of our common stock in
exchange for 5,743,078 ordinary shares of MSIH; partnerships affiliated with
General Atlantic Partners, LLC, a principal stockholder of our company and an
affiliate of Mr. Denning, a director of our company, received shares of
our common stock in exchange for 4,197,960 ordinary shares of MSIH; Bessemer
Venture Partners, a
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holder of more than 5% of our common stock and an affiliate of Dr. Hardymon, a
director of our company, received a total of shares of our common stock in
exchange for 4,061,234 shares of common stock of Metapath and 400,000 ordinary
shares of MSIH; and Norwest Equity Partners V, LP, a holder of more than 5% of
our common stock and an affiliate of Mr. Still, a director of our company,
received shares of our common stock in exchange for 3,864,283 shares of
common stock of Metapath. Mr. Hardymon was a director of both MSIH and Metapath
and is a partner of Bessemer Venture Partners which, in addition to owning
shares of MSIH and Metapath, was a principal stockholder of Networks
Northwest, Inc.
SHAREHOLDERS AGREEMENT
In connection with the 1998 reorganization, we entered into a shareholders
agreement with certain of our stockholders who, in the aggregate, own
approximately 87% of our outstanding common stock. We granted the stockholders a
right of first refusal over any new issuances of our capital stock, and they
were entitled to receive information that is distributed to the board subject to
the execution of a standard non-disclosure agreement. Also, the stockholders
agreed to vote their shares in favor of certain designees to our board of
directors and to restrict their ability to transfer their shares and granted
rights of first refusal and co-sale rights over their shares. By its terms the
shareholders agreement will terminate upon the consummation of this offering.
Parties to the shareholders agreement include, Dr. Ibrahim, a director of
our company, and certain of his affiliated trusts and funds, partnerships
affiliated with General Atlantic Partners, LLC, a principal stockholder of our
company and an affiliate of Mr. Denning, a director of our company, Bessemer
Venture Partners, a holder of more than 5% of our common stock and an affiliate
of Mr. Hardymon, a director of our company, and Norwest Equity Partners V, LP, a
holder of more than 5% of our common stock and an affiliate of Mr. Still, a
director of our company.
REGISTRATION RIGHTS AGREEMENT
Under a registration rights agreement entered into with the stockholders who
are parties to the shareholders agreement, the holders of approximately [ ]
shares of common stock or rights to acquire these shares have registration
rights with respect to the registration of these shares under the Securities
Act. Under the terms of the registration rights 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 to include
their shares in the registration. Additionally, the holders are also entitled to
demand registration rights, pursuant to which they may require us on up to three
occasions to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect such registration. Further, holders may require us to
file one registration statement on Form S-3 per six-month period at our expense.
All of these registration rights terminate after three years following the
consummation of our initial public offering and 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 the registration and our
right not to effect a requested registration within six months following an
offering of our securities, including the offering made by this prospectus.
METAPATH STOCK TRANSACTIONS
EQUITY ISSUANCES
As part of its preferred stock financing, Metapath issued 1,958,333 shares
of its Class E Preferred Stock at $6.00 per share in October 1997 and 1,777,778
shares of its Class F Preferred Stock at price of $6.75 per share in July 1998.
The following table sets forth the number of shares sold to our directors
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and stockholders who beneficially own more than 5% of our common stock. See
"Principal Stockholders" for a summary of the affiliations of each of the
entities described below. Each share of Class E Preferred Stock and Class F
Preferred Stock was converted into 2.10663 and 2.24495 shares of our common
stock, respectively, in the 1998 reorganization.
<TABLE>
<CAPTION>
SHARES OF METAPATH SHARES OF METAPATH
CLASS E PREFERRED CLASS F AGGREGATE
STOCKHOLDER, DIRECTOR OR OFFICER DATE OF SALE STOCK PREFERRED STOCK CONSIDERATION
- -------------------------------- --------------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Bessemer Venture Partners III
L.P.(1)..................... October 1997 132,833 -- $ 796,998
Bessemer Venture Partners III
L.P.(1)..................... July 1998 -- 106,287 717,437
Norwest Equity Partners V, LP... October 1997 435,833 -- 2,614,998
Norwest Equity Partners V, LP... July 1998 -- 99,922 174,474
G. Felda Hardymon(2).......... July 1997 15,579 -- 93,474
July 1998 -- 6,518 43,997
</TABLE>
- ------------------------
(1) Includes 7,912 shares of Series E Preferred Stock and 6,285 shares of
Series F Preferred Stock purchased by BVP III Special Situations L.P., an
affiliate of Bessemer Venture Partners III L.P.
(2) Mr. Hardymon, a director of our company, is a general partner of Bessemer
Venture Partners.
1997 FINANCING
In September 1997, Metapath entered into a revolving credit facility with
lenders, some of whom were stockholders of Metapath, for an aggregate principal
amount of $2,250,000. As additional consideration for the facility, Metapath
issued warrants to the lenders. The following table sets forth the number of
warrants issued to our stockholders who beneficially own more than 5% of our
common stock. See "Principal Stockholders" for a summary of the affiliations of
each of the entities described below. All warrants were assumed by us in the
1998 acquisition of Metapath. See "--1998 Reorganization."
<TABLE>
<CAPTION>
WARRANTS TO TOTAL WARRANT
PURCHASE SHARES OF EXERCISE
STOCKHOLDER DATE OF ISSUANCE COMMON STOCK(1) EXERCISE PRICE(1) PRICE
- ----------- ---------------- ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
Bessemer Venture Partners III September and
L.P............................... October 1997
Norwest Equity Partners V, LP..... September and
October 1997
</TABLE>
- ------------------------
(1) As adjusted in connection with the December 1998 reorganization. See
"Related Party Transactions--1998 Reorganization."
The warrants will expire upon the consummation of this offering. We expect
the warrant holders named above to exercise their warrants prior to their
expiration.
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<PAGE>
OTHER STOCK TRANSACTIONS
1998 AND 1999 STOCK PURCHASES
In March 1998, MSIH raised a total of L7,500,000 in a new equity issue of
2,000,000 ordinary shares. Of this amount, 1,600,000 shares were purchased by
certain funds affiliated with General Atlantic Partners, LLC and 400,000 shares
were purchased by certain funds affiliated with Bessemer Venture Partners. In
September 1998, MSIH issued 60,000 ordinary shares to Thomas Butler at a price
per share of L3.75. Each ordinary share was exchanged for 1.58597 shares of our
common stock in the 1998 reorganization.
In April 1999, we issued an aggregate of shares of our common stock at
a price of $ per share, which was deemed to be the then fair market value, to
the following executive officers:
- shares to Michael A. Burgess;
- shares to William Duncan;
- shares to Mary Beth Flanders;
- shares to Derek L. Meades; and
- shares to Clifford P. Wagner, Jr.
OPTION GRANTS TO OUR DIRECTORS AND EXECUTIVE OFFICERS
Stock option grants to directors and executive officers of our company are
described under the captions "Management--Board Compensation" and "--Executive
Compensation." Since January 1, 1997, we have granted options to our directors
and current and former executive officers, including the named executive
officers, as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME SHARES(1) GRANT DATE PRICE(1)
- ---- --------- ----------------- --------
<S> <C> <C> <C>
Sir Alan W. Rudge(2).................................. March 31, 1998 $
April 18, 1999
July 27, 1999
Thomas Butler(2)...................................... March 31, 1998
July 27, 1999
Robert Thompson(2).................................... November 9, 1998
March 31, 1999
July 27, 1999
Clifford P. Wagner, Jr................................ March 31, 1999
July 27, 1999
Martin Taylor-Smith(2)................................ September 8, 1998
March 31, 1999
Derek L. Meades....................................... March 31, 1999
July 1, 1999
July 1, 1999
Michael A. Burgess.................................... September 8, 1998
March 31, 1999
July 27, 1999
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME SHARES(1) GRANT DATE PRICE(1)
- ---- --------- ----------------- --------
<S> <C> <C> <C>
Geoffrey Doy.......................................... March 4, 1998
August 4, 1998
March 31, 1999
July 27, 1999
Dr. John Greig........................................ September 8, 1998
July 27, 1999
Mark Whiteside........................................ January 16, 1998
August 7, 1998
March 31, 1999
July 27, 1999
William Duncan........................................ September 8, 1998
March 31, 1999
July 1, 1999
July 27, 1999
Mary Beth Flanders.................................... March 31, 1998
September 8, 1998
March 31, 1999
July 27, 1999
Graham Harrison....................................... July 1, 1999
July 27, 1999
Steven A. Denning(2).................................. March 31, 1998
G. Felda Hardymon(4).................................. July 29, 1997
July 29, 1998
March 31, 1998
George J. Still, Jr.(3)............................... July 29, 1997
July 29, 1998
Loek van den Boog(2).................................. March 31, 1998
</TABLE>
- ------------------------
(1) As adjusted in connection with the December 1998 reorganization. See
"Related Party Transactions--1998 Reorganization."
(2) Options grants were made pursuant to the MSIH share option plan. See
"Management--Employee Stock Plans--Mobile Systems International Share Option
Plan."
(3) Options grants were made pursuant to the Metapath independent directors'
stock option plan. See "Management--Employee Stock Plans--Metapath
Independent Directors' Stock Option Plan."
(4) Mr. Hardymon received option grants on July 29, 1997 and July 29, 1998,
pursuant to the Metapath independent directors' stock option plan, and the
option grant on March 31, 1998, pursuant to the MSIH share option plan.
TRANSACTIONS WITH COMPANIES WHICH OUR DIRECTORS ARE ASSOCIATED
We have entered into the following transactions with Mobile Systems
International Cellular Investment Holdings BV (or Cellular Investments), a
company in which Dr. Ibrahim, a director of our company, is Chairman and Chief
Executive and, with certain of his affiliated trusts and funds, a significant
stockholder. Sir Alan Rudge and Mr. Hardymon, directors of our company, also
serve as directors of Cellular Investments.
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CELLULAR INVESTMENTS DEMERGER
In March 1998, our predecessor, MSIH, undertook a series of transactions
that had the effect of separating our network services from our network operator
businesses. At that time, our network operator businesses were comprised of
investments in the following wireless network operators: People's Telephone
Company Limited of Hong Kong (or PTC), Bharti Cellular Limited of India and
CelTel Limited of Uganda. The transactions effectively involved the sale of
MSIH's interest in those entities to Cellular Investments for the aggregate
consideration of $11,163,000, in the form of Series B 4.9% cumulative preference
shares, Series C 4.9% cumulative preference shares and Series D 4.9% cumulative
preference shares of Cellular Investments. These preference shares may be
redeemed on the earlier of Cellular Investments's sale of PTC, Bharti Cellular
or CelTel; the sale of Cellular Investments or listing of its shares on a
recognized stock exchange; Cellular Investments raising in excess of
$50 million of debt or equity; or March 2004. In July 1999, our Series B
preference shares were redeemed for $4,450,000. As of December 31, 1999, we
continued to hold an investment of $5,044,000 in Cellular Investments.
Following completion of the sales of our interests in PTC, Bharti Cellular
and CelTel to Cellular Investments, we have operated independently of Cellular
Investments.
AGREEMENTS WITH CELLULAR INVESTMENTS
In August 1998, we granted a non-exclusive, royalty-free license to Cellular
Investments to use our MSI, Mobile Systems International and MSI logo trademarks
worldwide. Pursuant to the terms of the license agreement, we have the ability
to terminate this license upon 12 months' prior written notice. We served our
notice of our termination to Cellular Investments in February 2000.
OTHER RELATIONSHIPS
In August 1997, we entered into a tenancy agreement with Dr. Ibrahim, a
director of our company, whereby we leased a residence in central London for an
18 month term from August 9, 1997 until February 8, 1999, for a total cost of
L51,500, which we believe was fair market value.
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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 is known by us to be the beneficial owner of more than
five percent of our outstanding shares of common stock;
- each of our directors;
- the Chief Executive Officer and each of our other executive officers named
on the Summary Compensation Table; and
- all current directors and named executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Metapath Software International, Inc., Strand Bridge House, 138-142
Strand, London WC2R 1HH, United Kingdom.
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 [ ] shares of common stock outstanding as of
December 31, 1999, as adjusted to reflect the exercise of all outstanding
warrants upon the closing of this offering and [ ] shares of common stock
outstanding after completion of this offering.
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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 [ ] additional shares of our common stock, and up to
[ ] shares of common stock will be outstanding after the completion of this
offering.
<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY
BENEFICIALLY OWNED
OWNED ----------------------
5% STOCKHOLDERS, NAMED OFFICERS, DIRECTORS, AND ------------ BEFORE AFTER
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER OFFERING OFFERING
- ----------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
General Atlantic Partners, LLC(1)............
Dr. Mohamed Ibrahim(2).......................
Bessemer Venture Partners(3).................
Norwest Equity Partners V, LP(4).............
Thomas Butler(5).............................
Clifford P. Wagner, Jr.(6)...................
Mark Whiteside(7)............................
Robert Thompson(8)...........................
Martin Taylor-Smith(9).......................
Sir Alan W. Rudge(10)........................
Steven A. Denning(11)........................
G. Felda Hardymon(12)........................
George J. Still, Jr.(13).....................
Loek van den Boog(14)........................
All directors and executive officers
as a group (16 persons)....................
</TABLE>
- ------------------------
(1) Includes shares held by General Atlantic Partners 30 L.P., shares
held by General Atlantic Partners 46 L.P. and shares held by GAP
Coinvestment Partners L.P. Mr. Denning, one of our directors, is the
Executive Managing Member of General Atlantic Partners, LLC and a general
partner of GAP Coinvestment Partner L.P. General Atlantic Partners, LLC is
the general partner of General Atlantic Partners 30 L.P. and General
Atlantic Partners 46 L.P. Mr. Denning disclaims beneficial ownership of the
shares held by the foregoing entities except to the extent of his pecuniary
interest therein arising from his partnership interest in them. The address
for General Atlantic Partners, LLC is 3 Pickwick Plaza, Greenwich, CT
06830.
(2) Includes shares held by Coutts (Jersey) Limited as trustee of three
family settlement trusts, shares held by Dr. Ibrahim's daughter and
shares held by Dr. Ibrahim's son. Dr. Ibrahim disclaims beneficial
ownership of the shares held by his son.
(3) Includes shares held by Bessec Ventures IV L.P., shares held by
Bessemer Venture Investors L.P., shares held by Bessemer Venture
Partners III L.P., shares held by Bessemer Venture Partners IV L.P.
and shares held by BVP III Special Situations L.P. Deer IV & Co. LLC
is the general partner of Bessec Ventures IV L.P., Bessemer Ventures
Investors L.P. and Bessemer Ventures IV L.P. Deer III & Co. LLC is the
general partner of Bessemer Ventures III L.P. Also includes shares
beneficially owned by senior employees, former employees, or family
partnerships of such persons, of Bessemer Securities Corporation. Under
certain circumstances, Bessemer Venture Partners III L.P. can direct the
voting of shares beneficially owned by these individuals or partnerships on
corporate matters. Mr. Hardymon, one of our directors, is a manager of Deer
III & Co. LLC and Deer IV & Co. LLC. Mr. Hardymon disclaims beneficial
ownership of the shares held by the foregoing entities except to the extent
of his pecuniary interest therein arising from his partnership interest in
them. The address for Bessemer Venture Partners is 1400 Old Country Road,
Suite 407, Westbury, NY 11590.
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(4) Includes shares held by Norwest Equity Partners V, LP. Mr. Still, one
of our directors, is the managing partner of Itasea Partners V, LLP, the
general partner of Norwest Equity Partners V, LP. Mr. Still disclaims
beneficial ownership of the shares held by Norwest Equity Partners V, LP.
except to the extent of his pecuniary interest therein arising from his
partnership interest. The address for Norwest Equity Partners V, LP is 245
Lytton Avenue--#250, Palo Alto, CA 94301-1426.
(5) Includes shares subject to stock options held by Mr. Butler that are
exercisable within 60 days of , 2000.
(6) Includes shares subject to stock options held by Mr. Wagner that are
exercisable within 60 days of , 2000.
(7) Includes shares subject to stock options held by Mr. Whiteside that
are exercisable within 60 days of , 2000.
(8) Includes shares subject to stock options held by Mr. Thompson that are
exercisable within 60 days of , 2000. Mr. Thompson resigned his
positions as Senior Vice President and Chief Product Officer, effective
December 31, 1999.
(9) Includes shares subject to stock options held by Mr. Taylor-Smith that
are exercisable within 60 days of , 2000. Mr. Taylor-Smith resigned
his position as Senior Vice President, Change Management, effective
December 31, 2000.
(10) Includes shares subject to options held by Sir Alan Rudge that are
exercisable within 60 days of , 2000.
(11) Includes shares held by entities affiliated with General Atlantic
Partners, LLC. Mr. Denning, the Executive Managing Member of General
Atlantic Partners, LLC, disclaims beneficial ownership of the shares held
by these entities except to the extent of his pecuniary interest therein
(see footnote 1). Also includes shares subject to stock options
exercisable within 60 days of , 2000. The address for Mr. Denning is
General Atlantic Partners, LLC, 3 Pickwick Plaza, Greenwich, CT 06830.
(12) Includes shares held by Bessec Ventures IV L.P., Bessemer Venture
Investors L.P., Bessemer Venture Partners III L.P., Bessemer Venture
Partners IV L.P. and BVP III Special Situations L.P. Mr. Hardymon, a
manager of the general partner of these partnerships, disclaims beneficial
ownership of the shares held by them except to the extent of his pecuniary
interest therein (see footnote 3). Also includes shares held by a
family limited partnership of which Mr. Hardymon is the general partner
and shares subject to stock options exercisable within 60 days of
, 2000. The address for Mr. Hardymon is Bessemer Venture Partners, 83
Walnut Street, Wellesley, MA 02481.
(13) Includes shares held by Norwest Equity Partners V, LP. Mr. Still is
the managing partner of Itasea Partners V, LLP, the general partner of
Norwest Equity Partners V, LP, disclaims beneficial ownership of the
shares held by Norwest Equity Partners V, LP except to the extent of his
pecuniary interest therein (see footnote 4). Also includes shares
subject to stock options exercisable within 60 days of , 2000. The
address for Mr. Still is Norwest Equity Partners V, LP, 245 Lytton
Avenue--#250, Palo Alto, CA 94301-1426.
(14) Includes shares subject to stock options held by Mr. van den Boog
that are exercisable within 60 days of , 2000.
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DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of shares of common stock, $0.01 par value per share, and
shares of preferred stock, $0.01 par value per share.
COMMON STOCK
As of December 31, 1999, there were shares of common stock outstanding
that were held by approximately 300 stockholders of record. As of December 31,
1999, there were shares of common stock subject to outstanding options, of
which options to purchase shares are currently exercisable. There will be
shares of common stock outstanding (assuming no exercise of underwriters'
over-allotment option and assuming no exercise after December 31, 1999, of
outstanding options or warrants) after giving effect to the sale of the shares
of common stock to the public in this offering. 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
preferred stock, the holders of common stock are entitled to receive ratably
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for the payment of dividends. In the
event of the liquidation, dissolution, or winding up of our company, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The common stock has no preemptive, conversion or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, shares of preferred stock will be
authorized and no shares will be outstanding. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of common stock. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. At
present, we have no plans to issue any of the preferred stock.
ANTI-TAKEOVER PROVISIONS
CERTIFICATE OF INCORPORATION AND BYLAWS
Our amended and restated certificate of incorporation provides that our
board of directors will be divided into three classes of directors, with each
class serving a staggered three-year term. The classification system of electing
directors may tend to discourage a third-party from making a tender offer or
otherwise attempting to obtain control of our company and may maintain the
incumbency of the board of directors, as the classification of the board of
directors generally increases the difficulty of replacing a majority of the
directors. The amended and restated certificate of incorporation also provides
that all stockholder actions must be effected at a duly called meeting and not
by a consent in writing. Further, the amended and restated certificate of
incorporation provides that the stockholders may amend certain provisions of the
amended and restated certificate of incorporation only with the
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affirmative vote of two-thirds of our common stock. Our amended and restated
by-laws provide that, except as required by law or the rights of any class of
preferred stock outstanding at any time, special meetings of the stockholders
may be called only by a resolution approved by a majority of the number of
directors our company would have if there were no vacancies or by the chairman
of the board of directors. These provisions of the amended and restated
certificate of incorporation could discourage potential acquisition proposals
and could delay or prevent a change in control of our company. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of our company. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management. See
"Risk Factors--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 TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law, or
DGCL Section 203, which regulates corporate acquisitions. DGCL Section 203
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging, under certain circumstances
in a "business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of DGCL Section 203, a "business combination" includes, among other
things, a merger or consolidation involving our company and the interested
stockholder and the sale of 10% or more of our assets. In general, DGCL
Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of our outstanding voting stock and any entity
or person affiliated with or controlling or controlled by such entity or person.
