<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METRO ONE TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OREGON 7389 93-0995165
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
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8405 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
(503) 643-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TIMOTHY A. TIMMINS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8405 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
(503) 643-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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BYRON W. MILSTEAD, ESQ. TODD A. BAUMAN, ESQ.
ATER WYNNE HEWITT DODSON & SKERRITT, LLP STOEL RIVES LLP
222 S.W. COLUMBIA, SUITE 1800 900 S.W. FIFTH AVENUE, SUITE 2300
PORTLAND, OREGON 97201-6618 PORTLAND, OREGON 97204
(503) 226-1191 (503) 294-9812
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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: / /
------------------------
CALCULATION OF REGISTRATION FEE
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======================================================================================================
PROPOSED
AMOUNT MAXIMUM PROPOSED
TITLE OF EACH CLASS OF TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value........ 2,300,000 Shares $10.00 $23,000,000 $7,932
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(1) Includes 300,000 shares subject to the Underwriters' over-allotment option
(2) Estimated solely for the purpose of computing the registration fee
------------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE> 2
METRO ONE TELECOMMUNICATIONS, INC.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
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REGISTRATION STATEMENT CAPTION OR LOCATION
ITEM NUMBER AND HEADING IN PROSPECTUS
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Pages of
the Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Underwriting
6. Dilution................................ Not Applicable
7. Selling Security Holders................ Principal and Selling Shareholders
8. Plan of Distribution.................... Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and
Counsel................................. Not Applicable
11. Information with Respect to the
Registrant.............................. Prospectus Summary; The Company; Risk Factors;
Selected Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Principal and Selling
Shareholders; Description of Capital Stock;
Shares Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
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<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 4, 1996
PROSPECTUS
2,000,000 Shares
LOGO
Common Stock
Of the 2,000,000 shares of Common Stock ("Common Stock") offered hereby,
1,000,000 shares are being sold by Metro One Telecommunications, Inc. ("Metro
One" or the "Company") and 1,000,000 shares are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders." Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $8.00 and $10.00 per
share. See "Underwriting" for information relating to the determination of the
initial public offering price. The Company has applied to have the Common Stock
quoted on the Nasdaq National Market under the symbol "MTON."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $ $
======================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $800,000.
(3) The Selling Shareholders have granted to the Underwriters a 30-day option to
purchase up to 300,000 additional shares on the same terms, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
---------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock will be available for delivery in New York, New York, on or about
, 1996.
---------------------
BLACK & COMPANY, INC.
The date of this Prospectus is , 1996
<PAGE> 4
Photo 1 - A Metro One operator with Metro One logo.
The Company is currently subject to the periodic reporting requirement of the
Securities Exchange Act of 1934. The Company intends to furnish to its
shareholders annual reports containing financial statements audited by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
Diagram description
Map of the United States with all of Metro One's call center locations
indicated by Metro One logo in the appropriate cities. Representative photos of
Metro One's operations are superimposed on the map. Descriptions of the photos
follow:
Photo 1 - A call center with modular work centers.
Photo 2 - A personal computer and a Detroit training manual.
Photo 3 - A training session with three people.
Photo 4 - An Excel LNX 2000 switch and a Sun workstation.
Photo 5 - A Metro One operator.
<PAGE> 6
Caption 1 -- Providing Enhanced Directory Assistance (EDA) through its national
network of call centers. Strategic locations enable EDA on both a
local and national basis.
Caption 2 -- Customized call center database systems and operator training in
each geographic area allow operators to provide local information
to callers.
<PAGE> 7
Caption 3 -- On-going operator training in advanced search techniques, spelling
and etiquette leads to consistent, high-quality service.
Caption 4 -- Advanced technology -- Sun Microsystems servers and Excel LNX 2000
switches -- coupled with proprietary software. Delivering EDA
solutions with greater content and connectivity functionality.
Caption 5 -- Live friendly operators are available to assist callers throughout
each call. Just press the star (*) key to return to the operator at
any time.
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option and (ii) gives retroactive effect to a
reverse split of the Common Stock of approximately 1-for-3.5 effected in
December 1995. See "Risk Factors" for a discussion of certain factors that
should be considered in connection with an investment in the Company,
THE COMPANY
The Company is a leading independent developer and provider of enhanced
directory assistance ("EDA") for the wireless telecommunications industry. The
Company contracts with wireless communications carriers to provide EDA to a
carrier's subscribers. The Company established its first EDA call center in 1989
in Portland, Oregon and presently operates call centers that serve the
Baltimore, Chicago, Denver, Detroit, Miami, Minneapolis, Philadelphia, Phoenix,
San Diego, Seattle and Portland, Oregon metropolitan areas. Additionally, the
Company has contracted to provide EDA to carrier subscribers in Milwaukee and
St. Louis. Service is provided to seven wireless telecommunications carriers,
including cellular and personal communications services ("PCS") providers, under
12 multiyear contracts. In 1995, the Company handled over 20 million requests
for directory assistance on behalf of its carrier customers.
In the competitive wireless telecommunications environment, carriers
confront increasing pressures to differentiate their products, establish brand
loyalty and increase usage. Enhanced directory assistance is a value-added
product that can differentiate a wireless provider's service. The Company's
delivery of quality enhanced directory assistance with a high level of personal
service represents a substantially different approach to that evidenced by the
trend in traditional directory assistance to minimize call processing times
through increased automation and reduced personalized service. Metro One gives
wireless carriers the ability to deliver feature-rich, personalized enhanced
directory assistance to their subscribers while providing features that promote
increased usage and airtime.
The Company's EDA offers enhancements to traditional directory assistance,
including an array of connectivity features and the ability to supply wireless
consumers with a broader range of information, including categorical search and
local event information. With the Company's EDA, carriers can offer customized
configurations of these value-added connectivity and content features. These
custom feature sets are marketed and delivered with private label branding,
enabling the carrier to establish a distinct identity for its services. In
addition, the Company believes that its connectivity features increase the call
completion rate, producing additional revenue for carriers through increased
billable airtime. The Company believes that carriers offering its EDA experience
greater wireless service usage and higher subscriber satisfaction and retention.
The Company's operating competencies, derived from the establishment and
operation of 11 call centers, allow it to provide carriers with a reliable,
quality directory assistance product. The Company's contracts with carriers
impose stringent performance standards. The Company strives to maintain this
high quality of service through various quality assurance programs, including
employee training, operator monitoring and periodic carrier quality evaluations.
The Company's national call center network enables carriers that operate in
multiple markets to offer a consistent EDA, which promotes greater system-wide
marketing and brand identification.
Wireless telecommunications has been among the fastest growing segments of
the telecommunications industry during the 1990s. Industry experts predict
annual revenues to increase from less than $10 billion in 1990 to $50 billion by
1999. Metro One's mission is to be the leading provider of EDA in this
marketplace. To achieve this, the Company intends to offer value-added EDA
products and features that set ever-increasing caller expectations for EDA,
expand into new geographic markets through existing and new carrier
relationships, leverage its existing infrastructure of call centers to provide
service to additional carriers and regional subscribers, achieve greater
operating efficiencies through the introduction of productivity enhancing
hardware and software and pursue opportunities to provide additional
operator-assisted products.
3
<PAGE> 9
THE OFFERING
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Common Stock offered by the Company....... 1,000,000 shares
Common Stock offered by the Selling
Shareholders............................ 1,000,000 shares
Common Stock outstanding after the
offering................................ 9,819,250(1)
Use of Proceeds........................... For working capital and other general corporate
purposes, including expansion of the Company's
call center network and sales and marketing
activities.
Proposed Nasdaq National Market symbol.... MTON
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)
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THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- -------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 752 $ 959 $ 1,442 $ 5,050 $ 13,074 $ 2,638 $ 4,228
Operating income (loss)........ (1,047) (1,932) (4,021) (4,011) (82) (635) 494
Net income (loss).............. (1,697) (2,112) (4,073) (5,035) (1,724) (908) 285
Net income (loss) per share.... $ (1.34) $ (0.85) $ (1.01) $ (1.00) $ (0.31) $ (0.17) $ 0.03
Shares used in per share
calculations(1).............. 1,269,355 2,474,989 4,023,233 5,039,272 5,562,959 5,213,418 8,118,107
</TABLE>
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MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents......... $1,601 $10,265
Current assets.................... 5,070 13,734
Furniture, fixtures and
equipment....................... 4,230 4,230
Total assets...................... 9,776 18,440
Current liabilities............... 2,915 2,915
Long-term debt, less current
portion......................... 1,504 1,504
Shareholders' equity.............. $5,357 $14,021
</TABLE>
- ---------------
(1) Excludes 1,785,039 shares of Common Stock issuable upon exercise of options
and warrants outstanding on May 30, 1996, with an average exercise price of
$6.74 per share (including options issued under the Company's 1994 Stock
Incentive Plan (the "Stock Incentive Plan") with an exercise price of $8.05
per share), of which options and warrants to purchase 1,458,672 shares were
exercisable on that date.
(2) Adjusted for effect of sale of 1,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share, and
the application of the net proceeds therefrom. See "Use of Proceeds."
Assumes no options or warrants to purchase shares of Common Stock are
exercised after the date of this Prospectus and prior to the completion of
the offering other than warrants for the purchase of 305,877 shares of
Common Stock exercised by the Selling Shareholders.
FORWARD-LOOKING STATEMENTS
The Company believes the information set forth in this Prospectus under the
captions "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and is subject to the safe
harbor created by that section. Certain factors that could cause results to
differ materially from those projected in the forward-looking statements are set
forth in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
4
<PAGE> 10
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. The Company
believes that the information set forth in this Prospectus under the captions
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and is subject to the safe harbor created by that
section. Certain factors that could cause results to differ materially from
those projected in the forward-looking statements are set forth in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." In addition to the other information in
this Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the shares of Common Stock offered by this
Prospectus.
LIMITED OPERATING HISTORY; PRIOR LOSSES
The Company was formed in 1989 and to date has focused on developing,
test-marketing and refining EDA services that it believes possess significant
long-term market potential as well as expanding into new markets. Accordingly,
the Company's financial results have been characterized by low but increasing
revenues, relatively high levels of expenses, and net losses. The Company
incurred net losses of $1,724,067, $5,035,090, and $4,072,646 for the years
ended December 31, 1995, 1994, and 1993, respectively. The three months ended
March 31, 1996 was the first fiscal quarter in which the Company reported net
income, and as of March 31, 1996, although the Company had shareholders' equity
of approximately $5,357,000, it had an accumulated deficit of approximately
$16,152,000. The Company's operations continue to be subject to all the risks
inherent in the establishment of a new business enterprise. These include, but
are not limited to, factors relating to competition, complications and setbacks
in the further development of its EDA and other services and the cost of
establishing call centers to service new markets. No assurance can be given that
the Company will be profitable in the future or that past revenue growth rates
will continue or be repeated in any future period.
NEED FOR EXPANSION OF SERVICES TO ADDITIONAL LOCATIONS AND MULTIPLE CUSTOMERS
The Company believes that achievement of a substantial and sustainable
level of profitability is dependent on its ability to deliver EDA to additional
customers in new markets and multiple customers at each call center. Although
the Company has a number of contracts for delivery of its EDA and other
services, there is no assurance that the Company will be successful in expanding
its services to a sufficient number of new customers or markets to achieve
substantial and sustainable profitability or that it will be able to sustain
past growth rates. Additionally, there is no assurance that the Company will
retain its customers for extended periods of time or at existing price levels.
See "Expiration of Enhanced Directory Assistance Agreements."
CONCENTRATION OF BUSINESS; LIMITED CUSTOMER BASE
Although the Company seeks to increase the number of its EDA contracts with
cellular and other wireless carriers, the nature of ownership and/or operational
control of the major cellular markets limits the Company's potential customers
in those markets. Only two cellular carriers, one owned or controlled by a
landline telephone company and one originally owned or controlled by a
non-landline company, generally serve each geographic cellular market.
Furthermore, 10 entities dominate the national cellular market, including AT&T
Wireless Services, GTE Mobilnet, the Regional Bell Operating Companies ("RBOC")
owned or affiliated cellular companies and several independents. Three of these
10 dominant entities represented approximately 72% and 81% of the Company's
revenues in fiscal 1995 and 1994, respectively. There is no assurance that the
Company will maintain satisfactory relationships with these significant
customers. Any failure of the Company to maintain a satisfactory relationship
with any of these significant customers could have a material adverse effect on
the Company's business, financial conditions and results of operation. See
"Business -- Customers and Markets."
5
<PAGE> 11
EXPIRATION OF ENHANCED DIRECTORY ASSISTANCE AGREEMENTS
The Company has 12 significant EDA contracts with seven different carriers
to provide EDA in 13 metropolitan markets. Of these contracts, four expire in
1997, seven expire in 1998, and one expires in 2000. There is no assurance that
any of these contracts will be renewed. During the first quarter of 1996, the
Company's contract with AirTouch Cellular in the San Diego market expired.
Although the Company participated in a competitive bidding process, the Company
was unable to secure renewal on terms and conditions that were acceptable to the
Company. During the negotiations, the carrier sought rates below prior contract
rates and an exclusivity commitment in markets served by the carrier.
In July 1994, AirTouch Cellular and US West NewVector announced their
intention to combine their cellular properties in a multi-phase transaction.
AirTouch Cellular has also formed a partnership, called TOMCOM, L.P., with Bell
Atlantic and NYNEX to develop common service standards, pursue national
marketing strategies, develop information technology, create a national
distribution strategy and implement joint purchasing arrangements. Unlike the
AirTouch Cellular/US West NewVector partnership, however, TOMCOM does not
contemplate a merger of cellular properties. Two of the Company's contracts with
certain of those TOMCOM participants are up for renewal in 1997, with three in
subsequent years.
While the implications of the non-renewal of the AirTouch Cellular EDA
contract for its San Diego market are unclear, the Company believes this
decision may serve as a precedent for AirTouch Cellular and the other TOMCOM
participants as they establish or consider the renewal of EDA contracts in other
markets in the future. Accordingly, there can be no assurance that the Company
will renew its contracts with US West NewVector or any other TOMCOM participant
or that the Company will have the opportunity to obtain new contracts with any
of these carriers in the future. If these contracts are not renewed, there is no
assurance that the Company will be able to replace these contracts with
contracts with other carriers. Contracts with TOMCOM participants accounted for
approximately 50% of the Company's revenues in 1995. Consequently, the failure
of the Company to obtain the renewal of these contracts or to obtain replacement
contracts would have a material adverse effect on the Company's business,
financial condition and results of operation. The Company intends to provide its
EDA under its current contracts with TOMCOM participants through their
respective termination dates upon which it will seek renewal on acceptable
terms. See "Business -- Customers and Markets."
RAPIDLY CHANGING TELECOMMUNICATIONS MARKET
Recent events, including the PCS license auctions and the passage of the
Telecommunications Act of 1996, are expected to result in an increasing number
of telecommunications providers operating in each market. This may result in
competitive situations which could unfavorably impact the Company, such as the
withdrawal of a customer from a market that the Company services or the
acquisition or merger of a major customer, where the acquiror or surviving
entity provides its directory assistance or enhanced directory assistance
through arrangements other than with the Company or exerts substantial influence
on the contract negotiation process. In addition, the creation of alliances and
joint ventures among telecommunications providers, such as the TOMCOM, L.P.
alliance discussed above, may increase the negotiating leverage for these
carriers as they deal with providers of enhanced directory assistance such as
the Company. Although the Company believes that an increase in the number of
providers generally will be beneficial to the Company as the providers look for
ways to differentiate their services, no assurance can be given that the
Company, either directly or indirectly, will not be adversely impacted by the
potential changes in the marketplace.
COMPETITION
The Company expects competition in the enhanced directory assistance market
to intensify as the public's demand for more comprehensive, easy-to-use
directory assistance information increases and as new technologies and systems
are developed to deliver this information in a cost-effective and convenient
manner. The Company faces current or potential competition from RBOC and
non-RBOC owned or affiliated landline and cellular carriers, and independent
companies. Although the Company believes that none of these competitors
presently offers enhanced directory assistance that incorporates all the
connectivity and content
6
<PAGE> 12
features of the Company's EDA, these competitors and some entities with which
the Company may compete in the future have substantially greater financial,
technical and marketing resources than the Company. In addition, although the
Company believes that it has developed and implemented various computer
hardware-, software- and telecommunications-based tools that provide it certain
competitive advantages, barriers to entry in the EDA market are relatively low
and the Company may face competition in the future from new market entrants.
There is no assurance that the Company will be able to compete effectively
against such competitors. There is also no assurance that the Company will be
able to continue to price its EDA services competitively in the EDA marketplace.
See "Business -- Competition."
TECHNOLOGICAL CHANGE
Telecommunications and the related directory assistance market are
currently characterized by rapid technological change, frequent introductions of
new and enhanced products and services, and changing consumer demands. As
competition in this industry from a broader range of competitors increases, the
pace of technological change will accelerate. Although the Company is not aware
of any existing enhanced directory assistance services that it believes are
superior to the Company's EDA, new services may be developed, or existing
services refined, so as to render the Company's EDA technologically or
economically obsolete or less marketable. Additionally, information services
provided by others, no matter how dissimilar to the Company's EDA, may be
perceived by end users as being equal or superior to the Company's product
offerings. The Company's success will be dependent, in part, upon its ability to
anticipate changes in technology and industry standards and to successfully
develop and introduce new and improved EDA and other telecommunications
services, which may require substantial expenditures. There is no assurance that
the Company will be able to do so, that it will have adequate financial
resources to undertake such development, or that it will not encounter technical
or other difficulties that could delay the introduction of its services or
enhancements thereof.
UNCERTAINTY OF MARKET ACCEPTANCE OF ENHANCED DIRECTORY ASSISTANCE
Traditional directory assistance simply provides callers with the phone
numbers of specific parties listed in the directory assistance provider's
database. By contrast, enhanced directory assistance supplies a broader range of
information. The EDA market is relatively new and evolving and it is difficult
to predict the future growth rate and size of the market. Market acceptance of
the Company's EDA will depend in part on the Company's ability to demonstrate to
carriers the benefits to be derived by them from providing EDA to carrier
subscribers, on the marketing efforts of carriers to promote EDA usage and on
the subscribers' acceptance of EDA in volumes and at rates that render the
service profitable. No assurance can be given that present levels of market
acceptance will be sustained, that the carriers' subscribers will not prefer
traditional directory assistance at a lower price, that markets for enhanced
directory assistance will develop further or, if they do, that the Company's EDA
will achieve further market acceptance. The Company's operating revenues have
been and can be expected to continue to be derived exclusively from EDA. Failure
of the Company's EDA to achieve further market acceptance could have a material
adverse effect on the Company's business, financial condition and results of
operation.
INTELLECTUAL PROPERTY
The Company believes that its success in the enhanced directory assistance
market is due in part to its significant emphasis on the development and
implementation of various computer, hardware-, software- and
telecommunications-based tools. To a limited extent, the Company relies upon a
combination of trade secret, patent and other intellectual property law,
non-disclosure agreements and other protective measures to preserve its rights
pertaining to its EDA, but there is no assurance that the Company can
meaningfully protect its intellectual property. Thus, such protection may not
preclude competitors from developing services competitive with those of the
Company. In the general telecommunications environment where patents cannot
easily be obtained, the Company depends to a greater extent on its development
and marketing capabilities and its ability to configure and maintain available
software and hardware technologies to its strategic advantage, which the Company
considers its trade secrets.
7
<PAGE> 13
In the wireless market, the Company relies on the technologies of carriers
and on their technical interface with landline carriers. To remain competitive,
the Company must adapt and improve upon its current technology in response to
changes in the technologies in both the wireless and general landline
telecommunications systems. There is no assurance that the Company will be
successful in making such improvements or adaptations on a timely basis or at
all. The Company is not aware of any pending or threatened claims that affect
any of the Company's intellectual property rights. If any infringement claim is
asserted against the Company, the Company may seek to obtain a license of the
other party's intellectual property rights. There is no assurance that a license
would be available on reasonable terms or at all. Litigation with respect to
patents or other intellectual property matters could result in substantial costs
and diversion of management and other resources and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend to a large extent on the abilities
and continued participation of certain key employees. The loss of these key
employees could have a material adverse effect on the business of the Company.
Although the Company holds key person life insurance on the lives of its
President, Timothy A. Timmins, and its Executive Vice President, Patrick M. Cox,
and has entered into employment contracts with each of them, no assurance can be
given that the Company will not be adversely impacted in the future by the loss
of one or more of these or other key employees. The Company's future success and
ability to manage future growth will also depend in part upon its ability to
attract and retain additional qualified employees. As the Company competes with
other organizations for such employees, there is no assurance that it will be
successful in hiring or retaining such employees.
QUALITY AND AVAILABILITY OF DATA
The Company's operations are dependent upon access to names, telephone
numbers and other information supplied to callers directly or used in providing
call completion. The Company obtains such data from a variety of sources,
including purchase from RBOCs, purchase from commercial vendors, electronic
access for a fee and printed material. Such data vary widely across geographic
regions as to availability, quality and usefulness for the Company's purposes.
Inadequate data may delay operator responsiveness to a caller inquiry or prevent
that inquiry from being serviced effectively. Additionally, due to individual
and business mobility or address or telephone number changes, such data degrade
over time and need to be updated periodically. The frequency and completeness of
such updating may also affect the quality of the Company's EDA services and its
operational efficiency. Ultimately, satisfaction of the Company's carrier
customers is dependent upon the quality of service being provided to the
carrier's subscribers. Although the Company believes that it obtains its data in
a manner that allows it to provide quality service to its customers, there is no
assurance that the Company will have access to sufficient and quality data or
that the Company can obtain and update data in a manner and at prices that allow
the Company to successfully and economically maintain or improve current service
levels.
RELIANCE ON THIRD PARTY PROGRAMMERS
The Company provides its EDA services through the use of sophisticated
switching equipment. Currently, the Company retains the services of one
engineering firm to assist in programming these switches. As a result, this firm
has significant familiarity with the technological method by which the Company
delivers its EDA. Although the Company believes that such programming services
are available from multiple sources, if the Company was unable to obtain the
services of this firm, the Company might be required to obtain similar services
from other parties or devote its own resources to such programming. The
development of such an alternative approach could involve significant time and
expense and diminish the Company's ability to provide quality service or even
delay the Company's ability to provide its EDA to its customers. Any such
decrease or delay in service could have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL FOR UNIONIZATION; STAFFING
The telecommunications industry, particularly with respect to larger
telecommunications companies, is characterized by widespread union membership
among its operators and other workers. Although the
8
<PAGE> 14
Company believes that its relations with its employees are good, no assurance
can be given that unionization will not occur in the future. The occurrence of
such an event would likely have a material adverse effect on the Company's
business, financial condition, and results of operations. Furthermore, the
Company is dependent upon the available labor pool for its operators and no
assurance can be given that the Company will be able to continue to attract
qualified staff at competitive wages.
RESCISSION RIGHTS OF CERTAIN SHAREHOLDERS
Between 1989 and 1993, the Company financed its activities through
offerings of its Common Stock and debt securities that were converted into
shares of its Common Stock, which securities were sold directly to approximately
560 persons. During a review of these past financing activities in 1993, the
Company's management was unable to conclude that all applicable state and
federal securities laws had been complied with in all material respects in
connection with these offerings.