A Delaware corporation may "opt out" of DGCL Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders of at least a majority of the corporation's outstanding voting
shares. We have not "opted out" of the provisions of DGCL Section 203.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We intend to apply to list our common stock on the Nasdaq Stock Market's
National Market under the trading symbol "MSII."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe L.P.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of some of the U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock
applicable to Non-U.S. Holders.
A "Non-U.S. Holder" is generally an individual, corporation, estate or trust
other than:
- an individual who is a citizen or resident of the United States for U.S.
federal income tax purposes;
- a corporation created or organized in the United States or under the laws
of the United States or of any subdivision thereof;
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of source; and
- a trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons.
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable U.S. Treasury regulations, and
administrative and judicial interpretations as of the date of this prospectus,
all of which are subject to change, possibly with retroactive effect. The
following summary is for general information and applies only to Non-U.S.
Holders that hold our common stock as a capital asset. In addition, this
discussion does not apply to persons holding our shares through a partnership or
other pass-through entity. If you are a Non-U.S. Holder, you should consult a
tax advisor on the U.S. federal tax consequences of holding and disposing of our
common stock with respect to your particular circumstances, for example, if you
are a former citizen or resident of the United States, as well as any tax
consequences under the laws of any U.S. state or local or non-U.S. taxing
jurisdiction.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate or a lower rate
that an applicable income tax treaty may specify. Non-U.S. Holders should
consult their tax advisors on their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the U.S. are generally subject to U.S. federal income tax
on a net income basis at regular graduated rates, but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the appropriate Internal
Revenue Service (or IRS) form with withholding agent. Any U.S. trade or business
income received by a Non-U.S. Holder that is a corporation may, under specific
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
a lower rate that an applicable income tax treaty may specify.
Dividends paid prior to January 1, 2001 to an address in a foreign country
are presumed, absent actual knowledge to the contrary, to be paid to a resident
of that country for purposes of the withholding discussed above and for purposes
of determining the applicability of an income tax treaty rate. For dividends
paid after December 31, 2000, a Non-U.S. Holder of common stock that claims the
benefit of an income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
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DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is effectively connected with a U.S. trade or business, in which
case the branch profits tax may also apply to a corporate Non-U.S. Holder;
- the Non-U.S. Holder is an individual who is present in the United States
for 183 or more days in the taxable year of the disposition and meets
other requirements;
- the Non-U.S. Holder is subject to U.S. tax under provisions applicable to
certain U.S. expatriates (including certain former citizens or residents
of the United States); or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition and the Non-U.S.
Holder's holding period for the common stock.
The tax relating to stock in a "U.S. real property holding corporation" does
not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the common stock,
provided that the common stock is regularly traded on an established securities
market. Generally, a corporation is a "U.S. real property holding corporation"
if the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
and its other assets used or held for use in a trade or business. We believe
that we have not been, are not, and do not anticipate becoming, a "U.S. real
property holding corporation" for U.S. federal income tax purposes.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under specific circumstances, the IRS requires information reporting and
backup withholding at a rate of 31% on specific payments on common stock. Under
currently applicable law, Non-U.S. Holders of common stock generally will be
exempt from information reporting and backup withholding on dividends paid prior
to January 1, 2001 to an address outside the U.S. For dividends paid after
December 31, 2000, however, a Non-U.S. Holder of common stock that fails to
certify its Non-U.S. Holder status under applicable Treasury regulations may be
subject to information reporting backup withholding at a rate of 31% on payments
of dividends.
The payment of the proceeds from the disposition of the common stock to or
through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of common
stock to or through a non-U.S. office of a non-U.S. broker will not be subject
to information reporting or backup withholding unless the non-U.S. broker has
certain types of relationships with the United States (a "U.S. related person").
In the case of the payment of the proceeds from the disposition of common stock
to or through a non-U.S. office of a broker that is either a U.S. person or a
U.S. related person, the U.S. Treasury regulations require information reporting
(but not back-up withholding) on the payment unless the broker has documentary
evidence in its files that the owner is a Non-U.S. Holder and the broker has no
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knowledge to the contrary. Non-U.S. Holders should consult their own tax
advisors on the application of information withholding and backup withholding to
them in their particular circumstances (including, upon their disposition of
common stock).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the holder's U.S. federal income tax liability, if any, if the
holder provides the required information to the IRS.
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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 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 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:
- shares may be sold prior to 180 days from the date of this
prospectus;
- 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 , 2000; 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
Certain 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 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 Donaldson,
Lufkin & Jenrette Securities 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 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 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
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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-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 shares of our common
stock will be entitled to rights with respect to the registration of their
shares under the Securities Act. See "Related Party Transactions--1998
Reorganization--Registration Agreement 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
on Form S-8 under the Securities Act to register shares of common stock issued
or reserved for issuance under our stock plans, including shares which have been
issued prior to the date of this prospectus and shares underlying options which
may be issued after the date of this prospectus. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares of common stock issued upon
exercise of options will, subject to Rule 144 volume limitations applicable to
affiliates and the contractual restrictions described above, be available for
sale in the open market.
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UNDERWRITING
Subject to the terms and conditions in the underwriting agreement, dated
, 2000, the underwriters named below, for whom Donaldson, Lufkin &
Jenrette Securities Corporation, FleetBoston Robertson Stephens Inc.,
Jefferies & Company, Inc. and DLJDIRECT Inc. are acting as representatives, have
severally agreed to purchase from us the number of shares of common stock
indicated opposite each of their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
FleetBoston Robertson Stephens Inc..........................
Jefferies & Company, Inc....................................
DLJDIRECT Inc...............................................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the obligations of each of the
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of legal
matters and to other specified conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock offered by this
prospectus, other than those covered by the over-allotment option described
below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price indicated on
the cover page of this prospectus and in part to dealers, including the
underwriters, at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives at any time without notice. The underwriters have
informed us that they do not expect discretionary sales to exceed 5% of the
shares of common stock being offered.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock from us
at the initial public offering price less the underwriting discounts and
commissions. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to specified conditions, to purchase its pro rata portion of
the additional shares based on the underwriter's percentage underwriting
commitment as indicated in the preceding table.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock to cover over-allotments.
<TABLE>
<CAPTION>
OUR COMPANY
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share...................................................
Total.......................................................
-------- --------
</TABLE>
We will pay the offering expenses, estimated to be , which will include
the fees and expenses of our accountants and attorneys, the fees of our
registration 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.
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An electronic prospectus is available on the Internet site maintained by
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
the Internet site relating to our offering is not a part of this prospectus, has
not been approved or endorsed by us or any underwriter and should not be relied
on by prospective purchasers.
We and our officers and directors and certain other stockholders have agreed
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any shares (other than those included in this offering)
or to 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 or exchangeable or exercisable for any shares of
our common stock for a period of days after the date of this prospectus.
Donaldson, Lufkin & Jenrette Securities Corporation may release some or all of
the shares from these restrictions prior to the expiration of the day period
although, at present, it has no intention of doing so.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments
which the underwriters may be required to make in connection with these
liabilities.
Before this offering, there has been no public market for the common stock.
The initial public offering price for the shares of common stock offered by this
prospectus was determined by negotiation between the representatives and us. The
factors considered in determining the public offering price included: the
information set forth in this prospectus; the history and the prospects for the
industry in which we will compete; the liability of our management; the
prospects for our future earnings; the present state of our development and our
current financial condition; the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies and the general
condition of the securities markets at the time of this offering. A pricing
committee of our board of directors established the initial public offering
price following such negotiations.
We intend to apply to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "MSII."
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
of the shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of the jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of common stock offered by this prospectus in any
jurisdiction in which an offer or a solicitation is unlawful.
This prospectus may be used in connection with offers and sales of shares of
common stock offered initially outside the United States and Canada insofar as
such shares are reoffered or resold from time to time in the United States in
transactions that require registration under the Securities Act. Outside the
United States and Canada, if Donaldson, Lufkin & Jenrette Securities Corporation
sells any shares of the common stock, it will conduct these sales through its
affiliates, including Donaldson, Lufkin & Jenrette International.
This prospectus is not an advertisement or a public offering of the shares
in Canada or any province or territory of Canada and under no circumstances is
this prospectus to be construed as any such advertisement or public offering.
Any offer or sale of the shares in Canada will be made only
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pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement in the relevant Canadian jurisdiction
where such offer or sale is made. Where an exemption to the dealer registration
requirement is not available, only registered dealers shall make offers or sales
of the shares in Canada.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or affect the price of our common stock.
Specifically, the underwriters may over-allot this offering, meaning syndicate
sales may be in excess of the offering size which creates a syndicate short
position. The underwriters may bid for and purchase shares of common stock in
the open market to cover the syndicate short position or to stabilize the price
of our common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or in other transactions. Any of these activities may stabilize or
maintain the market price of our common stock above independent market levels.
The underwriters are not required to engage in these activities, and may end any
of these activities at any time.
The underwriters, at our request, have reserved for sale, at the initial
public offering price, up to 5% of the shares of the common stock to be sold in
this offering for our employees, directors and certain other persons we
designate. The number of shares of common stock available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares not purchased will be offered by the underwriters on
the same basis as the other shares offered by this prospectus.
Jefferies & Company, Inc. has, directly and indirectly, provided investment
and commercial banking or financial advisory services to us and our affiliates,
for which it has received customary fees and commissions, and expects to provide
these services to us and our affiliates in the future, for which it expects to
receive customary fees and commissions.
LEGAL MATTERS
Weil, Gotshal & Manges, London, England will pass for us upon the validity
of the shares of common stock offered by this prospectus. Simpson Thacher &
Bartlett, London, England will pass upon certain legal matters for the
underwriters.
EXPERTS
The consolidated financial statements of Metapath Software
International, Inc. and subsidiaries as of December 31, 1998 and 1999 and for
each of the years in the three-year period ended December 31, 1999, have been
included herein and in the registration statement in reliance upon the report of
Arthur Andersen, independent chartered accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Metapath Software Corporation and
subsidiaries as of December 31, 1997 and for the period from January 1, 1998 to
December 4, 1998, have been included herein and in the registration statement in
reliance upon the report of Arthur Andersen LLP, independent public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
84
<PAGE>
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
SEC, 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 us 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. You may obtain information on the
operation of the Commission Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, registration statements and certain other filings
made with the commission through its Electronic Data Gathering, Analysis and
Retrieval (or EDGAR) system, including our registration statement and all
exhibits and amendments to our registration statements, are publicly available
through the SEC'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 SEC.
85
<PAGE>
FINANCIAL STATEMENTS OF METAPATH SOFTWARE INTERNATIONAL, INC.
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Chartered Accountants................. 2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... 3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998
and 1999.................................................. 4
Consolidated Statements of Stockholders' equity for the
years ended December 31, 1997, 1998 and 1999.............. 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... 6
Notes to the Consolidated Financial Statements.............. 7-23
</TABLE>
FINANCIAL STATEMENTS OF METAPATH SOFTWARE CORPORATION
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 25
Consolidated Balance Sheets as of December 31, 1997 and
December 4, 1998.......................................... 26
Consolidated Statements of Stockholders' Equity for the year
ended December 31, 1997 and the 11 month period to
December 4, 1998.......................................... 27
Consolidated Statements of Operations for the year ended
December 31, 1997 and the 11 month period to December 4,
1998...................................................... 28
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the 11 month period to December 4,
1998...................................................... 29
Notes to the Consolidated Financial Statements.............. 30-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO METAPATH SOFTWARE INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Metapath
Software International, Inc. as of December 31, 1998 and 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1997, 1998 and 1999. The preparation of these
financial statements is the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metapath Software
International Inc., as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for years ended December 31, 1997, 1998 and 1999
in conformity with generally accepted accounting principles in the United
States.
ARTHUR ANDERSEN
London, England
March 3, 2000
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
NOTES $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... 18,760 5,105
Accounts and notes receivable, net.......................... 8 28,802 30,437
Inventories................................................. 854 716
Prepaid expenses and other.................................. 4,623 4,914
------- -------
TOTAL CURRENT ASSETS........................................ 53,039 41,172
Property and equipment, net................................. 9 12,213 12,735
Investments................................................. 11 7,245 5,611
Intangible assets, net...................................... 19 41,704 35,193
------- -------
114,201 94,711
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loan................................................... 12 -- 6,695
Accounts payable............................................ 7,148 5,837
Current maturities of long term obligations................. 1,999 385
Accrued expenses and other liabilities...................... 13 14,881 13,320
Deferred revenue............................................ 14,814 14,937
Income taxes payable........................................ 1,161 818
------- -------
TOTAL CURRENT LIABILITIES................................... 40,003 41,992
Long term obligations....................................... 14 1,968 976
Deferred tax liability...................................... 16 93 19
Minority interest........................................... 168 --
COMMITMENTS AND CONTINGENCIES............................... 18
STOCKHOLDERS' EQUITY
75,000,000 authorised Common share, $0.001 par value, issued
and outstanding; 34,692,000 at 12/31/98 and 35,103,000 at
12/31/99.................................................. 35 35
10,000,000 authorised Preferred Share, $0.001 par value..... -- --
Additional paid-in capital.................................. 77,726 78,715
Cumulative translation adjustment........................... 170 (1,155)
Accumulated deficit......................................... (5,962) (25,871)
------- -------
TOTAL STOCKHOLDERS' EQUITY.................................. 71,969 51,724
------- -------
114,201 94,711
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
------------------------------
1997 1998 1999
NOTES $'000 $'000 $'000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Product licenses......................................... 22,290 27,725 34,384
R.F. engineering services................................ 40,445 51,682 30,301
Other services........................................... 7,962 14,862 27,843
------- ------- -------
4 70,697 94,269 92,528
------- ------- -------
COST OF REVENUES
Product licenses......................................... (954) (311) (500)
R.F. engineering services................................ (25,698) (32,862) (24,862)
Other services........................................... (5,152) (8,072) (16,497)
------- ------- -------
(31,804) (41,245) (41,859)
------- ------- -------
GROSS PROFIT............................................. 4 38,893 53,024 50,669
Selling and marketing expenses........................... 5 (9,277) (17,720) (19,431)
General and administrative expenses...................... 5 (15,809) (14,583) (19,462)
Research and development costs........................... 5 (16,747) (18,523) (25,587)
In-process research and development write-off............ 5 -- (10,200) --
Amortization of intangible assets........................ 19 -- (496) (6,813)
------- ------- -------
OPERATING LOSS........................................... (2,940) (8,498) (20,624)
Interest income/(expense), net........................... (290) 460 172
Other income/(expense), net.............................. 11 -- (458) 2,714
------- ------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES...... (3,230) (8,496) (17,738)
Provision for income taxes............................... 16 (1,413) (1,797) (2,150)
------- ------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY
INTERESTS.............................................. (4,643) (10,293) (19,888)
Minority interests....................................... 226 155 (21)
------- ------- -------
LOSS FROM CONTINUING OPERATIONS.......................... (4,417) (10,138) (19,909)
Discontinued operations:
Operating loss from discontinued operations less taxes of
nil.................................................... 6 (2,478) (907) --
Loss on disposal of discontinued operations less taxes of
nil.................................................... 6 (3,463) (83) --
------- ------- -------
NET LOSS................................................. (10,358) (11,128) (19,909)
======= ======= =======
PER SHARE AMOUNTS:
Loss from continuing operations--basic and diluted....... $ (0.23) $ (0.47) $ (0.57)
Loss from discontinued operations--basic and diluted..... $ (0.31) $ (0.02) --
------- ------- -------
NET LOSS--BASIC AND DILUTED.............................. $ (0.54) $ (0.49) $ (0.57)
======= ======= =======
Weighted average common shares outstanding ('000)--basic
and diluted 19,095 22,561 34,766
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL CUMULATIVE
COMPREHENSIVE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
INCOME/(LOSS) SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
$'000 000S $'000 $'000 $'000 $'000 $'000
------------- --------- -------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996............ 19,095 19 8,784 15,586 21 24,410
Net loss..................... (10,358) -- -- -- (10,358) -- (10,358)
Unrealized Translation
adjustment (tax: nil)...... (220) -- -- -- -- (220) (220)
-------
Comprehensive loss........... (10,578)
======= ------ -- ------ ------- ------ -------
DECEMBER 31, 1997............ 19,095 19 8,784 5,228 (199) 13,832
Issuance of common stock
--capital contributed by
stockholders............... 3,395 4 12,868 -- -- 12,872
--on purchase of Metapath
(see note 2)............... 12,202 12 56,074 -- -- 56,086
Dividend paid................ -- -- -- (62) -- (62)
Net loss..................... (11,128) -- -- -- (11,128) -- (11,128)
Unrealized translation
adjustment (tax: nil)...... 369 -- -- -- -- 369 369
-------
Comprehensive loss........... (10,759)
======= ------ -- ------ ------- ------ -------
DECEMBER 31, 1998............ 34,692 35 77,726 (5,962) 170 71,969
Issuance of common stock
capital contributed by
stockholders............... 411 -- 989 -- -- 989
Net loss..................... (19,909) -- -- -- (19,909) -- (19,909)
Unrealized translation
adjustment (tax: nil)...... (1,325) -- -- -- -- (1,325) (1,325)
-------
Comprehensive loss........... (21,234)
======= ------ -- ------ ------- ------ -------
DECEMBER 31, 1999............ 35,103 35 78,715 (25,871) (1,155) 51,724
====== == ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
$'000 $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... (10,358) (11,128) (19,909)
Add loss from discontinued operations....................... 2,478 907 --
Add loss on disposal of subsidiary.......................... 3,463 -- --
------- ------- -------
Loss from continuing operations............................. (4,417) (10,221) (19,909)
Adjustments to reconcile net loss from continuing operations
to net cash (used in)/ provided by continuing operations:
Depreciation................................................ 5,025 4,024 6,683
Amortization and write-off of intangible assets............. -- 10,696 6,813
Loss (profit) applicable to minority interests.............. (226) (155) 21
(Profit) loss on disposal of fixed assets................... 1,134 -- (3,036)
Changes in operating assets and liabilities:
- -decrease in inventories.................................... 30 2,869 138
- -increase in accounts and notes receivable.................. (5,623) (675) (1,635)
- -(increase)/decrease in prepaid expenses and other.......... 618 (1,591) (291)
- -(decrease)/increase in accounts payable, accrued expenses
and other liabilities..................................... 6,818 5,092 (3,092)
- -(decrease)/increase in income taxes payable................ 630 (1,474) (436)
- -due to joint venture....................................... (408) -- --
------- ------- -------
NET CASH (USED IN)/PROVIDED BY CONTINUING OPERATIONS........ 3,581 8,565 (14,744)
Net cash used by discontinuing operations................... (3,908) (907) --
------- ------- -------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES......... (327) 7,658 (14,744)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure......................................... (5,373) (3,319) (7,057)
Disposal of investments..................................... 27 -- 4,450
Acquisition of subsidiary net of cash acquired.............. (1,424) 3,909 (437)
Placement of cash at bank to secure bank guarantees......... 4,235 -- --
------- ------- -------
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES......... (2,535) 590 (3,044)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in loan................................. 1,028 (2,966) 6,695
(Repayment of)/proceeds from loans payable.................. 10,000 (10,000) --
Proceeds from issuance of common stock...................... -- 12,872 989
Principal payments on long term obligations................. (455) (1,445) (2,605)
Payment of dividends........................................ -- (62) --
------- ------- -------
Net cash provided by/(used in) financing activities......... 10,573 (1,601) 5,079
Effect of exchange rates on cash and cash equivalents....... (220) (63) (946)
------- ------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........ 7,491 6,584 (13,655)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 4,685 12,176 18,760
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... 12,176 18,760 5,105
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................... 452 770 382
======= ======= =======
Income taxes paid........................................... 610 3,562 1,177
======= ======= =======
</TABLE>
In the year ended December 31, 1998 the company issued 12,202,000 common
shares, in connection with the acquisition of the Metapath Group, for non-cash
consideration of $56,086,000.
The accompanying notes are an integral part of those consolidated financial
statements.
F-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1 NATURE OF OPERATIONS
Metapath Software International, Inc. (the "Company" or "MSII") is a holding
company whose principal subsidiaries provide integrated, real-time network and
user information software and services to the wireless communications industry
and manage mission-critical information for large telecommunications companies
world-wide. The Company has operations in the United Kingdom, United States of
America, France, Sweden, Singapore, Brazil, Hong Kong, India, Malaysia,
Australia, the Philippines and China.