In 1994, the Company voluntarily executed a Consent Order with the State of
Oregon Division of Finance and Corporate Securities in which the Company agreed
to cease and desist from participating in any violations of Oregon securities
laws and paid a civil penalty of $20,000. In 1995, the Company offered to each
holder of its Common Stock as of March 31, 1995 who resided in Oregon the right
to rescind the holder's purchase of shares of the Company's Common Stock. Sales
of 135,414 shares of the Company's Common Stock were rescinded pursuant to the
rescission offering, resulting in payment by the Company of approximately
$738,660 to certain of its former shareholders, which included interest of
approximately $124,900.
The Company believes that its potential rescission liability to
shareholders who received the rescission offer for possible violations of Oregon
and federal law has been effectively eliminated as a result of the rescission
offer or the running of applicable statutes of limitation. However, the
Securities and Exchange Commission ("SEC") takes the position that liabilities
under the federal securities laws are not terminated by the making of a
rescission offering.
In addition, the rescission offer was made to holders of 119,843 shares of
the Company's Common Stock who resided in states in which the Company did not
register its rescission offer, and the rescission offer was not made to holders
of 528,215 shares of the Company's Common Stock who resided in states whose
securities laws do not permit rescission offerings or impose terms and
conditions on such offerings which were unacceptable to the Company. These
holders of 648,058 shares of Common Stock originally purchased such shares from
the Company at prices ranging from $0.88 to $8.05 a share; 515,064 of these
shares were purchased for $4.38 a share or less. Although the Company also
believes that its potential rescission liability to many of these shareholders
may have been eliminated by the running of applicable statutes of limitation,
there can be no assurance that claims asserting violations of federal or state
securities laws will not be asserted against the Company or that certain holders
will not prevail against the Company in the assertion of such claims, thereby
compelling the Company to repurchase their shares. If all of these holders
successfully asserted claims that the Company repurchase their shares, the
Company believes it would be required to pay to these holders approximately
$2,049,162, plus approximately $525,000 in statutory interest, to repurchase
648,358 shares of the Company's Common Stock, representing an average repurchase
price of approximately $3.16 a share. Even if the Company were successful in
defending any securities law claims, the assertion of such claims against the
Company additionally could result in costly litigation and significant
diversions of effort by the Company's management. See "Business -- Securities
Law Issues" and "-- Legal Proceedings."
UNCERTAIN ABILITY TO MANAGE FUTURE GROWTH
Future growth by the Company will require it to increase the scale of its
operations and to address infrastructure and other requirements. Additionally,
each new market the Company enters or each new carrier which contracts for the
Company's EDA may present new and different challenges to the Company's growth.
Even if the Company successfully anticipates these challenges, there is no
assurance that the Company can accomplish the measures necessary for successful
growth. Moreover, technological change and customer demand may require the
Company to expand and develop other products and services. As the Company
expands, it may encounter various constraints that detrimentally affect its
ability to satisfy such demand.
9
<PAGE> 15
Failure to manage growth effectively could adversely affect the Company's
business, financial condition and results of operation.
REGULATION
The services provided by the Company to its carrier customers are not
presently subject to direct government regulation. The Company's business
depends upon relationships with companies that are regulated by the Federal
Communications Commission ("FCC") or state public utility commissions ("PUCs").
Such regulation applies to all communications common carriers, including AT&T,
other long distance carriers, the RBOCs, and other local exchange carriers.
Enhanced service companies such as the Company are either unregulated or subject
to various levels of regulation on a state-by-state basis. In order to conduct
business, the Company must send information over the regulated public switched
network. The FCC regulates the telecommunications industry pursuant to the
Communications Act of 1934, as amended, and its authority extends to all
interstate and foreign communication by wire or radio. The FCC requires common
carriers to furnish communication service for a fee upon reasonable request in a
nondiscriminatory manner to any member of the public who requests it and is
qualified to receive it. The FCC also regulates rates of common carriers by
tariff to ensure that charges for telecommunication services are "fair and
reasonable." The FCC licenses common carriers, and state PUCs license carriers
for intrastate activities. Thus, the FCC and state PUCs have tremendous
influence over the suppression or promotion of competition. No assurance can be
given that the Company's business may not become subject to increased government
regulation in the future. See "Business -- Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock. There is no assurance that an active trading market will be
sustained after completion of this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price of the Common Stock will be determined through
negotiations between the Company and the representative of the Underwriters. The
market for securities of small market capitalization companies has been highly
volatile in recent years, often as a result of factors unrelated to those
companies' operations. The Company believes quarterly fluctuations in its
financial results and factors not directly related to the Company's operating
performance, such as announcements of new developments relating to the
telecommunications market, could contribute to the volatility of the price of
its Common Stock, causing it to fluctuate significantly. These factors, as well
as general economic conditions, such as recessions or high interest rates, may
adversely affect the market price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of the Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock and the Company's ability to raise capital in the future in the
equity markets. Upon completion of this offering, there will be 9,819,250 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of outstanding warrants or outstanding options under
the Company's Stock Incentive Plan after the date of this Prospectus. In
addition to the 2,000,000 shares sold in this offering, approximately 1,425,387
shares not subject to lock-up agreements will be eligible for immediate resale
without restriction under Rule 144(k) of the Securities Act. An additional
163,377 shares held for more than two but less than three years by shareholders
who are not affiliates of the Company and who are not subject to lock-up
agreements are eligible for sale under Rule 144 of the Securities Act, subject
to the volume and other limitations thereunder. Upon expiration of lock-up
agreements with the representative of the Underwriters 180 days after the date
of this Prospectus (or earlier with the consent of Black & Company, Inc.),
2,134,026 shares will be eligible for immediate resale subject to the
limitations of Rule 144 and 2,960,144 shares will be eligible for resale
immediately without restriction pursuant to Rule 144(k). In addition, after this
offering, holders of 1,649,521 shares of Common Stock will have the right to
require the Company to register their shares of Common Stock under the
Securities Act, which would under certain circumstances permit such holders to
resell their shares without complying with
10
<PAGE> 16
Rule 144. If the Company registers any of its securities under the Securities
Act, holders of options and warrants to purchase 458,164 shares of its Common
Stock will have the right to require the Company to register under the
Securities Act their shares of Common Stock purchasable upon the exercise of
their options or warrants subject to certain conditions and limitations, which
would under certain circumstances permit such holders to resell their shares
without restriction. As of the date of this Prospectus, options to purchase
1,162,598 shares of Common Stock have been granted under the Stock Incentive
Plan. See "Management -- Stock Incentive Plan," "Description of Capital Stock"
and "Shares Eligible for Future Sale."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, and the Board of Directors has the authority to fix the preferences,
limitations and relative rights of those shares without any vote or action by
the shareholders. The potential issuance of Preferred Stock may delay or prevent
a change in control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect the
market price of, and the voting and other rights of the holders of, Common
Stock. The Oregon Control Share Act and the Business Combination Act limit the
ability of parties who acquire a significant amount of voting stock to exercise
control over the Company. These provisions may have the effect of lengthening
the time required for a person to acquire control of the Company through a proxy
contest or the election of a majority of the Board of Directors and may deter
efforts to obtain control of the Company. See "Description of Capital Stock."
DISCRETION AS TO USE OF PROCEEDS
As of the date of this Prospectus, the Company has not allocated to
specific uses the estimated net proceeds of this offering. Accordingly, the
Company's management will retain broad discretion to allocate the net proceeds
of this offering to uses that the shareholders may not deem desirable, and there
is no assurance that the proceeds can or will yield a significant return. See
"Use of Proceeds."
11
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 1,000,000
shares of Common Stock offered hereby (assuming an initial public offering price
of $9.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses) are estimated to be $7,570,000. The
Company intends to use the net proceeds from this offering for working capital
and other general corporate purposes, including the expansion of its call center
network and sales and marketing activities. A portion of the net proceeds may
also be used to acquire or invest in complementary businesses or to obtain the
right to use complementary technologies, although the Company has no
understandings, commitments or agreements, and has no current plans or
intentions, regarding any such acquisitions or investments. Pending the use of
the net proceeds for the above purposes, the Company intends to invest such
funds in investment-grade obligations, including interest-bearing investment
grade securities with maturities of one year or less. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Shareholders. The Company anticipates that 305,877 shares of the Common Stock to
be sold by Selling Shareholders will be obtained by the exercise of warrants
held by the Selling Shareholders. The Company anticipates that it will receive
proceeds in the amount of $1,094,151 from the exercise of those warrants. See
"Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings from operations for use in the operation
and expansion of its business and does not anticipate paying cash dividends with
respect to the Common Stock in the foreseeable future. Furthermore, the
Company's existing line of credit agreement prohibits the payment of cash
dividends during the term thereof.
12
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted to reflect the issuance of 305,877 shares of
Common Stock upon the exercise of certain of the Company's outstanding stock
purchase warrants on or prior to the offering in consideration of $1,094,151 in
cash and pro forma as adjusted to further reflect the sale of the 1,000,000
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $9.00 per share and the receipt of the estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
AS PRO FORMA
ACTUAL ADJUSTED AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion...................... $ 1,504 $ 1,504 $ 1,504
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized; none issued and outstanding.............. -- -- --
Common Stock, no par value; 490,000,000 shares
authorized; 8,513,373 shares issued and outstanding
actual; 8,819,250 issued and outstanding, as
adjusted; 9,819,250 shares issued and outstanding,
pro forma as adjusted(1)............................. 21,509 22,603 30,173
Accumulated deficit..................................... (16,152) (16,152) (16,152)
-------- -------- --------
Total shareholders' equity.............................. 5,357 6,451 14,021
-------- -------- --------
Total capitalization............................ $ 6,861 $ 7,955 $ 15,525
======== ======== ========
</TABLE>
- ---------------
(1) Does not include 1,428,500 shares of Common Stock reserved for issuance
pursuant to the Company's Stock Incentive Plan. See "Management -- 1994
Stock Incentive Plan."
13
<PAGE> 19
SELECTED FINANCIAL DATA
The statement of operations data presented below for each of the years in
the five-year period ended December 31, 1995 and the balance sheet data as of
December 31, 1991, 1992, 1993, 1994 and 1995 are derived from the audited
financial statements of the Company. The statement of operations data for the
three-month periods ended March 31, 1995 and 1996 and the balance sheet data as
of March 31, 1996 are unaudited and have been derived from the Company's books
and records. In the opinion of management of the Company, such unaudited
financial data has been prepared on the same basis as the audited financial data
and reflect all adjustments, which are of a normal recurring nature, necessary
for a fair presentation in accordance with generally accepted accounting
principles. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 752 $ 959 $ 1,442 $ 5,050 $ 13,074 $ 2,638 $ 4,228
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Direct operating....... 373 621 2,141 4,793 7,157 1,787 1,994
General and
administrative....... 1,425 2,269 3,322 4,268 6,000 1,486 1,740
Operating income
(loss)................. (1,047) (1,932) (4,021) (4,011) (82) (635) 494
Other income (expense),
net.................... (651) (180) (52) (1,024) (1,642) (273) (209)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........ (1,697) (2,112) (4,073) (5,035) (1,724) (908) 285
========= ========= ========= ========= ========= ========= =========
Net income (loss) per
common share........... $ (1.34) $ (0.85) $ (1.01) $ (1.00) $ (0.31) $ (0.17) $ 0.03
========= ========= ========= ========= ========= ========= =========
Shares used in computing
net income (loss) per
common share........... 1,269,355 2,474,989 4,023,233 5,039,272 5,562,959 5,213,418 8,118,107
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 32 $ 497 $ 300 $ 310 $ 1,149 $ 1,602
Current assets........................ 309 1,008 829 1,915 4,126 5,070
Furniture, fixtures and equipment,
net................................. 98 855 1,926 4,068 4,188 4,300
Total assets.......................... 530 2,136 3,143 6,299 8,716 9,776
Current liabilities................... 2,542 2,085 796 2,265 3,976 2,915
Long-term debt, less current
portion............................. 3 -- 49 6,432 1,466 1,504
Common stock subject to rescission.... 1,477 5,656 11,976 12,314 -- --
Accumulated deficit................... (3,493) (5,605) (9,678) (14,713) (16,437) (16,152)
Net shareholders' equity (deficit).... $ (3,493) $ (5,605) $ (9,678) $ (14,713) $ 3,274 $ 5,357
</TABLE>
14
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading independent provider of EDA for the wireless
telecommunications industry. In 1989, the Company was incorporated, opened its
first call center and began testing and offering EDA services. In 1991, the
Company entered into its first contract to provide EDA services to a cellular
carrier's subscribers on a charge per call basis. The Company currently has 12
significant EDA contracts with seven different carriers to provide EDA in 13
metropolitan markets from 12 call centers, one of which is under development.
The Company provides EDA under contracts with terms ranging from one to
five years. Under the EDA contracts, carriers generally agree to route all local
directory assistance calls to the Company, bill its subscribers for EDA calls
and market the service. These contracts generally permit the Company to offer
its EDA services to competing carriers in the same market. Metro One provides
EDA to a carrier's subscribers under a brand name designated by the carrier,
such as "AT&T Connect." Although each carrier establishes its own EDA fee
structure for its subscribers, Metro One charges carriers directly for its
service on a per call basis and the carrier is obligated for the charges
regardless of whether it is paid by its subscriber. Generally, these per call
charges remain fixed for the term of the contract, subject only to consumer
price index adjustments.
The Company derives substantially all of its revenues from its 12 contracts
with wireless carriers. Revenue growth for the Company principally has resulted
from three factors: growth in call volumes from existing customer's subscribers
served by existing call centers, new carrier customers served by existing call
centers, and new customers served by new call centers. The Company's direct
operating costs are comprised entirely of costs associated with call center
operators and supervisory personnel and data costs. The Company's general and
administrative costs include corporate and call center management personnel,
facilities expenses including rental and maintenance costs, and depreciation.
The Company typically opens a new call center to service a carrier customer
in a new geographic market. The Company historically has experienced significant
costs in connection with the establishment of a new call center, including costs
associated with hiring and training of operators and facility preparation.
Initial call volumes at new call centers are typically low relative to the
subscriber base. Call volumes usually increase rapidly in the first year of
operation. Personnel productivity is generally low during initial months of a
call center's operation but improves as operators become more experienced and
efficient. In addition, personnel utilization improves at a call center as call
volumes rise due principally to increased scheduling efficiencies. Consequently,
as call volumes and labor productivity increase over time, a call center's
profitability improves.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
the Company's statements of operations as a percentage of its revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating costs........................ 148.4 94.9 54.7 67.8 47.2
General and administrative costs.............. 230.4 84.5 45.9 56.3 41.1
Operating profit (loss)....................... (278.8) (79.4) (.6) (24.1) 11.7
Interest and loan fees........................ 5.9% 16.7% 10.5% 10.5% 3.8%
New call centers opened....................... 3 6 1 0 0
Call centers in operation..................... 5 10 11 10 11
</TABLE>
15
<PAGE> 21
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues
Revenues increased 60.3% to $4.2 million for the three months ended March
31, 1996 from $2.6 million for the same period in the prior year. Revenues from
existing call centers grew 46.8% and accounted for $1.2 million of this increase
while revenues from one new call center accounted for $.4 million of revenues in
the first quarter of 1996.
Direct Operating Costs
Direct operating costs increased 11.6% to $2.0 million for the three months
ended March 31, 1996 from $1.8 million for the same period in the prior year.
The increase in direct operating costs was due primarily to the cost of
operating an additional call center during the first quarter of 1996. As a
percentage of revenues, direct operating costs declined to 47.2% for the three
months ended March 31, 1996 from 67.8% for the same period in the prior year.
This decline primarily resulted from higher call volumes and operating
efficiencies due to improved personnel utilization and the introduction of new
technology designed to enhance productivity.
General and Administrative Costs
General and administrative costs increased 17.1% to $1.7 million for the
three months ended March 31, 1996 from $1.5 million for the same period in the
prior year. This increase in costs was due primarily to higher overall salary
expenses and costs associated with the operation of an additional call center
during the first quarter of 1996. As a percentage of revenues, general and
administrative costs declined to 41.1% for the three months ended March 31, 1996
from 56.3% for the same period in the prior year. This decline resulted
primarily from the achievement of substantially higher revenues in the first
quarter of 1996 compared with the same period in the prior year. Depreciation
and amortization increased by 9.9% to $269,964 for the three months ended March
31, 1996 from $245,505 for the same period in the prior year due primarily to
the acquisition of new equipment for the new call center.
Net Interest Expense
Net interest expense declined 41.2% to $162,290 for the three months ended
March 31, 1996 from $276,053 for the same period in the prior year. This decline
was attributable solely to the reduction in average debt outstanding to $3.6
million from $8.5 million for the three months ended March 31, 1996 and 1995,
respectively.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Revenues increased 158.8% to $13.1 million for fiscal 1995 from $5.1
million for fiscal 1994. Revenues from the six call centers opened during 1994
grew to $8.2 million for fiscal 1995 from $1.8 million for fiscal 1994,
accounting for $6.4 million of this increase. Revenues from the three call
centers opened prior to 1994 grew 48.0% and accounted for $1.5 million of this
increase. Revenues from the one call center opened during 1995 accounted for $.1
million of revenues for 1995.
Direct Operating Costs
Direct operating costs increased 49.3% to $7.2 million for fiscal 1995 from
$4.8 million for fiscal 1994. This increase in direct operating costs was
primarily due to the greater number of call centers in operation for a full year
in 1995 as compared to 1994. As a percentage of revenues, direct operating costs
declined to 54.7% for fiscal 1995 from 94.9% for fiscal 1994. This decline
resulted primarily from increased call volumes generating higher revenues, while
costs increased less rapidly due to operating efficiencies arising from improved
personnel utilization and the introduction of new technology.
16
<PAGE> 22
General and Administrative Costs
General and administrative costs increased 40.6% to $6.0 million for fiscal
1995 from $4.3 million for fiscal 1994. This increase in general and
administrative costs was due primarily to higher expenses associated with the
operation for the full year in 1995 of additional call centers opened during
1994. As a percentage of revenues, general and administrative costs declined to
45.9% for fiscal 1995 from 84.5% for fiscal 1994. This decline resulted
primarily from the achievement of substantially higher revenues in fiscal 1995
as compared with the prior year. Depreciation and amortization increased by
34.3% for fiscal 1995 to $996,834 from $742,135 for fiscal 1994 due primarily to
the acquisition of new equipment for new call centers.
Net Interest Expense
Net interest expense increased 63.1% to $1,371,936 for fiscal 1995 from
$841,407 for fiscal 1994. This increase was attributable to the increase of
average debt outstanding to $7,316,615 from $5,316,078 for fiscal 1995 and 1994,
respectively, resulting primarily from the Company's completion of an 8%
Convertible Secured Note financing during 1995 and interest paid in connection
with the Company's 1995 rescission offering. See "Risk Factors -- Rescission
Rights of Certain Shareholders" and "Business -- Securities Law Issues."
Debt Conversion Expense
The Company recognized $384,071 of expenses related to the conversion of
its 8% Convertible Secured Notes during 1995. No similar expenses were
recognized during the prior year.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenues
Revenues increased 250.2% to $5.1 million for fiscal 1994 from $1.4 million
for fiscal 1993. Revenues from the call centers opened prior to 1994 grew to
$3.2 million for fiscal 1994 from $1.1 million for fiscal 1993, accounting for
$2.1 million of this increase. Revenues from the call centers opened during 1994
accounted for $1.8 million of revenues in fiscal 1994.
Direct Operating Costs
Direct operating costs increased 123.9% to $4.8 million for fiscal 1994
from $2.1 million for fiscal 1993. This increase in direct operating costs was
due primarily to the greater number of call centers in operation during 1994 as
compared to 1993. As a percentage of revenues, direct operating costs declined
to 94.9% for fiscal 1994 from 148.4% for fiscal 1993. This decline resulted
primarily from higher revenues and operating efficiencies due to improved
personnel utilization and higher call volumes.
General and Administrative Costs
General and administrative costs increased 28.5% to $4.3 million for fiscal
1994 from $3.3 million for fiscal 1993. This increase in general and
administrative costs was due primarily to higher expenses associated with the
operation of the new call centers opened in 1994 and the operation for the full
year in 1994 of the call centers opened during 1993. As a percentage of
revenues, general and administrative costs declined to 84.5% for fiscal 1994
from 230.4% for fiscal 1993. This decline resulted primarily from the
achievement of substantially higher revenues for fiscal 1994 as compared with
the prior year. Depreciation and amortization increased by 95.3% to $742,135 for
fiscal 1994 from $379,904 for fiscal 1993 primarily due to the acquisition of
new equipment for new call centers.
Net Interest Expense
Net interest expense increased 889.9% to $841,407 for fiscal 1994 from
$85,003 for fiscal 1993. This increase was primarily attributable to the
increase of average debt outstanding to $5,316,078 from $780,915 for 1994 and
1993, respectively, resulting from the Company's completion of a 10%
Subordinated Note financing,
17
<PAGE> 23
completion of a portion of the 8% Convertible Secured Note financing and an
increase in equipment lease financing associated with the opening of new call
centers.
QUARTERLY INFORMATION
The following tables set forth certain unaudited quarterly statement of
operations data for the five quarters ended March 31, 1996, as well as data
expressed as a percentage of the Company's revenues for the periods indicated.
These data have been derived from unaudited financial statements, and in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information.
Such statement of operations data should be read in conjunction with the
Company's audited financial statements and notes thereto.
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 2,638 $3,042 $ 3,479 $3,916 $ 4,228
Direct operating costs.................... 1,787 1,824 1,634 1,912 1,994
General and administrative costs.......... 1,486 1,367 1,503 1,644 1,740
Income (loss) from operations............. (635) (149) 342 360 494
Interest and loan fees.................... 276 334 474 289 162
Net income (loss)......................... $ (908) $ (364) $ (127) $ (325) $ 285
</TABLE>
The following table sets forth certain quarterly financial information of
the Company for each of the Company's last five fiscal quarters expressed as a
percent of total revenues for the periods indicated.
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating costs.................... 67.7 60.0 47.0 48.8 47.2
General and administrative costs.......... 56.3 44.9 43.2 42.0 41.2
Income (loss) from operations............. (24.1) (4.9) 9.8 9.2 11.7
Interest and loan fees.................... 10.5 11.0 13.6 7.4 3.8
Net income (loss)......................... (34.4)% (12.0)% (3.7)% (8.3)% 6.7%
</TABLE>
Variable Operating Results
The Company's results of operations have fluctuated and may continue to do
so in the future depending upon a variety of factors, including opening of new
call centers, timing of expenditures in anticipation of future contracts or
product enhancements and renewal or expiration of existing contracts. Total
revenue of the Company increased in each quarter presented, primarily as a
result of growth in call volumes from existing call centers. Over the quarterly
periods shown, direct operating costs have generally declined as a percentage of
revenue as the Company has increased personnel productivity. In the third
quarter of 1995, personnel productivity measured on a company-wide basis
increased approximately 23%, the largest quarterly increase for the periods
presented. In the fourth quarter of 1995, the Company recognized certain costs
related to the conversion of its 8% Convertible Secured Notes, contributing to
the loss for that period.
18
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company has consistently used external sources of funds, primarily from
the issuance of equity and debt securities, to fund the Company's operating
needs and capital expenditures. For the three months ended March 31, 1996, the
Company generated net income of $285,179; however, the Company generated net
losses of $1,724,067, $5,035,090, and $4,072,646 in fiscal 1995, 1994, and 1993,
respectively. As of March 31, 1996, the Company's accumulated deficit was
approximately $16.2 million. Cash flow solely from operations has been
insufficient to fund all of the Company's capital and other non-operating needs.
As of March 31, 1996, the Company had approximately $1,601,000 in cash and cash
equivalents and approximately $2,155,000 in working capital.
In addition to cash from operations, the Company's principal source of
liquidity is a $3.0 million bank line of credit. Availability under the line of
credit is subject to borrowing base requirements and compliance with loan
covenants. Under the terms of the agreement, outstanding borrowings bear
interest at the prime rate plus 1.25 percent and all assets of the Company are
pledged to the bank as collateral. The agreement contains minimum net worth and
working capital requirements as well as certain other restrictive covenants and
prohibits the payment of cash dividends by the Company. As of April 30, 1996,
the Company was eligible to borrow $1,584,000 under and had no borrowings
against this line of credit. The Company also has a credit facility under which
the Company may borrow up to $1.0 million to finance purchases of capital
equipment. Borrowings bear interest at the prime rate plus 1.75 percent and are
secured by the purchased equipment. As of April 30, 1996, the Company had no
borrowings against this line of credit.
Cash Flow from Operations. Net cash from operations for the three months
ended March 31, 1996 was $364,066, resulting primarily from the operating and
net income for that period. No new call centers were opened and most existing
call centers operated profitably and contributed to cash flow from operations
during the three months ended March 31, 1996.
Net cash used by operations was $2,255,035, $4,403,703 and $3,653,316 in
fiscal 1995, 1994, and 1993, respectively. In fiscal 1994 and 1993, the Company
expanded its operations into six and three new markets, respectively, which
required the use of cash to fund start-up costs for new call centers. The
reduction in use of cash by operations in 1995 was primarily due to the
Company's efforts to reduce costs and increase efficiency through more effective
personnel utilization and technology enhancements, allowing faster call
processing without compromise of quality of service and the opening of only one
new call center and to the growth in revenues in existing call centers in that
year. Concurrently with these efforts, the Company elected to open only one call
center in 1995. Additionally, revenues grew in existing markets, further
improving the Company's liquidity and capital resources. Although the Company
continues its focus on efficient operations, quality of service remains a high
priority and, if necessary, the efficiencies of scheduling will be adjusted in
order to maintain the desired quality, which could have an adverse effect on
cash flow from operations and liquidity.
Cash Flow from Investing Activities. Cash used in investing activities was
$65,778 for the three months ended March 31, 1996 related primarily to capital
expenditures for system redundancy capabilities and equipment upgrades for
certain existing locations. In the three months ended March 31, 1996, additional
capital equipment for the same purposes was acquired through lease financing in
the amount of $374,015.
Net cash provided or (used) by investing activities was $100,616,
$(914,974), and $(1,293,289) in fiscal 1995, 1994, and 1993, respectively. The
Company's call center expansion in 1994 and 1993 required the use of proceeds
for capital equipment. In 1994 and 1993, capital equipment acquired through
lease financing was $1,929,810 and $95,680, respectively.
Cash Flow from Financing Activities. Net cash provided by financing
activities for the three months ended March 31, 1996 was $154,531, resulting
primarily from the exercise of warrants to purchase 247,621 shares of the
Company's Common Stock resulting in net cash proceeds to the Company of
$497,397, offset by $96,972 in principal payments related to current notes
payable and $245,894 in payments related to existing capital lease obligations.
Net cash provided by financing activities was $2,993,050, $5,328,596, and
$4,749,679 in fiscal 1995, 1994, and 1993, respectively.
19
<PAGE> 25
In 1995, the Company issued $3,860,000 in principal amount of its 10%
Subordinated Notes to certain private investors to refinance similar notes
maturing in 1995, resulting in net cash proceeds to the Company of $250,000. In
1995, the Company also issued $3,050,000 in principal amount of its 8%
Convertible Secured Notes to certain private investors, resulting in net cash
proceeds to the Company of $3,050,000. During 1995, warrants for the purchase of
327,412 shares of the Company's Common Stock were exercised, resulting in net
cash proceeds to the Company of approximately $1,088,080. In 1995, the Company
also repurchased 135,414 shares of its Common Stock pursuant to a rescission
offer, which resulted in the use of $738,660 in cash.
In 1994, the issuance of debt and equity resulted in the following net cash
proceeds to the Company: (i) the 1994 10% Subordinated Notes provided $3,610,000
in net cash proceeds; (ii) the initial offering of the Company's 8% Convertible
Secured Notes resulted in $1,950,000 in net cash proceeds; and (iii) warrants
and options to purchase shares of Common Stock were exercised resulting in
proceeds to the Company of $338,089.
In 1993, the Company issued and sold 667,062 shares of its Common Stock to
various private investors, resulting in net cash proceeds to the Company of
$4,733,534.
Future Capital Needs and Resources. The primary uses of capital are
expected to be the expansion of existing call centers, funding of start-up
operating losses for newly opened call centers, principal and interest payments
on indebtedness, and the purchase of equipment for the improvement of existing
and furnishing of new call centers.
In late 1995 and in the first quarter of 1996, the debt obligations of the
Company were significantly reduced through the exchange of $3,210,000 in
principal amount of its 10% Subordinated Notes for 611,440 shares of Common
Stock and conversion of $5,000,000 in principal amount of its 8% Convertible
Secured Notes into 2,164,402 shares of Common Stock. From July 1996 through
January 1997, the outstanding 10% Subordinated Notes will mature, resulting in
an obligation of the Company to make principal payments of $650,000, to the
extent that these Notes are not converted into Common Stock of the Company.
Although the Company currently has no material commitments for capital
expenditures, it anticipates that its capital expenditures will be up to
approximately $3,000,000 through the end of 1996, resulting primarily from
projected expansion and discretionary planned improvements. The Company believes
its existing cash and cash equivalents, credit facilities and cash from
operations, together with the net proceeds of this offering, will be sufficient
to fund its operations through the end of fiscal 1997. However, because the
Company's growth may require the opening of new call centers in addition to
those projected, the Company's capital requirements cannot be predicted with
certainty and there is no assurance that the Company will not require additional
financing during this period. There is no assurance that any required additional
financing will be available on terms satisfactory to the Company or not
disadvantageous to the Company's shareholders, including those purchasing shares
in this offering.
Effect of Inflation. The effect of inflation was not a material factor
affecting the Company's business during fiscal 1995, 1994, or 1993 or the three
months ended March 31, 1996.
20
<PAGE> 26
BUSINESS
The Company is a leading independent developer and provider of EDA for the
wireless telecommunications industry. The Company contracts with wireless
telecommunications carriers to provide enhanced directory assistance to a
carrier's subscribers. In 1989, the Company was incorporated, opened its first
call center and began testing and offering EDA services. In 1991, the Company
entered into its first contract to provide EDA services to a cellular carrier's
subscribers on a charge-per-call basis. The Company presently operates call
centers in the Baltimore, Chicago, Denver, Detroit, Miami, Minneapolis,
Philadelphia, Phoenix, San Diego, Seattle and Portland, Oregon metropolitan
areas. The Company additionally has contracted to provide EDA to carrier
subscribers in Milwaukee and St. Louis. Service is provided to seven wireless
telecommunications carriers, including cellular and PCS providers, under 12
multiyear contracts. In 1995, the Company handled over 20 million requests for
directory assistance on behalf of carriers.
The Company's EDA provides callers with personalized, easy-to-use directory
assistance. The Company's operators provide EDA with a high level of efficient,
personalized service. The Company's EDA includes several features in addition to
those provided by traditional directory assistance, including call completion,
categorical search and local event information. Call completion allows a caller
to be directly connected with the number requested, thus completing the call
without the need for redialing. The Company's StarBack feature enables a
subscriber to return to an operator at any time during a call. The Company is
developing additional EDA features including a broader array of connectivity
features and increased content. The Company believes that its EDA offers the
wireless consumer a feature-rich, user-friendly alternative to traditional
directory assistance.
In addition to addressing the needs of the wireless subscriber, the Company
believes that its EDA offers wireless carriers the opportunity to differentiate
their service by providing a high quality, value-added product to subscribers,
thereby assisting carriers in meeting heightened competition in the
telecommunications industry. The Company's array of connectivity features and
informational content, which can be offered to subscribers in various
configurations, allow the wireless carrier to distinguish its services from
competitors and establish a separate identity in the marketplace. The Company
believes that its EDA also increases carriers' revenues through expanded call
volumes and from the increased billable air time attributable to its EDA's
connectivity features. The Company has contracts with six of the 10 largest
domestic cellular carriers to deliver EDA to their subscribers in one or more of
their service areas, and with one of the nation's first PCS providers.
INDUSTRY BACKGROUND
Wireless telecommunications has been among the fastest growing segments of
the telecommunications industry during the 1990s. Industry experts predict
annual revenues to increase from less than $10 billion in 1990 to $50 billion by
1999. This growth stems largely from technological advances that provide
customers with affordable, high quality mobile services. Cellular is currently
the most widespread wireless technology with more than 33 million domestic
subscribers at the end of 1995, and is projected to grow to 47 million
subscribers by the year 2000. Other types of wireless communications
technologies, such as PCS and specialized mobile radio ("SMR"), are expected to
compete with cellular in the near future and enjoy rapid expansion. For example,
the number of PCS subscribers is projected to reach almost 15 million by the
year 2000.
Telecommunications carriers face increasing competitive pressures arising
from the deregulation of the domestic telecommunications industry. Landline
carriers which once enjoyed monopoly status in local markets now confront
competition from multiple providers. For example, the enactment of the
Telecommunications Act of 1996 effectively allows AT&T and other long-distance
providers to compete in local markets or Local Access Transport Areas ("LATAs").
Competition is especially pervasive in the wireless telecommunications
marketplace. The FCC has issued licenses to two cellular providers in every
domestic market and may issue as many as six licenses in each market to PCS
providers.
Because of this increasingly competitive environment, local, regional and
national telecommunications carriers confront intense pressure to differentiate
their products and establish brand loyalty. These pressures
21
<PAGE> 27
are particularly acute for wireless carriers who seek to increase market
penetration of their services and increase revenues while confronting
competition from rival carriers and new technologies. As the quality of wireless
services improves and achieves relative parity with competing services, wireless
providers must differentiate themselves by incorporating value-added features
into their services.
Carriers additionally face increased competitive pressures with respect to
the pricing of their services. In response to these pressures, carriers have
reduced airtime rates and increased their call volumes by targeting new
subscribers who use wireless services on a more limited basis. These trends are
reflected in the decline of average monthly service revenue per subscriber from
$74.10 in 1991 to $59.08 in 1995, causing carriers to pursue strategies that
increase the frequency and duration of use.
Increasingly, carriers are re-evaluating their existing services and
seeking opportunities that will allow them to compete more effectively and
increase usage. Directory assistance is one such feature that wireless carriers
can offer to differentiate their services. Traditional landline directory
assistance provides a customer with a requested party's phone number, but only
if specific identifying information, including name, spelling, and possibly
address, are supplied by the caller. To reduce labor costs and to achieve
greater operating efficiencies, carriers in recent years have consolidated
directory assistance operations and reduced reliance on operators through the
increased use of automated systems. These directory assistance operations strive
to decrease call processing times by limiting customer connect time.
Wireless subscribers need convenient and practical directory assistance in
which they are not hampered by the limited functionality of automated operators
or required to write down or memorize phone numbers. Wireless subscribers
benefit from an enhanced directory assistance that can deliver features beyond
mere phone listings, such as call connectivity and helpful information such as
categorical searches, local events and movie listings. In turn, carriers benefit
from increased subscriber loyalty and the revenues derived from more frequent
usage.
THE METRO ONE SOLUTION
Metro One gives wireless carriers the ability to deliver feature-rich,
easy-to-use personalized enhanced directory assistance to their subscribers. The
Company's EDA offers enhancements to traditional directory assistance, including
an array of connectivity features and the ability to supply wireless consumers
with a broader range of information, including categorical search and local
event information. With the Company's EDA, carriers can offer customized
configurations of these value-added connectivity and content features. These
custom feature sets are marketed and delivered with private label branding,
enabling the carrier to establish a distinct identity for its services. In
addition, the Company's connectivity features increase the call completion rate,
producing additional revenue for carriers through increased billable airtime.
The Company believes that carriers offering its EDA experience greater service
use and higher subscriber satisfaction and retention.
The Company's operating competencies, derived from the establishment and
operation of 11 call centers, allow it to provide carriers with a reliable, high
quality directory assistance product. The Company's contracts with carriers
impose stringent performance standards. The Company strives to maintain its high
quality of service through various quality assurance programs, including
employee training, operator monitoring and periodic carrier quality evaluations.
The Company's national call center network enables carriers which operate in
multiple markets to offer a consistent EDA, which promotes greater system-wide
marketing and brand identification.
METRO ONE'S STRATEGY
Metro One's mission is to be the leading provider of operator-assisted
information services. The key elements of Metro One's strategy for fulfilling
that mission are:
Continuously offer value-added products and features. Metro One is
defining a new standard for directory assistance by delivering directory
assistance solutions which meet the particular needs of wireless
telecommunications consumers. Metro One is enhancing and expanding its feature
offerings to include new
22
<PAGE> 28
advanced connectivity capabilities, including operator return and messaging, and
is improving its database systems to include additional local event information
and more and different types of useful information. Through continuous expansion
of its feature sets, enrichment of its database and enhancement of its search
capabilities, Metro One believes it will attract and retain carriers and set an
ever increasing expectation for value-added enhanced directory assistance.
Expand into new geographic markets. Metro One expects to continue to
expand its national network of call centers into new geographic markets served
by existing carrier customers, which increasingly demand consistent service
across their national networks. Metro One intends to build on these existing
carrier relationships to rapidly increase its share of the wireless
telecommunications directory assistance market. The Company also plans to offer
enhanced directory assistance from these new call centers to additional cellular
carriers and to PCS carriers as that technology is introduced. Metro One's
operational competencies and extensive experience developing and maintaining its
existing call center network will help the Company to penetrate these new
geographic markets successfully.
Leverage existing infrastructure. Metro One intends to exploit its
national call center network to provide service to additional wireless carriers
and regional subscribers from existing call centers. By leveraging its
established call center network, Metro One expects to expand call volumes
particularly by providing EDA to regional subscribers who can now be served more
readily as a result of the deregulation of the telecommunications industry.
Metro One also intends to further leverage its directory assistance database
systems to provide national directory assistance and national call connectivity.
Achieve greater operating efficiencies. Metro One is developing and
implementing software enhancements and adding new hardware to its EDA systems to
increase the productivity of its operators. These improvements are expected to
give operators the ability to perform more sophisticated information searches
with faster data retrieval, and provide them with the ability to efficiently
query multiple data bases. Coupled with improved personnel training programs and
operator monitoring capabilities, these enhancements are expected to permit the
Company to deliver its EDA to carrier subscribers more efficiently while
increasing call center profitability.
Pursue opportunities to provide additional operator-assisted
services. Metro One intends to expand its product offerings to include
information services that complement its enhanced directory assistance. The
Company is exploring such offerings as direction services, messaging and
concierge services. The development and implementation of these services are
intended to generate incremental revenue for the Company while raising consumer
expectation for operator assisted information services.
23
<PAGE> 29
CUSTOMERS AND MARKETS
The Company provides its EDA to six of the nation's largest cellular
carriers in a portion of their service areas and to one of the first carriers to
establish domestic PCS service.
The following table identifies the 25 largest domestic cellular markets,
based on estimated total subscribers, and sets forth the two licensed cellular
carriers in those markets. Carriers who have contracted with Metro One to
provide EDA services in those markets are indicated in bold-faced type.
<TABLE>
<CAPTION>
ESTIMATED CELLULAR LICENSEE
TOTAL CELLULAR --------------------------------------------------
RANK METROPOLITAN MARKET SUBSCRIBERS A B
- ---- ----------------------- -------------- ------------------------ ------------------------
<C> <S> <C> <C> <C>
1 Los Angeles, CA........ 1,640,946 Bell South AirTouch Cellular
2 New York, NY........... 1,260,885 AT&T Wireless Bell Atlantic NYNEX
Mobile
3 Chicago, IL............ 1,188,043 Southwestern Bell Mobile AMERITECH CELLULAR
4 Washington, D.C./
Baltimore, MD.......... 935,529 Southwestern Bell Mobile BELL ATLANTIC NYNEX
MOBILE
5 Miami, FL/West Palm
Beach, FL.............. 863,645 AT&T Wireless BELLSOUTH CELLULAR
6 Detroit, MI............ 746,113 AirTouch Cellular/AT&T AMERITECH CELLULAR
Wireless
7 SAN FRANCISCO, CA/
SAN JOSE, CA........... 744,135 AT&T WIRELESS/AIRTOUCH GTE MOBILNET
CELLULAR
8 BOSTON, MA............. 686,384 SOUTHWESTERN BELL MOBILE BELL ATLANTIC NYNEX
MOBILE
9 PHILADELPHIA, PA....... 654,617 COMCAST CELLULAR BELL ATLANTIC NYNEX
COMMUNICATIONS MOBILE
10 Atlanta, GA............ 609,145 AirTouch Cellular BellSouth Cellular
11 Dallas, TX............. 583,191 AT&T Wireless Southwestern Bell Mobile
12 Houston, TX............ 560,691 AT&T Wireless/Bell South GTE Mobilnet
13 Seattle, WA............ 425,975 AT&T WIRELESS US WEST NEWVECTOR
14 San Diego, CA.......... 380,545 GTE MOBILNET AirTouch Cellular
15 Tampa, FL.............. 349,251 AT&T Wireless GTE Mobilnet
16 Minneapolis, MN........ 347,999 AT&T WIRELESS US WEST NEWVECTOR
17 Phoenix, AZ............ 346,017 Bell Atlantic NYNEX US WEST NEWVECTOR
Mobile
18 St. Louis, MO.......... 328,658 AMERITECH CELLULAR Southwestern Bell Mobile
19 Denver, CO............. 324,904 AT&T WIRELESS US WEST NEWVECTOR
20 Sacramento, CA......... 309,395 AT&T Wireless AirTouch Cellular
21 San Antonio, TX........ 293,141 AT&T Wireless Southwestern Bell Mobile
22 Cleveland, OH.......... 292,888 New Par GTE Mobilnet
23 Portland, OR........... 276,779 AT&T WIRELESS US West NewVector
24 Orlando, FL............ 272,390 AT&T Wireless BellSouth Cellular
25 Kansas City, MO........ 250,250 AT&T Wireless Southwestern Bell Mobile
</TABLE>
The Company believes that these major metropolitan areas represent its
greatest opportunities for future growth. Cellular usage in these markets has
attained sufficient levels to provide profitable call volumes. Competition among
carriers for these subscribers increases carrier need for features that can
differentiate their services. The Company targets all domestic cellular carriers
and carriers developing and offering emerging
24
<PAGE> 30
telecommunications technologies in market areas where it presently offers EDA.
The Company strives to expand relationships with existing carrier customers and
to establish relationships with new carrier customers in markets where the
Company's EDA presently is not offered.
The Company provides substantially all of its EDA services under 12
separate contracts that range in term from two to five years. Under the EDA
contracts, the carrier generally agrees to route all local directory assistance
calls to the Company. However, these contracts generally allow the Company to
offer EDA services to competing carriers. The Company contractually agrees to
staff its EDA operations centers 24 hours a day, seven days a week, 365 days a
year, with a sufficient number of operators to perform the contracted services
within specified performance requirements.
The Company offers its services on behalf of the carrier under a brand name
selected by that carrier. For example, the Company presently offers its EDA to
AT&T Wireless subscribers in various markets as "AT&T Connect." The carrier is
responsible for all aspects of marketing, including advertising and related
costs. Although each carrier establishes its own fee structure with its
subscribers, Metro One charges carriers for its service on a per call basis and
the carrier is obligated for the charges regardless of whether it is paid by the
subscriber. Generally, these per call charges remain fixed for the term of the
contract, subject only to consumer price index adjustments.
In 1995, seven customers accounted for substantially all of the Company's
$13.0 million in revenues. The Company's three largest customers, US West
NewVector, Ameritech Cellular and Bell Atlantic NYNEX Mobile, accounted for
approximately 72 percent of revenues in 1995. In 1994, six customers accounted
for all of the Company's revenues and the top three customers, US West
NewVector, BellSouth Cellular and AirTouch Cellular, accounted for approximately
81 percent of revenues.
During the first quarter of 1996, the Company's contract with AirTouch
Cellular in the San Diego market expired. Although the Company participated in a
competitive bidding process, the Company was unable to secure renewal on terms
and conditions that were acceptable to the Company. During the negotiations, the
carrier sought rates below prior contract rates and an exclusivity commitment in
markets served by the carrier. As of May 6, 1996, another vendor began handling
calls for the carrier in the San Diego market from remote call centers. The
Company continues to serve a competing carrier in the San Diego market.
In July 1994, AirTouch Cellular and US West NewVector announced their
intention to combine their cellular properties in a multi-phase transaction.
AirTouch Cellular has also formed a partnership, called TOMCOM, L.P., with Bell
Atlantic and NYNEX to develop common service standards, pursue national
marketing strategies, develop information technology, create a national
distribution strategy and implement joint purchasing arrangements. Unlike the
AirTouch Cellular/US West NewVector partnership, however, TOMCOM does not
contemplate a merger of cellular properties. Two of the Company's contracts with
certain of those TOMCOM participants are up for renewal in 1997, with three in
subsequent years.
While the implications of the non-renewal of the AirTouch Cellular EDA
contract for its San Diego market are unclear, the Company believes this
decision may serve as a precedent for AirTouch Cellular and the other TOMCOM
participants as they establish or consider the renewal of EDA contracts in other
markets in the future. Accordingly, there can be no assurance that the Company
will be provided the opportunity to renew its contracts with US West NewVector
or any other TOMCOM participant or that the Company will have the opportunity to
obtain new contracts with any of these carriers in the future. If these
contracts are not renewed, there is no assurance that the Company will be able
to replace these contracts with contracts with other carriers. Contracts with
TOMCOM participants accounted for approximately 50% of the Company's revenues in
1995. The failure of the Company to obtain renewal of those contracts or to
obtain replacement contracts would have a material adverse effect on the
Company's business, financial condition and results of operation.
25
<PAGE> 31
PRINCIPAL PRODUCT AND PRODUCT FEATURES
Enhanced Directory Assistance. Metro One delivers its EDA using a
customized array of hardware and software and the Company's database and search
engines. The Company receives incoming calls by means of contractually assigned
directory assistance numbers, typically 411 or 555-1212. Calls are answered by
the Company's operators, identifying the EDA service using the carrier's brand
name. Upon receiving information requests from subscribers, Company operators
search the Company's local database utilizing various search engines. The
Company's EDA system allows the operator to connect the caller to a party or, if
requested, supply the subscriber with a telephone number, address, or other
information, including local events or businesses of a certain type within a
specific locality. The fee for this service is fixed by the carrier, and
typically ranges from $.50 to $.75 plus airtime charges. The Company's system
compiles billing information that is, in some cases, furnished to the carrier
for subscriber billing and collection.