In 1999 MSI incurred significant net losses and negative cash flows. MSI
expects to incur further net losses and negative cash flows in 2000. During
1999, MSI negotiated a financing facility as described in note 12 to meet its
anticipated cash flow requirements. While there can be no assurance, the Company
expects to operate within this facility throughout 2000. The capital
requirements will depend on numerous factors, including commercial acceptance
and market demand for new products. In the event the current facility is not
adequate, the Company expects to be able to arrange suitable additional
financing facilities to meet its cash flow requirements throughout 2000,
although there can be no assurance that additional financing will be available
or on terms favourable to the Company.
2 FORMATION OF THE COMPANY AND BUSINESS COMBINATION
The Company was incorporated on September 16, 1998 in the state of
California, United States of America. On December 4, 1998 the stockholders of
Mobile Systems International Holdings Limited Group ("MSIH") exchanged all of
their common stock for common stock in the Company. Since this was a
reorganisation under common control, the financial statements are presented as
if this exchange had taken place on December 31, 1996. Also on December 4, 1998,
the Company acquired the Metapath Group, comprising Metapath Software
International, (Bellevue) Inc. ("Metapath"), (formerly Metapath Software
Corporation ("MSC")) for consideration of $56,086,000 comprising 12,202,000
shares of common stock. This exchange of stock was accounted for under the
purchase method.
Pursuant to the business combination, ex-MSIH stockholders and option
holders hold approximately 65% of the Company's issued common stock and former
Metapath stockholders hold approximately 35% of the Company's issued common
stock.
The financial position of the Company and its subsidiaries as of
December 31, 1998 include MSIH and Metapath. The operating results of MSIH for
the year ended December 31, 1998 and the operating results of Metapath from
December 4, 1998 (subsequent to the acquisition) have been included in the
consolidated statement of income.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of these
financial statements are as follows:
A) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Investments in affiliates owned 20% or more and corporate
joint ventures are accounted for under the equity method. Other investments are
carried at cost. The financial statements and related footnotes are presented in
U.S. Dollars. All significant intercompany accounts and transactions are
eliminated on
F-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
consolidation. The operating results of Metapath Software International,
(Bellevue) Inc. and its subsidiary have been included in the consolidated
statement of income from the date of acquisition.
B) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
C) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which include
cash and cash equivalents, guarantees and long term debt, approximates their
fair value.
D) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to concentrations
of credit risk include cash and accounts receivable. In the normal course of
business, the Company extends unsecured credit to its customers.
E) CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
value (net realisable value). Cost comprises the purchase price of the
inventory.
G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation, which includes
amortization of assets acquired under capital leases, is provided using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years.
The cost of leasehold improvements is capitalized and amortized using the
straight line method over the shorter of their useful lives or the terms of the
respective leases.
Expenditures for major renewals and betterments which significantly extend
the useful lives of existing property and equipment are capitalized and
depreciated. Repair and maintenance costs are expensed as incurred.
F-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H) INTANGIBLE ASSETS
Intangible assets consist of goodwill and other intangible assets arising
from the business acquisition. The values assigned to intangible assets, based
on independent appraisals, are being amortized on a straight line basis ranging
from three to seven years.
I) REVENUE RECOGNITION
Revenue is recognized in accordance with Statement of Position 97-2 and
other relevant U.S. GAAP guidelines. The Company's principal sources of revenue
are software licenses, Radio Frequency (RF) engineering services and software
maintenance. License revenue for off-the-shelf products is recognized when the
product is delivered, there are no significant uncertainties and collection is
probable. Revenues from software licensed under a fixed rental or fixed term
(including the agreement with Sprint) are recognized rateably over the period of
the agreement. For products which require significant installation and
configuration work revenue is recognized on the percentage of completion method,
subject to there being no significant doubt over the acceptance of the software
by the customer. Revenue on software maintenance is deferred and recognized
rateably over the period of the agreement. Revenue on RF engineering services is
recognized on a time and materials basis, as incurred.
J) RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. The Company
has evaluated the establishment of technological feasibility of its products in
accordance with SFAS No. 86, accounting for the costs of computer software to be
sold, leased or otherwise marketed. The Company defines the technological
feasibility as the completion of a working model. The Company sells products in
a market that is subject to rapid technological change, new product development
and changing customer needs. The Company has concluded that technological
feasibility is not established until the development of the product is nearly
complete.
K) INCOME TAXES
Deferred income taxes are calculated utilizing an asset and liability
approach whereby deferred taxes are provided for the tax effect of differences
between the recorded amounts of assets and liabilities for financial reporting
purposes and their corresponding tax bases. Valuation allowances against
deferred tax assets are provided to reduce the amount of such assets to that
which is more likely than not to be realized.
L) EARNINGS PER SHARE
Basic earnings per common share is calculated using income available to
common stockholders divided by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is similar to basic
earnings per share except that the weighted average of common shares outstanding
is increased to include the number of additional common shares that would have
been outstanding if the potentially dilutive common shares had been issued. At
December 31, 1999, 7,607,836 options, which are convertible into 7,607,836
common shares were outstanding. All of these
F-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
potential common shares were excluded from the computation of diluted earnings
per share because their inclusion would have an antidilutive effect on earnings
per share.
M) FOREIGN EXCHANGE
Generally, the functional currency of each subsidiary is its local currency.
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into the appropriate
functional currency at the rate of exchange prevailing at that date. Any gain or
loss arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss in the profit and loss
account. The result of overseas operations are translated into U.S. dollars at
the average rates of exchange during the period and their balance sheets at the
rates ruling at the balance sheet date. Exchange differences arising on
translation of the opening net assets and results of overseas operations and on
foreign currency borrowings, to the extent that they hedge the group's
investment in such operations, are dealt with through other comprehensive
income.
N) RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was issued in 1998 and subsequently amended by SFAS No. 137,
is effective for years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Company does not expect the impact of this statement to be material.
4 SEGMENT AND GEOGRAPHIC DATA
The Company manages its business segments primarily on a line of business
basis. Following a review of the synergy and customer driven value proposition
of the Company's products and services a revised segmental reporting model was
implemented during the course of 1999. These segments, or lines of business now
comprise product licenses, RF engineering services (which includes Geodata) and
other services (which includes maintenance and hardware). As a result of this
decision the 1998 and 1997 segmental revenue has been re-stated according to the
1999 segments. The accounting policies of the various segments are as described
in the "Summary of Significant Accounting Policies" in Note 3. The Company
evaluates the performance of its segments based on segment revenue and gross
profit. Depreciation is allocated by the Company to cost of sales and operating
costs based on headcount.
F-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
4 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
(I) REVENUE AND ASSETS SPLIT BY PRODUCT TYPE
12 MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
RF
PRODUCT ENGINEERING OTHER
LICENSES SERVICES SERVICES TOTAL
$000 $000 $000 $000
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external customers......................... 34,384 30,301 27,843 92,528
Depreciation............................................. -- 1,176 1,022 2,198
Gross profit............................................. 33,884 5,439 11,346 50,669
</TABLE>
12 MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
RF
PRODUCT ENGINEERING OTHER
LICENSES SERVICES SERVICES TOTAL
$000 $000 $000 $000
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external customers......................... 27,725 51,682 14,862 94,269
Depreciation............................................. -- 1,080 300 1,380
Gross profit............................................. 27,414 18,820 6,790 53,024
</TABLE>
12 MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
RF
PRODUCT ENGINEERING OTHER
LICENSES SERVICES SERVICES TOTAL
$000 $000 $000 $000
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external customers......................... 22,290 40,445 7,962 70,697
Depreciation............................................. -- 959 266 1,225
Gross profit............................................. 21,336 14,747 2,810 38,893
</TABLE>
(II) GEOGRAPHICAL DATA
REVENUES
Revenues are presented by geographical area as determined by location of the
customer.
<TABLE>
<CAPTION>
1997 1998 1999
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
North America............................................... 21,392 25,200 50,258
Europe, Middle East, Africa................................. 30,455 48,481 25,442
Asia........................................................ 11,870 8,206 9,289
Central and Latin America................................... 6,980 12,382 7,539
------ ------ ------
Total....................................................... 70,697 94,269 92,528
------ ------ ------
</TABLE>
F-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
4 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
LONG-LIVED ASSETS
Long-lived assets are presented by geographical area as determined by the
location of the assets.
<TABLE>
<CAPTION>
1997 1998 1999
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
North America............................................... 1,945 6,299 6,308
Europe, Middle East, Africa................................. 5,880 4,584 5,186
Asia........................................................ 381 627 809
Central and Latin America................................... 620 703 432
------ ------ ------
Total....................................................... 8,826 12,213 12,735
------ ------ ------
</TABLE>
*Geographic segment disclosure for individual countries within the geographic
regions of North America and Europe is not practicable.
(III) MAJOR CUSTOMERS
During the year one customer in North America accounted for 33% of total
revenue. No one other customer accounted for more than 10% of total revenue in
1999. For the year ended December 31, 1998, the Company had two separate
customers whose sales were in excess of 10% of total revenue. The revenue
derived in the year ended December 31, 1998 from these customers is
approximately $21,000,000 and $10,000,000.
F-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
5 NON-RECURRING ITEMS
Included in operating costs are the following items which the directors
consider to be non-recurring:
<TABLE>
<CAPTION>
1997 1998 1999
$000 $000 $000
SALES AND MARKETING -------- -------- --------
<S> <C> <C> <C>
Redundancies................................................ -- 281 88
======== === ==
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
$000 $000 $000
GENERAL AND ADMINISTRATIVE -------- -------- --------
<S> <C> <C> <C>
Redundancies................................................ 683 440 413
Corporate finance costs..................................... -- -- 302
Other....................................................... 362 -- --
===== === ===
1,045 440 715
===== === ===
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
$000 $000 $000
RESEARCH AND DEVELOPMENT -------- -------- --------
<S> <C> <C> <C>
Closure of SSAOT division in Newbury (see below)............ -- 537 --
Software for resale write-off............................... 982 -- --
Purchased software write-off................................ 1,036 400 --
Redundancies................................................ 56 1,006 122
===== ===== ===
2,074 1,943 122
===== ===== ===
</TABLE>
Non-recurring corporate finance costs arose due to aborted merger and
acquisition reviews in 1999. During 1998 a subsidiary of the Company, Metapath
Software International Limited, purchased the assets and liabilities of a
software development division of SSA Inc., known as SSAOT, located in Newbury,
United Kingdom, specifically to gain access to certain employees and nearly
completed software development tool sets. The business was rationalized with
existing operations post-completion and these closure costs were provided for.
The costs shown above for purchased software write-off relate to software
acquired as part of the acquisition of SSAOT.
The redundancies relate primarily to the rationalization of the business
organization after the acquisition of Metapath. The total number of employees
made redundant during the year ended December 31, 1999 was 9 (1998: 41, 1997:
27).
The in-process research and development costs relate to costs written off on
the acquisition of Metapath.
6 DISCONTINUED OPERATIONS
During March 1998, the Company demerged its Cellular Investments ("CI")
business unit from its software and services business. The discontinued business
unit was engaged in the ownership and management of investments in
telecommunications operators. The net assets of the discontinued operations were
transferred to Mobile Systems International Cellular Investments Holdings BV
("MSICIHBV"), a separate independent entity, under common stockholder control at
the date of the transaction, in exchange for amounts receivable from MSICIHBV.
F-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6 DISCONTINUED OPERATIONS (CONTINUED)
The net loss from operations of CI in 1998 amounted to $483,000
(1997--$2,422,000) arising principally from administrative expenses. The assets
of CI were investments and cash and cash equivalents of $6,242,000 and $79,000,
respectively, as of December 31, 1997. There was no loss on disposal.
During 1998, Metapath Software International Limited disposed of its
investment of 60% of the capital stock in Information Delivery Systems AB
("IDS").
The net loss from operations of IDS in 1998 amounted to $424,000 (1997:
$56,000). A provision of $3,463,000 was made in the 1997 accounts, however based
on actual proceeds on the sale of $1,000 the total loss on disposal was
$3,546,000, generating a further loss of $83,000 in the 1998 accounts.
7 RESTRICTED FUNDS--BANK GUARANTEES
A subsidiary of the Company, Metapath Software International Limited holds
cash amounting to $3.6 million (1998: $3.6 million) on behalf of CI. This is
treated as cash held in trust for CI.
8 ACCOUNTS AND NOTES RECEIVABLE, NET
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Trade accounts receivable:
Billed...................................................... 27,850 25,009
Unbilled.................................................... 1,899 7,210
Notes receivable............................................ 1,430 --
------ ------
31,179 32,219
Allowance for bad and doubtful debts........................ (2,377) (1,782)
------ ------
Accounts and notes receivable, net.......................... 28,802 30,437
====== ======
</TABLE>
A note issued in September 1998 for a principal of $2,165,000 ($1,430,000 as
at December 31, 1998) at an interest rate of 20% was repaid in full during 1999.
PROVISION FOR BAD AND DOUBTFUL DEBTS
<TABLE>
<CAPTION>
CHARGED
(CREDITED)
BALANCE AT TO OPERATING
BEGINNING COSTS AND BALANCE AT END
OF YEAR EXPENSES UTILIZED OF YEAR
$000 $000 $000 $000
---------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997...................... 953 1,249 -- 2,202
Year ended December 31, 1998...................... 2,202 811 (636) 2,377
Year ended December 31, 1999...................... 2,377 (298) (297) 1,782
</TABLE>
F-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
9 PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Computer equipment and software............................. 19,968 25,783
Furniture and equipment..................................... 4,574 5,191
Leasehold improvements...................................... 1,363 1,775
------- -------
25,905 32,749
Accumulated depreciation.................................... (13,692) (20,014)
------- -------
Property and equipment, net................................. 12,213 12,735
======= =======
</TABLE>
Depreciation charged to the statement of operations for 1999 was $6,683,000
(1998: $4,024,000, 1997: $4,013,000).
10 LEASES
The Group leases certain office facilities and equipment under
non-cancellable operating and capital leases.
Minimum annual rentals under these leases as at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
$'000 $'000
--------- --------
<S> <C> <C>
2000........................................................ 2,890 430
2001........................................................ 2,628 --
2002........................................................ 2,385 --
2003........................................................ 2,173 --
2004........................................................ 2,086 --
Thereafter.................................................. 4,946 --
------ ------
Total minimum lease payments................................ 17,108 430
------
Amount representing interest................................ (45)
------
Present value of net minimum capital lease payments......... 385
Current portion............................................. (385)
------
Long term capital lease obligations......................... --
======
</TABLE>
Assets recorded under capital leases are included in property and equipment
as follows:
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Computer equipment.......................................... 3,330 3,259
Furniture and equipment..................................... 357 337
Accumulated depreciation.................................... (2,391) (2,972)
------ ------
1,296 624
====== ======
</TABLE>
The total rent expense on operating leases incurred during the year ended
December 31, 1999 was $3,475,000 (1998: $1,871,000, 1997: $1,852,000).
F-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
11 INVESTMENTS
The investment in CI will be recovered on the earlier of CI's sale of one of
its investments, CI being sold or listed on a recognized Stock exchange, CI
raising in excess of $50m of debt or equity, or March 2004. The investment arose
following the demerger from CI in 1998 (see note 6). During 1999 certain amounts
were repaid which realized a gain of $3,036,000. This has been recorded as part
of other income/(expense).
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Unisite Inc., USA........................................... 682 566
CI.......................................................... 6,563 5,045
----- -----
7,245 5,611
===== =====
</TABLE>
The investment in Unisite Inc., represents a 5% interest in the common
stock, which is held at cost.
12 BANK FINANCING FACILITY
Metapath Software International Inc., ("MSII") and two of its subsidiaries,
Metapath Software International Limited ("MSIL") and Metapath Software
International (US), Inc. ("MSI (US)") have a composite loan facility with a
bank. Under the terms of the facility any of these entities has access to a
$5 million term loan facility. These entities also have a $15 million revolving
credit facility. This facility is dependent on the level of net eligible
accounts receivable balances of each company. The $20 million line of credit
which bears interest at the bank's reference rate plus 1.5% is secured by all of
the assets of the aforementioned entities. The Company may repay all or a
portion of the borrowings at any time. The facilities terminate on February 28,
2001. However, any outstanding principal must be repaid in full on demand by the
bank in the event of material adverse change in the business or financial
condition of the Group. Interest is payable monthly. During the year ended
December 31, 1999 the interest expense was $352,000 (1998: $336,000,
1997: $507,000).
During the year ended December 31, 1999, interest income was $656,000
(1998: $1,069,000, 1997: $640,000).
13 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Payroll taxes and other employee costs...................... 4,590 4,387
Accrued liabilities......................................... 10,291 8,933
------ ------
14,881 13,320
====== ======
</TABLE>
Included in payroll taxes is an accrual of $650,000 for UK National
Insurance.
F-16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
14 LONG TERM OBLIGATIONS
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Notes payable............................................... 2,808 976
Capital lease obligations................................... 1,159 385
------ ------
3,967 1,361
Less current maturities:
Note payable.............................................. (1,108) --
Capital lease obligations................................. (891) (385)
------ ------
Long term obligations, net.................................. 1,968 976
====== ======
</TABLE>
Notes payable are in relation to long-term notes issued by a subsidiary to
Silicon Valley Bank and to a stockholder. The notes payable to Silicon Valley
Bank in the United States of America were issued in January 1997 and March 1997
at an interest rate of prime plus 1%. The principal amounts were repaid by
December 1999.
The notes payable to the stockholder bear an interest rate of 7.5% and are
payable in 2003.
The interest expense incurred in 1999 on such notes was $86,000
(1998: $196,000, 1997: $217,000).
15 STOCK OPTION PLANS
Both MSIH and MSC had established stock option plans under which options
were granted during (and prior to) 1999. Holders of such options were given the
opportunity to roll over their options over shares of such companies into new
options over MSII shares with effect from December, 4 1998. The rolled-over
options remain on the same terms as those originally issued, but the numbers and
exercise prices are adjusted to reflect the terms on which MSIH/MSC shares were
converted into shares in MSII.
All the information shown below is stated in terms of the replacement
options over MSII shares. Accordingly, these figures are not directly comparable
with the accounts of those companies in prior years unless allowance is made for
the conversion ratios of 1.58597 (MSIH) and 0.68058 (MSC).
A description of the plans under which the options were originally granted
follows below.
MOBILE SYSTEMS INTERNATIONAL SHARE OPTION PLAN
In March 1998, MSIH adopted the Mobile Systems International Share Option
Plan and reserved 1,500,000 shares of common stock for option grants under the
plan. Options vest 25% one year from date of grant and the remaining 75% in
equal quarterly installments over the next three years. They expire 7 years
after grant.
EXECUTIVE STOCK PLAN
A subsidiary of MSIH adopted a plan in December 1995, and in January 1996
granted options covering 725,000 shares of non voting common stock in the
subsidiary company to various key employees. The options vested quarterly in a
phased pattern over four years, beginning one year from the date of grant.
F-17
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
15 STOCK OPTION PLANS (CONTINUED)
MSC EMPLOYEE STOCK OPTION PLAN
In March 1995, MSC adopted an incentive stock option plan and reserved
2,500,000 shares of common stock for option grants under the plan. The options
vested in four equal yearly installments, beginning one year from date of grant,
and expire 10 years after grant.
MSC 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In June 1996, MSC adopted a non-employee director stock option plan and
reserved 360,000 shares for option grants. Each non-employee director was
granted the option to purchase 30,000 shares on becoming a director, with annual
options to purchase 12,000 shares in following years. The options vested over a
four year period in equal yearly installments and expire 10 years after grant.
MSII PLAN
In February 1999, MSII adopted the Metapath Software International Inc. 1999
Stock Option Plan and reserved an initial 2,000,000 shares of common stock for
option grants under the plan. Options vest 25% one year from date of grant and
the remaining 75% in equal quarterly installments over the next three years.
They expire 10 years after grant.
All options under these plans were granted with an exercise price equal to
the value of the stock at the date of grant.
In October 1995, FASB Statement 123 "Accounting for Stock-Based
Compensation" was issued. The Company has adopted the disclosure provisions of
FASB Statement 123, but opted to remain under the expense recognition provisions
of Accounting Principles Board (APB) Opinion No 25, "Accounting for Stock Issued
to Employees" in accounting for options granted under the Stock Option Plans.
Accordingly, for the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, no compensation expense was recognized for options granted
under these schemes. Had compensation expense for share options granted under
these schemes been determined based on fair value at the grant dates in
accordance with FASB Statement 123, the Company's net loss and loss per share
for 1997, 1998 and 1999 would have been increased to reflect compensation
expenses of $12,862, $812,754 and $1,971,368 respectively, giving the pro-forma
amounts shown below:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
APPROXIMATE NET LOSS:
As reported ($'000)............................... (10,358) (11,128) (19,909)
Pro Forma ($'000)................................. (10,371) (11,941) (21,880)
LOSS PER SHARE--BASIC AND DILUTED:
As reported ($)................................... (0.54) (0.49) (0.57)
Pro Forma ($)..................................... (0.54) (0.53) (0.63)
</TABLE>
The weighted average fair value of options granted was estimated as shown
below using the Black-Scholes stock option-pricing model. The following weighted
average assumptions were used: dividend yield nil; annual standard deviation
(volatility) nil (1997, 1998) and 47% (1999); risk free interest rate 6.30%
(1997), 5.72% (1998) and 5.67% (1999); expected option lives of 4 years (1997),
4.83 years
F-18
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
15 STOCK OPTION PLANS (CONTINUED)
(1998) and 5 years (1999). All options were granted with an exercise price equal
to fair market value of the share on the grant date.
The following information pertains to the options granted in each of the
following years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1999
- ---------------------------------------- ----------------------------------- -----------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
FAIR VALUE EXERCISE PRICE FAIR VALUE EXERCISE PRICE FAIR VALUE EXERCISE PRICE
- --------------------- ---------------- ---------------- ---------------- ---------------- ----------------
($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
0.23 1.02 0.97 4.05 1.94 4.00
</TABLE>
The movement in options outstanding during the three years ended to
December 31, 1997, December 31, 1998 and December 31, 1999 is summarised in the
following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTION EXERCISE PRICE ($)
----------------- ------------------
<S> <C> <C>
Outstanding at January 1, 1997................ 1,558,315 0.59
Exercised during 1997......................... (142,737) 0.71
Forfeited during 1997......................... (269,615) 0.71
Granted during 1997........................... 184,493 1.02
---------- ----
Outstanding at December 31, 1997.............. 1,330,456 0.61
Forfeited during 1998......................... (972,129) 1.55
Granted during 1998........................... 4,509,275 4.05
---------- ----
Outstanding at December 31, 1998.............. 4,867,602 3.61
Exercised during 1999......................... (223,362) 1.26
Forfeited during 1999......................... (1,778,168) 3.84
Granted during 1999........................... 4,741,764 4.00
---------- ----
Outstanding at December 31, 1999.............. 7,607,836 3.86
========== ====
</TABLE>
The number of options exercisable as at December 31, 1999 was 1,895,110
(1998: 934,919, 1997: 420,557) with the weighted average exercise price for such
options being $3.54 (1998: $2.34, 1997: $0.56).
F-19
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
15 STOCK OPTION PLANS (CONTINUED)
The exercise price for all outstanding options at December, 31 1999 ranged
from $0.03 to $5.15, and the following table summarises information about those
options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS CURRENTLY EXERCISABLE
------------------------------------- --------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF EXERCISE AVERAGE REMAINING AVERAGE
PRICES ($) NUMBER EXERCISE PRICE ($) CONTRACTUAL NUMBER EXERCISE PRICE ($)
- ----------------- ----------------- ------------------ ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
0.01-0.20........................ 64,310 0.04 5.21 63,289 0.04
0.21-0.50........................ 194,067 0.36 6.65 159,751 0.36
0.51-2.00........................ 57,927 0.91 7.54 45,416 0.88
2.01-3.94........................ 59,031 3.68 8.14 40,519 3.68
3.95-4.00........................ 6,994,810 3.98 7.82 1,465,818 3.98
4.00-5.15........................ 237,691 5.10 9.04 120,317 5.15
----------------- --------- ---- --------- ---------
Total............................ 7,607,836 3.86 7.80 1,895,110 3.54
================= ========= ==== ========= =========
</TABLE>
16 INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
$'000 $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
Current................................................ 1,469 1,533 449
Withholding tax
- -- Current year........................................ -- -- 171
- -- Prior year.......................................... -- -- 918
Capital gains tax...................................... -- -- 612
Deferred............................................... (56) 264 --
----- ----- -----
Provision for income taxes............................. 1,413 1,797 2,150
===== ===== =====
</TABLE>
The components of the provision (benefit) for income taxes for the years
ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
$'000 $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
Federal
- -- Current............................................. -- -- 113
- -- Withholding tax..................................... -- -- 418
- -- Deferred............................................ (56) 264 --
Foreign
- -- Current............................................. 1,469 1,533 507
- -- Deferred............................................ -- -- --
- -- Capital gains tax................................... -- -- 612
- -- Withholding tax..................................... -- -- 500
----- ----- -----
1,413 1,797 2,150
===== ===== =====
</TABLE>
F-20
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
16 INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) were based on the
following sources of pre-tax loss (income):
<TABLE>
<CAPTION>
1997 1998 1999
$'000 $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
Total United States................................ 2,901 13,439 7,761
Total Foreign...................................... 6,270 (3,953) 9,977
------ ------- -------
Total.............................................. 9,171 9,486 17,738
====== ======= =======
</TABLE>
A reconciliation of the provision (benefit) for income taxes, with the
amount computed by applying the statutory federal income tax rate of 34% (1998:
34%, 1997: 34%) to income loss before provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
$'000 $'000 $'000
-------- -------- --------
<S> <C> <C> <C>
Computed expected tax.............................. (3,118) (3,225) (6,031)
Tax jurisdiction differences....................... 85 139 418
Permanent differences.............................. 1,087 (299) 3,177
Current tax losses................................. 3,415 4,918 2,885
Other taxes (withholding and gains tax)............ -- -- 1,701
Deferred tax on above two items.................... (56) 264 --
------ ------- -------
Income tax charge.................................. 1,413 1,797 2,150
====== ======= =======
</TABLE>
Principal components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... 68 157
Accrued bonuses......................................... 111 58
Net operating losses carryforward....................... 8,508 11,843
Fixed assets............................................ 2,340 --
Capital loss on sale of subsidiary...................... 1,000 1,000
Deferred revenue........................................ 650 99
Other................................................... 346 1,000
------- -------
13,023 14,157
Valuation allowance....................................... (12,843) (13,500)
Deferred tax liabilities:
Fixed assets............................................ (273) (676)
------- -------
(93) (19)
------- -------
</TABLE>
F-21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
16 INCOME TAXES (CONTINUED)
The timing of the use of net operating losses carried forward and other
deferred tax assets is uncertain and management has recorded a valuation
allowance to reduce the net deferred tax amount to the amount which is more
likely than not of being realized.
MATURITY OF TAX LOSSES
Tax losses available for setoff against future profits mature within:
<TABLE>
<CAPTION>
$'000
--------
<S> <C>
6 to 10 years............................................... 1,030
11 to 15 years.............................................. 17,731
16 to 20 years.............................................. 5,022
21 to 25 years.............................................. --
No time limit............................................... 17,700
------
Total....................................................... 41,483
======
</TABLE>
U.S. losses of $17,731,000 which expire within 11 to 15 years are subject to
yearly limitation utilization of approximately $3,300,000.
17 PENSION AND OTHER POST RETIREMENT PLANS
These include a defined contribution pension plan of a subsidiary of the
Company based in the U.K.. The assets of the plan are held separately from those
of the Company in an independently administered fund. Contributions made by the
Company and included in the statements of operations amounted to $468,000 during
1999 (1998--$398,000, 1997--$359,000).
A further subsidiary of the Company based in the U.S. has a contributory
savings plan which qualifies as a deferred salary arrangement under
Section 401(k) of the U.S. Internal Revenue Code. This savings plan allows
eligible employees to contribute up to 15% of their salary to the plan. The plan
requires the Company to make contributions equal to 100% of employee
contributions, up to 5% of employee compensation. The charge to operations for
the Company's matching contribution amounted to $739,000 during 1999
(1998--$320,000, 1997--$402,000).
No other pension and post retirement plans are offered by the Company.
18 COMMITMENTS AND CONTINGENCIES
The Company has agreed to indemnify the partners of General Atlantic for any
tax liability incurred by them (subject to a limit of $4,700,000) arising from
the disposal by the Company of its Cellular Investments business or any of CI's
telecommunications investments. Management is not aware of any such liabilities
and no amounts relating to this contingent liability have been provided as of
December 31, 1999 and December 31, 1998.
F-22
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
19 INTANGIBLES, NET
<TABLE>
<CAPTION>
1998 1999
$'000 $'000
-------- --------
<S> <C> <C>
Goodwill.................................................... 23,110 23,412
Purchased other intangibles at fair value................... 12,394 12,394
Purchased current products/technologies..................... 6,696 6,696
------ ------
42,200 42,502
Accumulated amortization.................................... (496) (7,309)
------ ------
Intangible assets, net...................................... 41,704 35,193
====== ======
</TABLE>
20 ACQUISITION OF METAPATH SOFTWARE INTERNATIONAL (BELLEVUE), INC.
The Company acquired Metapath for consideration of $56,086,000. The fair
value of the net assets acquired was $34,582,000 resulting in goodwill on
acquisition of $23,110,000, including acquisition costs of $1,606,000. This
goodwill is being written off over 7 years. The consideration was satisfied by
the issue of common stock in the Company. The net assets acquired included
various intangible assets which are shown in note 19. In addition to these
intangible assets, the Company acquired $10,200,000 of in-process research and
development which was written off on acquisition.
The following unaudited pro forma results combine the results of operations
as if Metapath had been acquired as of the beginning of the periods presented.
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Net sales ($'000)......................................... 94,160 112,973
======= =======
Loss from continuing operations ($'000)................... (14,565) (28,368)
======= =======
Loss per share ($)........................................ (0.76) (1.26)
======= =======
</TABLE>
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect for the
period presented, nor do they purport to be indicative of the results that will
be obtained in the future.
21 RELATED PARTY TRANSACTIONS
(a) During 1999 the Group traded, in the normal course of business, with its
demerged business unit Cellular Investments (``CI"), whose assets were
transferred to Mobile Systems International Cellular Investments Holdings BV
(``MSICIBV"). The Group made sales of $741,000 (1998: $620,000) to MSICIBV in
1999. At the year end the amount due from MSICIBV in respect of trading balances
totalled $296,000 (1998: $267,000).
The Group also administered the payroll and expense claims of CI employees.
All such costs are recharged to MSICIBV without mark-up. The amount outstanding
in this respect at the year end totalled $156,000 (1998: $245,000).
(b) During 1999 the Group traded, in the normal course of business, with
Luminescence Technologies, Inc. (``LTI"), a Company controlled by the family
interests of a share option holder of MSII. The Group made purchases of
$1,619,000 in 1999 (1998: 226,000; 1997: - nil) from Luminescence Technologies,
Inc.. At the year end the amount due to LTI was nil (1998: - nil). LTI has
certain royalty rights in respect of the sale of Maxxer for a limited period of
time.
F-23
<PAGE>
METAPATH SOFTWARE CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO METAPATH SOFTWARE INTERNATIONAL, INC.
We have audited the accompanying consolidated balance sheets of Metapath
Software Corporation (a Delaware corporation) and subsidiary as of December 31,
1997 and December 4, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997 and for the period from January 1, 1998 to December 4, 1998. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Metapath Software Corporation
and subsidiary as of December 31, 1997 and December 4, 1998, and the results of
their operations and their cash flows for the year ended December 31, 1997 and
the period ended December 4, 1998, in conformity with accounting principles
generally accepted in the United States.
Seattle, Washington,
February 6, 2000
F-25
<PAGE>
METAPATH SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... 4,860,929 5,514,569
Accounts receivable......................................... 2,635,317 5,823,462
Inventories................................................. 1,114,306 2,770,492
Prepaid expenses and other current assets................... 621,326 369,293
----------- -----------
TOTAL CURRENT ASSETS........................................ 9,231,878 14,477,816
Equipment and Leasehold Improvements, at cost:
Equipment................................................... 5,641,801 7,389,042
Leasehold improvements...................................... 336,788 368,715
----------- -----------
Total equipment and leasehold improvements.................. 5,978,589 7,757,757
Less-accumulated depreciation and amortization.............. (1,727,473) (3,665,510)
----------- -----------
Net equipment and leasehold improvements.................... 4,251,116 4,092,246
----------- -----------
Deposits.................................................... 85,422 81,948
----------- -----------
TOTAL ASSETS................................................ 13,568,416 18,652,011
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term obligations............... 1,025,003 1,131,595
Accounts payable............................................ 830,092 550,446
Accrued liabilities......................................... 845,243 859,507
Deferred revenue............................................ 3,501,404 9,243,034
----------- -----------
TOTAL CURRENT LIABILITIES................................... 6,201,742 11,784,582
Long-term obligations, excluding current installments....... 1,943,498 1,875,224
----------- -----------
TOTAL LIABILITIES........................................... 8,145,240 13,659,806
=========== ===========
Mandatory redeemable Class A preferred stock, $0.01 par
value, 614 shares authorized; 614 shares issued and
outstanding in 1997....................................... 61,400 --
----------- -----------
Mandatory redeemable Class B preferred stock, $0.01 par
value, 9,761 shares authorized; 9,761 shares issued and
outstanding in 1997....................................... 976,100 --
----------- -----------
Commitments (Note 9)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.01 par value
Class C. 159,236 shares authorized issued and outstanding
(liquidation value $1,000,002)............................ 1,592 1,592
Class D. 717,950 shares authorized issued and outstanding
(liquidation value $7,000,001)............................ 7,180 7,180
Class E. 1,958,333 shares authorized issued and outstanding
1,958,332 shares (liquidation value (11,749,992).......... 19,583 19,583
Class F. 1,777,778 shares authorized; 1,777,778 issued and
outstanding in 1998....................................... 17,778
Common stock, $0.001665 par value, authorized 14,602,467
shares; issued and outstanding 4,481,249 shares in 1997
and 4,549,229 shares in 1998.............................. 7,468 7,581
Additional paid-in capital.................................. 18,133,352 30,545,870
Deferred compensation....................................... -- (334,844)
Accumulated deficit......................................... (13,783,499) (25,272,535)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 4,385,676 4,992,205
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. 13,568,416 18,652,011
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
METAPATH SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------------
CLASS C CLASS D CLASS E CLASS F
------------------- ------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1996.................. 159,236 $1,592 717,950 $7,180 -- $ -- -- $ --
Sale of convertible
preferred stock, net
of issuance costs of
$82,535............... -- -- -- -- 1,958,332 19,583 -- --
Exercise of stock
options............... -- -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- --------- -------
BALANCES, December 31,
1997.................. 159,236 1,592 717,950 7,180 1,958,332 19,583 -- --
Sale of convertible
preferred stock, net
of issuance costs of
$81,753............... -- -- -- -- -- -- 1,777,778 17,778
Exercise of stock
options............... -- -- -- -- -- -- -- --
Issuance of common
stock................. -- -- -- -- -- -- -- --
Repurchase of common
stock................. -- -- -- -- -- -- -- --
Issuance of compensatory
stock options......... -- -- -- -- -- -- -- --
Amortization of deferred
compensation.......... -- -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- --------- -------
BALANCES, December 4,
1998.................. 159,236 $1,592 717,950 $7,180 1,958,332 $19,583 1,777,778 $17,778
======= ====== ======= ====== ========= ======= ========= =======
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
--------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1996.................. 3,750,000 $6,250 $ 6,353,828 -- $(10,504,626) $(4,135,776)
Sale of convertible
preferred stock, net
of issuance costs of
$82,535............... -- -- 11,647,874 -- -- 11,667,457
Exercise of stock
options............... 731,249 1,218 131,650 -- -- 132,868
Net loss................ -- -- -- -- (3,278,873) (3,278,873)
--------- ------ ----------- ----------- ------------ -----------
BALANCES, December 31,
1997.................. 4,481,249 7,468 18,133,352 -- (13,783,499) 4,385,676
Sale of convertible
preferred stock, net
of issuance costs of
$81,753............... -- -- 11,900,470 -- -- 11,918,248
Exercise of stock
options............... 181,725 302 36,935 -- -- 37,237
Issuance of common
stock................. 37,380 62 130,768 -- -- 130,830
Repurchase of common
stock................. (151,125) (251) (33,155) -- -- (33,406)
Issuance of compensatory
stock options......... -- -- 377,500 (377,500) -- --
Amortization of deferred
compensation.......... -- -- -- 42,656 -- 42,656
Net loss................ -- -- -- -- (11,489,037) (11,489,037)
--------- ------ ----------- ----------- ------------ -----------
BALANCES, December 4,
1998.................. 4,549,229 $7,581 $30,545,870 $ (334,844) $(25,272,535) $ 4,992,205
========= ====== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
METAPATH SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1998 TO
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
SYSTEM SALES................................................ 15,553,821 8,743,913
Service..................................................... 6,193,507 8,568,482
---------- -----------
TOTAL REVENUES.............................................. 21,747,328 17,312,395
COSTS AND EXPENSES
Cost of system sales........................................ 4,831,867 3,424,013
Service and implementation.................................. 5,362,871 6,088,227
Research and development.................................... 5,806,103 7,957,896
Sales and marketing......................................... 5,176,251 7,022,284
General and administrative.................................. 3,595,109 4,324,854
---------- -----------
TOTAL COSTS AND EXPENSES.................................... 24,772,201 28,817,275
OPERATING LOSS.............................................. (3,024,873) (11,504,880)
---------- -----------
OTHER INCOME (EXPENSE)
Interest income............................................. 93,824 221,536
Interest expense............................................ (349,582) (281,024)
Other, net.................................................. 1,758 75,331
---------- -----------
TOTAL OTHER INCOME (EXPENSE)................................ (254,000) 15,843
---------- -----------
NET LOSS.................................................... (3,278,873) (11,489,037)
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
METAPATH SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
YEAR ENDED JANUARY 1, 1998
DECEMBER 31, TO DECEMBER 4,
1997 1998
$ $
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... (3,278,873) (11,489,037)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortisation............................... 1,347,777 2,008,635
Gain on sale of equipment................................... -- (17,172)
Change in operating assets and liabilities--
Accounts receivable......................................... 2,253,622 (3,188,145)
Inventories................................................. 3,591,759 (1,656,186)
Prepaid expenses and other current assets................... (149,360) 252,033
Accounts payable............................................ (1,230,955) (279,646)
Accrued liabilities......................................... 166,467 14,264
Deferred revenue............................................ (8,999,267) 5,741,630
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES....................... (6,298,830) (8,613,624)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements........... (3,549,308) (1,789,839)
Deposits.................................................... 25,681 3,374
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES....................... (3,523,627) (1,786,465)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit................................ -- 943,706
Repayment of line of credit................................. -- (943,706)
Proceeds from note payable.................................. 3,318,005 --
Repayment of long-term obligations.......................... (1,387,699) (999,181)
Proceeds from stockholder loans............................. 1,500,000 --
Repayment of stockholder loans.............................. (1,500,000) --
Net proceeds from sales of convertible preferred stock...... 11,667,457 11,918,248
Net proceeds from sales of common stock..................... 132,868 168,067
Purchase of common stock.................................... -- (33,406)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 13,730,631 11,053,728
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 3,908,174 653,639
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 952,755 4,860,929
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... 4,860,929 5,514,569
=========== ===========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... 349,504 281,024
----------- -----------
Capital lease obligations incurred to acquire equipment..... 150,308 --
----------- -----------
Mandatory redeemable preferred stock exchanged for
promissory note........................................... -- 976,067
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Metapath Software Corporation (the "Company") manages mission-critical
information for large telecommunications companies worldwide by providing
integrated, real-time network and user information software and services. The
Company, which is incorporated in the State of Delaware and based in Bellevue,
Washington, was formed in October 1994.
The Company is subject to the risks and challenges associated with other
companies at a similar stage of development, including dependence on key
individuals, dependence on significant customers, competition from companies
with substantially greater financial, technical, marketing and management
resources than the Company, the continued successful marketing of its products
and services, including the ability to obtain new, long-term contracts, and the
need for additional financing.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Metapath Software
Corporation, Ltd., located in England.
All significant intercompany balances and transactions have been eliminated
in consolidation.
USE OF 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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, all short-term investments
with purchased maturities of three months or less are considered to be cash
equivalents.
ACCOUNTS RECEIVABLE
The Company's accounts receivable are concentrated among large domestic
telecommunications carriers. The Company performs periodic credit evaluations of
its customers' financial condition and generally requires no collateral from its
customers. Based on management's analysis of the collectibility of accounts, no
allowance for doubtful accounts was recorded against receivable balances.