Connectivity features. The Company's EDA incorporates connectivity
features at no additional charge to carriers, which are engineered to
address specific needs of mobile users. The Company's call completion
feature directly connects a subscriber to a requested business or residence
without the requirement of additional dialing. This feature is particularly
useful to the mobile consumer because it eliminates the need to write down
or memorize a phone number. Metro One's StarBack feature allows a caller to
return immediately to an operator simply by pressing the (*) key once on
their telephone. This feature allows a caller immediate access to an
operator if a call is unanswered or if the number is busy, permitting the
caller to request alternate connections.
Content features. The Company's database and search engine
development activities have focused on the creation of valuable features
which distinguish the Company's EDA from traditional directory assistance.
The Company's database system is derived from a variety of sources,
including data purchased from RBOCs, independent telephone companies and
other commercial sources. The Company supplements this information with
localized information, including information relating to local events and
amenities. Unlike traditional directory assistance, the Company's EDA
permits categorical searches of its database, allowing operators to provide
more comprehensive information to callers. For example, a party may request
the identities, addresses and telephone numbers of a business of a certain
type in a specific locale. The Company has the capability to customize a
local database to include specialized information at the request of a
carrier customer. The Company believes that these features are of
particular value to wireless subscribers who often seek information while
in transit.
New features and products. The Company is developing features which
complement the Company's current array of connectivity and content features
while providing additional utility and value to the wireless subscriber. The
Company believes that the development of new features is an important component
of its strategy to define a new standard for directory assistance and to thereby
widen customer acceptance of enhanced directory assistance. The Company has
experienced delays in the development of new features in the past, and there can
be no assurance that the Company will successfully complete the development or
introduction of new features and products on a timely basis or that such
features and products will achieve market acceptance.
Search engines. The Company is upgrading its database system and
search engines to broaden the categorical search capabilities employed by
its operators. When implemented, these search engines are intended to
permit additional keyword, phonetic and logical search capabilities. It is
anticipated that these new software tools will be introduced in the
Company's call centers throughout 1996. The Company believes that these
tools will improve EDA search times, resulting in faster call processing.
Connectivity features. The Company plans to introduce several new
connectivity features during 1996 which will further differentiate its EDA
from traditional directory assistance. These additional features are
expected to include AutoBack--the ability to automatically return a caller
to an operator if a busy signal or no answer is detected; NumberBack--the
ability to deliver the digits of a called number to a caller in several
formats; MessageBack--the ability to deliver a caller's message to the
called party at a later time if connection is not initially established;
and CallBack--the ability to connect the called party to the calling party
at a later time.
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<PAGE> 32
National database access and inter-LATA connectivity. The Company is
upgrading its call center work stations to allow operators to efficiently query
both their local database and other databases throughout the Company's national
call center network. When completed, the Company's databases are expected to be
accessible from any call center, thereby creating a national database of
directory assistance information. This development, coupled with the ability of
operators to effectively connect calls to any domestic phone number in its
database, will allow carriers to provide their subscribers with a superior
national EDA.
Operator-assisted services. The Company also intends to expand its product
offerings to include information services that complement its EDA. The Company
is exploring such offerings as direction services -- providing point-to-point
directional information to callers; messaging -- delivering alpha-numeric
messages to the desired party's digital handset; and concierge
services -- providing operator-assisted concierge information for the
hospitality industry and other corporate customers.
OPERATIONS
Call centers. The Company presently maintains call centers in the
Baltimore, Chicago, Denver, Detroit, Miami, Minneapolis, Philadelphia, Phoenix,
San Diego, Seattle and Portland, Oregon metropolitan areas. Call center premises
are leased by the Company and range in size from approximately 3,000 to 11,000
square feet. The Company seeks to match the terms of these leases to the terms
of its contracts with carriers at each site, obtaining renewal rights where
possible. In its call center site selection process, the Company works with
carriers to identify locations which provide easy access to T1 and T3
transmission facilities. In addition, the Company seeks to obtain locations
which are readily accessible to its workforce.
Call centers typically are configured using modular work stations, such
that each operator has a station for their terminal and related database
materials. Because the Company's call centers are operational 24 hours a day,
work stations may be used by three or more operators during a business day.
Database, database management system and search engines. The Company
develops a principal database for each call center, obtaining data from a
variety of sources including RBOCs, independent telephone companies and other
commercial sources. The Company's local database is augmented by access to
supplemental databases on a subscription basis. The Company has developed a
database management system that it uses to maintain and update directory
listings in its database. The Company receives periodic updates from certain of
its data sources which are incorporated into its databases on a regular basis.
The Company has developed search engines to access information within its
databases. The Company currently is upgrading its database management system and
search engines to broaden the categorical search capabilities enjoyed by
operators. When implemented, the search engines are expected to enable
additional key word, phonetic and logical search capabilities. The Company
anticipates that these software enhancements will be introduced in its call
centers throughout 1996.
EDA system. Metro One's EDA system incorporates programmable switching
equipment, host computers, voice response units and database servers. The
Company contracts with value-added resellers to assist in programming its
switches and host computer systems. This software enhances its call handling and
billing capabilities and provides the basis for the Company's connectivity
features.
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<PAGE> 33
[Call Routing Diagram]
Diagram of a typical Metro One EDA system including the database management
system (DBMS), the Sun Microsystems server, the router, the voice response unit
(VRU), the Excel Switch, the electronic white pages (EWP), and the
interconnections between these subsystems and Metro One's operators and a
carrier customer. Interconnects include T1 and T3 transmission facilities, a
wide area network (WAN) and a data network.
A subscriber call is routed to a Metro One call center over T1 or T3
transmission facilities between a carrier's switching center and the call
center. The call is processed by Metro One's switch and routed to an operator. A
voice response unit greets the caller with a message recorded by the specific
operator to whom the call is routed. At the conclusion of the greeting, the
operator attends to the caller's directory assistance request, generally by
utilizing Metro One's computerized database system and search engines.
Once the requested information is provided to the caller, the caller is
connected directly to the requested number. Because the subscriber's call is
routed through Metro One's switch, the caller can use the StarBack feature to be
immediately returned to an operator at any time during the call. This call
processing configuration permits the Company to offer additional connectivity
features through the programming of its switch and host computer.
Quality assurance. Particularly because the Company's EDA is provided to
subscribers on a branded basis, the Company believes that the quality and
reliability of its EDA services are important considerations in a carrier's
decision to offer the Company's EDA. The Company provides carriers broad EDA
options, including system design, configuration and feature sets. Once a new
call center is operational, the Company and carrier subject the center to
extensive testing before service is initiated.
In addition to supplying billing information to carriers, the Company
monitors call center performance for compliance with contract performance
standards and reports this information to carriers on a periodic basis. The
Company conducts weekly, monthly and quarterly reviews of call center
performance, including operator monitoring. The Company has centralized its
employee training which allows it to achieve more uniform performance throughout
its call center network. Metro One solicits performance evaluations from its
customers on a quarterly basis. The Company's systems maintenance and support
personnel are accessible to customers on a 24-hour basis.
MARKETING
The Company markets directly to telecommunications carriers. Sales and
technical support personnel are based at the Company's corporate headquarters in
Beaverton, Oregon. In addition, the Company's regional managers, who oversee the
Company's call center network, are also a key element in the maintenance and
development of carrier relationships.
The Company's major marketing programs focus on product awareness
principally through trade shows, marketing materials, including brochures and
videotape presentations, and direct contacts with telecommunications carriers.
There are several major industry conferences that are keystones to the Company's
marketing program. These include the annual Cellular Telecommunications Industry
Association and the annual Personal Communications Industry Association
conferences. The Company maintains communications with its existing carrier
customers through its quality assurance and customer service programs, which
afford the Company the opportunity to receive information regarding evolving
carrier needs.
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<PAGE> 34
By receiving input from carriers, the Company is able to design its
products to effectively serve their needs and those of their subscribers. If
carriers have particular needs which cannot be met by the Company's standard
system configuration, the Company strives to customize the system and its EDA
product to meet their specific needs.
COMPETITION
The enhanced directory assistance market is characterized by rapidly
changing market forces, technological advancements and increasing competition
from large carrier-affiliated companies and small, independent companies. The
Company's principal competitors include RBOC-owned or -affiliated carriers or
non-RBOC affiliated carriers, including GTE. In addition to traditional
directory assistance, many of these competitors offer a directory assistance
call completion feature. Although the Company believes that none of these
competitors presently offers a form of enhanced directory assistance that
incorporates all the connectivity and content features of the Company's EDA,
these competitors have substantially greater financial, technical and marketing
resources than the Company and may be able to do so in the future. The Company
also faces competition in various markets from independent companies seeking to
offer forms of enhanced directory assistance.
The Company believes that the principal competitive factors in the enhanced
directory assistance market are quality of product, available features,
technological innovation, experience, responsiveness to customers, and price.
Historically, the Company has sought to distinguish itself from competitors
based on the quality of its product, the development of useful features and its
experience derived from successfully establishing a national network of call
centers. Although the Company has not experienced widespread competitive
pressures with respect to the pricing of its product, there can be no assurance
that the Company will not experience price or margin pressures in the future.
The Company believes, however, that its future growth will depend on its ability
to maintain and improve the quality of its product, and to develop and
successfully introduce new connectivity features and content.
INTELLECTUAL PROPERTY
The Company regards certain aspects of its products and their features and
processes as proprietary and relies on a combination of trademark, patent and
trade secrets laws and confidentiality procedures to protect its proprietary
rights. The Company has applied for five patents covering certain aspects of the
Company's product features and processes. There can be no assurance that patents
will issue with respect to any of these applications. The Company's policy has
been to enter into confidentiality agreements with all employees and limit
access to its documentation and other information related to its intellectual
property. Despite these activities, however, no assurance can be given that the
steps taken by the Company will provide adequate protection of its proprietary
product features or processes or that competitors will not develop similar or
functionally equivalent product features or processes.
The Company believes that its product development and marketing
capabilities have been of greater importance to the Company's business than
legal intellectual property protection. Likewise, although the Company believes
that obtaining patent protection may provide benefits to the Company, the
Company does not believe that its business is dependent on obtaining patent
protection or successfully defending any such patents that may be obtained
against infringement by others.
The Company has obtained service mark registrations in the United States
for the names "StarBack," "Metro One," "EDA," "Enhanced Directory Assistance,"
and "the Enhanced Directory Assistance People." "AutoBack," "NumberBack,"
"SureConnect," "MessageBack," "CallBack," and "TeleConcierge" are also service
marks of the Company. Service mark registration applications are pending in the
United States with respect to these marks used by the Company. This Prospectus
also includes trademarks and tradenames of companies other than Metro One.
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<PAGE> 35
GOVERNMENT REGULATION
The Company's business depends upon relationships with companies that are
regulated by the FCC or state PUCs. Such regulation applies to all
communications common carriers, such as AT&T, RBOCs and other long distance and
local exchange carriers. Enhanced service companies such as the Company are
subject to various levels of regulation or are completely unregulated on a
state-by-state basis.
EMPLOYEES
As of March 31, 1996, the Company had approximately 500 employees. None of
the Company's employees are subject to a collective bargaining agreement.
Management of the Company considers its relationship with its employees to be
good.
PROPERTIES
The Company leases its principal executive and administrative offices at
8405 S.W. Nimbus Avenue, Beaverton, Oregon, comprising approximately 15,400
square feet, for a remaining term of six years with a renewal option. The
Company also leases office facilities for its EDA operations in the Baltimore,
Chicago, Denver, Detroit, Miami, Minneapolis, Philadelphia, Phoenix, St. Louis,
San Diego, Seattle and Portland, Oregon metropolitan areas. There are 13
facility leases in effect at May 31, 1996 with remaining terms ranging from one
to six years.
The Company believes that its facilities are suitable and adequate for its
presently anticipated requirements and that it is not dependent upon any
individual leased premises.
SECURITIES LAW ISSUES
Between 1989 and 1993, the Company financed its activities through
offerings of its Common Stock and debt securities that were converted into
shares of its Common Stock. Such securities were sold directly to approximately
560 persons. During a review of these past financing activities in 1993, the
Company's management was unable to conclude that all applicable state and
federal securities laws had been complied with in all material respects in
connection with these offerings. A violation of state or federal securities laws
in connection with an offering of securities generally gives the purchaser the
right to rescind the transaction and obtain from the issuer the original
purchase price for the securities or, if the securities have been subsequently
disposed of, the difference between the price paid for the securities and the
amount obtained on disposition, plus interest at a statutory rate from the date
of purchase. The blue sky laws of Oregon and some other states permit an issuer
to extinguish the rights of a purchaser of securities to bring a suit based on
violation of the state's blue sky laws by offering to rescind the transaction
and pay the purchaser the amount of damages that he would have been entitled to
receive, as explained in the previous sentence. However, the SEC takes the
position that liabilities under the federal securities laws are not terminated
by the making of a rescission offering.
In 1994, the Company voluntarily executed a Consent Order with the State of
Oregon Division of Finance and Corporate Securities in which the Company agreed
to cease and desist from participating in any violations of Oregon securities
laws and paid a civil penalty of $20,000.
In 1995, the Company offered to each holder of its Common Stock as of March
31, 1995 who resided in Oregon the right to rescind the holder's purchase of
shares of the Company's Common Stock. Sales of 135,414 shares of the Company's
Common Stock were rescinded pursuant to the rescission offering, resulting in
payment by the Company of approximately $738,660 to certain of its former
shareholders, which included interest of approximately $124,900.
The Company believes that its potential rescission liability to
shareholders who received the rescission offer for possible violations of Oregon
and federal law has been effectively eliminated as a result of the rescission
offer or the running of applicable statutes of limitation.
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<PAGE> 36
In addition, the rescission offer was made to holders of 119,843 shares of
the Company's Common Stock who resided in states in which the Company did not
register its rescission offer, and the rescission offer was not made to holders
of 528,215 shares of the Company's Common Stock who resided in states whose
securities laws do not permit rescission offerings or impose terms and
conditions on such offerings which were unacceptable to the Company. These
holders of 648,058 shares of Common Stock originally purchased such shares of
Common Stock from the Company at prices ranging from $0.88 to $8.05 a share;
515,064 of these shares were purchased for $4.38 a share or less. Although the
Company also believes that its potential rescission liability to many of these
shareholders may have been eliminated by the running of applicable statutes of
limitation, there can be no assurance that claims asserting violations of
federal or state securities laws will not be asserted against the Company or
that certain holders will not prevail against the Company in the assertion of
such claims, thereby compelling the Company to repurchase their shares. If all
of these holders successfully asserted claims that the Company repurchase their
shares, the Company believes it would be required to pay to these holders
approximately $2,049,162, plus approximately $525,000 in statutory interest, to
repurchase $648,358 shares of the Company's Common Stock, representing an
average repurchase price of approximately $3.16 a share. Even if the Company
were successful in defending any securities law claims, the assertion of such
claims against the Company additionally could result in costly litigation and
significant diversions of effort by the Company's management.
LEGAL PROCEEDINGS
In May 1993, as a means of rapidly responding to a market opportunity in
Arizona with US West NewVector, the Company entered into a Leasing and Business
Transfer Agreement (the "Leasing Agreement") with Metro Direct Information
Services of Phoenix ("Arizona Direct"), an unaffiliated third party and former
licensee of the Company's initial value-added EDA product. The Leasing Agreement
provided financing for the Company of substantially all required equipment and
furniture in its Arizona operations center and is similar, in some respects, to
a joint venture agreement. The Leasing Agreement provided for a formula-based
profit sharing arrangement between the Company and Arizona Direct, which was to
become effective after the Company had recouped all start-up costs from the
Arizona operation. At the earliest appropriate time, at the Company's
discretion, the Company was obligated to request that its rights under the US
West NewVector contract for Arizona be transferred to Arizona Direct. If such a
transfer had occurred, the profit sharing arrangement was to be replaced by a
royalty arrangement under which the Company would have received a royalty for
each cellular call handled by Arizona Direct. If the transfer had been denied or
otherwise did not occur, the formula-based profit sharing arrangement was to
govern the business relationship between the Company and Arizona Direct until
the transfer or the end of the US West NewVector agreement. In December, 1994,
the Company notified Arizona Direct that it believed Arizona Direct was in
default of its obligations under the Leasing Agreement. The Company has declared
the Leasing Agreement terminated. Arizona Direct has given the Company notice of
its belief that the Company has breached the Leasing Agreement as well. The
Company has denied those allegations.
In connection with the Leasing Agreement, the Company and several of its
officers have been named as defendants in a complaint filed in U.S. District
Court for the District of Arizona in June 1994 by Arizona Direct (and the
purported principal shareholders of Arizona Direct). The complaint alleges,
among other things, that the Company and its officers defrauded the plaintiffs
by entering into the Leasing Agreement and, further, violated securities laws as
the plaintiffs believe the Leasing Agreement to constitute a security as that
term is used in state and federal securities regulations. Additionally, the
complaint alleges that the Company and several of its officers violated
securities laws by selling securities in the plaintiff company to the individual
plaintiffs in the amount of $507,000 and otherwise causing the individual
plaintiffs to invest in Arizona Direct. The complaint seeks damages, including
punitive damages, in an amount to be determined by the court. The Company and
its officers answered the complaint denying liability, and moved to dismiss
certain aspects of the suit and to change the venue from Arizona to Oregon. The
court granted these motions, transferred the case to the U.S. District Court for
the District of Oregon and gave Arizona Direct leave to re-plead. Arizona Direct
filed an amended complaint in March, 1995 which did not substantially alter the
claims previously made. The Company moved to dismiss certain claims, which
motions were granted in part. The Company has counterclaimed for breach of the
Leasing Agreement and for tortious interference with the Leasing
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<PAGE> 37
Agreement against Arizona Direct's principal shareholders. In October 1995,
Arizona Direct filed an action against the Company in the U.S. District Court
for the District of Oregon seeking, among other things, damages for alleged
breach of the Leasing Agreement. This action has been consolidated with the
pending case originally filed in Arizona and subsequently transferred to Oregon.
Discovery is ongoing in both cases. The Company believes the allegations to be
without merit. No assurance can be given that the Company or any of its officers
will be successful in defending this legal action.
On May 20, 1996, two shareholders filed a civil action in the Superior
Court of the State of Washington for King County in which the plaintiffs allege
that the Company violated securities laws of the State of Washington by selling
to the plaintiffs 147,200 shares of the Common Stock of the Company in 1993
which had not been registered under Washington law and by omitting material
facts and making untrue statements in connection with those sales. See "Risk
Factors -- Rescission Rights of Certain Shareholders" and "Securities Law
Issues." In its complaint, the plaintiffs seek damages in the amount of the
consideration paid for the shares, $332,560, together with interest at the
Washington statutory rate of 8% per annum. The Company believes that it has
meritorious defenses to the plaintiffs' claims and intends to vigorously defend
the litigation.
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MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Timothy A. Timmins....................... 39 President, Chief Executive Officer and Director
Patrick M. Cox........................... 34 Executive Vice President, Chief Operating
Officer, Secretary and Director
Kevin S. Anderson........................ 32 Senior Vice President -- Directory Assistance
Services
Stebbins B. Chandor, Jr.................. 36 Senior Vice President and Chief Financial
Officer
Gary E. Henry............................ 39 Vice President -- Field Operations
Karen L. Johnson......................... 46 Vice President -- Controller
Michael A. Kepler........................ 33 Vice President -- Information Systems
A. Jean de Grandpre...................... 75 Chairman of the Board
G. Raymond Doucet........................ 53 Director
William D. Rutherford.................... 57 Director
</TABLE>
TIMOTHY A. TIMMINS serves as President, Chief Executive Officer and
Director of the Company. He served as the Company's Executive Vice President and
Chief Financial Officer from 1993 to 1995. From 1985 to 1993, Mr. Timmins served
in various capacities within the Investment Banking Division of Kemper
Securities, Inc. and predecessor firms, ultimately as Senior Vice President. Mr.
Timmins is a certified public accountant and holds a Bachelor of Science degree
in Business Administration from Portland State University and a Masters degree
in Business Administration from the University of Southern California.
PATRICK M. COX serves as Executive Vice President, Chief Operating Officer,
Secretary and Director of the Company. Since the Company's inception in 1989
through October 1993, Mr. Cox served as Chairman of the Board of Directors,
President and Chief Executive Officer or similar positions. From 1986 to 1989,
Mr. Cox was a Director and Vice President of Line One Telecommunications, Inc.,
a company that installed and serviced private communications networks and served
as a sales, service and repair center for Cellular One. Mr. Cox is a member of
the National Association of Radio and Telecommunications Engineers and is a
NARTE Certified Engineer Class One.
KEVIN S. ANDERSON serves as Senior Vice President -- Directory Assistance
Services of the Company. Since its inception in 1989, Mr. Anderson has served in
various capacities including President and Executive Vice President. From 1988
to 1989, Mr. Anderson served as Vice President of Operations for Line One
Telecommunications, Inc. Mr. Anderson holds a Bachelor of Science degree in
Business Administration from Oregon State University.
STEBBINS B. CHANDOR, JR. joined the Company in September 1995 and serves as
Senior Vice President and Chief Financial Officer of the Company. From 1985 to
1995, Mr. Chandor served in various corporate finance capacities with BA
Securities, Inc., a wholly-owned subsidiary of BankAmerica Corporation, and
affiliated or predecessor firms including Bank of America N.A. and Continental
Bank N.A. He specialized in structured finance/asset securitization and
mezzanine debt financing. Mr. Chandor holds a Bachelor of Science degree in
Chemical Engineering from Tufts University and a Masters degree in Business
Administration from the University of Southern California.
GARY E. HENRY joined the Company in 1993 and serves as Vice
President -- Field Operations. Prior to joining the Company, Mr. Henry was
Senior Vice President, Corporate Services Director for Imperial Corporation of
America, Inc., a financial institution, with whom he had been employed since
1985. He holds a Bachelor of Arts degree in Public Administration from San Diego
State University.
KAREN L. JOHNSON joined the Company in November 1993 as Controller. From
1989 to 1993, she was Financial Operations Manager for Care Medical Equipment,
Inc. and Care Ambulance, Inc. Ms. Johnson is a
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<PAGE> 39
certified public accountant with a Bachelor of Arts degree from St. Olaf
College, and she performed post-graduate work in accounting and business
administration at Portland State University.
MICHAEL A. KEPLER has served as Vice President of Information Systems for
the Company since 1993. From 1989 to 1993 he held a similar position as Director
of Information Systems. From March 1989 until joining the Company, Mr. Kepler
was a programmer with ComLink West, a computer services company that performed
contract programming for the Company. During 1988 and early 1989, he was an
Engineering Technician with Single Board Systems and an Assembly and Testing
Technician with Hewlett-Packard.
A. JEAN DE GRANDPRE is Chairman of the Board of Directors of the Company.
Mr. de Grandpre is the founding Director and Chairman Emeritus of Bell Canada
Enterprises. He currently serves on the boards of the Canadian Advisory Board of
BJB International Management Textron Canada Ltd., Thera Technologies and the
Jeanne Sauve Youth Foundation. He is a former Director of Bell Canada, Northern
Telecom Limited, Chrysler Corporation, Chrysler Canada Ltd., and the
International Advisory Board of The Chemical Bank, New York. Mr. de Grandpre is
a Life Member of the Canadian Bar Association, Emeritus Member of the Canadian
Association of Canadian General Counsel, Member of the Bar of the Province of
Quebec and former Chancellor of McGill University. Mr. de Grandpre is a lawyer,
appointed Queen's Counsel, a Companion of the Order of Canada, the highest
honour granted a private citizen. Mr. de Grandpre is the recipient of the
Honourary Associate Award of the Conference Board of Canada and is an inductee
into the Canadian Business Hall of Fame.
G. RAYMOND DOUCET serves as a Director of the Company. Mr. Doucet is the
President and Chief Executive Officer of TeleZone Corporation, a Toronto-based
telecommunications company. He is also is President and Chief Executive Officer
of Douserv Management Inc., a Montreal-based holding Company. From 1984 to 1991,
he was the Chairman and Chief Executive Officer of Radcel Communications Inc.
which was purchased by Rogers Communications, Inc. Prior to that, he was
President of Douserv Group Inc., a company offering consulting, marketing and
operational services to the telecommunications industry. From 1965 to 1974, Mr.
Doucet was the Director of Technical Services with Bell Canada where he was
responsible for the planning and development of transmission and distribution
networks. Mr. Doucet serves on the boards of directors of Doucet & Associates
Consultants Inc., Servco Quebec Inc. and TeleZone Inc.
WILLIAM D. RUTHERFORD was elected to the Board of Directors of the Company
at a Special Meeting of the Shareholders on November 29, 1995. Mr. Rutherford
was a principal with Macadam Partners, a Portland-based investment firm. He was
formerly the Treasurer of the State of Oregon, where he was responsible for the
State's then $14 billion investment program and the state's then $7.5 billion in
indebtedness and during which service he was elected Chairman of the Oregon
Investment Council. He also served for seven years as a Member of the Oregon
House of Representatives. From 1994 to 1995, Mr. Rutherford served as Director
of Special Projects for Metallgesellschaft Corp., a multi-billion dollar
international trading company. From 1990 through 1993, Mr. Rutherford was
President and a director of Societe Generale Touche Remnant Corporation (U.S.),
an international asset management company. From 1987 to 1990, Mr. Rutherford was
President and Chief Executive Officer of ABD International Management
Corporation, an international asset management company. Mr. Rutherford formerly
practiced law and served as the Chief Executive Officer of a regional investment
firm. A U.S. Army veteran, Mr. Rutherford received a Bachelor of Science in
History from the University of Oregon in 1961 and an LL.B. from Harvard
University Law School in 1964.
Pursuant to the Company's Second Restated Articles of Incorporation, at any
time when the Board of Directors consists of six or more members, the Board of
Directors is divided into three classes serving staggered three-year terms.
Directors are otherwise elected to serve one-year terms. Executive officers are
appointed by and serve at the discretion of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors appointed a Compensation Committee in 1995. The
Compensation Committee reviews executive compensation and makes recommendations
to the full Board regarding changes in compensation, and also administers the
Company's stock option plans. The members of the Compensation Committee are
Messrs. de Grandpre and Doucet. The Board of Directors appointed a standing
Audit
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<PAGE> 40
Committee in 1996. The Audit Committee reviews the scope of the independent
annual audit, the independent public accountants' letter to the Board of
Directors concerning the effectiveness of the Company's internal financial and
accounting controls and facilitates the preparation of the Board of Directors'
response to that letter, if deemed necessary. The members of the Audit Committee
are Messrs. de Grandpre, Doucet and Rutherford. The Board of Directors acts as a
nominating committee for selecting nominees for election as directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Articles of Incorporation eliminate, to the fullest
extent permitted by Oregon law, liability of a director to the Company or its
shareholders for monetary damages for conduct as a director. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his or her responsibilities under any other law, including the federal
securities laws.
The Company's Restated Articles of Incorporation require the Company to
indemnify its directors to the fullest extent not prohibited by law. The Company
has also entered into indemnification agreements with each of the Company's
directors. The Company believes that the limitation of liability provisions in
its Restated Articles and indemnity agreements may enhance the Company's ability
to attract and retain qualified individuals to serve as directors.
DIRECTORS' COMPENSATION AND OTHER ARRANGEMENTS
Generally, directors who are not employees of the Company receive $500 plus
expenses for each Board meeting attended locally or via telephone and $2,500
plus expenses for each meeting attended in person for which substantial travel
is required. Directors who are not employees of the Company have been granted
non-qualified options to purchase 57,140 shares of Common Stock of the Company
at a price of $8.05 per share; such options vest over a four-year period, which
vesting may be accelerated under certain conditions. In addition, Mr. de
Grandpre receives $2,000 a month for his service as Chairman of the Board.
The Company entered into a two-year consulting agreement with G. Raymond
Doucet, a director, in December 1994, pursuant to which Mr. Doucet will advise
the Company on (i) enhancing the profitability of its EDA, (ii) technical and
personnel matters, and (iii) financial and budgetary matters. In addition to
receiving a consulting fee of $5,000 per month, the Company has granted Mr.
Doucet an option to purchase up to 85,710 shares of its Common Stock at an
exercise price of $2.31 per share.
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<PAGE> 41
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended December 31,
1995, certain summary information concerning compensation of the persons serving
as the Company's Chief Executive Officer (the "Named Executive Officers"). No
other executive officer received compensation exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------------------------- --------- ------ -------------
<S> <C> <C> <C>
Timothy A. Timmins..................................... $96,750 -- --
President and Chief Executive Officer(1)
Robert J. Cymbala...................................... 138,000 -- --
President and Chief Executive Officer(1)
</TABLE>
- ---------------
(1) Mr. Cymbala resigned as the Company's President and Chief Executive Officer
on July 20, 1995. Mr. Timmins was elected as the Company's President and
Chief Executive Officer on July 28, 1995.
OPTION GRANT TABLE
The following table provides information regarding options to purchase
Common Stock granted to the Named Executive Officers pursuant to the Company's
Stock Incentive Plan (the "Plan") during the year ended December 31, 1995.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE OF
ASSUMED ANNUAL
RATES OF STOCK
PRICE
PERCENT OF APPRECIATION
TOTAL OPTIONS FOR OPTION
NUMBER OF SECURITIES GRANTED TO TERM
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE(2) 5%($) 10%($)
- --------------------------- -------------------- --------------- -------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. Timmins......... 399,981 33.4% $ 8.05 7/28/05 0 0
Robert J. Cymbala.......... 208,919 17.4 8.05 (3) (3) (3)
</TABLE>
- ---------------
(1) The potential realizable value is based on the term of the option at the
time of grant (ten years). Potential gains are net of the exercise price but
before taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the relevant option term. The assumed 5% and 10% rates of stock
appreciation are based on appreciation from the exercise price per share
established at the relevant grant date. These rates are provided in
accordance with the rules of the SEC and do not represent the Company's
estimate or projection of the future Common Stock price. Actual gains, if
any, on the stock option exercises are dependent on the future financial
performance of the Company, overall market conditions and the option
holders' continued employment through the vesting period. This table does
not take into account any appreciation in the price of the Common Stock from
the date of grant of this Prospectus, other than the columns reflecting
assumed rates of appreciation of 5% and 10%.
(2) The options vest over a period of four years and the term of each option is
10 years. The options may terminate before their expiration dates if the
optionee's status as an employee is terminated or upon the optionee's death
or disability.
36
<PAGE> 42
(3) Mr. Cymbala resigned as the Company's President and Chief Executive Officer
on July 20, 1995. Mr. Cymbala's options expired on November 20, 1995.
YEAR-END OPTION TABLE
The following table provides information regarding exercises of options
during 1995 and unexercised options held as of December 31, 1995, by the Named
Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT YEAR-END YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Timothy A. Timmins......... -- -- 249,988/149,993 (1)
Robert J. Cymbala.......... -- -- (2) (1)(2)
</TABLE>
- ---------------
(1) There is no established public trading market for the Company's Common
Stock. The Value of Unexercised In-the-Money Options is the difference
between the fair market value of the Common Stock at December 31, 1995 and
the applicable exercise price. This difference was estimated to be less than
or equal to zero.
(2) Mr. Cymbala resigned as the Company's President and Chief Executive Officer
on July 20, 1995. Mr. Cymbala's options expired on November 20, 1995.
The Company has entered into employment contracts with Messrs. Timmins and
Cox that allow for a base annual compensation and increases based upon
achievement of certain corporate goals and upon a formula tied to the
profitability of the Company and for employment of them for five-year periods
ending in July of 2000. The agreements provide for annual base salaries that are
eligible for a one-time increase based upon the occurrence of (i) a public
offering of the Company's Common Stock at certain minimum levels or (ii) sale or
merger of the Company resulting in a certain minimum consideration per share or
(iii) upon the achievement of certain minimum earnings levels coupled with the
trading of the Company's Common Stock at a certain minimum price per share. The
employment agreements provide for annual bonuses of up to 100% of adjusted base
salary based upon the earnings level in the year in which net earnings are first
achieved for the entire fiscal year and based upon growth in earnings in
subsequent years. The employment agreements also provide for payment to Messrs.
Timmins and Cox of certain amounts in the event of the termination of their
respective employment. Under the employment agreements, Messrs. Timmins and Cox
have been granted certain indemnification rights. In addition, the employment
agreements prevent Messrs. Timmins and Cox from competing with the Company or
soliciting the employment of other individuals employed by the Company during
Messrs. Timmins' and Cox's respective employment and for a period of one year
thereafter. Under the employment agreements, Messrs. Timmins or Cox may not
disclose the Company's confidential information to outsiders during their
respective employment and for a period of two years thereafter.
1994 STOCK INCENTIVE PLAN
The Stock Incentive Plan was adopted by the Board of Directors on November
30, 1994 for a 10-year term. The Stock Incentive Plan was approved by a vote of
the shareholders at a Special Meeting of the Shareholders of Record on November
29, 1995. The purposes of the Stock Incentive Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and Consultants of the Company and to
promote the success of the Company's business.
The Stock Incentive Plan is administered by the Compensation Committee (the
"Committee"). Transactions under the Stock Incentive Plan are intended to comply
with all applicable conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In addition to determining who will be
granted options, the Committee has the authority and discretion to determine
when options will be granted and the number of options to be granted. The
Committee may determine which options
37
<PAGE> 43
may be intended to qualify ("Incentive Stock Options") for special treatment
under the Internal Revenue Code of 1986, as amended from time to time (the
"Code") or whether options are Non-Qualified Options ("Non-Qualified Stock
Options") which are not intended to so qualify. The Committee also may determine
the time or times when each option becomes exercisable, the duration of the
exercise period for options and the form or forms of the instruments evidencing
options granted under the Stock Incentive Plan. The Committee may adopt, amend
and rescind such rules and regulations as in its opinion may be advisable for
the administration of the Stock Incentive Plan. The Committee also may construe
the Stock Incentive Plan and the provisions in the instruments evidencing option
granted under the Stock Incentive Plan to employee and officer participants and
is empowered to make all other determinations deemed necessary or advisable for
the administration of the Stock Incentive Plan
The Stock Incentive Plan contains provisions for proportionate adjustment
of the number of shares for outstanding options and the option price per share
in the event of stock dividends, recapitalizations resulting in stock splits or
combinations or exchanges of shares. In addition, the Stock Incentive Plan
provides for adjustments in the purchase price and exercise period by the
Committee in the event of a proposed dissolution or liquidation of the Company,
or any corporate separation or division, including, but not limited to,
split-up, split-off or spin-off, or a merger or consolidation of the Company
with another corporation, or in the event there is a change in constitution of
the Common Stock of the Company.
Participants in the Stock Incentive Plan may be selected by the Committee
from employees, officers, directors and consultants of the Company. In
determining the persons to whom options will be granted and the number of shares
to be covered by each option, the Committee will take into account the duties of
the respective persons, their present and potential contributions to the success
of the Company and such other factors as the Committee deems relevant to
accomplish the purposes of the Stock Incentive Plan.
Only employees of the Company as the term "employees" is defined for the
purposes of Code will be entitled to receive Incentive Stock Options. Incentive
Stock Options granted under the Stock Incentive Plan are intended to satisfy all
requirements for incentive stock options under Section 422 of the Code and the
Treasury Regulations thereunder.
Each option granted under the Stock Incentive Plan will be evidenced by a
written option agreement between the Company and the optionee. The option price
of any Incentive Stock Option may be not less than 100% of the fair market value
per share on the date of grant of the option; provided, however, that any
Incentive Stock Option granted under the Stock Incentive Plan to a person owning
more than ten percent of the total combined voting power of the Common Stock
will have an option price of not less than 110% of the fair market value per
share on the date of grant of the Incentive Stock Option. Each Non-Qualified
Stock Option granted under the Stock Incentive Plan will be at an exercise price
no less than 85% of the fair market value per share on the date of grant or
authorization of sale thereof, unless otherwise expressly determined by the
Board of Directors. Fair market value on the date of grant is defined as a value
determined in the discretion of the Board; provided, however, that where there
is a public market for the Common Stock, the fair market value per share shall
be the closing price of the Common Stock for the date of grant or authorization
of sale, as reported in The Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per share shall be the closing price on
such exchange on the date of grant of the option or authorization of sale, as
reported in The Wall Street Journal.
The exercise period of options granted under the Stock Incentive Plan
generally may not exceed 10 years from the date of grant thereof. Incentive
Stock Options granted to a person owning more than 10 percent of the total
combined voting power of the Common Stock of the Company will be for no more
than five years. The Committee will have the authority to accelerate or extend
the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond 10
years from the date of grant.
To exercise an option, the optionee must pay the full exercise price in
whole or in part consisting of (i) cash; (ii) check; (iii) promissory note; (iv)
transfer to the Company of shares having a fair market value at the time of such
exercise equal to the option exercise price; or (v) delivery of instructions to
the Company
38
<PAGE> 44
to withhold from the shares that would otherwise be issued on the exercise of
that number of shares having a fair market value at the time of such exercise
equal to the option exercise price, subject to determination by the Board.
An option may not be exercised unless the optionee then is an employee,
officer, director or consultant of the Company, and unless the optionee has
remained continuously as an employee, officer, director or consultant of the
Company since the date of grant of the option. If the optionee ceases to be an
employee, officer, director or consultant of the Company, all options which are
not vested under the Stock Incentive Plan by the time of death, disability,
retirement or termination of employment, immediately terminate. All options
granted to such optionee that are fully vested to such optionee but not yet
exercised, will terminate (i) 12 months after the date the optionee ceases to be
an employee, officer or director of the Company by reason of death or
disability; or (ii) three months after termination of employment for any other
reason.
If an optionee dies while an employee, officer, director or consultant, or
is terminated by reason of disability, all options theretofore granted to such
optionee, unless earlier terminated in accordance with their terms, may be
exercised at any time within one year after the date of death or disability of
said optionee, by the optionee or by the optionee's estate or by a person who
acquired the right to exercise such options by request or inheritance, but only
to the extent of the right to exercise as of the date of death or disability.
Options granted under the Stock Incentive Plan are not transferable other
than by will or by the laws of descent and distribution. Options may be
exercised during the lifetime of the optionee or, in the event of
incapacitation, only by the optionee's legal guardian or legal representative.
An optionee has no rights as a shareholder with respect to any shares covered by
an option until the option has been exercised.
The Company, to the extent permitted or required by law, will deduct a
sufficient number of shares due to the optionee upon exercise of the option to
allow the Company to pay federal, state and local taxes of any kind required by
law to be withheld upon the exercise otherwise due to the optionee. The Company
is not obligated to advise any optionee of the existence of any tax or the
amount which the Company will be required to withhold.
As of the date of this Prospectus, options to purchase 1,162,598 shares of
the Company's Common Stock have been granted under the Stock Incentive Plan,
with a weighted average exercise price of $8.05 per share, and 265,902 shares
were available for future grants.
39
<PAGE> 45
CERTAIN TRANSACTIONS
During 1994, G. Raymond Doucet and A. Jean de Grandpre, both of whom are
now directors of the Company, purchased 8% Convertible Secured Notes ("Notes")
of the Company in the principal amounts of $250,000 and $150,000, respectively,
through investment companies controlled by them, as part of a convertible
secured note financing of the Company (the "Secured Note Financing"). The Notes
were converted into Common Stock of the Company during the fourth quarter of
1995.
On May 31, 1996, the lenders in the Secured Note Financing, including MDL
Investments, Mr. Doucet and Mr. Grandpre (the "Lenders"), and the Company
entered into a Shareholder Rights Agreement, pursuant to which the Company
granted to the Lenders certain registration rights with respect to shares of
Common Stock of the Company held by the Lenders and a right of first refusal
with respect to future sales of Common Stock, preferred stock or other
securities issued by the Company. The Shareholder Rights Agreement provides for
the termination of this right of first refusal upon the consummation of an
underwritten public offering of the Common Stock of the Company in which the
Company receives cash proceeds of not less than $10 million based on a per share
price of at least $10.50.
The Company has entered into a two-year consulting agreement with Mr.
Doucet and granted him a five-year option to purchase up to 85,710 shares of its
Common Stock at an exercise price of $2.31 per share. See
"Management -- Directors' Compensation and Other Arrangements."
On July 20, 1995, Robert J. Cymbala resigned as the Company's President and
Chief Executive Officer. In connection with that resignation, the Company and
Mr. Cymbala entered into an agreement, dated July 20, 1995, wherein the Company
agreed to pay Mr. Cymbala the amount of $108,000, representing nine months
compensation which amount was paid to Mr. Cymbala in biweekly installments
ending April 19, 1996. The agreement also included a release of claims by Mr.
Cymbala and a covenant prohibiting Mr. Cymbala from competing with the Company
for a period of one year.
From time to time the Company has made cash advances to its officers,
employees and consultants. At December 31, 1995, the Company carried several
unsecured notes receivable, bearing interest at rates ranging from 7.89% to
9.01%, from certain of its officers, employees, consultants and a former
employee. Although these notes have matured and are due, some of these notes may
be forgiven at future dates, resulting in additional payroll tax liability for
the Company and additional income tax liability for the makers of the notes. The
following table lists individuals for whom the Company carried aggregate
outstanding balances greater than $60,000 at any time during 1994 or 1995.
<TABLE>
<CAPTION>
NAME BALANCE AT DECEMBER 31, 1995
-------------------------------------------------- ----------------------------
<S> <C>
Kevin S. Anderson................................. $ 64,441
Patrick M. Cox.................................... 62,177
</TABLE>
During 1992, the Company loaned to Daniel M. Smith, then a beneficial owner
of at least 5% of the outstanding shares of Common Stock of the Company, the
amount of $175,000, represented by a demand note bearing interest at 7.89%, and
collateralized by shares of the Company's Common Stock. Mr. Smith paid this
principal balance plus accrued interest in 1994.
The Company believes all of the foregoing transactions were fair to the
Company and in its best interests. As a matter of policy, all future
transactions between the Company and any of its officers, directors or principal
shareholders or their affiliates will continue to be approved by a majority of
the disinterested members of the Board of Directors will continue to be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties, and will continue to be for bona fide business purposes of the Company.
40
<PAGE> 46
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of May 24, 1996, certain information
regarding the ownership of the Company's Common Stock by (i) each person known
by the Company to own beneficially more than 5% of the Common Stock, (ii) each
director of the Company, (iii) each Named Executive Officer, (iv) all executive
officers and directors as a group and (v) each Selling Shareholder. Except as
otherwise indicated, the Company believes the that persons listed below have
sole investment and voting power with respect to the shares of Common Stock
owned by them.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
OFFERING (1) NUMBER OF SHARES AFTER OFFERING (1)(2)
------------------- BEING SOLD IN ---------------------
NUMBER PERCENT OFFERING NUMBER PERCENT
---------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS, DIRECTORS AND 5%
SHAREHOLDERS
Patrick M. Cox............................ 466,645 5.4 0 466,645 4.7
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
Robert J. Cymbala (3)..................... 0 0 0 0 0
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
G. Raymond Doucet (4)..................... 215,466 2.5 0 215,466 2.2
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
A. Jean de Grandpre....................... 75,646 * 0 75,646 *
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
William D. Rutherford..................... 27,334 * 0 27,334 *
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
Timothy A. Timmins........................ 328,414 3.7 0 328,414 3.2
8405 S.W. Nimbus Avenue
Beaverton, Oregon 97008
MDL Investments, Inc...................... 545,219 6.4 0 545,219 5.6
999 de Maisonneuve Blvd West, Suite 1775
Montreal, Quebec Canada H3A 3L4
All directors and officers as a group (11 1,569,140 17.0 0 1,569,140 14.8
persons)................................
SELLING SHAREHOLDERS
Banque Scandinave en Suisse............... 285,700 3.3 179,242 106,456 1.1
Bank of Copenhagen........................ 216,440 2.5 216,440 0 0
Ed Perlenfein............................. 193,555 2.0 34,735 158,820 1.6
Shane Smith............................... 123,730 1.4 44,827 78,903 *
Dore Smith................................ 117,716 1.4 37,456 80,260 *
Richard Boudreau.......................... 72,540 * 26,887 45,653 *
Wayne Levi................................ 68,179 * 68,179 0 0
Starjay Holdings.......................... 64,932 * 30,000 34,932 *
Birinico Holdings......................... 64,932 * 25,000 39,932 *
Robert Brown.............................. 61,686 * 61,686 0 0
Brian Levitt.............................. 54,110 * 27,000 27,110 *
Richards Family Trust..................... 53,432 * 13,443 39,989 *
</TABLE>
41
<PAGE> 47
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
OFFERING (1) NUMBER OF SHARES AFTER OFFERING (1)(2)
------------------- BEING SOLD IN ---------------------
NUMBER PERCENT OFFERING NUMBER PERCENT
---------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
William Clark............................. 50,475 * 17,924 32,551 *
John Cavanaugh............................ 48,951 * 784 48,167 *
Sheldon Schrager.......................... 43,288 * 43,288 0
CODA Inc. Defined Benefits Pension Plan... 43,288 * 43,288 0
Ken Chamberlin............................ 41,904 * 16,225 25,679 *
David Hartman............................. 41,904 * 17,924 23,980 *
Steve Perlenfein.......................... 35,230 * 4,481 30,749 *
William MacHugh........................... 31,459 * 4,481 26,978 *
David Rosencrantz......................... 28,570 * 8,962 19,608 *
James Huddart............................. 25,143 * 10,755 14,388 *
Harold and Marilyn Fogelquist............. 22,856 * 17,924 4,932 *
Harold Roitenberg Trust................... 22,856 * 7,842 15,014 *
Virginia Bolin............................ 20,952 * 8,962 11,990 *
Sharon L. Kimbell Family Trust............ 20,952 * 8,962 11,990 *
David and Susan Lindsey................... 20,952 * 8,962 11,990 *
J.J. Dragovich............................ 14,285 * 4,481 9,804 *
Sagax Investment Fund, Ltd................ 11,428 * 8,962 2,466 *
John Bolin................................ 2,094 * 898 1,196 *
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from May 24, 1996 are considered outstanding for
the purpose of calculating the percentage of Common Stock owned by such
person but not for the purpose of calculating the percentage of Common Stock
owned by any other person. The number of shares that are issuable upon the
exercise of options that are currently exercisable or exercisable within 60
days of May 24, 1996 is as follows: Patrick M. Cox -- 199,991 shares; G.