F-30
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS (CONTINUED)
INVENTORIES
Inventories consist primarily of hardware utilized in network installations
and are stated at the lower of cost (first-in, first-out) or market (net
realizable value). Inventories are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
Work in process...................................... 588,762 2,418,830
Parts................................................ 525,544 351,662
--------- ---------
1,114,306 2,770,492
========= =========
</TABLE>
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment is depreciated using the straight-line method over estimated
useful lives of three to five years. Leasehold improvements and equipment under
capital leases are amortised using the straight-line method over the shorter of
their estimated useful lives or the lease term.
The Company identifies and records impairment losses on long-lived and other
assets when events and circumstances indicate that such assets might be
impaired. The Company considers factors such as significant changes in the
regulatory or business climate and projected future cash flows from the
respective asset. Impairment losses are measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
STOCK COMPENSATION
The Company has elected to apply the disclosure-only provisions of Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Options Issued to
Employees," and related interpretations. Compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's common stock
at the date of grant over the stock option exercise price.
REVENUE RECOGNITION
The Company's revenue recognition is in compliance with the American
Institute of Certified Public Accountants' Statement of Position 97-2, "Software
Revenue Recognition." The Company's software products are installed in highly
complex network environments, and the Company has significant obligations after
delivery of the product. Accordingly, the Company does not commence recognizing
revenue until all significant vendor obligations have been satisfied, which is
generally when the customer's network has been placed into commercial service.
Revenue from post contract software support and maintenance contracts is
deferred and recognized rateably over the term of the agreement, which is
typically one year. Consulting and training revenues are recognized as services
are performed.
Billings in excess of revenue are classified as deferred revenue.
F-31
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility of the product, which the Company has defined as the completion of
beta testing of a working product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware
technology. Amounts that could have been capitalized under this statement after
consideration of the above factors were immaterial and, therefore, no software
development costs have been capitalized by the Company to date.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the year ended
December 31, 1997 and the period ended December 4, 1998, the Company incurred
advertising expenses of approximately $387,000 and $452,000, respectively.
INCOME TAXES
The Company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary difference
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets and liabilities are measured using
currently enacted tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term obligations. The Company's
cash and cash equivalents are diversified among security types and issuers, and
approximate fair market value. The fair value of financial instruments that are
short-term and/or that have little or no risk are considered to have a fair
value equal to book value.
2. LINE OF CREDIT
During the period ended December 4, 1998, the Company had a $2,000,000
revolving line of credit. Borrowings under this line were secured by
substantially all of the Company's assets, were collateralised by trade accounts
receivable and bore interest at the prime rate plus 2.5%. The Company borrowed
$943,706 on this line during 1998. All borrowings were repaid in July 1998.
F-32
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
Employee compensation and benefits................... 214,702 695,055
Other................................................ 630,541 164,452
------- -------
845,243 859,507
======= =======
</TABLE>
4. LONG TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
Notes payable to bank, interest only at the prime
rate plus 2.5% (11.0% at December 4, 1998) payable
monthly through January 1997; thereafter monthly
installments until maturity at January 31, 2001.... 2,269,194 1,554,637
Notes payable to supplier, interest at 10.9% to 11.2%
payable monthly through March 2000................. 522,873 364,039
Capital lease obligations, interest at 8.3% to 19.8%,
payable monthly through July 2001.................. 176,434 112,043
Note payable to stockholder, interest at 7.5% payable
in 2003............................................ -- 976,100
---------- ----------
2,968,501 3,006,819
Less--current installments........................... (1,025,003) (1,131,595)
---------- ----------
Long term obligations, excluding current
installments....................................... 1,943,498 1,875,224
========== ==========
</TABLE>
Long-term obligations are secured by substantially all of the Company's
assets. The terms of the note payable to bank contain, among other provisions,
covenants for maintaining defined levels of working capital, net worth, and
various financial ratios, including debt to equity. The Company was in
compliance with all such covenants at December 4, 1998.
F-33
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG TERM OBLIGATIONS (CONTINUED)
Principal maturities of long-term obligations at December 4, 1998 are as
follows:
<TABLE>
<CAPTION>
YEAR $
- ---- ---------
<S> <C>
1998........................................................ 87,219
1999........................................................ 1,140,758
2000........................................................ 714,523
2001........................................................ 88,219
Thereafter.................................................. 976,100
---------
3,006,819
=========
</TABLE>
Equipment with a cost of $359,117 and accumulated depreciation of $167,587
and $240,089 have been accounted for as capital leases at December 31, 1997 and
December 4, 1998, respectively. The Company has an option to purchase the assets
at the end of the lease term at their fair market value.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Class A and Class B preferred stock is mandatory redeemable at face
value plus accrued dividends, if any, on an annual basis over a three year
period beginning January 2000. The Class A and Class B preferred stock is
non-voting and has liquidation preference to common stock stockholders. In
connection with the acquisition discussed in Note 10, the Company redeemed all
of the Class A preferred stock for cash and issued 5-year promissory notes with
a 7.5% interest rate in exchange for the Class B preferred stock.
Holders of Class C, Class D and Class E and F preferred stock are entitled
to one vote for each share of common stock into which the preferred stock is
convertible. The Class C and Class D shares are convertible, at the option of
the holder, into shares of common stock at a six for one rate and the Class E
and F shares convert at a one for one rate. The Class C, D and E and F shares
automatically convert into common stock concurrently with the closing of an
underwritten public offering of common stock under the Securities Act of 1933,
as amended, with minimum proceeds of $20,000,000 at a price per share of at
least $10.00 (subject to certain adjustments). Holders of the Class C, D and E
and F preferred stock also have certain additional rights, including
anti-dilution protection, liquidation preference, and right of first refusal on
proposed financing. Generally, holders of Class E and F preferred stock have
preference over holders of Class C and D preferred stock. Further, approval from
holders of all classes of preferred stock is required before any senior class
security can be issued.
Holders of all classes of preferred stock are entitled to receive cumulative
dividends of 8% of their respective face value beginning January 1, 2000. Prior
to this date, holders of Class A preferred stock are entitled to receive
quarterly cash cumulative dividends at the daily LIBOR rate plus 1%. Class A
dividends, which are included in interest expense, amounted to $4,318 in 1997
and $4,506 in 1998.
F-34
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK WARRANTS
In connection with a bank term credit facility entered into during 1996, the
Company issued a warrant to purchase 3,792 shares of common stock at $1.13 per
share. The warrant expires in March 2001.
In connection with certain stockholder loans made during 1996 and 1997, the
Company issued warrants, which expire in April 2001 and September 2002, to
purchase 621,018 and 31,252 shares of common stock at $1.05 and $6.00 per share,
respectively.
The fair value of the warrants noted above were immaterial and no amounts
were recorded by the Company.
STOCK OPTIONS
1995 EMPLOYEE STOCK OPTION PLAN
In March 1995, the Company adopted an incentive stock option plan (Plan) to
compensate key employees for past and future services and has reserved 2,500,000
shares of common stock for option grants under the Plan. Generally, options
vest, based on continued employment, over a four-year period in equal cumulative
yearly increments beginning one year from the date of grant. The options expire
ten years from the date of grant and are exercisable at the fair market value of
the common stock at the grant date as determined by the Board of Directors. At
December 4, 1998, 4,476 shares remain available for future grants.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In June 1996, the Company adopted a non-employee Director Stock Option Plan
to compensate non-employee directors of the Company for past and future services
and has reserved 360,000 shares of common stock for option grants. Each
non-employee director will be granted an initial option to acquire 30,000 shares
of common stock on the date that person becomes a director. In addition to the
initial grant, each Director is entitled to receive an option to purchase 12,000
shares at the end of each full year as a Director. Generally, options vest,
based on continued association as a director of the Company, over a four-year
period in equal cumulative yearly increments beginning one year from the date of
grant. The options expire ten years from the date of grant and are exercisable
at the fair market value of the common stock at the grant date as determined by
the Board of Directors. At December 4, 1998, 108,000 shares remain available for
future grants.
F-35
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option-related activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------
SHARES WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
---------- --------- --------------
<S> <C> <C> <C>
Balance, December 31, 1996................ 240,000 1,620,000 0.17
Authorisation of shares................... 1,000,000 --
Options granted........................... (694,575) 694,575 0.55
Options exercised......................... -- (151,499) 0.09
Options exercised and converted to
restricted stock........................ -- (579,750) 0.21
Options cancelled......................... 314,251 (314,251) 0.18
---------- --------- ----
Balance, December 31, 1997................ 859,676 1,269,075 0.36
Options granted........................... (1,111,000) 1,111,000 2.96
Options exercised......................... -- (181,725) 0.21
Options cancelled......................... 212,675 (212,675) 0.74
Options repurchased....................... 151,125 -- 0.22
---------- --------- ----
Balance, December 4, 1998................. 112,476 1,985,675 1.79
========== ========= ====
</TABLE>
The following table summarises information about options outstanding and
exercisable at December 4, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES($) OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
0.02-0.05 164,775 6.24 0.02 107,925 0.02
0.17-0.25 565,525 7.77 0.24 201,325 0.24
0.50-1.00 130,625 8.60 0.61 26,750 0.60
2.00 145,000 9.48 2.00 -- --
2.50 318,000 9.35 2.50 9,313 2.50
3.00 140,000 9.40 3.00 -- --
3.50 521,750 9.77 3.50 -- --
--------- ---- ------- ------- ----
1,985,675 8.72 1.79 345,313 0.26
</TABLE>
F-36
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
In accordance with the disclosure requirements of SFAS 123, if the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed, net loss would have increased to
the pro forma amounts indicated in the table below.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ ------------
<S> <C> <C>
Net loss--as reported............................... (3,278,873) (11,489,037)
Net loss--pro forma................................. (3,311,375) (11,694,668)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions: risk-free
interest rates of 6.3% to 6.5%; expected option life of 3 years; and no expected
dividends. As the company is privately held, expected volatility is not
applicable. The weighted-average fair value of options granted during 1997 and
1998 approximated $0.11 and $0.51, respectively.
DEFERRED STOCK OPTION COMPENSATION
In connection with the grant of certain stock options to employees during
1998, the Company recorded deferred stock option compensation of $377,500,
representing the difference between the estimated fair value of the common stock
for accounting purposes and the option exercise price of such options at the
date of grant. Such amount is presented as a reduction of stockholders' equity
and amortised over the vesting period of the applicable options (generally four
years). During the period ended December 4, 1998, the Company expensed
approximately $43,000. The balance will be expensed over the period the options
vest. Compensation expense is decreased in the period of forfeiture for any
accrued but unvested compensation arising from the early termination of an
option holder's services.
COMMON STOCK
At December 4, 1998, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Class C preferred stock conversion.......................... 955,416
Class D preferred stock conversion.......................... 4,307,700
Class E preferred stock conversion.......................... 1,958,332
Class F preferred stock conversion.......................... 1,777,778
Common stock warrants....................................... 656,062
Employee stock options...................................... 1,775,651
Director stock options...................................... 322,500
----------
11,754,439
==========
</TABLE>
COMMON STOCK REPURCHASE RIGHTS
In October 1997, the Company issued 579,750 shares of common stock for
aggregate consideration of $119,175 in connection with an agreement to
accelerate the vesting of certain stock options and purchase an equal number of
restricted common stock shares at the original option price. These restricted
shares vest according to the original vesting schedule of the corresponding
options. The
F-37
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Company has the right to repurchase unvested shares at the original purchase
price per share upon termination of employment. At December 4, 1998, 191,750
shares were unvested with an original purchase price of $39,430.
6. SIGNIFICANT CUSTOMERS
The Company operates in a single industry segment, telecommunications
software. Revenues and the related accounts receivable and deferred revenue
balances were derived from the following major customers:
<TABLE>
<CAPTION>
REVENUE ACCOUNTS RECEIVABLE DEFERRED REVENUE
----------------------------- -------------------------- --------------------------
YEAR ENDED PERIOD ENDED AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 4, DECEMBER 31, DECEMBER 4, DECEMBER 31, DECEMBER 4,
CUSTOMER 1997 1998 1997 1998 1997 1998
- -------- ------------- ------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................... 11% 15% 20% * * *
Customer B................... 88% 81% 60% 73% 68% 87%
Customer C................... * * 19% * 13% *
Customer D................... * * * * * 10%
Customer E................... * * * 12% * *
</TABLE>
- ------------------------
* Less than 10%
7. INCOME TAXES
The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. At
December 4, 1998, the Company had net operating loss carryforwards of
approximately $21.5 million, which expire in 2009 to 2012.
The Tax Reform Act of 1986 imposes restrictions on the utilisation of net
operating loss and tax credit carryforwards in the event of an "ownership
change" as defined by the Internal Revenue Service. The Company's ability to
utilize its net operating loss and tax credit carryforwards maybe subject to
restriction pursuant to these provisions.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 4,
1997 1998
$ $
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward..................... 3,939,000 7,306,000
Deferred revenue..................................... 610,000 1,913,000
Other................................................ 109,000 283,000
---------- ----------
Gross deferred tax assets............................ 4,658,000 9,502,000
Less--valuation allowance............................ (4,658,000) (9,502,000)
---------- ----------
Net deferred tax assets.............................. -- --
---------- ----------
</TABLE>
F-38
<PAGE>
METAPATH SOFTWARE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS:
In September 1997, certain stockholders loaned the Company a total of
$1,500,000, payable on demand, bearing interest at 10%. The Company also issued
warrants to purchase 31,252 shares of the Company's common stock (Note 5). These
notes were repaid in October 1997. Interest expense on these notes amounted to
$8,589 in 1997.
9. COMMITMENTS
LEASES
The Company occupies its current facilities and uses certain of its
equipment under terms of noncancellable leases that expire at various dates
through December, subject to certain extension at the Company's option. At
December 4, 1998, aggregate future minimum lease payments under these agreements
amounted to:
<TABLE>
<CAPTION>
YEAR $
- ---- ---------
<S> <C>
1998........................................................ $ 81,945
1999........................................................ 965,476
2000........................................................ 36,215
2001........................................................ 36,215
2002........................................................ 22,967
---------
Total minimum lease payments................................ 1,142,818
=========
</TABLE>
Rent expense under noncancelable operating leases amounted to $1,275,017 in
1997 and $1,051,610 in 1998.
401(K) PLAN
The Company has a salary deferral plan (Plan) that covers substantially all
employees. The Company, at its discretion, may make contributions to the Plan,
although it has not made any such contributions to date. Although the Company
has no present intent, it may terminate this Plan and the benefits provided at
any time. The Company has no other post-employment or post-retirement plans.
10. ACQUISITION
On December 4, 1998, the Company was acquired by Mobile Systems
International.
F-39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[MSI LOGO]
METAPATH SOFTWARE INTERNATIONAL, INC.
- SHARES OF COMMON STOCK
------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
DLJDIRECT INC.
- ------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
information other than this prospectus or to make representations as to matters
not stated in this prospectus. You must not rely on unauthorized information.
This prospectus is not an offer to sell these securities or our solicitation of
your offer to buy the securities in any jurisdiction where that would not be
permitted or legal. Neither the delivery of this prospectus nor any sales made
hereunder after the date of this prospectus shall create an implication that the
information contained herein or the affairs of the Company have not changed
since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until [ ], 2000 (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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by METAPATH SOFTWARE INTERNATIONAL, INC. (the
"REGISTRANT") in connection with the sale of the common stock being registered.
All amounts are estimates except the SEC registration fee, the NASD filing fees
and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
SEC registration fee........................................ $45,540
NASD filing fee............................................. 17,750
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
-------
Total................................................... $ *
=======
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") permits the
board of directors of the Registrant to indemnify and to purchase and maintain
insurance on behalf of any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of the Registrant, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "SECURITIES ACT"). The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The Registrant's Amended and Restated Certificate of Incorporation in effect as
of the date hereof (the "CERTIFICATE") provides for indemnification of its
directors and officers to the fullest extent permitted by law.
As permitted by Section 102 of the DGCL, the Certificate eliminates a
director's personal liability for monetary damages to the Registrant and its
stockholders arising from a breach or alleged breach of a director's fiduciary
duty except for liability under Section 174 of the DGCL, for liability for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law or any transaction which the director derived an
improper personal benefit.
Under the Registration Rights Agreement, dated as of December 4, 1998, the
Registrant has agreed to indemnify:
- each stockholder, with respect to which registration, qualification or
compliance has been effected pursuant to the Registration Rights
Agreement,
II-1
<PAGE>
- such stockholder's officers, directors, partners, control persons, legal
counsel and independent accountants, and
- each underwriter, if any, and each of such underwriter's control persons,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including, but not limited to, any such expenses, claims,
losses, damages and liabilities incurred in settlement of any litigation,
arising out of or based on:
- any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular,
qualification or compliance, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or
- any violation by the Registrant of the Securities Act, the Securities
Exchange Act of 1934, as amended, or any state securities law, applicable
to the Registrant and relating to action or inaction required of the
Registrant in connection with any such registration, qualification or
compliance.
The Underwriting Agreement is expected to provide that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
under the Securities Act of 1933. Reference is made to the form of Underwriting
Agreement to be filed as Exhibit 1.1 hereto.
The Registrant maintains directors and officers liability insurance for the
benefit of its officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, the Registrant has sold and issued the following
securities:
1. In September and October 1997, Metapath Software Corporation
("METAPATH") issued warrants to purchase 31,252 shares of Metapath Common
Stock, with an exercise price of $6.00 per share, to three investors
pursuant to Section 4(2) of the Securities Act, as additional consideration
for a revolving credit facility for an aggregate principal amount of
$2,250,000. In the Registrant's 1998 reorganization pursuant to which the
Registrant acquired Metapath in a stock for stock merger transaction, the
warrants were assumed by the Registrant and now represent warrants to
purchase shares of Common Stock of the Registrant, with an exercise
price of $ per share.
2. In October 1997, Metapath issued 1,958,333 shares of its Class E
Preferred Stock to 44 investors for $11,749,998 pursuant to Section 4(2) of
the Securities Act.
3. In March 1998, Mobile Systems International Holdings Limited
("MSIH"), a predecessor of the Registrant, issued 2,000,000 ordinary shares
to five investors for L7,000,000 pursuant to Section 4(2) of the Securities
Act. In the Registrant's 1998 reorganization in which the ordinary shares of
MSIH were exchanged for shares of Common Stock of the Registrant pursuant a
scheme of arrangement under Section 425 of the United Kingdom Companies Act
1985, each ordinary share of MSIH was exchanged for 1.58597 shares of Common
Stock of the Registrant.
4. In July 1998, Metapath issued 1,777,778 shares of its Class F
Preferred Stock at to 41 investors for $12,000,002 pursuant to Section 4(2)
of the Securities Act.
5. In September 1998, MSIH issued 60,000 ordinary shares to one employee
for L225,000 pursuant to Section 4(2) of the Securities Act. In the
Registrant's 1998 reorganization, each ordinary share of MSIH was exchanged
for 1.58597 shares of Common Stock of the Registrant.
II-2
<PAGE>
6. In December 1998, Metapath issued 955,416 shares of Metapath Common
Stock upon the conversion of 159,236 shares of Metapath Series C Preferred
Stock, 4,307,700 shares of Metapath Common Stock upon the conversion of
717,950 shares of Metapath Series D Preferred Stock, 4,125,475 shares of
Metapath Common Stock upon the conversion of 1,958,332 shares of Metapath
Common Stock and 3,991,000 shares of Metapath Common Stock upon the
conversion of 1,777,778 shares of Metapath Series F Preferred Stock, in each
case pursuant to Section 3(a)(9) of the Securities Act. In the Registrant's
1998 reorganization, each share of Metapath Common Stock was converted into
0.68058 shares of Common Stock of the Registrant.
7. In December 1998, the Registrant issued 22,489,678 shares of Common
Stock in exchange for all of the issued and outstanding ordinary shares of
MSIH pursuant to a scheme of arrangement with MSIH and 1,797,793 shares of
Common Stock in exchange for all of the issued and outstanding shares of
Common Stock of Metapath pursuant to Section 3(a)(10) of the Securities Act
by virtue of the approval of the Commissioner of Corporations of the State
of California in a fairness hearing conducted pursuant to Section 25142 of
the California Corporations Code in November 1998.
8. In April 1999, the Registrant issued 185,000 shares of Common Stock
to five employees for $736,300 pursuant to Section 4(2).
9. Pursuant to Rule 701 promulgated under the Securities Act for sales
and issuances made within the United States and pursuant to Regulation S
promulgated under the Securities Act for sales and issuances made outside
the United States, from January 1, 1997 to February 22, 2000, the Registrant
issued and sold 460,204 shares of Common Stock to employees for aggregate
consideration of $667,986 upon the exercise of stock options pursuant to the
Registrant's 1999 Stock Option Plan, Metapath's 1995 Stock Option Plan and
Independent Directors' Stock Option Plan and MSIH's Share Option Plan.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through their relationship with us, to
information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Weil, Gotshal & Manges LLP.
10.1 Shareholders Agreement, dated as of December 4, 1998, by and
among the Registrant and the stockholders party thereto.
10.2 Registration Rights Agreement, dated as of December 4, 1998,
by and among the Registrant and the stockholders party
thereto.
10.3* Metapath Software International, Inc. Amended and Restated
1999 Stock Option Plan.
10.4* Metapath Software International, Inc. 2000 Employee Stock
Purchase Plan.
10.5* Metapath Software International, Inc. Sharesave Plan.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of Metapath Software International, Inc.
23.1 Consent of Arthur Andersen.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1).
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedules.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person of the Registrant in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in London, England, on this
3rd day of March, 2000.
<TABLE>
<S> <C> <C>
METAPATH SOFTWARE INTERNATIONAL, INC.
By: /s/ DEREK L. MEADES
-----------------------------------------
Name: Derek L. Meades
Title: Chief Finanical Officer and
Secretary
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Metapath Software
International, Inc. (the "Company"), hereby severally constitute and appoint
Thomas Butler and Derek L. Meades, and each of them individually, with full
powers of substitution and resubstitution, our true and lawful attorneys, with
full powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN W. RUDGE
------------------------------------------- Chairman of the Board and March 3, 2000
Alan W. Rudge Director
Chief Executive Officer and
/s/ THOMAS BUTLER Director
------------------------------------------- (Principal Executive March 3, 2000
Thomas Butler Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Financial Officer and
/s/ DEREK L. MEADES Secretary
------------------------------------------- (Principal Financial and March 3, 2000
Derek L. Meades Accounting Officer)
/s/ STEVEN A. DENNING
------------------------------------------- March 3, 2000
Steven A. Denning Director
/s/ G. FELDA HARDYMON
------------------------------------------- March 3, 2000
G. Felda Hardymon Director
/s/ MOHAMED IBRAHIM
------------------------------------------- March 3, 2000
Mohamed Ibrahim Director
/s/ GEORGE J. STILL, JR.
------------------------------------------- March 3, 2000
George J. Still, Jr. Director
/s/ LOEK VAN DEN BOOG
------------------------------------------- March 3, 2000
Loek van den Boog Director
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Weil, Gotshal & Manges LLP.
10.1 Shareholders Agreement, dated as of December 4, 1998, by and
among the Registrant and the stockholders party thereto.
10.2 Registration Rights Agreement, dated as of December 4, 1998,
by and among the Registrant and the stockholders party
thereto.
10.3* Metapath Software International, Inc. Amended and Restated
1999 Stock Option Plan.
10.4* Metapath Software International, Inc. 2000 Employee Stock
Purchase Plan.
10.5* Metapath Software International, Inc. Sharesave Plan.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share.
21.1 Subsidiaries of Metapath Software International, Inc.
23.1 Consent of Arthur Andersen.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1).
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
<PAGE>
METAPATH SOFTWARE INTERNATIONAL, INC.
SHAREHOLDERS AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Preemptive Rights.........................................................1
1.1 Notice..............................................................1
1.2 Exercise of Preemptive Rights.......................................2
1.3 Sale to Third Parties...............................................2
1.4 Exceptions..........................................................2
2. Transfers by Shareholder..................................................3
2.1 Right of First Offer................................................3
2.2 Co-Sale Right.......................................................5
2.3 Transfer Restrictions...............................................6
3. Election of Directors.....................................................6
3.1 Board Representation................................................6
3.2 Mechanics of Designation............................................7
3.3 Appointment of Directors............................................7
3.4 Removal.............................................................7
3.5 No Revocation.......................................................8
3.6 Change in Number of Directors.......................................8
4. Information Rights........................................................8
4.1 Delivery of Financial Statements....................................8
4.2 Inspection..........................................................8
4.3 Nondisclosure Agreement.............................................8
5. Covenant of Shareholders..................................................8
6. Termination...............................................................8
6.1 Termination Events..................................................8
6.2 Termination With Respect to a Particular Shareholder................9
6.3 Removal of Legend...................................................9
7. Miscellaneous.............................................................9
7.1 Successors and Assigns..............................................9
7.2 Amendments and Waivers..............................................9
7.3 Notices.............................................................9
7.4 Severability........................................................9
7.5 Governing Law......................................................10
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
7.6 Counterparts.......................................................10
7.7 Titles and Subtitles...............................................10
7.8 Partners, Members and Affiliates...................................10
</TABLE>
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METAPATH SOFTWARE INTERNATIONAL, INC.
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "AGREEMENT") is made and entered into
as of December 4, 1998 by and among Metapath Software International, Inc., a
California corporation (the "COMPANY"), the former holders of capital stock
of Metapath Software Corporation, a Delaware corporation ("METAPATH"), listed
on Exhibit A hereto (the "METAPATH SHAREHOLDERS") and the former holders of
capital stock of Mobile Systems International Holdings Limited, a company
incorporated under the laws of England and Wales ("MSIH"), listed on
Exhibit B hereto (the "MSIH SHAREHOLDERS," and together with the Metapath
Shareholders, the "SHAREHOLDERS").
RECITALS
A. MSIH, Metapath and the Company have entered into an Agreement and
Plan of Reorganization dated September 21, 1998 (the "REORGANIZATION
AGREEMENT"), which provides for transactions resulting in MSIH and Metapath
becoming wholly-owned subsidiaries of the Company (the "TRANSACTIONS") and
the issuance by the Company to the shareholders of MSIH and Metapath of
shares of the Company's Common Stock in exchange for the shares of Metapath
and MSIH capital stock.
B. As a condition to the closing of the Transactions, the Shareholders
and the Company have agreed to certain restrictions on transfer of shares of,
or securities convertible into or exercisable for shares of, any class of the
Company's capital stock ("SECURITIES") held by the Shareholders, certain
rights of first refusal, certain rights of co-sale, certain representation
rights with respect to the Company's board of directors (the "BOARD OF
DIRECTORS") and certain information rights, all according to the terms and
subject to the conditions set forth in this Agreement.
AGREEMENT
The parties agree as follows:
1. PREEMPTIVE RIGHTS. Subject to the terms and conditions specified in
this Section 1, the Company hereby grants to each Shareholder a right of
first offer with respect to sales by the Company of Securities ("New
Securities") after the Effective Time (as defined in the Reorganization
Agreement). Each time the Company proposes to offer any New Securities, the
Company shall first make an offering of such New Securities to each
Shareholder in accordance with the following provisions:
1.1 NOTICE. The Company shall deliver a notice (a "NEW ISSUANCE
NOTICE") to the Shareholders stating (a) its bona fide intention to offer
such New Securities, (b) the number of such
<PAGE>
New Securities to be offered and (c) the price and terms upon which it
proposes to offer such New Securities.
1.2 EXERCISE OF PREEMPTIVE RIGHTS. Within ten (10) calendar days
after delivery of the New Issuance Notice, a Shareholder may, by written
notice to the Company, elect to purchase, at the price and on the terms
specified in the New Issuance Notice, up to that portion of such New
Securities which equals the proportion that the number of Securities then
held by such Shareholder on an as-converted basis bears to the aggregate
number of Securities held by all Shareholders. The Company shall promptly, in
writing, inform each Shareholder purchasing all the shares available to it
(each, a "FULLY-EXERCISING SHAREHOLDER") of any other Shareholders' failure
to do likewise (an "OVERALLOTMENT NOTICE"). During the five (5)-day period
commencing after the date of delivery the Overallotment Notice (the
"OVERALLOTMENT PERIOD"), each Fully-Exercising Shareholder shall be entitled
to obtain that portion of the New Securities for which Shareholders were
entitled to subscribe but which were not subscribed for by the Shareholders
that is equal to the proportion that the number of Securities held by such
Fully-Exercising Shareholder bears to the aggregate number of Securities held
by all Fully-Exercising Shareholders.
1.3 SALE TO THIRD PARTIES. The Company may, during the ninety
(90)-day period following the expiration of the Overallotment Period (the
"THIRD PARTY PERIOD"), offer New Securities not purchased by Shareholders
pursuant to Section 1.2 to any person or persons at a price not less than and
upon terms no more favorable to the offeree than those specified in the New
Issuance Notice. If the Company does not enter into an agreement for the sale
of the New Securities within the Third Party Period, or if such agreement is
not consummated within ninety (90) days of the execution thereof, the right
provided by this Section 1 shall be deemed to be revived and such New
Securities shall not be sold to a third party unless first reoffered to the
Shareholders in accordance with this Section 1.
1.4 EXCEPTIONS. The term "New Securities" shall exclude, and the
preemptive rights in this Section 1 shall not be applicable to, (a) up to
[X shares where X = the number of shares required to cover existing MSIH and
Metapath options assumed or substituted in the Transactions + 2,000,000]
shares (as adjusted for stock splits, dividends and combinations), or such
greater number as is approved by the Board of Directors, of the Company's
Common Stock (or options therefor) granted to employees, consultants and
directors, pursuant to plans or agreements approved by the Board of Directors
for the primary purpose of soliciting or retaining such employees',
consultants' and directors' services; (b) shares of the Company's Common
Stock sold to the public pursuant to or in conjunction with a registration
statement filed with and declared effective under the Securities Act of 1933,
as amended; (c) securities issued pursuant to the conversion or exercise of
convertible or exercisable securities that were (1) outstanding as of the
Effective Time or (2) where the issuance of the convertible or exercisable
securities was subject to and made in compliance with this Section 1; (d)
securities issued in connection with a bona fide business acquisition by the
Company provided that (1) the aggregate value of the securities issued (as
determined by the Board of Directors of the Company) is not more than Five
Million Dollars ($5,000,000), or (2) the acquisition
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transaction is approved by at least 75% of the directors then serving on the
Board of Directors; (e) securities issued in connection with the Transactions
or pursuant to obligations of MSIH or Metapath existing prior to the closing
of the Transactions which have been assumed by the Company pursuant to the
Reorganization Agreement; or (f) any other issuance of new securities which,
together with any prior issuances of stock under this clause (f) do not
exceed one percent (1%) of the outstanding capital stock of the Company at
the time such issuance occurs.
2. TRANSFERS BY SHAREHOLDER.
2.1 RIGHT OF FIRST OFFER. Before any Shareholder may sell or
otherwise transfer any Securities, the Company and the other SHAREHOLDERS
shall have a right of first offer to purchase the Securities on the terms and
conditions set forth in this Section 2.1 (the "RIGHT OF FIRST OFFER"). Each
time a Shareholder proposes to sell or otherwise transfer any such
Securities, such Shareholder (the "ROFO SELLING SHAREHOLDER") shall first make
an offering of such Securities (the "OFFERED SECURITIES") to the Company and
the other SHAREHOLDERS in accordance with the following provisions:
(a) NOTICE. The ROFO Selling Shareholder shall deliver a
notice (an "OFFER NOTICE") to the Company stating (i) its bona fide intention
to offer such Securities, (ii) the number of such Securities to be offered,
and (iii) the price and terms upon which it proposes to offer such
Securities. The Company shall promptly forward copies of the Offer Notice to
the other SHAREHOLDERS.
(b) EXERCISE OF RIGHT OF FIRST OFFER. At any time within thirty
(30) days after the Offer Notice (the "COMPANY EXERCISE PERIOD"), the Company
may, by giving written notice to the ROFO Selling Shareholder, elect to
purchase all or part of the Offered Securities at the price and on the terms
specified in the Offer Notice.
(c) SHAREHOLDERS' RIGHT OF FIRST OFFER. The Company agrees that
in the event that the Company declines to exercise in full the Right of First
Offer set forth in Section 2.1(b), the Company will provide each Shareholder
with notice of such determination at least fifteen (15) days before the end of
the Company Exercise Period. Each Shareholder shall then have the right to
submit written notice of its irrevocable commitment to exercise its Right of
First Offer within fifteen (15) days after the Company's notice (the
"SHAREHOLDERS' ROFO EXERCISE PERIOD"), on a pro rata basis, based upon the
number of Securities held by such Shareholder relative to the aggregate
number of Securities held by all other Shareholders exercising a right of
purchase pursuant to this Section 2. Upon expiration or exercise of the Right
of First Offer, the Company will provide notice to all Shareholders as to
whether or not the Right of First Offer has been or will be exercised by the
Company and/or the Shareholders. If any Shareholders do not exercise in full
their Right of First Offer, the Securities that would otherwise be allocated
to such non-exercising Shareholders shall be allocated to each exercising
Shareholder on a pro-rata basis (based upon the number of Securities held by
such Shareholder relative to the aggregate number of Securities held by all
such Shareholders exercising a right of purchase pursuant to this Section
2.1), provided that the
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<PAGE>
Shareholders must exercise the Right of First Offer, if at all, prior to the
expiration of the Shareholders' ROFO Exercise Period.
(d) PAYMENT. Payments made by the Company and/or the
Shareholders in connection with their exercise of the Right of First Offer
shall be made (by check or wire transfer), by cancellation of all or a portion
of any outstanding indebtedness of the ROFO Selling Shareholder to the Company
(or, in the case of purchase by a Shareholder, by cancellation of all or a
portion of any outstanding indebtedness of the ROFO Selling Shareholder to
the purchasing Shareholder), or by any combination thereof within thirty (30)
days after receipt of an Offer Notice, or in the manner and at the times set
forth in the Offer Notice.
(e) SELLING SHAREHOLDER'S RIGHT TO TRANSFER. If all of the
Offered Securities are not purchased by the Company and/or the Shareholders
as provided in this Section 2.1, then the ROFO Selling Shareholder may sell or
otherwise transfer such Offered Securities at the price specified in the
Offer Notice (or at a higher price) provided that such sale or other transfer
is consummated within sixty (60) days after the end of the Company ROFO
Exercise Period and provided further that (i) any such sale or other transfer
is effected in accordance with any applicable securities laws and (ii) the
proposed transferee(s) agree(s) in writing that the provisions of this
Agreement shall continue to apply to the Securities in the hands of such
proposed transferee(s). If the Offered Securities are not transferred within
such period, or if the ROFO Selling Shareholder proposes to change the price
or other terms to make them more favorable to the proposed transferee(s), a
new Offer Notice shall be given to the Company, and the Company and
Shareholders shall again be offered the Right of First Offer before any
Securities held by the ROFO Selling Shareholder may be sold or otherwise
transferred.
(f) PERMITTED TRANSACTIONS. The provisions of this Section 2.1
shall not pertain or apply to:
(i) Any pledge of Securities made by a Shareholder
pursuant to a bona fide loan transaction which creates a mere security
interest;
(ii) Any repurchase of Securities by the Company;
(iii) Any bona fide gift;
(iv) Any transfer to a Shareholder's ancestors,
descendants or spouse or to a trust for their benefit;
(v) Any transfer to a constituent partner, member or
affiliate of a Shareholder or a person or entity controlling, controlled by
or under common control with such Shareholder.
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<PAGE>
PROVIDED, in each case, that (i) the transferring Shareholder(s) shall inform
the Company of such transfer prior to effecting it, and (ii) the transferee
(each a "PERMITTED TRANSFEREE") shall furnish the Company with a written
agreement to be bound by and comply with all provisions of this Agreement
applicable to the Shareholders. Each party hereto hereby consents and agrees
that, upon effectiveness of a transfer to a Permitted Transferee, such
Transferee shall become a party to this Agreement as a "Shareholder."
2.2 CO-SALE RIGHT. In addition to the rights and obligations
created by Section 2.1 hereof, if a proposed sale by a Shareholder (or group
of affiliated Shareholders) when considered with all other sales by such
Shareholder (or its affiliates) involves the disposition of more than
2,000,000 shares of Company Common Stock (and the Offered Shares are not
being acquired by the Company or the other Shareholders pursuant to Section
2.1 hereof), then each Shareholder who has not elected to exercise its rights
to purchase securities pursuant to Section 2.1 (each such non-purchasing
Shareholder, a "NON-PURCHASING SHAREHOLDER" and collectively, the
"NON-PURCHASING SHAREHOLDERS") shall have a Co-Sale Right, exercisable upon
written notice to the Company within fifteen (15) business days after the
expiration of the Right of First Offer, to participate in the ROFO Selling
Shareholder's sale of Securities, on such terms and conditions as the ROFO
Selling Shareholder may agree with the purchaser. The Co-Sale Right shall
apply to all Offered Securities (other than those sold to the Company or the
other Shareholders pursuant to Section 2.1), i.e., if the proposed transfer
involves a number of shares which crosses the 2,000,000 shares threshold, the
Co-Sale Right shall apply to all Offered Securities and not just those in
excess of 2,000,000 shares. To the extent any Non-Purchasing
Shareholders exercise such Co-Sale Right in accordance with the terms and
conditions set forth below, the number of Securities which the ROFO Selling
Shareholder may sell shall be correspondingly reduced. The Co-Sale Right of
each Non-Purchasing Shareholder shall be subject to the following terms and
conditions:
(a) CALCULATION OF SECURITIES. The ROFO Selling Shareholder
and each Non-Purchasing Shareholder may sell all or any part of that number
of shares of Securities equal to the product obtained by multiplying (A) the
aggregate number of Securities covered by the Offer Notice by (B) a fraction,
the numerator of which is the number of Securities at the time owned by such
ROFO Selling Shareholder or Non-Purchasing Shareholder and the denominator of
which is the total number of Securities at the time owned by the ROFO Selling
Shareholder and all Non-Purchasing Shareholders electing to participate in
such sale.
(b) DELIVERY OF CERTIFICATES. Each Non-Purchasing Shareholder
may effect its participation in the sale by delivering to the ROFO Selling
Shareholder for transfer to the prospective purchaser one or more
certificates, properly endorsed for transfer, which represent the Securities
which such Shareholder elects to sell.
(c) TRANSFER. The stock certificate or certificates which the
Non-Purchasing Shareholders deliver to the ROFO Selling Shareholder pursuant
to Section 2.2(b) shall be delivered by the ROFO Selling Shareholder to the
prospective purchaser in consummation of the
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<PAGE>
sale, and the ROFO Selling Shareholder shall promptly thereafter remit to
each participating Non-Purchasing Shareholder that portion of the sale
proceeds to which such Non-Purchasing Shareholder is entitled by reason of
its participation in such sale. To the extent that any prospective purchaser
or purchasers prohibits such assignment or otherwise refuses to purchase
Securities from a Shareholder exercising its Co-Sale Right hereunder, the
ROFO Selling Shareholder shall not sell to such prospective purchaser or
purchasers any Securities unless and until, simultaneously with such sale,
the ROFR Selling Shareholder shall purchase such Securities from such
Shareholder for the same consideration and on the same terms and conditions
as the proposed transfer to the third party purchaser.
(d) NO ADVERSE EFFECT. The exercise or non-exercise of the
rights of the Shareholders under this Section 2.2 to participate in one or
more sales of Securities made by any ROFO Selling Shareholder shall not
adversely affect Shareholder's rights to participate in subsequent sales of
Securities by any ROFR Selling Shareholder.
2.3 TRANSFER RESTRICTIONS.
(a) PROHIBITED TRANSFERS. Any attempt by a Shareholder to
transfer Securities in violation of this Section 2 shall be void and the
Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such Securities without the written
consent of the holders of sixty percent (60%) of the Securities then
outstanding.
(b) LEGENDED CERTIFICATES. Each certificate representing the
Securities now or hereafter owned by the SHAREHOLDERS or issued to any
Permitted Transferee pursuant to this Section 2 shall bear the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN SHAREHOLDERS AGREEMENT BY AND BETWEEN
THE SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF COMMON STOCK
OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
3. ELECTION OF DIRECTORS.
3.1 BOARD REPRESENTATION. At each annual meeting of the
Shareholders of the Company, or at any meeting of the Shareholders of the
Company at which members of the Board of Directors are to be elected, or
whenever members of the Board of Directors are to be elected by written
consent, the Shareholders agree to vote or act with respect to their shares so
as to elect:
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(a) one (1) member of the Company's Board of Directors
designated by Coutts & Co. (Jersey) Limited, as trustee of the Ibrahim (1995)
Family Settlement, the Ibrahim (1996) Family Settlement and the Ibrahim
(1997) Family Settlement (the "TRUST DESIGNEE"):
(b) one (1) member of the Company's Board of Directors
designated by General Atlantic Partners who shall remain undesignated so long
as the Trust Designee remains undesignated.