Raymond Doucet -- 96,424 shares; A. Jean de Grandpre -- 10,714 shares;
William D. Rutherford -- 7,143 shares; Timothy A. Timmins -- 300,063 shares;
and All directors and officers as a group -- 793,616 shares. The number of
shares that are issuable upon the exercise of warrants and options that are
currently exercisable or exercisable within 60 days of May 24, 1996 by
Selling Shareholders is as follows: Banque Scandinave en Suisse -- 57,140
shares; Ed Perlenfein -- 85,715 shares; Shane Smith -- 100,016 shares; Dore
Smith -- 90,317 shares; Richard Boudreau -- 34,284 shares; William
Clark -- 22,856 shares; John Cavanaugh -- 5,714 shares; Ken
Chamberlin -- 22,856 shares; Richards Family Trust -- 17,142 shares; Steve
Perlenfein -- 11,428 shares; William MacHugh -- 11,428 shares; David
Rosencrantz -- 11,428 shares; James Huddart -- 13,714 shares; Harold and
Marilyn Fogelquist -- 22,856 shares; Harold Roitenberg Trust -- 22,856
shares; Virginia Bolin -- 11,428 shares; Sharon L. Kimbell Family
Trust -- 11,428 shares; David and Susan Lindsey -- 11,428 shares; J.J.
Dragovich -- 5,714 shares; Sagax Investment Fund, Ltd. -- 11,428 shares; and
John Bolin -- 1,144 shares.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Mr. Cymbala resigned as the Company's President and Chief Executive Officer
on July 20, 1995.
(4) Includes 85,710 shares of Common Stock issuable upon exercise of an
outstanding stock option exercisable at a price of $2.31 per share granted
to G. Raymond Doucet as part of his consulting agreement with the Company.
42
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 490,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock.
COMMON STOCK
As of May 24, 1995, 8,513,373 shares of Common Stock were outstanding, held
of record by approximately 564 shareholders. After this offering, 9,819,250
shares will be outstanding. Holders of Common Stock are entitled to receive
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. See "Dividend Policy." Holders
of Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote and do not have any cumulative
voting rights. Holders of Common Stock have no preemptive, conversion,
redemption or sinking fund rights. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share equally
and ratably in the assets of the Company, if any, remaining after the payment of
all liabilities of the Company and the liquidation preference of any outstanding
class or series of Preferred Stock. The outstanding shares of Common Stock are,
and the shares of Common Stock offered by the Company hereby when issued will
be, fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock are
subject to any series of Preferred Stock that the Company may issue in the
future, as described below.
PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series and to fix the number of shares constituting any such series and the
preferences, limitation and relative rights, including dividend rights, dividend
rate, voting rights, terms of redemption, redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any series,
without any further vote or action by the shareholders of the Company. The
issuance of Preferred Stock by the Board of Directors could adversely affect the
rights of holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying
or preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. The Company has no plans to issue shares of Preferred
Stock.
WARRANTS
The Company has outstanding warrants to purchase 563,408 shares of Common
Stock, 301,702 of which are exercisable through June 30, 1997 at an exercise
price of $5.25 per share, and 261,706 of which are exercisable through March 31,
1998 at an exercise price of $2.31 per share. The warrants were issued in
connection with the issuance of the Company's 10% Subordinated Notes to 32
purchasers of the Notes. To prevent dilution of the rights of the warrant
holders, the exercise price and the number of shares of Common Stock issuable
upon the exercise of the warrants are subject to the adjustment. The Company has
committed to register for resale the shares issuable on exercise of the
warrants. See "-- Registration Rights."
The Company also has outstanding a warrant to purchase 104,933 shares of
Common Stock, exercisable through September 10, 1996 at an exercisable price of
$1.75 per share, which price is subject to adjustment to prevent dilution. The
warrant was issued in connection with consulting services provided to the
Company by Daniel M. Smith, and the Company has agreed to register the shares
underlying these warrants. See "-- Registration Rights."
The Company anticipates that 305,877 shares of the Common Stock to be sold
by Selling Shareholders will be obtained by the exercise of warrants held by the
Selling Shareholders.
43
<PAGE> 49
REGISTRATION RIGHTS
As of the date of this Prospectus, holders of 2,928,443 shares of Common
Stock (including shares of Common Stock issuable upon conversion or exercise of
outstanding warrants and options) are entitled to certain rights with respect to
the registration of such shares for offer and sale under the Securities Act.
Under the terms of the Shareholder Rights Agreement dated as of May 28,
1996 between the Company and the purchasers of its 8% Convertible Secured Notes
(the "8% Noteholders"), all of which Notes have been converted into Common
Stock, if the Company proposes to register any of its securities under the
Securities Act, the 8% Noteholders may require the Company to include in such
registration any shares of common stock resulting from the conversion of the 8%
Notes subject to certain conditions and limitations. The 8% Noteholders may
demand that the Company register their shares an unlimited number of times on
Form S-3, provided that the Company is eligible to use Form S-3 and that such
shares would have an aggregate expected selling price of at least $500,000. The
Company will not be obligated to effect more than one demand registration in any
12-month period. As of the date of this Prospectus, these rights are enjoyed by
holders of 2,164,402 shares of the Company's Common Stock.
Under the terms of warrants issued to purchasers of the Company's 10%
Subordinated Notes, and to Silicon Valley Bank, Daniel M. Smith, and G. Raymond
Doucet (the "Warrant Holders"), if the Company proposes to register any of its
securities under the Securities Act, the Warrant Holders may require the Company
to include in such registration any shares owned by them pursuant to exercise of
the warrants subject to certain conditions and limitations. All expenses
incurred in connection with the registration of any Common Stock of the Company
shall be borne by the Company except for underwriting discounts and commissions
and attorneys' fees related to the Warrant Holders' shares. As of the date of
this Prospectus, these rights are enjoyed by holders of options and warrants to
purchase 764,041 shares of the Company's Common Stock. The Company anticipates
that 305,877 shares of the Common Stock to be sold by Selling Shareholders will
be obtained by the exercise of warrants held by the Selling Shareholders.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
Upon completion of this offering, the Company will become subject to the
Oregon Control Share Act (the "Control Share Act"). The Control Share Act
generally provides that a person (the "Acquiror") who acquires voting stock of
an Oregon corporation in a transaction that results in the Acquiror holding more
than 20%, 33 1/3% or 50% of the total voting power of the corporation (a
"Control Share Acquisition") cannot vote the shares it acquires in the Control
Share Acquisition ("control shares") unless voting rights are accorded to the
control shares by (i) a majority of each voting group entitled to vote and (ii)
the holders of a majority of the outstanding voting shares, excluding the
control shares held by the Acquiror and shares held by the Company's officers
and inside directors. The term "Acquiror" is broadly defined to include persons
acting as a group.
The Acquiror may, but is not required to, submit to the Company a statement
setting forth certain information about the Acquiror and its plans with respect
to the Company. The statement may also request that the Company call a special
meeting of shareholders to determine whether voting rights will be accorded to
the control shares. If the Acquiror does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual meeting or special meeting of shareholders. If the Acquiror's
control shares are accorded voting rights and represent a majority or more of
all voting power, shareholders who do not vote in favor of voting rights for the
control shares will have the right to receive the appraised "fair value" of
their shares, which may not be less than the highest price paid per share by the
Acquiror for the control shares.
Upon completion of this offering, the Company will become subject to
certain provision of the Oregon Business Corporation Act that govern business
combinations between corporations and interested shareholders (the "Business
Combination Act"). The Business Combination Act generally provides that if a
person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity of the Interested Shareholder, may not
engage in certain business combination transactions for three years following
the date the person became an
44
<PAGE> 50
Interested Shareholder. Business combination transactions for this purpose
include (a) a merger or plan of share exchange, (b) any sales, lease, mortgage
or other disposition of 10% or more of the assets of the corporation and (c)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquires 15% or more of the corporation's voting stock or (iii) the
board of directors and the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Shareholder) approve the transaction after the Interested Shareholder acquires
15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Interstate
Bank of Oregon, N.A., Seattle, Washington.
45
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering, there will be 9,819,250 shares of Common
Stock outstanding. Of these shares, the 2,000,000 shares sold in this offering
(or 2,300,000 shares if the over-allotment option is exercised in full) will be
freely tradable without restriction under the Securities Act, unless purchased
by an "affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. Approximately 7,819,250 shares outstanding upon completion of
this offering will be "restricted securities" ("Restricted Shares") within the
meaning of Rule 144 and will be eligible for sale pursuant to Rule 144 or Rule
701 subject to certain lock-up agreements described below. Sales of shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common share.
Upon completion of this offering, approximately 1,425,387 shares held for
more than three years by shareholders who are not affiliates of the Company and
who are not subject to the lock-up agreements described below will be eligible
for immediate sale in the public market without restriction pursuant to Rule
144(k). Approximately 163,377 shares held for more than two but less than three
years by shareholders who are not affiliates of the Company and who are not
subject to the lock-up agreements described below are eligible for immediate
sale in the public market subject to Rule 144, and approximately 25,034
additional shares held for more than two years by shareholders who are not
affiliates of the Company and who are not subject to the lock-up agreements
described below will become eligible for immediate sale in the public market
without restriction subject to Rule 144 during the 180 days following the
completion of this offering.
The holders of approximately 6,190,432 shares of Common Stock have agreed
with the Underwriters pursuant to lock-up agreements not to offer to sell,
contract to sell or otherwise sell or dispose of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Black & Company, Inc. Upon expiration of these lock-up agreements, approximately
2,960,144 of those shares will be eligible for sale in the public market without
restriction pursuant to Rule 144(k) and approximately 2,134,026 will be eligible
for sale subject to the limitations of Rule 144.
Upon the completion of this offering, there will be approximately 871,776
options granted under the Stock Incentive Plan and 458,164 warrants and other
options immediately exercisable for shares of Common Stock. Holders of stock
options granted under the Stock Incentive Plan could exercise their options and
sell certain of the shares issued upon exercise as described below. Shares of
Common Stock issued on the exercise of warrants and other options would be
subject to the limitations of Rule 144. However, the holders of these warrants
could require the Company to register the shares underlying these warrants for
resale under the Securities Act. See "Description of Capital
Stock -- Registration Rights."
In general under Rule 144, a person, including an affiliate, who has
beneficially owned restricted shares for at least two years is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
98,193 shares immediately following this offering) or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not an "affiliate" of the
issuer at any time during the three months preceding a sale and who has
beneficially owned shares for at least three years is entitled to sell those
shares at any time without compliance with the public information, volume
limitation, manner of sale and notice provisions of Rule 144.
As of the date of the Prospectus, options to purchase 1,162,598 shares of
Common Stock were outstanding under the Stock Incentive Plan. Holders of options
granted pursuant to the Stock Incentive Plan may be entitled to rely on the
resale provisions of Rule 701 ("Rule 701") under the Securities Act in
connection with the resale of shares issued upon exercise of these options. Rule
701 permits affiliates to sell Rule 701 shares under Rule 144 without compliance
with the holding period requirements of Rule 144. Rule 701 provides that
non-affiliates may sell such shares in reliance on Rule 144 without compliance
with the
46
<PAGE> 52
public information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait 90 days after the date of
this Prospectus before selling such shares.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
Stock Incentive Plan. Based on the number of options expected to be outstanding
upon completion of this offering and shares reserved for issuance under the
Stock Incentive Plan, such registration statement would cover approximately
1,428,500 shares. See "Management -- Stock Option Plans." Such registration
statement is expected to be filed approximately 180 days after the date of this
Prospectus and will automatically become effective upon filing. Accordingly,
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the public
market, unless such shares are subject to limitations on the ability to exercise
or the lockup agreement described above.
47
<PAGE> 53
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below, for whom Black & Company, Inc. is
acting as representative (the "Representative"), have severally agreed to
purchase from the Company and the Selling Shareholders, and the Company and the
Selling Shareholders have agreed to sell to each Underwriter, the aggregate
number of shares of Common Stock set forth opposite their respective names in
the table below. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent and that the Underwriters are committed
to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------ ----------
<S> <C>
Black & Company, Inc........................................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the initial offering
to the public, the offering price and other selling terms may be changed by the
Representative.
The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 300,000 shares of Common Stock at the initial public
offering price per share, less the underwriting discounts and commissions, set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Common Stock offered hereby. To the extent the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock to be purchased by such
underwriter as shown in the above table bears to the total shown.
In the Underwriting Agreement, the Company and the Selling Shareholders
have agreed to indemnify the Underwriters against certain liabilities that may
be incurred in connection with this offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company, its directors, officers and certain shareholders have agreed
that, without the prior written consent of Black & Company, Inc., they will not
directly or indirectly offer to sell, sell, or otherwise dispose of shares of
Common Stock or any securities convertible or exchangeable therefor, for a
period of 180 days after the date of this Prospectus, subject to certain limited
exceptions.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representative. Among the factors to be
considered in such negotiations are the history of and prospects for the Company
and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
present state of the Company's development, the general condition of the
securities markets at the time of the offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods.
48
<PAGE> 54
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Ater Wynne Hewitt Dodson & Skerritt, LLP,
Portland, Oregon. Certain legal matters in connection with the offering will be
passed upon for the Underwriters by Stoel Rives LLP, Portland, Oregon. Certain
legal matters in connection with the offering will be passed upon for the
Selling Shareholders by Perkins Coie, Portland, Oregon.
EXPERTS
The financial statements of Metro One Telecommunications, Inc. as of
December 31, 1995 and for the year ended December 31, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. The financial statements of Metro One Telecommunications, Inc. as of
December 31, 1994 and for each of the two years in the period ended December 31,
1994 included in this Prospectus have been so included in reliance on the report
(which contains an explanatory paragraph relating to the Company's ability to
continue as a going concern) of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The Company replaced its previous auditors, Price Waterhouse LLP, with
Deloitte & Touche LLP in November 1995. The decision to change accounting firms
was approved by the Company's Board of Directors. During the Company's two most
recent fiscal years preceding the replacement of Price Waterhouse LLP, the
report of Price Waterhouse LLP on the Company's financial statements expressed
an unqualified opinion on the financial statements for those years and included
an explanatory paragraph describing that the financial statements had been
prepared assuming that the Company would continue as a going concern. There were
no disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope of
procedure, which disagreements, if not resolved to the satisfaction of such
accountants, would have caused them to make reference to the subject matter of
the disagreements in connection with their report. Before engaging Deloitte &
Touche LLP as its new independent auditors, the Company did not previously
consult with them regarding any matters related to the application of accounting
principles, the type of audit opinion that might be rendered on the Company's
financial statements or any other such matters.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus omits certain information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document files as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W. Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained at prescribed rates from the Public
Reference Section of the commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W. Judiciary Plaza, Washington, D.C. 20549.
The Company is currently subject to the periodic reporting requirement of
the Securities Exchange Act of 1934. The Company intends to furnish to its
shareholders annual reports containing financial statements audited by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
49
<PAGE> 55
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports......................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996.................... F-4
Statements of Operations for the three years ended December 31, 1995 and the three
months ended March 31, 1995 and 1996................................................ F-5
Statements of Shareholders' Equity (Deficit) for the three years ended December 31,
1995 and the three months ended March 31, 1996...................................... F-6
Statements of Cash Flows for the three years ended December 31, 1995 and the three
months ended March 31, 1995 and 1996................................................ F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of
Metro One Telecommunications, Inc.
Portland, Oregon
We have audited the accompanying balance sheet of Metro One
Telecommunications, Inc. (formerly Metro One Direct Information Services, Inc.)
as of December 31, 1995 and the related statement of operations, shareholders'
equity (deficit), and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 18, 1996
F-2
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
February 6, 1995
To the Board of Directors and Shareholders of
Metro One Telecommunications, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of common stock subject to rescission and shareholders' deficit,
and of cash flows present fairly, in all material respects, the financial
position of Metro One Telecommunications, Inc. (formerly Metro One Direct
Information Services, Inc.) at December 31, 1994, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Metro One
Telecommunications, Inc. for any period subsequent to December 31, 1994.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and, at December 31, 1994, has an accumulated deficit of
$14,713,210. In addition, as more fully discussed in Note 9 to the financial
statements, the Company has filed with certain securities regulators
registration statements pertaining to a planned rescission offering for certain
purchasers' equity securities because Company management cannot draw a
conclusion with certainty that all applicable state and federal securities laws
were complied with in all material respects in connection with the issuance of
such securities. Such factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in the accompanying financial statements. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
PRICE WATERHOUSE LLP
Portland, Oregon
F-3
<PAGE> 58
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 310,191 $ 1,148,822 $ 1,601,641
Accounts receivable................................ 1,357,925 2,617,465 2,873,980
Notes receivable................................... 174,555 -- --
Current portion of notes receivable from
officers/shareholders........................... 903 2,900 3,114
Prepaid costs and other current assets............. 71,048 357,197 591,530
------------ ------------ ------------
Total current assets....................... 1,914,622 4,126,384 5,070,265
Furniture, fixtures and equipment, net............... 4,067,928 4,187,554 4,299,744
Notes receivable from officers/shareholders,
less current portion............................... 32,315 25,858 24,796
Other assets......................................... 283,917 376,682 381,083
------------ ------------ ------------
$ 6,298,782 $ 8,716,478 $ 9,775,888
============ ============ ============
LIABILITIES, COMMON STOCK SUBJECT TO POTENTIAL
RESCISSION AND ACCUMULATED DEFICITS
Current liabilities:
Current portion of capital lease obligations....... $ 518,849 $ 769,892 $ 760,125
Current portion of long-term debt.................. 400,000 2,045,897 748,925
Accounts payable and accrued expenses.............. 1,346,564 1,160,049 1,405,734
------------ ------------ ------------
Total current liabilities.................. 2,265,413 3,975,838 2,914,784
Capital lease obligations, less current portion...... 1,272,387 1,366,205 1,504,094
Long-term debt, less current portion................. 5,160,000 100,000 --
------------ ------------ ------------
8,697,800 5,442,043 4,418,878
------------ ------------ ------------
Commitments and contingencies (Notes 9 and 11)
Common stock subject to potential rescission;
5,210,871 shares issued and outstanding............ 12,314,191 -- --
------------ ------------ ------------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued or outstanding........ -- -- --
Common stock, no par value; 490,000,000 shares
authorized, 7,936,804 and 8,513,373 issued and
outstanding at December 31, 1995 and March 31,
1996, respectively................................. -- 19,711,711 21,509,107
Accumulated deficit.................................. (14,713,209) (16,437,276) (16,152,097)
------------ ------------ ------------
Net shareholders' equity (deficit)................... (14,713,209) 3,274,435 5,357,010
------------ ------------ ------------
$ 6,298,782 $ 8,716,478 $ 9,775,888
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 59
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 1,442,071 $ 5,050,202 $13,074,206 $ 2,637,835 $ 4,228,313
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Direct operating.............. 2,140,711 4,793,416 7,156,855 1,787,265 1,994,170
General and administrative.... 3,322,290 4,267,585 5,999,548 1,485,613 1,739,798
----------- ----------- ----------- ----------- -----------
5,463,001 9,061,001 13,156,403 3,272,878 3,733,968
----------- ----------- ----------- ----------- -----------
Income (loss) from operations... (4,020,930) (4,010,799) (82,197) (635,043) 494,345
Other income (expense).......... 44,345 (131,310) 122,670 4,934 (46,482)
Loss on asset dispositions...... (11,058) (51,574) (8,533) (2,299) (394)
Debt conversion expense......... -- -- (384,071) -- --
Interest and loan fees.......... (85,003) (841,407) (1,371,936) (276,053) (162,290)
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $(4,072,646) $(5,035,090) $(1,724,067) $ (908,461) $ 285,179
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding..... 4,023,233 5,039,272 5,562,959 5,213,418 8,118,107
Net income (loss) per common
share......................... $ (1.01) $ (1.00) $ (.31) $ (.17) $ .03
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 60
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ----------------------------------------------------------
SUBJECT TO POTENTIAL
RESCISSION COMMON STOCK
------------------------- ----------------------- (ACCUMULATED NET SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT) EQUITY (DEFICIT)
---------- ------------ --------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992...... 2,862,187 $ 5,655,920 -- -- $(5,605,473 ) $ (5,605,473)
Common stock issued for cash..... 581,774 4,579,273 -- -- -- --
Stock options/warrants
exercised...................... 85,288 154,261 -- -- -- --
Common stock issued for
services....................... 745 6,000 -- -- -- --
Common stock issued upon
conversion of debentures and
related accrued interest....... 1,462,494 1,584,281 -- -- -- --
Stock options issued for
services....................... -- 22,050 -- -- -- --
Stock issuance fees.............. -- (25,683) -- -- -- --
Net loss.................. -- -- -- -- (4,072,646 ) (4,072,646)
---------- ------------ ---------- ----------- ------------ ------------
Balances at December 31, 1993...... 4,992,488 11,976,102 -- -- (9,678,119 ) (9,678,119)
Stock options/warrants
exercised, net................. 218,383 338,089 -- -- -- --
Net loss.................. -- -- -- -- (5,035,090 ) (5,035,090)
---------- ------------ ---------- ----------- ------------ ------------
Balances at December 31, 1994...... 5,210,871 12,314,191 -- -- (14,713,209 ) (14,713,209)
Common stock purchased in
rescission offering............ (135,414) (613,760) -- -- -- --
Reclassified upon completion of
rescission offering............ (5,075,457) (11,700,431) 5,075,457 $11,700,431 -- 11,700,431
Stock options/warrants
exercised...................... -- -- 327,412 1,088,080 -- 1,088,080
Stock issued for services........ -- -- 5,714 13,200 -- 13,200
Conversion of long-term debt to
common stock................... -- -- 2,528,221 6,910,000 -- 6,910,000
Net loss.................. -- -- -- -- (1,724,067 ) (1,724,067)
---------- ------------ ---------- ----------- ------------ ------------
Balances at December 31, 1995...... 0 0 7,936,804 19,711,711 (16,437,276 ) 3,274,435
Stock options/warrants
exercised, net (Unaudited)..... -- -- 328,948 497,396 497,396
Conversion of long-term debt to
common stock (Unaudited)....... 247,621 1,300,000 1,300,000
Net income (Unaudited).... 285,179 285,179
---------- ------------ ---------- ----------- ------------ ------------
Balances at March 31, 1996
(Unaudited)...................... 0 $ 0 8,513,373 $21,509,107 $(16,152,097) $ 5,357,010
========== ============ ========== =========== ============ ============
</TABLE>
F-6
<PAGE> 61
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $(4,072,646) $(5,035,090) $(1,724,067) $ (908,461) $ 285,179
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 379,904 742,135 996,834 245,505 269,694
Loss on disposal of fixed assets............. 11,058 51,574 8,533 2,299 394
Gain on settlement of disputed payable....... -- -- (98,918) -- --
Reduction of notes receivable................ -- -- 4,400 -- --
Services paid with debt and equity
instruments................................ 28,050 150,000 13,200 -- --
Debt conversion expense...................... -- -- 255,780 -- --
Changes in certain assets and liabilities:
Accounts receivable.......................... (174,725) (921,528) (1,259,540) (13,401) (256,515)
Prepaid expenses and other assets............ (45,171) (173,754) (393,707) (38,782) (180,371)
Accounts payable and accrued expenses........ 220,214 782,960 (57,550) 69,129 245,685
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in) operating
activities............................ (3,653,316) (4,403,703) (2,255,035) (643,711) 364,066
------------ ------------ ------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures........................... (1,314,070) (955,963) (74,422) (14,530) (66,624)
Issuance of notes receivable from
shareholders................................. (22,200) -- -- -- --
Issuance of notes receivable................... (61,406) (150,000) -- -- --
Collections on notes receivable from
shareholders................................. 38,146 175,806 3,398 -- --
Collections on notes receivable................ 66,241 15,183 171,640 160,530 846
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in) investing
activities............................ (1,293,289) (914,974) 100,616 146,000 (65,778)
------------ ------------ ------------ ----------- -----------
Cash flows from financing activities:
Debt issue costs, net.......................... -- -- -- (180,109) --
Proceeds from issuance of bank debt............ -- 470,000 -- -- --
Repayment of bank debt......................... -- (470,000) -- -- --
Repayment of capital lease obligations......... (1,491) (234,254) (721,387) (138,495) (245,894)
Proceeds from issuance of notes payable........ 236,431 -- -- -- --
Repayment of debt.............................. (193,112) (185,239) (309,883) (250,000) (96,972)
Proceeds from issuance of long-term debt....... -- 5,410,000 3,550,000 2,675,000 --
Proceeds from issuance of common stock and
exercise of warrants and stock options....... 4,707,851 338,089 1,088,080 55,000 497,397
Common stock purchased in rescission
offering..................................... -- -- (613,760) -- --
------------ ------------ ------------ ----------- -----------
Net cash provided by financing
activities............................ 4,749,679 5,328,596 2,993,050 2,161,396 154,531
------------ ------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... (196,926) 9,919 838,631 1,663,685 452,819
Cash and cash equivalents, beginning of period... 497,198 300,272 310,191 310,191 1,148,822
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents, end of period......... $ 300,272 $ 310,191 $ 1,148,822 $1,973,876 $1,601,641
============ ============ ============ =========== ===========
Supplemental information:
Interest....................................... $ 41,566 $ 468,155 $ 1,477,860 $ 255,087 $ 179,168
Conversion of debt into common stock........... -- -- 6,910,000 -- 1,300,000
Equipment acquired by capital lease............ 95,680 1,929,810 1,066,249 107,499 374,015
Conversion of debentures and related accrued
interest into common stock................... 1,584,281 -- -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 62
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. These financial statements and related footnote
information as of March 31, 1996 and for the three months ended March 31, 1995
and 1996 are unaudited and in the opinion of management reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial position as of such date and results of
operations for such periods. The results of operations for the interim periods
are not necessarily indicative of the results that may be expected for any other
interim period or for the full year.