(c) five (5) members of the Company's Board of Directors
designated by the MSIH Shareholders who shall initially be Dr. Mohamed
Ibrahim, Steve Denning, Dr. Alan Rudge, Sir Gerald Whent and Thomas Butler
(the "MSIH Representatives");
(d) four (4) members of the Company's Board of Directors
designated by the Metapath Shareholders who shall initially be John Hansen,
Robert Goodman, George Still and Felda Hardymon (the "Metapath
Representatives");
(e) one (1) independent member of the Company's Board of
Directors, who resides in the United States and who possesses software
industry experience, designated by a committee (composed of directors Rudge,
Goodman, Denning and Ibrahim) of the Company's Board of Directors. The
independent director shall initially be John C. Carrington.
3.2 MECHANICS OF DESIGNATION. Unless otherwise agreed by the
respective group of Shareholders designated in Sections 3.1 (a), (b), (c) or
(d), the designees of each such group shall be selected by holders of a
majority of the Securities held by all members of such respective group.
3.3 APPOINTMENT OF DIRECTORS. In the event of the resignation,
death, removal or disqualification of a director selected by any of the above
groups, the group entitled to designate such directors shall promptly
nominate a new director, and, after written notice of the nomination has been
given to the other parties, each Shareholder shall vote its shares of capital
stock of the Company to elect such nominee to the Board of Directors. With
respect to Sections 3.1(c) and (d), in the event of the resignation, death,
removal or disqualification of an MSIH Representative or Metapath
Representative, respectively, the remaining MSIH Representatives or Metapath
Representatives, as applicable, shall designate the replacement
representative of their respective group, and each Shareholder shall vote all
shares of the Company's capital stock held by them for the election of such
replacement director(s).
3.4 REMOVAL. Any of the above groups may remove its designated
director(s) at any time and from time to time, with or without cause (subject
to the Bylaws of the Company as in effect from time to time and any
requirements of law), in their sole discretion, and after written notice to
each of the parties hereto of the new nominee to replace such director. Each
Shareholder shall promptly vote its shares of capital stock of the Company
(i) to remove a director sought to be
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<PAGE>
removed by the group of Shareholders responsible for the original
designation of such director and (ii) to elect the replacement nominee
designated by such group to the Board of Directors.
3.5 NO REVOCATION. The voting agreements contained herein are
coupled with an interest and may not be revoked during the term of this
Agreement.
3.6 CHANGE IN NUMBER OF DIRECTORS. The Shareholders will not vote
for any amendment or change to the Articles of Incorporation or Bylaws
providing for the election of more or less than twelve (12) directors, or any
other amendment or change to the Articles of Incorporation or Bylaws
inconsistent with the terms of this Agreement.
4. INFORMATION RIGHTS.
4.1 DELIVERY OF FINANCIAL STATEMENTS. Upon request, the Company
shall deliver to each Shareholder (other than a Shareholder reasonably deemed
by the Company to be a competitor of the Company) all written information
provided to members of the Company's Board of Directors in connection with
meetings of Company's Board of Directors.
4.2 INSPECTION. The Company shall permit each Shareholder, at
such Shareholder's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable
times as may be requested by the Shareholder.
4.3 NONDISCLOSURE AGREEMENT. Notwithstanding the foregoing, the
Company shall not be obligated pursuant to this Section 4 to provide a
Shareholder with any information or allow any Shareholder to visit and inspect
the Company's properties, to examine its books of account and records or to
discuss the Company's affairs, finances and accounts with its officers until
and unless such Shareholder has executed a standard nondisclosure agreement
protecting the confidentiality of the Company's proprietary and confidential
information.
5. COVENANT OF SHAREHOLDERS. Each Shareholder covenants and agrees
that it shall not take any action that could reasonably be construed as
having a detrimental effect on the Company's ability to utilize "pooling of
interests" accounting without the prior written consent of the Company.
6. TERMINATION.
6.1 TERMINATION EVENTS. This Agreement shall terminate upon the
earliest to occur of any one of the following events (and shall not apply to
any transfer by a Shareholder in connection with any such event):
(a) The liquidation, dissolution or indefinite cessation of
the business operations of the Company;
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<PAGE>
(b) The execution by the Company of a general
assignment for the benefit of creditors or the appointment of a receiver or
trustee to take possession of the property and assets of the Company; or
(c) the consummation of an IPO.
6.2 TERMINATION WITH RESPECT TO A PARTICULAR SHAREHOLDER. All
rights to which each Shareholder is entitled pursuant to this Agreement (but
not obligations by which such Shareholder is bound) shall terminate with
respect to such Shareholder at such time as such Shareholder together, with
such Shareholder's affiliates, no longer owns at least (i) 400,000 shares of
the Company's Common Stock (as adjusted for any stock split or the like) or
(ii) one half of the shares of the Company Common Stock held by a Shareholder
as of the date hereof.
6.3 REMOVAL OF LEGEND. At any time after the termination of this
Agreement in accordance with Section 6.1, any holder of a stock certificate
legended pursuant to Section 2.3 may surrender such certificate to the
Company for removal of such legend, and the Company will duly reissue a new
certificate without the legend.
7. MISCELLANEOUS.
7.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement and the rights and obligations of the parties
hereunder shall inure to the benefit of, and be binding upon, the parties'
respective successors, assigns and legal representatives.
7.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and
Shareholders (or their respective successors and assigns) holding at least
sixty percent (60%) of the Securities. Any amendment or waiver effected in
accordance with this Section 7.2 shall be binding upon the Company and the
Shareholders, and each of their respective successors and assigns.
7.3 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient on the date of delivery,
when delivered personally or by overnight courier or sent by telegram or fax,
or forty-eight (48) hours after being deposited in the U.S mail or UK mail,
with postage prepaid, and addressed to the party to be notified at such
party's address or fax number as set forth below on the signature page
hereto, or as subsequently modified by written notice.
7.4 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement,
(b) the balance of the
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Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its
terms.
7.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
7.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement
7.8 PARTNERS, MEMBERS AND AFFILIATES. For purposes of Sections 1
and 2 of this Agreement, a Shareholder includes any general partners and
affiliates of a Shareholder. A Shareholder who chooses to exercise a Right of
First Offer, Right of First Refusal or Co-Sale Right may designate under such
right itself or its partners or affiliates in such proportions as it deems
appropriate.
[Signature pages follow]
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The parties have executed this Agreement as of the date written above.
COMPANY:
METAPATH SOFTWARE
INTERNATIONAL, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Address:
--------------------
--------------------
Fax Number:
-----------------
SHAREHOLDER:
---------------------------
Print Shareholder Name
By:
------------------------
Name:
----------------------
Title:
---------------------
Address:
-------------------
-------------------
Fax Number:
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[SIGNATURE PAGE FOR SHAREHOLDERS AGREEMENT]
<PAGE>
EXHBIT A
Metapath Shareholders signing Shareholders Agreement
Networks Northwest, Inc.
Norwest Venture Capital
Lehman Brothers Venture Capital Partners I, L.P.
RRE Investors, L.P.
RRE Investor Funds, L.P.
Nisho Iwai American Corporation
Nisho Awai Corporation
Crossover Fund II, L.P.
Crossover Fund IIA, L.P.
Omega Ventures II, L.P.
TCV II, L.P.
TCV II, V.O.F.
TCV II (Q), L.P.
TCV II Strategic Partners, L.P.
TCV II C.V.
U.S. Venture Partners IV, L.P.
Second Ventures II, L.P.
USVP Entrepreneur Partners II, L.P.
2180 Associates Fund
Belisarius Corp. (Robert D. Lindsay)
Bessemer Venture Partners III, L.P.
BVP III Special Situations L.P.
G. Felda Hardymon
Michael Tennican
<PAGE>
EXHIBIT B
MSIH Shareholders signing Shareholders Agreement
Bessec Ventures IV L.P.
Bessemer Venture Investors L.P.
Bessemer Venture Partners IV L.P.
Peter Carpenter
GAP Coinvestment Partners, L.P.
General Atlantic Partners 30, L.P.
General Atlantic Partners 46, L.P.
Ibrahim (1995) Family Settlement
Ibrahim (1996) Family Settlement
Ibrahim (1997) Settlement
Hadeel Ibrahim
Hosham Ibrahim
Mohamed Ibrahim
Mario Palencia
Mario Palencia 1997 Settlement
M. Palencia 1st Family Settlement
M. Palencia 2nd Family Settlement
Moez Daya
The Nuru Settlement
The Rajab Settlement
Andrew Warden
Paul Young
<PAGE>
METAPATH SOFTWARE INTERNATIONAL,INC.
AMENDMENT NO. 1 TO
SHAREHOLDERS AGREEMENT
<PAGE>
METAPATH SOFTWARE INTERNATIONAL, INC.
AMENDMENT NO. 1 TO
SHAREHOLDERS AGREEMENT
This Amendment No.1 to Shareholders Agreement (the "AMENDMENT") is made
and entered into as of December 4, 1998 by and among Metapath Software
International, Inc., a California corporation (the "COMPANY"), and the
shareholders of the Company listed on Exhibit A hereto(the "SHAREHOLDERS").
RECITALS
A. The Company and the Shareholders are parties to that certain
Shareholders Agreement dated November 30, 1998 (the"SHAREHOLDERS
AGREEMENT"); and
B. The Company and the Shareholders desire to amend the Shareholders
Agreement as provided herein.
AGREEMENT
The parties agree as follows:
1. AMENDMENT. Section 2.1(f) of the Shareholders Agreement is hereby
amended and restated to read in its entirety as follows:
(f) PERMITTED TRANSACTIONS. The provisions of this Section 2.1
shall not pertain or apply to:
(i) Any pledge of Securities made by a Shareholder pursuant
to a bona fide loan transaction which creates a mere security interest:
(ii) Any repurchase of Securities by the Company;
(iii) Any bona fide gift;
(iv) Any transfer to a Shareholder's ancestors, descendants
or spouse or to a trust for their benefit;
(v) Any transfer to a constituent partner, shareholder,
member or affiliate of a Shareholder or a person or entity
controlling, controlled by or under common control with such
Shareholder.
<PAGE>
(vi) Any transfer of Securities pursuant to that certain
Option Agreement by and among (1) Dr. Mohamed Ibrahim and others, and (2)
General Atlantic Partners 30, L.P. and CAP Coinvestment Partners, L.P.
PROVIDED, in each case, that (i) the transferring Shareholder(s) shall inform
the Company of such transfer prior to effecting it and (ii) the transferee
(each a "PERMITTED TRANSFEREE") shall furnish the Company with a written
agreement to be bound by and comply with all provisions of this Agreement
applicable to the Shareholders. Each party hereto hereby consents and aggrees
that, upon effectiveness of a transfer to a Permitted Transferee, such
Transferee shall become a party to this Agreement as a "Shareholder".
2. MISCELLANEOUS.
2.1 NO OTHER AMENDMENTS. Except as expressly provided in this
Amendment, all of the terms of the Shareholders Agreement remain in full force
and effect.
2.2 EFFECTIVENESS OF AMENDMENT. This Amendment shall be effective
upon exection hereof by the Company and Shareholders holding at least sixty
percent (60%) of the Securities.
2.3 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall consitute one and the same instrument.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
[Signature pages follow]
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<PAGE>
The parties have executed this Amendment as of the date first written above.
COMPANY:
METAPATH SOFTWARE
INTERNATIONAL,INC.
By:
----------------------
Name:
---------------------
Title:
--------------------
Address:
-----------------
-----------------
Fax Number:
---------------
SHAREHOLDER:
-----------------------
Print Shareholder Name
By:
------------------------
Name:
----------------------
Title:
---------------------
Address:
--------------------
--------------------
Fax Number:
----------------
(SIGNATURE PAGE FOR AMENDMENT NO.1 TO SHAREHOLDERS AGREEMENT)
<PAGE>
Exhibit A
---------
Schedule of Shareholders
Networks Northwest Inc. M.Palencia 1st Family Settlement
Norwest Venture Capital M.Palencia 2nd Family Settlement
Lehman Brothers Venture Moez Daya
Capital Partners I,L.P. The Nuru Settlement
RRE Investors L.P. The Rajab Settlement
RRE Investor Funds, L.P. Andrew Warden
Nisho Iwai Amercian Corporation Paul Young
Nisho Awai Corporation
Crossover Fund II,L.P.
Crossover Fund IIA,L.P.
Omega Ventures II,L.P.
Omega Ventures II Cayman ,L.P.
TCV II,L.P.
TCV II,V.O.F
TCV II(Q),L.P.
TCV II Strategic Partners,L.P.
TCV II C.V.
U.S.Venture Partners IV,L.P.
Second Ventures II,L.P.
USVP Entrepreneur Partners II,L.P.
2180 Associates Fund
Belisarius Corp.(Robert D.Lindsay)
Bessemer Venture Partners III,L.P.
BVP III Special Situtations L.P.
G. Felda Hardymon
Michael Tennican
Bessec Ventures IV L.P.
Bessemer Venture Investors L.P.
Bessemer Venture Partners IV L.P.
Peter Carpenter
GAP Coinvestment Partners,L.P.
General Atlantic Partners 30,L.P.
General Atlantic Partners 46,L.P.
Ibrahim (1995) Family Settlement
Ibrahim (1996) Family Settlement
Ibrahim (1997) Settlement
Hadeel Ibrahim
Hosham Ibrahim
Mohamed Ibrahim
Mario Palencia
Mario Palencia 1997 Settlement
<PAGE>
METAPATH SOFTWARE INTERNATIONAL,INC.
AMENDMENT NO. 2 TO
SHAREHOLDERS AGREEMENT
<PAGE>
METAPATH SOFTWARE INTERNATIONAL, INC.
AMENDMENT NO. 2 TO
SHAREHOLDERS AGREEMENT
This Amendment No 2. to Shareholders Agreement (the "AMENDMENT") is made
and entered into as of July ___, 1999 by and among Metapath Software
International, Inc., a California corporation (the "COMPANY"), and the
shareholders of the Company listed on Exhibit A hereto (the "SHAREHOLDERS").
RECITALS
--------
A. The Company and the Shareholders are parties to that certain
Shareholders Agreement dated November 30, 1998 and as amended by Amendment No.1
thereto dated December 4, 1998 (the agreement, as amended, is referred to as the
"SHAREHOLDERS AGREEMENT"); and
B. Networks Northwest, Inc. ("NNI"), one of the Shareholders, desires to
transfer the shares held of record by it (the "NNI Shares") to its constituent
owners (the "NNI Shareholders"); and
C. In connection with the transfer from NNI to the NNI Shareholders, the
parties hereto desire to release NNI and NNI Shareholders of the obligations set
forth in the Shareholders Agreement, and such shareholders are willing to
relinquish their rights therein;
AGREEMENT
---------
The parties agree as follows:
1. RELEASE OF NNI. Effective upon completion of the transfer from NNI to
the NNI Shareholders, NNI shall be removed as a party to the Shareholders
Agreement. The NNI Shareholders shall not become parties to the Shareholders
Agreement. Notwithstanding the foregoing, to the extent that any NNI
Shareholder was a party to the Shareholders Agreement independent of their
receipt of shares from NNI, then each such party shall remain a party to the
Shareholders Agreement, and the NNI Shares recieved by any such shareholder
shall be deemed to be "Securities" held by a Shareholder under the Shareholders
Agreement.
2. CONSENT TO TRANSFER AND RELEASE. Each Shareholder hereby consents to
the transfer by NNI to the NNI Shareholders, and hereby waives such
Shareholder's right of first offer with respect to such transfer. Each
Shareholder further agrees to release each NNI Shareholder and the NNI Shares
from any further obligations under the Shareholders Agreement.
3. NNI ACKNOWLEDGEMENT. NNI hereby acknowledges and agrees that upon
transfer of the NNI Shares to the NNI Shareholders, the rights and obligations
of NNI under the Shareholders
<PAGE>
Agreement will be terminated, and further acknowledges that the NNI Shareholders
will have none of the rights (nor any of the obligations) of a Shareholder under
the Shareholders Agreement.
4. MISCELLANEOUS
4.1 WAIVER OF NOTICE. Each Shareholder hereby waives any notice that
may be required under the Shareholders Agreement with respect to the
solicitation of consent to this Amendment and the transactions contemplated
hereby, including without limitation notice of NNI's intention to transfer
the NNI Shares.
4.2 NO OTHER AMENDMENTS. Except as expressly provided in Amendment
No. 1 and in this Amendment, all of the terms of the Shareholders Agreement
remain in full force and effect.
4.3 EFFECTIVENESS OF AMENDMENT. This Amendment shall be effective upon
execution hereof by the Company, NNI and Shareholders holding at least sixty
percent (60%) of the Securities.
4.4 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
4.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
--------------------------------------------------
METAPATH SOFTWARE INTERNATIONAL, INC.
REGISTRATION RIGHTS AGREEMENT
December 4, 1998
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions.................................................................... 1
2. Restrictions on Transferability............................................... 3
3. Restrictive Legend............................................................ 3
4. Notice of Proposed Transfers.................................................. 3
5. Registration.................................................................. 4
5.1 Requested Registration.................................................. 4
5.2 Company Registration.................................................... 6
5.3 Registration on Form S-3................................................ 7
5.4 Expenses of Registration................................................ 8
5.5 Registration Procedures................................................. 8
5.6 Lockup Agreement........................................................ 8
5.7 Indemnification......................................................... 9
5.8 Rule 144 Reporting...................................................... 11
5.9 Transfer of Registration Rights......................................... 12
5.10 Termination of Rights................................................... 12
5.11 Information by Holder................................................... 12
5.12 Subsequent Registration Rights.......................................... 12
6. Amendment..................................................................... 13
7. Counterparts.................................................................. 13
8. Governing Law................................................................. 13
9. Entire Agreement.............................................................. 13
10. Notices, etc.................................................................. 13
11. Prior Agreements; Waiver...................................................... 14
</TABLE>
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of the
4th day of December, 1998 by and among Metapath Software International, Inc.,
a California corporation (the "COMPANY"), and certain of its shareholders,
all of whom are former shareholders of Mobile Systems International Holdings
Limited, a corporation organized under the laws of England and Wales ("MSIH")
or Metapath Software Corporation, a Delaware corporation ("METAPATH"), and
are listed on EXHIBIT A attached hereto (the "SHAREHOLDERS").
RECITALS:
WHEREAS, certain of the Shareholders are parties to that certain
Shareholders' Agreement dated March 26, 1998 between MSIH and the
shareholders of MSIH that are signatories thereto (the "MSIH AGREEMENT"), and
certain of the Shareholders are parties to that certain Amended and Restated
Registration Rights Agreement dated July 30, 1998 between Metapath and the
shareholders of Metapath that are signatories thereto (the "METAPATH
AGREEMENT" and, collectively, with the MSIH Agreement, the "PRIOR
AGREEMENTS") providing such Shareholders with, among other things,
registration rights;
WHEREAS, MSIH, Metapath, the Company and Metapath Acquisition
Corporation, a Delaware Corporation and a wholly owned subsidiary of the
Company ("SUB") have entered into that certain Agreement and Plan of
Reorganization dated September 21, 1998 (the "REORGANIZATION AGREEMENT"),
which provides for the merger of Sub with and into Metapath (the "MERGER")
and provides for a Scheme of Arrangement (the "SCHEME") in which the Company
agreed to issue shares of Common Stock to MSIH's shareholders in lieu of the
cancellation of ordinary shares of MSIH held by MSIH's shareholders;
WHEREAS, as a condition to the closing of the Merger and the
consummation of the Scheme, the Company has agreed to grant the Shareholders
registration rights with respect to the securities to be issued to the
Shareholders pursuant to the Merger and the Scheme; and
WHEREAS, the parties hereto also intend that this Agreement supersede
and replace the provisions of the Prior Agreements and all obligations and
rights with respect thereto.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
<PAGE>
"COMMON SHARES" shall mean those shares of the Company's Common Stock
issued to the Shareholders pursuant to the Merger or the Scheme.
"COMMON STOCK" shall mean the common stock, par value $0.001 per share,
of the Company.
"COMMON STOCK EQUIVALENTS" shall mean rights, warrants, convertible
securities or indebtedness, or other rights, exercisable for or convertible
or exchangeable into, directly or indirectly, Common Stock and securities
convertible or exchangeable into Common Stock, whether at the time of
issuance or upon the passage of time or the occurrence of some future event,
held by the Shareholders as of the date of this Agreement.
"CONVERSION STOCK" means shares of the Company's Common Stock issued or
issuable with respect to Common Stock Equivalents.
"HOLDERS" shall mean the holders of Registrable Securities or any
securities of the Company convertible into Registrable Securities; provided
that any transferee of a Holder shall have complied with the provisions of
Section 5.9.
"INITIATING HOLDERS" shall mean any Shareholders or transferees of
Shareholders under Section 5.9 hereof who in the aggregate are Holders of not
less than one-sixth (1/6) of the then outstanding Registrable Securities
or, if prior to the Company's first registered public offering of Common
Stock, from Holders of not less than one-third (1/3) of the then outstanding
Registrable Securities.
"REGISTRABLE SECURITIES" means (i) the Common Shares, (ii) the
Conversion Stock; and (iii) any Common Stock of the Company issued or
issuable in respect of any stock described in clauses (i) or (ii) above;
excluding in all cases, however, any Registrable Securities sold by a Holder
including a sale pursuant to a registration statement under this Agreement, a
transaction pursuant to Rule 144 promulgated under the Securities Act or any
other transaction in which registration rights are not transferred pursuant to
Section 5.9 hereof.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Section 5 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and
expenses, the fees and disbursements of one counsel to the selling Holders
and the expense of any special audits incident to or required by any such
registration, but excluding Selling Expenses (as defined below).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
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<PAGE>
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered
by the Holders.
2. RESTRICTIONS ON TRANSFERABILITY. The Registrable Securities shall
not be transferable except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. Each holder of Registrable Securities will cause any proposed
transferee of such securities to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing Registrable
Securities shall (unless otherwise permitted by the provisions of Section 4
below) be stamped or otherwise imprinted with a legend in the following form
(in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
Each Holder consents to the Company making a notation on its records and
giving instructions to any transfer agent of its capital stock in order to
implement the restrictions on transfer established in this Agreement.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Registrable Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 4. Prior to any proposed
transfer of any Registrable Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holders's intention to effect such transfer. Each such notice shall describe
the manner and circumstances of the proposed transfer in sufficient detail
and shall, if the Company so requests, be accompanied by either (i) a written
opinion of legal counsel (who shall be reasonably satisfactory to the
Company) addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel to the effect that the proposed transfer
of the Registrable Securities may be effected without registration under the
Securities Act or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in
a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Registrable Securities shall be
entitled to transfer such Registrable Securities in accordance with the terms
of the notice delivered by the holder to the Company; provided, however, that
the Company shall not request an opinion of counsel or "no action" letter
with respect to (i) a transfer not involving a change in beneficial
ownership, (ii) a
-3-
<PAGE>
transaction involving the distribution without consideration of Registrable
Securities by the holder to any of its constituent partners or members, or
(iii) a transaction involving the transfer without consideration of
Registrable Securities by an individual holder during such holder's lifetime
by way of gift or on death by will or intestacy. Each certificate evidencing
the Registrable Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of
counsel for the Company such legend is not required in order to establish
compliance with any provisions of the Securities Act.
5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration with respect to shares of Registrable Securities, the Company
will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, effect such registration
(including, without limitation, appropriate qualification under applicable
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request by
delivering a written notice to such effect to the Company within 15 days
after the date of such written notice from the Company.
Notwithstanding the foregoing, the Company shall not be obligated to
take any action to effect or complete any such registration pursuant to this
Section 5.1;
(A) Prior to the earlier of (i) six months after
the effective date of the Company's first registered public offering of its
Common Stock or (ii) July 1, 2000;
(B) Unless the aggregate offering price of all
Registrable Securities sought to be registered by all Holders, net of
underwriting discounts and commissions, (i) would equal or exceed
$60,000,000, if prior to the Company's first registered public offering of
Common Stock or (ii) would equal or exceed $30,000,000 in all other instances;
(C) During the period starting with the date
sixth (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date
of, any registration statement pertaining to securities of the Company (other
than a registration of securities in a Rule 145 transaction or with respect
to an
-4-
<PAGE>
employee benefit plan), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective;
(D) If the Company has effected a registration
pursuant to this Section 5.1, and such registration has been declared or
ordered effective within the prior twelve months; or
(E) If the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future. In such case, the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 5.1(a) shall be deferred for a period not to exceed 120 days from the
date of receipt of the written request from the Initiating Holders, provided
that the Company may not exercise this deferral right more than once per
twelve month period or three times during the term of this Agreement.
Subject to the foregoing clauses (A) through (E), the Company shall file
a registration statement covering the Registrable Securities so requested to
be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) UNDERWRITING. In the event of a registration pursuant
to Section 5.1, the Company shall advise the Holders as part of the notice
given pursuant to Section 5.1(a)(i) that the right of any Holder to
registration pursuant to Section 5.1 shall be conditioned upon such Holder's
participation in any underwriting arrangements required by this Section 5.1,
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent requested shall be limited to the extent provided herein.
The Company shall, together with all Holders proposing to distribute
their securities through such underwriting, enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Initiating Holders, but subject
to the Company's reasonable approval. Notwithstanding any other provision of
this Section 5.1, if the managing underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of
shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration (i) in the case of the
Company's first public offering of its Common Stock registered under the
Securities Act, to zero, and (ii) in the case of any other public offering,
to an amount no less than twenty percent (20%) of the total amount of
Common Stock included in such offering. The Company shall so advise all
Holders requesting to be included in the registration and underwriting of
such managing underwriter's determination, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders requesting to be included
in the registration and underwriting in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by them at the time
of filing the registration statement. No Registrable Securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above
-5-
<PAGE>
provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares. If any Holder of
Registrable Securities disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or the account of a Holder or other holders, other
than (i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is Common
Stock issuable upon conversion of convertible debt securities which are also
being registered, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualifications including compliance with Blue Sky laws), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 15 days after the date of such
written notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 5.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities
to be included in such registration (i) in the case of the Company's first
public offering of its Common Stock registered under the Securities Act, to
zero, and (ii) in the case of any other public offering, to an amount no less
than twenty percent (20%) of all shares to be included in such offering. The
Company shall so advise all Holders requesting to be included in the
registration and underwriting of such managing underwriter's determination,
and the number of shares of Registrable Securities that may be included in
the registration and underwriting shall be allocated among all the Holders
requesting to be included in the registration and underwriting in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by them at the time of filing the registration statement. To facilitate
the allocation of shares in accordance with the above provisions, the Company
or the underwriters may round the number of shares allocated to any Holder to
the
-6-
<PAGE>
nearest 100 shares. If any Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice
to the Company.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under
this Section 5.2 prior to the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Holders a written request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public
offering of Registrable Securities, the aggregate price to the public of
which, net of underwriting discounts and commissions, would exceed
$1,500,000, and the Company is a registrant entitled to use Form S-3 to
register the Registrable Securities for such an offering, the Company shall
as soon as practicable cause such Registrable Securities to be registered for
the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as such Holder or Holders may reasonably
request; provided, however, that the Company shall not be required to effect
more than one registration pursuant to this Section 5.3 in any six (6) month
period. If such offer is to be an underwritten offer, the underwriters must
be reasonably acceptable to both such Holders and the Company. The Company
shall inform the other Holders of the proposed registration and offer them
upon at least 15 days written notice the opportunity to participate. In the
event the registration is proposed to be part of a firm commitment
underwritten public offering, the substantive provisions of Section 5.1(b)
shall be applicable to each such registration initiated under this Section
5.3, other than the provisions of Section 5.1(b) relating to the limitation
by the underwriters of Registrable Securities to be included in such
registration.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
(i) If the Company, within ten (10) days of the receipt
of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction,
an offering solely to employees or any other registration which is not
appropriate for the registration of Registrable Securities);
(ii) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the
date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or
-7-
<PAGE>
(iii) If the Company shall furnish to the Initiating
Holders a certificate signed by the President of the Company stating that,
in the good faith judgment of the Board of Directors, it would be seriously
detrimental to the Company or its stockholders for registration statements to
be filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not
to exceed 120 days from the receipt of the request to file such registration
by such Initiating Holder or Holders, provided that the Company may not
exercise this deferral right more than once per twelve month period.
5.4 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration pursuant to Sections 5.1, Section
5.2 and 5.3 shall be borne by the Company. Notwithstanding the foregoing, in
the event that Initiating Holders cause the Company to begin a registration
pursuant to Section 5.1 or Section 5.3, and the request for such registration
is subsequently withdrawn by the Initiating Holders or such registration is
not completed due to failure to meet the net proceeds requirement set forth
in such section or is otherwise not successfully completed due to no fault
of the Company, all Holders shall be deemed to have forfeited their right to
a registration under Section 5.1, or a registration at the expense of the
Company under Section 5.3, as applicable, unless the Initiating Holders pay
for, or reimburse the Company for, the Registration Expenses incurred in
connection with such withdrawn or incomplete registration. Unless otherwise
stated herein, all Selling Expenses relating to securities registered on
behalf of the Holders and all other registration expenses shall be borne by
the Holders of such securities pro rata on the basis of the number of shares
so registered or proposed to be so registered.
5.5 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep
each Holder advised in writing as to the initiation of such registration and
as to the completion thereof. The Company will;
(a) Prepare and file with the Commission a registration
statement and such amendments and supplements as may be necessary and use its
best efforts to cause such registration statement to become and remain
effective for at least 90 days or until the distribution described in the
registration statement has been completed, whichever first occurs.
(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters
may reasonably request in order to facilitate the public offering of such
securities.
(c) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
5.6 LOCKUP AGREEMENT. In consideration for the Company
agreeing to its obligations under this Agreement, each Holder hereby agrees
in connection with the first firm commitment underwritten registration of the
Company's securities not to sell, make any short sale
-8-
<PAGE>
of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or underwriters managing the offering,
as the case may be, for a period of up to 180 days from the effective date of
such registration as the underwriters may specify; provided, however, that such
Holder shall be relieved of its obligations under this Section 5.6 unless all
executive officers and directors of the Company enter into similar agreements.
Each Holder hereby agrees that, upon the request of the Company or the
underwriters, it will confirm in writing the provisions of this Section 5.6.
5.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including, but not limited to, any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any state securities law or of any
rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law, applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission in a registration statement or prospectus, made in reliance upon and
in conformity with written information furnished to the Company by such
Holder or underwriter specifically for use therein; provided, however, that
the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus on file with
the Commission at the time the registration statement becomes effective or
the amended prospectus filed with the Commission pursuant to Rule 424(b) (the
"FINAL PROSPECTUS"), such indemnity agreement shall not inure to the benefit
of any underwriter or any Holder, if there is no underwriter, if the untrue
statement (or alleged untrue statement) or omission (or alleged omission) was
corrected in the Final Prospectus and a copy of the Final
-9-
<PAGE>
Prospectus was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities
Act.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, partners legal counsel, independent accountants,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use therein; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the proceeds to each such Holder of Registrable Securities sold
as contemplated herein and provided further that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made
in a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the Final Prospectus, such indemnity
agreement shall not inure to the benefit of the Company, any underwriter or any
Holder, if there is no underwriter, if the untrue statement) or omission (or
alleged omission) was corrected in the Final Prospectus and a copy of the Final
Prospectus was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities
Act.
(c) Each party entitled to indemnification under this Section
5.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgement or enter into any
settlement which does not include as an unconditional term thereof the giving by
-10-
<PAGE>
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 5.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, will contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement will control.
(f) The obligations of the Company and the Holders under this
Section 5.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement and otherwise.
5.8 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission that may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);
(c) Furnish to holders of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the
-11-
<PAGE>
Company for an offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934 (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
5.9 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Holders under Sections 5.1, 5.2 and 5.3 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the Holder provided that: (i) such
transfer is otherwise effected in accordance with applicable securities laws and
the terms of this Agreement, (ii) such assignee or transferee acquires at least
an amount equal to 400,000 Common Shares (or all such shares originally
purchased from the Company by Holder, if less than 400,000) that have not been
sold to the public (other than an acquisition pursuant to an open market
purchase), (iii) written notice is promptly given to the Company, (iv) such
transferee is not a person reasonably deemed to be a competitor of the Company
by the Company's Board of Directors and (v) such transferee agrees to be bound
by the provisions of this Agreement. Notwithstanding the foregoing, the rights
to cause the Company to register securities may be assigned without compliance
with item (ii) above to (x) any constituent partner, member, or shareholder of a
Holder which is a partnership, limited liability company or corporation; (y) a
family member of a Holder or trust for the benefit of a Holder, the spouse of a
Holder or issue of a Holder, or (z) any corporation, partnership, limited
liability company or other entity of which at least 75% in interest is owned or
controlled, directly or indirectly, by one or more of the persons described in
(x) or (y). For purposes of this Section 5.9, Holders shall be entitled to
aggregate the Registrable Securities held by Holders who are their Affiliates
(as defined under the Securities Act) for purposes of meeting such minimum share
amounts.
5.10 TERMINATION OF RIGHTS. The rights granted pursuant to Sections
5.1, 5.2 and 5.3 of this Agreement shall terminate as to any Holder upon the
earlier of (i) the date three years after the effective date of the Company's
initial public offering of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act and (ii) such time as a public market for the Company's Common
Stock exists and the Holder may sell all Registrable Securities held by the
Holder within a three-month period under Rule 144 under the Securities Act.
5.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the Company
may request in writing and as shall be required in connection with any
registration referred to in this Agreement.
5.12 SUBSEQUENT REGISTRATION RIGHTS. Other than capital stock, or
options or warrants to purchase capital stock of the Company, issued to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions,
-12-
<PAGE>
approved by the Board of Directors, from and after the date of this
Agreement, the Company shall not, without prior written consent of the
Holders of at least a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company which would grant such holder or prospective
holder any or all of the registration rights contemplated herein.
6. AMENDMENT. Other than any supplement or amendment to this Agreement
to add additional parties pursuant to Section 5.12, which shall not require the
approval of any Holders of Registrable Securities, this Agreement and any term
hereof may be amended, waived, discharged or terminated by a written instrument
signed (in one or more counterparts) by the Company and by Holders of a majority
in interest of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section 6 shall be binding upon each
Holder whether or not such Holder consented in writing to the amendment or
waiver.
7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument. Any party added to this Agreement
pursuant to Section 5.12 hereof shall execute a counterpart signature page to
this Agreement, and upon the execution of such counterpart signature page,
EXHIBIT A shall be supplemented to include the information applicable to such
signatory.
8. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without regard to its principles of conflicts of laws.
9. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding the subject matter
hereof. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
10. NOTICES ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Holder, at such Holder's address as set forth in
EXHIBIT A, or at such other address as such Holder shall have furnished
to the Company.
(b) if to the Company, to:
Metapath Software International, Inc.
12th Floor
Harbour Exchange Square
London, England, E14 9GE
Attn: President
Phone: 44-171-971-8800
Fax: 44-171-971-8199
-13-
<PAGE>
or at such other address as the Company shall have furnished to the Holders,
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Kenneth M. Siegel Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811
Each such notice or other communication shall for all purposes of
this Agreement be treated as effective or having been given when delivered if
delivered personally or by facsimile transmission, or, if sent by mail, at
the earlier of its receipt or 72 hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
11. PRIOR AGREEMENTS WAIVER. This Agreement supersedes and replaces the
Prior Agreements in their entirety, and such Prior Agreements shall be of no
further force or effect upon execution of this Agreement by the Company and
by the requisite number of shareholder signatories required pursuant to each
such Prior Agreement to terminate each such Prior Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
The foregoing REGISTRATION RIGHTS AGREEMENT is hereby executed as of the
date first above written.
"COMPANY" METAPATH SOFTWARE INTERNATIONAL, INC
By:
----------------------------------
Name:
Title:
"SHAREHOLDERS"
[COUNTERPART SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
SHAREHOLDERS:
<TABLE>
<S> <C>
Bessec Ventures IV L.P. Norwest Venture Capital
Bessemer Venture Investors L.P. Lehman Brothers Venture Capital Partners I, L.P.
Bessemer Venture Partners IV L.P. RRE Investors, L.P.
Peter Carpenter RRE Investors Funds, L.P.
GAP Coinvestment Partners, L.P. Nisho Iwai American Corporation
General Atlantic Partners 30, L.P. Nisho Awai Corporation
General Atlantic Partners 46, L.P. Crossover Fund II, L.P.
Ibrahim (1995) Family Settlement Crossover Fund IIA, L.P.
Ibrahim (1996) Family Settlement Omega Ventures II, L.P.
Ibrahim (1997) Settlement Omega Ventures II Cayman, L.P.
Hadeel Ibrahim TCV II, L.P.
Hosham Ibrahim TCV II, V.O.F.
Mohamed Ibrahim TCV II (Q), L.P.
Mario Palencia TCV II Strategic Partners, L.P.
Mario Palencia 1997 Settlement TCV II C.V.
M. Palencia 1st Family Settlement U.S. Venture Partners IV, L.P.
M. Palencia 2nd Family Settlement Second Ventures II, L.P.
Moez Daya USVP Entrepreneur Partners II, L.P.
The Nuru Settlement 2180 Associates Fund
The Rajab Settlement Belisarius Corp. (Robert D. Lindsay)
Andrew Warden Bessemer Venture Partners III, L.P.
Paul Young BVP III Special Situations L.P.
Networks Northwest, Inc. G. Felda Hardymon
Michael Tennican
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF METAPATH SOFTWARE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY PLACE OF INCORPORATION
------------------ ----------------------
<S> <C>
Mobile Systems International Holdings Limited United Kingdom
Metapath Software International (US), Inc. Delaware
Metapath Software International Limited United Kingdom
Metapath Software International (France) SA France
Metapath Software International (Sweden) AB Sweden
Metapath Software International (India) Private
Limited India
Metapath Software International (Hong Kong) Limited Hong Kong
Metapath Software International (Australia) Pty Ltd Australia
Metapath Software International (Singapore) Pte Ltd Singapore
Metapath Software International Brasil Ltda Brazil
Metapath Software International Malaysia Sdn Bhd Malaysia
Metapath Software International Nominees Limited United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
As independent chartered accountants, we hereby consent to the use of our
report (and to all references to our Firm), with respect to the financial
statements of Metapath Software International, Inc. and its subsidiaries,
included in or made part of this registration statement.
/S/ ARTHUR ANDERSEN
London, England
March 3, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm), with respect to the financial
statements of Metapath Software Corporation and its subsidiary included in or
made part of this registration statement.
[/S/ ARTHUR ANDERSEN LLP]
Seattle, Washington
March 2, 2000
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Metapath Software
International, Inc. (the "COMPANY"), hereby severally constitute and appoint
Thomas Butler and Derek L. Meades, and each of them individually, with full
powers of substitution and resubstitution, our true and lawful attorneys, with
full powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN W. RUDGE
------------------------------------------- Chairman of the Board and March 3, 2000
Alan W. Rudge Director
Chief Executive Officer and
/s/ THOMAS BUTLER Director
------------------------------------------- (Principal Executive March 3, 2000
Thomas Butler Officer)
Chief Financial Officer and
/s/ DEREK L. MEADES Secretary
------------------------------------------- (Principal Financial and March 3, 2000
Derek L. Meades Accounting Officer)
/s/ STEVEN A. DENNING
------------------------------------------- March 3, 2000
Steven A. Denning Director
/s/ G. FELDA HARDYMON
------------------------------------------- March 3, 2000
G. Felda Hardymon Director
/s/ MOHAMED IBRAHIM
------------------------------------------- March 3, 2000
Mohamed Ibrahim Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE J. STILL, JR.
------------------------------------------- March 3, 2000
George J. Still, Jr. Director
/s/ LOEK VAN DEN BOOG
------------------------------------------- March 3, 2000
Loek van den Boog Director
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<CASH> 12,176 18,760 5,105
<SECURITIES> 0 0 0
<RECEIVABLES> 24,429 31,179 32,219
<ALLOWANCES> 2,202 2,377 1,782
<INVENTORY> 952 854 716
<CURRENT-ASSETS> 44,339 53,039 41,172
<PP&E> 18,494 25,905 32,749
<DEPRECIATION> 9,668 13,692 20,014
<TOTAL-ASSETS> 53,841 114,201 94,711
<CURRENT-LIABILITIES> 38,501 40,003 41,992
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 19 35 35
<OTHER-SE> 13,813 71,934 51,689
<TOTAL-LIABILITY-AND-EQUITY> 53,841 114,201 94,711
<SALES> 0 0 0
<TOTAL-REVENUES> 70,697 94,269 92,528
<CGS> 0 0 0
<TOTAL-COSTS> 31,804 41,245 41,859
<OTHER-EXPENSES> 0 458 (2,714)
<LOSS-PROVISION> 1,249 811 (298)
<INTEREST-EXPENSE> 290 (460) (172)
<INCOME-PRETAX> (3,230) (8,496) (17,738)
<INCOME-TAX> 1,413 1,797 2,150
<INCOME-CONTINUING> (4,643) (10,293) (19,888)
<DISCONTINUED> (5,941) (990) 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (10,358) (11,128) (19,909)
<EPS-BASIC> (0.54) (0.49) (0.57)
<EPS-DILUTED> (0.54) (0.49) (0.57)
</TABLE>