NAME CHANGE. In 1995, the Board of Directors and shareholders approved an
amendment to the Restated Articles of Incorporation changing the name of the
Company to Metro One Telecommunications, Inc.(the "Company") The former name of
the Company was Metro One Direct Information Services, Inc.
NATURE OF OPERATIONS. The Company provides enhanced directory assistance
services to telecommunications carriers and their customers. Revenues are
derived principally through fees charged to telecommunications carriers. The
Company has call centers located throughout the United States in or near
metropolitan areas, such as Chicago; Baltimore; San Diego; Seattle; Ft.
Lauderdale; Detroit; Denver; and others.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes cash
deposits in banks and highly liquid investments maturing within approximately 90
days of purchase.
REVENUE RECOGNITION. Under existing contracts with telecommunications
carriers, the Company records as revenue charges for the amount of
telecommunications services rendered, generally as measured by the number of
calls processed. Revenue is recognized as services are provided.
MAJOR CUSTOMERS. In the three months ended March 31, 1996, thirteen
customers accounted for substantially all revenue reported and comprised
substantially the entire accounts receivable balance at March 31, 1996. In 1995,
twelve customers accounted for substantially all revenue reported and comprised
the entire accounts receivable balance at December 31. The Company's three
largest customers accounted for approximately 29%, 23%, and 20%, respectively,
of revenue in 1995. In 1994, six customers accounted for all revenue reported
and comprised the entire accounts receivable balance at December 31. In 1993,
five customers accounted for approximately 90% of revenue and also comprised the
entire accounts receivable balance at December 31, 1993. Historically the
Company has not incurred significant losses related to its accounts receivable.
FURNITURE, FIXTURES AND EQUIPMENT. Furniture, fixtures and equipment are
stated at cost and are depreciated over their estimated useful lives of three to
seven years using the straight-line method. Leasehold improvements are amortized
over the lesser of the remaining lease term or the useful life. Expenses for
repairs and maintenance are expensed as incurred, and renewals and betterments
are capitalized. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation are eliminated from the accounts and the
resulting gains or losses are reflected in the statement of operations.
PER SHARE AMOUNTS. All share and per share amounts have been restated to
reflect a .2857-for-one (approximately a one-for-three and one-half) reverse
stock split. The effective date of the reverse stock split was December 12,
1995. The per share amounts are based on the weighted average number of shares
of common stock outstanding during the period of computation. Common stock
equivalents, including shares subject to debt conversion, warrants and options,
have been excluded from the computation because their effect would be
antidilutive, except that pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares issued at prices
below the anticipated public offering price during the twelve months immediately
preceding the initial filing date have been included in the calculation as if
they were outstanding for all periods presented (using the treasury stock method
and the anticipated initial public offering price).
F-8
<PAGE> 63
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PATENTS AND TRADEMARKS. Patents and trademarks are carried at cost less
accumulated amortization. Costs are amortized over the estimated useful lives of
the related assets of five to ten years. In the event that facts and
circumstances indicate that the cost of patents, or trademarks may be impaired,
an evaluation of recoverability would be performed and the asset's carrying
amount would be reduced to market value or discounted cash flow value.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Accounts receivable and payable as
reported on the accompanying balance sheets are collectible and payable,
respectively, within 60 days and, as a result, approximate fair value. The
Company's notes receivable and payable and subordinated notes bear interest
rates that approximate current market rates; thus, the recorded value of these
notes is considered to be at fair value.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that effect reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the fiscal year. Actual results could differ from those
estimates.
RECLASSIFICATION. Certain balances in the 1993, 1994 and 1995 financial
statements have been reclassified to conform with 1996 presentations. Such
reclassifications had no effect on results of operations or accumulated earnings
(deficit).
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment by major classification are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1994 1995
-------------------------------------- --------------------------------------
LEASED OWNED TOTAL LEASED OWNED TOTAL
---------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Equipment... $1,788,388 $2,047,065 $3,835,453 $2,461,270 $2,213,755 $4,675,025
Furniture
and
fixtures... 360,823 862,936 1,223,759 594,186 879,749 1,473,935
Leasehold
improvements... -- 185,609 185,609 -- 110,958 110,958
---------- ---------- ----------- ---------- ----------- -----------
2,149,211 3,095,610 5,244,821 3,055,456 3,204,462 6,259,918
Less
accumulated
depreciation
and
amortization... (197,346) (979,547) (1,176,893) (614,803) (1,457,561) (2,072,364)
---------- ---------- ----------- ---------- ----------- -----------
$1,951,865 $2,116,063 $4,067,928 $2,440,653 $1,746,901 $4,187,554
========== ========== =========== ========== =========== ===========
<CAPTION>
MARCH 31, 1996
--------------------------------------
LEASED OWNED TOTAL
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment... $2,520,769 $2,452,650 $4,973,419
Furniture
and
fixtures... 600,485 927,183 1,527,668
Leasehold
improvements... -- 119,293 119,293
---------- ---------- ----------
3,121,254 3,499,126 6,620,380
Less
accumulated
depreciation
and
amortization... (627,181) (1,693,456) (2,320,637)
---------- ---------- ----------
$2,494,073 $1,805,670 $4,299,743
========== ========== ==========
</TABLE>
3. NOTES RECEIVABLE FROM OFFICERS/SHAREHOLDERS
Notes receivable from officers/shareholders are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes receivable including interest at 7.89% per
annum..................................................... $33,218 $28,758 $27,910
Less current portion........................................ 903 2,900 3,114
------- ------- -------
Notes receivable from officers/shareholders, less current
portion................................................... $32,315 $25,858 $24,796
======= ======= =======
</TABLE>
F-9
<PAGE> 64
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
8% Convertible Secured Notes, interest payable monthly,
due June 1996........................................ $1,950,000 -- --
10% Subordinated Notes, unsecured, interest payable
monthly, due July 1996 through January 1997.......... 3,610,000 $1,950,000 $ 650,000
Unsecured notes, payable in monthly installments of
$33,415, due through June 1996, including interest at
8%................................................... -- 195,897 98,925
---------- ---------- --------
5,560,000 2,145,897 748,925
Less current portion................................... 400,000 2,045,897 748,925
---------- ---------- --------
Long-term debt, less current portion................... $5,160,000 $ 100,000 $ --
========== ========== ========
</TABLE>
8% CONVERTIBLE SECURED NOTES. In 1994 and 1995, the Company issued
$5,000,000 in 8% Convertible Secured Notes. The Convertible Secured Notes bore
interest at 8% per annum and were (i) secured by the Company's assets, (ii)
payable on June 30, 1996, and (iii) convertible into the Company's common stock
at a rate of $2.31 per share. During the fourth quarter of 1995, these
Convertible Secured Notes were converted into 2,164,402 shares of the Company's
common stock.
In connection with the conversion, the Company recognized a charge for
early conversion in the amount of $384,071, including the write-off of
approximately $128,000 in offering costs previously capitalized.
10% SUBORDINATED NOTES. In 1995, the Company issued $3,860,000 of new 10%
subordinated notes with warrants (the "1995 Subordinated Notes"), the proceeds
of which were primarily used to refinance $3,610,000 in subordinated notes
("1994 Subordinated Notes"). The 1995 Subordinated Notes have maturities of no
less than 18 months and bear interest at 10% per annum payable monthly. These
1995 Subordinated Notes can be paid before maturity at the option of the
Company, with no penalty. In the event of an initial public offering, the then
outstanding 1995 Subordinated Notes are convertible, at the option of the
holder, into common stock at a price equal to 80% of the initial public offering
price.
Issued with each note was a warrant for the purchase of that number of
shares of the Company's common stock equal to the principal amount of the note
divided by $8.75. The exercise prices of the warrants related to the 1994
Subordinated Notes and the 1995 Subordinated Notes are $5.25 and $2.31,
respectively, and the warrants are exercisable at any time on or before three
years from the date of issuance.
In 1995, a certain noteholder exercised warrants for the purchase of
293,130 shares of the Company's common stock.
In 1996 and 1995, the Company extended an offer to holders of 1995
Subordinated Notes to convert their notes to common stock of the Company at
$5.25 per share. Principal in the amount of $3,210,000 was converted into
611,440 shares of the Company's common stock. The remaining 1995 Subordinated
Notes are due as follows: $550,000 in 1996 and $100,000 in 1997.
5. LEASE OBLIGATIONS
The Company entered into $1,929,810, $1,066,249 and $374,016 of new capital
leases for the years ended 1994 and 1995, respectively, and during the three
months ended March 31, 1996. Interest paid for capital lease obligations was
approximately $0, $117,933 and $405,120 in 1993, 1994 and 1995, respectively.
The Company also leases office, operating facilities and equipment under
operating leases with unexpired terms of one to six years. Rental expense for
operating leases was approximately $313,000, $528,000 and
F-10
<PAGE> 65
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$780,000 for 1993, 1994 and 1995, respectively. Minimum annual rentals for the
five years subsequent to 1995 and in the aggregate thereafter are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------------------------- -----------------------------------
YEAR ENDING CAPITAL LEASES OPERATING LEASES CAPITAL LEASES OPERATING LEASES
- ---------------------------------- -------------- ---------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
1997............................ $ 785,646 $ 849,687 $1,137,969 $ 842,385
1998............................ 525,871 742,270 867,153 843,318
1999............................ 377,450 632,405 607,913 721,635
2000............................ 56,547 494,901 352,124 620,697
2001............................ -- 270,081 84,461 385,223
Thereafter........................ -- -- -- 231,498
---------- ---------- ---------- ----------
Total minimum lease payments...... 2,873,470 $3,810,154 3,049,620 $3,644,756
========== ==========
Less interest portion............. 737,373 785,401
---------- ----------
Present value of net minimum lease
payments, capital leases........ 2,136,097 2,264,219
Less portion due within one
year............................ 769,892 760,125
---------- ----------
$1,366,205 $1,504,094
========== ==========
</TABLE>
6. SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK. In 1995, the Company's Board of Directors and shareholders
approved a .2857-for-one (approximately a one-for-three and one-half) reverse
split of the Company's common stock. All share and per share amounts have been
restated to retroactively reflect the reverse stock split.
PREFERRED STOCK. In 1995, the Board of Directors and the shareholders
approved an amendment to the Restated Articles of Incorporation to increase the
number of authorized shares of preferred stock, without par value, from 10,000
to 10,000,000.
COMMON STOCK OPTIONS AND WARRANTS. The Company has issued nonqualified
stock options and/or warrants to certain shareholders, consultants and other
parties. Generally, these options and warrants vested immediately upon grant and
are exercisable at prices determined by the Board of Directors.
In 1994 and 1995, the Board of Directors and shareholders, respectively,
approved a Stock Incentive Plan (the "Plan"). The Plan provides for the award of
incentive stock options to key employees and the award of non-qualified stock
options, stock sales and grants to employees, outside directors, independent
contractors and consultants, with 1,428,500 shares of common stock reserved for
issuance under the Plan. It is intended that the Plan will be used principally
to attract and retain key employees of the Company.
The option price per share of an incentive stock option may not be less
than the fair market value of a share of common stock as of the date such option
is granted. The option price per share of a non-qualified stock option may be at
any price established by the Board of Directors or a committee thereof
established for purposes of administering the plan. Options become exercisable
at the times and subject to the conditions prescribed by the Board of Directors.
Generally, options vest over a period of four years and the term of each option
may not exceed ten years. Payment for shares purchased pursuant to options may
be made in cash or by delivery of shares of common stock having a market value
equal to the exercise of the option. As of March 31, 1996, 365,230 incentive
options and 797,368 non-qualified options had been granted under the Plan, at an
exercise price of $8.05 per share of common stock. At March 31, 1996,
approximately 801,561 of the options granted under the Plan were exercisable.
F-11
<PAGE> 66
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option and warrant activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE RANGE
---------------- -------------
<S> <C> <C>
Balance at December 31,1992.................... 802,816 $.04 - 5.25
Granted...................................... 92,853 1.75 - 8.05
Canceled/Expired............................. -- --
Exercised.................................... (85,288) 1.75 - 3.50
---------------- -------------
Balance at December 31, 1993................... 810,381 .04 - 8.05
Granted...................................... 561,116 5.25 - 8.05
Canceled/Expired............................. -- --
Exercised.................................... (218,383) .04 - 1.75
---------------- -------------
Balance at December 31,1994.................... 1,153,114 1.75 - 8.05
Granted...................................... 1,756,340 8.05
Canceled/Expired............................. (208,918) 8.05
Exercised.................................... (327,412) 1.75 - 5.25
---------------- -------------
Balance at December 31, 1995................... 2,373,124 $1.75 - 8.05
---------------- -------------
Granted (Unaudited).......................... 60,020 8.05
Canceled/Expired (Unaudited)................. 858 8.05
Exercised (Unaudited)........................ 341,370 1.75 - 5.25
---------------- -------------
Balance at March 31, 1996 (Unaudited).......... 2,090,916 $1.75 - 8.05
============= ============
</TABLE>
7. RELATED PARTIES
During 1994 and 1995, the Company entered into various capital lease
arrangements for furniture, fixtures and equipment with a company owned by a
shareholder of the Company. Minimum capital lease obligations to this related
party totaled $1,017,759 and $1,024,380 at December 31, 1994 and 1995,
respectively. There were no capital lease transactions with the shareholder in
three months ended March 31, 1996.
8. INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("FAS 109"). The Company recognizes
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the book basis and tax basis of the Company's
assets and liabilities. The adoption of this statement had no effect on pre-tax
loss from continuing operations.
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1993 1994 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax depreciation in excess of book.... $ 120,734 $ 280,999 $ 456,353 $ 495,275
----------- ----------- ----------- -----------
Gross deferred tax liabilities........ 120,734 280,999 456,353 495,275
----------- ----------- ----------- -----------
Net operating loss carryforwards...... (3,594,814) (6,178,885) (6,492,802) (6,492,802)
Expenses not currently deductible..... (98,306) (56,706) (142,566) (143,500)
Tax credit carryforwards.............. -- -- (7,221) (7,221)
----------- ----------- ----------- -----------
Gross deferred tax assets............. (3,693,120) (6,235,591) (6,642,589) (6,643,523)
Deferred tax asset valuation
allowance........................... 3,572,386 5,954,592 6,186,236 6,148,248
----------- ----------- ----------- -----------
Net deferred tax asset................ $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
F-12
<PAGE> 67
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For financial reporting and income tax purposes, the Company has net
operating loss carryforwards aggregating approximately $16.7 million at December
31, 1995. Such carryforwards are available to offset taxable income in future
years through their expiration in 2004 to 2010. The issuance of common stock
since the Company's inception has resulted in changes in ownership which limit
the annual utilization of these net operating loss carryforwards.
9. POTENTIAL RESCISSION LIABILITY
In 1995, the Company filed a registration statement with the Securities and
Exchange Commission and certain state securities regulators for a rescission
offering whereby it offered to certain holders of its common stock the right to
rescind their purchase of shares of the Company's common stock and to receive,
in exchange for the common stock relinquished to the Company, a payment equal to
the purchase price of such securities plus interest from the date of purchase at
the applicable statutory rate of the state in which they reside. The securities
intended to be the subject of the Rescission Offer included 4,699,539 shares of
common stock outstanding at March 31, 1995 and purchased or converted from debt
securities by persons who resided in Oregon and certain other states.
The rescission offer closed in July 1995. As a result of the rescission
offer, the sales of 135,414 shares of common stock were rescinded and such
shares were purchased by the Company for approximately $738,660, including
interest of approximately $124,900. In total, shareholders representing
approximately $1,877,500 and 528,215 shares of common stock outstanding at March
31, 1995 did not receive a rescission offer.
10. BENEFIT PLANS
During 1992, the Company established a deferred compensation savings plan
for the benefit of its eligible employees. The plan permits certain voluntary
employee contributions to be excluded from the employees' current taxable income
under the provisions of Internal Revenue Code Section 401(k). Upon reaching the
age of twenty-one, each employee becomes eligible to participate in the savings
plan six months following the initial date of employment. The employee must also
complete 1,000 hours of service in any twelve-month period. Under the plan, the
Company can make discretionary contributions to the plan as approved by the
Board of Directors. Participants' interest in Company contributions to the plan
vest over a four-year period. The Company has made no contributions since the
plan's inception.
11. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative
proceedings arising in the ordinary course of business. The Company believes
that the disposition of these matters will not have a material adverse effect on
its financial position or results of its operations.
12. BANK LINE OF CREDIT
The Company entered into a $3,000,000 Secured Operating Line of Credit with
a commercial bank. Under the terms of the agreement, outstanding borrowings bear
interest at prime rate plus 1.25 percent and all assets of the Company are
pledged as collateral. The agreement contains minimum net worth and working
capital requirements as well as certain other restrictive covenants, as defined
by the agreement, and prohibits the payment of cash dividends. At March 31,
1996, the Company had no borrowings against this line of credit.
13. ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based
F-13
<PAGE> 68
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
on the fair market value of the equity instrument awarded. Companies are
permitted, however, to continue to apply Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share in its 1996 annual report.
F-14
<PAGE> 69
METRO ONE TELECOMMUNICATIONS -- DELIVERING INNOVATIVE
SOLUTIONS FOR CALLERS WHO DESIRE ACCURATE, TIMELY INFORMATION
<TABLE>
<S> <C> <C>
"AUTOBACK" "MESSAGEBACK" "NUMBERBACK"
We automatically return to Delivers the caller's Callers receive the called
a live operator upon a recorded message to the number by simply pressing
busy signal or ring-no called party or any other the [#] key once.
answer situation -- there desired party. A wake-up Configuration options
are no keys to press at or reminder service -- or provide automatic delivery
all. a tool for ensuring of called number at
communication with a initiation and/or
desired party. completion of a call.
"STARBACK" "CALLBACK"
Metro One created an Called party is connected
industry standard that back to the calling party
allows the caller to at a later time. Effective
return to a live operator tool for connecting two
by simply pressing the [*] parties with heavy phone
key once at any time usage patterns.
during the call. Allows
for additional caller
requests at no extra
charge to the carrier.
</TABLE>
<PAGE> 70
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING
SHAREHOLDERS OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 33
Certain Transactions.................. 40
Principal and Selling Shareholders.... 41
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Additional Information................ 49
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 Shares
[METRO ONE LOGO]
Common Stock
-------------------
PROSPECTUS
-------------------
BLACK & COMPANY, INC.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 71
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
underwriting discounts and commissions, expected to be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All amounts, except the SEC registration fee, the NASD filing fee and
the NASDAQ National Market System listing fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 7,932
NASD Filing Fee........................................................... 2,800
NASDAQ Listing Fee........................................................ 41,284
Printing and Engraving Expenses........................................... 100,000
Accounting Fees and Expenses.............................................. 80,000
Legal Fees and Expenses................................................... 250,000
Blue Sky Fees and Expenses (including fees of Counsel).................... 10,000
Transfer Agent and Registrar Fees......................................... 10,000
Directors and Officer Insurance........................................... 260,000
Miscellaneous Expenses.................................................... 37,984
--------
Total........................................................... $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article X of the Company's Second Restated Articles of Incorporation (the
"Articles") eliminates the liability of the Company's directors to the Company
or its stockholders, except for any liability related to breach of the duty of
loyalty, actions not in good faith and certain other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are
not deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
stockholders or otherwise.
Article X of the Articles requires the Company to indemnify its directors
and officers to the fullest extent not prohibited by law. The Bylaws of the
Company (the "Bylaws") also require the Company to indemnify its directors and
officers to the fullest extent permitted by the OBCA.
II-1
<PAGE> 72
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three years, the Company has sold securities without
registration under the Securities Act in the transactions and in reliance on the
exemptions from registration described below.
(a) The Company completed a recapitalization and reverse stock split
effective December 12, 1995, in which each share of Common Stock, without
par value, then outstanding was converted to .2857 Shares of Common Stock
(approximately a 1 for 3.5 reverse split). The issuance of shares in the
recapitalization was exempt from registration pursuant to Section 3(a)(9)
of the Securities Act and did not involve a sale of securities.
(b) Between June 1993 and October 1993, the Company sold an aggregate
of 325,137 shares of its Common Stock at $8.05 per share to 173 purchasers.
The sales of these shares may not have complied in all material respects
with all applicable state and federal securities laws and the exemptions
available under such laws. See "Business -- Securities Law Issues."
(c) Between January 1994 and July 1994, the Company sold an aggregate
of $3,610,000 of its 10% Subordinated Notes with Warrants (the "1994
Subordinated Notes") in private transactions with 28 purchasers, each of
whom the Company believes was on "accredited investor" within the meaning
of Rule 501 of the Securities Act. The sale of the 1994 Subordinated Notes
was exempt from registration pursuant to Section 4(2) of the Securities
Act.
(d) Between November 1994 and July 1995, the Company sold an aggregate
of $5,000,000 of its 8% Convertible Secured Notes in private transactions
with 22 purchasers, each of whom the Company believes was an "accredited
investor" within the meaning of Rule 501 of the Securities Act. The sale of
the 8% Notes was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(e) Between January 1995 and March 1995, the Company sold $3,860,000
of its 10% Subordinated Notes with Warrants (the "1995 Subordinated Notes")
in private transactions with 27 purchasers, each of whom the Company
believes was an "accredited investor" within the meaning of Rule 501 of the
Securities Act. The sale of the 1995 Subordinated Notes was exempt from
registration pursuant to Section 4(2) of the Securities Act.
(f) Between October 1995 and November 1995, the holders of the
Company's 8% Convertible Secured Notes converted an aggregate of $5,000,000
principal amount of such Notes into 2,164,402 shares of the Company's
Common Stock. The issuance of the Common Stock in the conversion was exempt
from registration pursuant to Section 4(2) of the Securities Act.
(g) Between January 1994 and March 1996, certain holders of the 1994
and 1995 Subordinated Notes exercised warrants to purchase an aggregate of
293,131 shares of the Company's Common Stock for an aggregate purchase
price of $1,003,080. The issuance of the Common Stock upon the exercise of
the warrants was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(h) Between October 1995 and March 1996, $2,310,000 in principal
amount of the Company's 1995 Subordinated Notes were exchanged with the
Company for 440,010 shares of the Company's Common Stock. The issuance of
the Common Stock in the exchange was exempt from registration pursuant to
Section 3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
1.0 -- Form of Underwriting Agreement*
3.1 -- Second Restated Articles of Incorporation of Metro One Telecommunications, Inc.(2)
3.2 -- Amended and Restated Bylaws of Metro One Telecommunications, Inc.
4.0 -- Form of Common Stock Certificate of Metro One Telecommunications, Inc.*
</TABLE>
II-2
<PAGE> 73
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
5.0 -- Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of the
securities being registered*
10.1 -- Form of Enhanced Directory Assistance Agreement(1)
10.2 -- 1994 Stock Incentive Plan(2)
10.3 -- Consulting Agreement with G. Raymond Doucet(1)
10.4 -- Loan and Security Agreement between Silicon Valley Bank and the Company dated
March 15, 1996(2)
10.5 -- 1995 Employment Agreement with Timothy A. Timmins(2)
10.6 -- 1995 Employment Agreement with Patrick M. Cox(2)
10.7 -- Lease Agreement between and among Petula Associates, Ltd., Koll Creekside
Associates and the Company(1)
23.1 -- Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion
filed as Exhibit 5.0)*
23.2 -- Consent of Deloitte & Touche LLP (See page II-7)
23.3 -- Consent of Price Waterhouse LLP (See page II-8)
24.0 -- Powers of Attorney (included in signature page in Part II of the Registration
Statement)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(Commission File No. 33-88926-LA) and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB
(Commission File No. 0-27024) and incorporated herein by reference.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, 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.
(c) 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 shall be deemed to be part of this registration statement as
of the time it was declared effective.
II-3
<PAGE> 74
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland, State of
Oregon, on the 4th day of June, 1996.
METRO ONE TELECOMMUNICATIONS, INC.
By: /s/ TIMOTHY A. TIMMINS
------------------------------------
Timothy A. Timmins
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy A. Timmins and Stebbins B. Chandor, Jr.
and each of them singly, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents and full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as full to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed by the following persons in the
capacities indicated on June 4, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ TIMOTHY A. TIMMINS President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Timothy A. Timmins
/s/ PATRICK M. COX Executive Vice President, Chief Operating
- --------------------------------------------- Officer, Secretary and Director
Patrick M. Cox
/s/ STEBBINS B. CHANDOR, JR. Senior Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial Officer)
Stebbins B. Chandor, Jr.
/s/ KEVIN S. ANDERSON Senior Vice President-Directory Assistance
- --------------------------------------------- Services
Kevin S. Anderson
/s/ GARY E. HENRY Vice President-Field Operations
- ---------------------------------------------
Gary E. Henry
</TABLE>
II-5
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ KAREN L. JOHNSON Vice President and Controller (Principal
- --------------------------------------------- Accounting Officer)
Karen L. Johnson
/s/ MICHAEL A. KEPLER Vice President-Information Systems
- ---------------------------------------------
Michael A. Kepler
/s/ A. JEAN DE GRANDPRE Chairman of the Board
- ---------------------------------------------
A. Jean de Grandpre
/s/ G. RAYMOND DOUCET Director
- ---------------------------------------------
G. Raymond Doucet
/s/ William D. Rutherford Director
- ---------------------------------------------
William D. Rutherford
</TABLE>
II-6
<PAGE> 77
EXHIBIT 23.2
(DELOITTE & TOUCHE LLP LETTERHEAD)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metro One
Telecommunications, Inc. on Form S-1 of our report dated March 18, 1996,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/
- ---------------------
DELOITTE & TOUCHE LLP
Portland, Oregon
June 4, 1996
II-7
<PAGE> 78
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 6, 1995,
relating to the financial statements of Metro One Telecommunications, Inc.
(formerly Metro One Direct Information Services, Inc.), which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/
- --------------------
PRICE WATERHOUSE LLP
Portland, Oregon
June 3, 1996
II-8
<PAGE> 79
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBITS PAGE NO.
- ------ -------------------------- --------
<C> <C> <S> <C>
1.0 -- Form of Underwriting Agreement*...........................................
3.1 -- Second Restated Articles of Incorporation of Metro One Telecommunications,
Inc.(2)...................................................................
+3.2 -- Amended and Restated Bylaws of Metro One Telecommunications, Inc..........
4.0 -- Form of Common Stock Certificate of Metro One Telecommunications, Inc.*...
5.0 -- Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of
the securities being registered*..........................................
10.1 -- Form of Enhanced Directory Assistance Agreement(1)........................
10.2 -- 1994 Stock Incentive Plan(2)..............................................
10.3 -- Consulting Agreement with G. Raymond Doucet(1)............................
10.4 -- Loan and Security Agreement between Silicon Valley Bank and the Company
dated March 15, 1996(2)...................................................
10.5 -- 1995 Employment Agreement with Timothy A. Timmins(2)......................
10.6 -- 1995 Employment Agreement with Patrick M. Cox(2)..........................
10.7 -- Lease Agreement between and among Petula Associates, Ltd., Koll Creekside
Associates and the Company(1).............................................
23.1 -- Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal
opinion filed as Exhibit 5.0)*............................................
23.2 -- Consent of Deloitte & Touche LLP (See page II-7)..........................
23.3 -- Consent of Price Waterhouse LLP (See page II-8)...........................
24.0 -- Powers of Attorney (included in signature page in Part II of the
Registration Statement)...................................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Filed herewith.
(1) Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(Commission File No. 33-88926-LA) and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB
(Commission File No. 0-27024) and incorporated herein by reference.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS OF METRO ONE TELECOMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
1 - AMENDED AND RESTATED BYLAWS
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
METRO ONE TELECOMMUNICATIONS, INC.
ARTICLE I
OFFICES
1.1 Principal Office. The principal office of the corporation
shall be located at 8405 S.W. Nimbus Avenue, Beaverton, Oregon 97008. The
corporation may have such other offices as the Board of Directors may designate
or as the business of the corporation may from time to time require.
1.2 Registered Office. The registered office of the
corporation required by the Oregon Business Corporation Act to be maintained in
the State of Oregon may be, but need not be, identical with the principal office
in the State of Oregon, and the address of the registered office may be changed
from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the shareholders
shall be held during the month of May each year, unless a different date and
time are fixed by the Board of Directors and stated in the notice of the
meeting. The failure to hold an annual meeting at the time stated herein shall
not affect the validity of any corporate action.
2.2 Special Meetings. Special meetings of the shareholders may
be called by the President or by the Board of Directors and shall be called by
the President (or in the event of absence, incapacity, or refusal of the
President, by the Secretary or any other officer) at the request of the holders
of not less than one-tenth of all the outstanding shares of the corporation
entitled to vote at the meeting. The requesting shareholders shall sign, date,
and deliver to the Secretary a written demand describing the purpose or purposes
for holding the special meeting.
2.3 Place of Meetings. Meetings of the shareholders shall be
held at the principal business office of the corporation or at such other place,
within or without the State of Oregon, as may be determined by the Board of
Directors.
2.4 Notice of Meetings. Written notice stating the date, time,
and place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be mailed to each shareholder
entitled to vote at the meeting at the shareholder's address shown in the
corporation's current record of shareholders, with postage thereon prepaid, not
less than 10 nor more than 60 days before the date of the meeting.
2.5 Waiver of Notice. A shareholder may at any time waive any
notice required by law, the Articles of Incorporation, or these Restated Bylaws.
The waiver must be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the corporation for inclusion in the minutes for
filing with the corporate records. A shareholder's attendance at a meeting
waives objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting. The shareholder's attendance also waives
objection to consideration of a particular matter at the meeting that
- --------------------------------------------------------------------------------
2- AMENDED AND RESTATED BYLAWS
<PAGE> 3
is not within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
2.6 Record Date
(a) For the purpose of determining shareholders
entitled to notice of a shareholders' meeting, to demand a special meeting, or
to vote or to take any other action, the Board of Directors may fix a future
date as the record date for any such determination of shareholders, such date in
any case to be not more than 70 days before the meeting or action requiring a
determination of shareholders. The record date shall be the same for all voting
groups.
(b) A determination of shareholders entitled to
notice of or to vote at a shareholders' meeting is effective for any adjournment
of the meeting unless the Board of Directors fixes a new record date, which it
must do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
(c) If a court orders a meeting adjourned to a date
more than 120 days after the date fixed for the original meeting, it may provide
that the original record date continue in effect or it may fix a new record
date.
2.7 Shareholders' List for Meeting. After the record date for
a shareholders' meeting is fixed by the Board of Directors, the Secretary of the
corporation shall prepare an alphabetical list of the names of all its
shareholders entitled to notice of the shareholders' meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares and show the address of and number of shares held by each shareholder.
The shareholders' list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. The corporation shall make the shareholders'
list available at the meeting, and any shareholder or the shareholder's agent or
attorney is entitled to inspect the list at any time during the meeting or any
adjournment. Refusal or failure to prepare or make available the shareholders'
list does not affect the validity of action taken at the meeting.
2.8 Quorum; Adjournment. Shares entitled to vote as a separate
voting group may take action on a matter at a meeting only if a quorum of those
shares exists with respect to that matter. A majority of the votes entitled to
be cast on the matter by the voting group constitutes a quorum of that voting
group for action in that matter. A majority of shares represented at the
meeting, although less than a quorum, may adjourn the meeting from time to time
to a different time and place without further notice to any shareholder of any
adjournment. At such adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted at the meeting
originally held. Once a share is represented for any purpose at a meeting, it
shall be deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting, unless a new record date is set for the
adjourned meeting.
2.9 Voting Requirements; Action Without Meeting. Unless
otherwise provided in the Articles of Incorporation, each outstanding share
entitled to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders. If a quorum exists, action on a matter, other
than the election of directors, is approved if the votes cast by the shares
entitled to vote favoring the action exceed the votes cast opposing the action,
unless a greater number of affirmative votes is required by law or the Articles
of Incorporation. If a quorum exists, directors are elected by a plurality of
the votes cast by the shares entitled to vote unless otherwise provided in the
Articles of Incorporation. No cumulative voting for directors shall be permitted
unless the Articles of Incorporation so provide. Action required or permitted by
law to be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents describing the action
taken, signed by all the shareholders entitled to vote on the action and
delivered to the corporation for inclusion in the minutes for filing with the
corporate records. Action taken under this section is effective when the last
shareholder signs the consent, unless the consent specifies an earlier or later
effective date. If the
- --------------------------------------------------------------------------------
3- AMENDED AND RESTATED BYLAWS
<PAGE> 4
law requires that notice of proposed action be given to nonvoting shareholders
and the action is to be taken by unanimous consent of the voting shareholders,
the corporation must give its nonvoting shareholders written notice of the
proposed action at least 10 days before the action is taken. The notice must
contain or be accompanied by the same material that, under the Oregon Business
Corporation Act, would have been required to be sent to nonvoting shareholders
in a notice of meeting at which the proposed action would have been submitted to
the shareholders for action.
2.10 Proxies.
(a) A shareholder may vote shares in person or by
proxy by signing an appointment, either personally or by the shareholder's
attorney-in-fact. An appointment of a proxy shall be effective when received by
the Secretary or other officer of the corporation authorized to tabulate votes.
An appointment is valid for 11 months unless a longer period is provided in the
appointment form. An appointment is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest that has not been extinguished.
(b) The death or incapacity of a shareholder
appointing a proxy shall not affect the right of the corporation to accept the
proxy's authority unless notice of the death or incapacity is received by the
Secretary or other officer authorized to tabulate votes before the proxy
exercises the proxy's authority under the appointment.
2.11 Corporation's Acceptance of Votes.
(a) If the name signed on a vote, consent, waiver, or
proxy appointment corresponds to the name of a shareholder, the corporation, if
acting in good faith, is entitled to accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or
proxy appointment does not correspond to the name of a shareholder, the
corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, or proxy appointment and give it effect as the act of the
shareholder if:
(i) The shareholder is an entity and the
name signed purports to be that of an officer or agent of the entity;
(ii) The name signed purports to be that of
an administrator, executor, guardian, or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary status
acceptable to the corporation has been presented with respect to the vote,
consent, waiver, or proxy appointment;
(iii) The name signed purports to be that of
a receiver or trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, or proxy appointment;
(iv) The name signed purports to be that of
a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the signatory's
authority to sign for the shareholder has been presented with respect to the
vote, consent, waiver, or proxy appointment; or
(v) Two or more persons are the shareholder
as co-tenants or fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be acting on behalf
of all co-owners.
- --------------------------------------------------------------------------------
4- AMENDED AND RESTATED BYLAWS
<PAGE> 5
(c) The corporation is entitled to reject a vote,
consent, waiver, or proxy appointment if the Secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
(d) The shares of a corporation are not entitled to
vote if they are owned, directly or indirectly, by a second corporation, and the
first corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation; provided, however, a
corporation may vote any shares, including its own shares, held by it in a
fiduciary capacity.
(e) The corporation and its officer or agent who
accepts or rejects a vote, consent, waiver, or proxy appointment in good faith
and in accordance with the standards of this provision shall not be liable in
damages to the shareholder for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a vote, consent,
waiver, or proxy appointment under this provision is valid unless a court of
competent jurisdiction determines otherwise.
2.12 Notice of Business to be Conducted at Meeting. At an annual
meeting of the shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of stock of the corporation
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in the Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.12.
The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 2.12
and if the Chairman should so determine, the Chairman shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE III
BOARD OF DIRECTORS
3.1 Duties. All corporate powers shall be exercised by or
under the authority of the Board of Directors and the business and affairs of
the corporation shall be managed by or under the direction of the Board of
Directors.
- --------------------------------------------------------------------------------
5- AMENDED AND RESTATED BYLAWS
<PAGE> 6
3.2 Number and Qualification. As set forth in the Restated
Articles of Incorporation, the number of directors of the corporation shall be
not less than three nor more than seven, and within such limits, the exact
number shall be fixed and increased or decreased from time to time by resolution
of the Board of Directors. At such time as the Board of Directors fixes the
number of directors at six or more, the directors shall be divided into three
classes designated Class I, Class II and Class III, each class to be as nearly
equal in number as possible. At the first annual meeting of shareholders
following the designation of six or more directors (the "First Meeting"),
directors of all three classes shall be elected. The term of office of the Class
I directors shall expire at the annual meeting of shareholders held in the first
calendar year following the calendar year in which the First Meeting is held.
The term of office of the Class II directors shall expire at the annual meeting
of shareholders held in the second calendar year following the calendar year in
which the First Meeting is held. The term of office of the Class III directors
shall expire at the annual meeting of shareholders held in the third calendar
year following the calendar year in which the First Meeting is held. At each
annual meeting of shareholders after the First Meeting, each class of directors
elected to succeed those directors whose terms expire shall be elected to serve
for three-year terms and until their successors are elected and qualified, so
that the term of one class of directors will expire each year. When the number
of directors is changed within the limits provided herein, any newly created
directorships, or any decrease in directorships, shall be so apportioned among
the classes as to make all classes as nearly equal as possible, provided that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors. Directors need not be residents of
the State of Oregon or shareholders of the corporation.
3.3 Chairman of the Board of Directors. The directors may
elect a director to serve as Chairman of the Board of Directors to preside at
all meetings of the Board of Directors and to fulfill any other responsibilities
delegated by the Board of Directors.
3.4 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Section 3.4 immediately
after, and at the same place as, the annual meeting of shareholders. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of Oregon, for the holding of additional regular meetings
without other notice than the resolution.
3.5 Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any director.
The person or persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Oregon, as
the place for holding any special meeting of the Board of Directors called by
them.
3.6 Notice. Notice of the date, time, and place of any special
meeting of the Board of Directors shall be given at least three days prior to
the meeting by any means provided by law. If mailed, notice shall be deemed to
be given upon deposit in the United States mail addressed to the director at the
director's business address, with postage thereon prepaid. If by telegram,
notice shall be deemed to be given when the telegram is delivered to the
telegraph company. Notice by all other means shall be deemed to be given when
received by the director or a person at the director's business or residential
address whom the person giving notice reasonably believes will deliver or report
the notice to the director within 24 hours. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.7 Waiver of Notice. A director may at any time waive any
notice required by law, the Articles of Incorporation, or these Restated Bylaws.
Unless a director attends or participates in a meeting, a waiver must be in
writing, must be signed by the director entitled to notice, must specify the
meeting for which notice is waived, and must be filed with the minutes or
corporate records.
3.8 Quorum. A majority of the number of directors fixed by
Section 3.2 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
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3.9 Manner of Acting.
(a) The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless a different number is provided by law, the Articles of
Incorporation, or these Restated Bylaws.
(b) Members of the Board of Directors may hold a
board meeting by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting.
(c) Any action that is required or permitted to be
taken by the directors at a meeting may be taken without a meeting if a consent
in writing setting forth the action so taken shall be signed by all of the
directors. The action shall be effective on the date when the last signature is
placed on the consent or at such earlier or later time as is set forth therein.
Such consent, which shall have the same effect as a unanimous vote of the
directors, shall be filed with the minutes of the corporation.
3.10 Vacancies. Any vacancy, including a vacancy resulting
from an increase in the number of directors, occurring on the Board of Directors
may be filled by the shareholders, the Board of Directors, or the affirmative
vote of a majority of the remaining directors if less than a quorum of the Board
of Directors, or by a sole remaining director. If the vacant office is filled by
the shareholders and was held by a director elected by a voting group of
shareholders, then only the holders of shares of that voting group are entitled
to vote to fill the vacancy. Any directorship not so filled by the directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose. A director elected to fill a vacancy shall
be elected to serve until the next annual meeting of shareholders and until a
successor shall be duly elected and qualified. A vacancy that will occur at a
specific later date, by reason of a resignation or otherwise, may be filled
before the vacancy occurs, and the new director shall take office when the
vacancy occurs.
3.11 Compensation. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3.12 Presumption of Assent. A director of the corporation who
is present at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken (a) unless the
director's dissent to the action is entered in the minutes of the meeting, (b)
unless a written dissent to the action is filed with the person acting as the
secretary of the meeting before the adjournment thereof or forwarded by
certified or registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting or (c) unless the director objects at the
meeting to the holding of the meeting or transacting business at the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action.
3.13 Director Conflict of Interest.
(a) A transaction in which a director of the
corporation has a direct or indirect interest shall be valid notwithstanding the
director's interest in the transaction if the material facts of the transaction
and the director's interest are disclosed or known to the Board of Directors or
a committee thereof and it authorizes, approves, or ratifies the transaction by
a vote or consent sufficient for the purpose without counting the votes or
consents of directors with a direct or indirect interest in the transaction; or
the material facts of the transaction and the director's interest are disclosed
or known to shareholders entitled to vote and they, voting as a single group,
authorize, approve, or ratify the transaction by a majority vote; or the
transaction is fair to the corporation.
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(b) A conflict of interest transaction may be
authorized, approved, or ratified if it receives the affirmative vote of a
majority of directors on the Board of Directors or a committee thereof who have
no direct or indirect interest in the transaction. If a majority of such
directors vote to authorize, approve, or ratify the transaction, a quorum is
present for the purpose of taking action.
(c) A conflict of interest transaction may be
authorized, approved, or ratified by a majority vote of shareholders entitled to
vote thereon. Shares owned by or voted under the control of a director or an
entity controlled by a director who has a direct or indirect interest in the
transaction are entitled to vote with respect to a conflict of interest
transaction. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction constitutes a quorum for the purpose
of authorizing, approving, or ratifying the transactions.
(d) A director has an indirect interest in a
transaction if (i) another entity in which the director has a material financial
interest or in which the director is a general partner is a party to the
transaction or (ii) another entity of which the director is a director, officer,
or trustee is a party to the transaction and the transaction is or should be
considered by the Board of Directors.
3.14 Removal. All or any number of the directors of the
corporation may be removed only for cause and at a meeting of shareholders
called expressly for that purpose, by the vote of 75 percent of the votes then
entitled to be cast for the election of directors. At any meeting of
shareholders at which one or more directors are removed, a majority of votes
then entitled to be cast for the election of directors may fill any vacancy
created by such removal. If any vacancy created by removal of a director is not
filled by the shareholders at the meeting at which the removal is effected, such
vacancy may be filled by a majority vote of the remaining directors.
3.15 Resignation. Any director may resign by delivering
written notice to the Board of Directors, its chairperson, or the corporation.
Such resignation shall be effective at the earliest of the following, unless the
notice specifies a later effective date, (a) on receipt, (b) five days after its
deposit in the United States mails, if mailed postpaid and correctly addressed,
or (c) on the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by
addressee. Once delivered, a notice of resignation is irrevocable unless
revocation is permitted by the Board of Directors.
3.16 Nominations for Election to Board of Directors. Only
persons who are nominated in accordance with the procedures set forth in this
Section 3.16 shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors may be made at a meeting of shareholders
by or at the direction of the Board of Directors or by any shareholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.16.
Such nominations, other than those made by or at the direction of the
Board of Directors shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of stock of the corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the shareholder giving the
notice, (i) the name and address, as they appear on the corporation's books, of
such
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<PAGE> 9
shareholder, and (ii) the class and number of shares of stock of the
corporation which are beneficially owned by such shareholder.
At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 3.16. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these Restated Bylaws, and if the Chairman should so
determine, the Chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
4.1 Designation of Executive Committee. The Board of Directors
may designate two or more directors to constitute an executive committee. The
designation of an executive committee, and the delegation of authority to it,
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed by law. No member of the executive committee shall
continue to be a member thereof after ceasing to be a director of the
corporation. The Board of Directors shall have the power at any time to increase
or decrease the number of members of the executive committee, to fill vacancies
thereon, to change any member thereof, and to change the functions or terminate
the existence thereof. The creation of the executive committee and the
appointment of members to it shall be approved by a majority of the directors in
office when the action is taken, unless a greater number is required by the
Articles of Incorporation or these Restated Bylaws.
4.2 Powers of Executive Committee. During the interval between
meetings of the Board of Directors, and subject to such limitations as may be
imposed by resolution of the Board of Directors, the executive committee may
have and may exercise all the authority of the Board of Directors in the
management of the corporation, provided that the committee shall not have the
authority of the Board of Directors with respect to the following matters:
authorizing distributions; approving or proposing to the shareholders actions
that are required to be approved by the shareholders under the Articles of
Incorporation or these Restated Bylaws or by law; filling vacancies on the Board
of Directors or any committee thereof; amending the Articles of Incorporation;
adopting, amending, or repealing bylaws; approving a plan of merger not
requiring shareholder approval; authorizing or approving a reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; authorizing or approving the issuance or sale or contract for sale of
shares or determining the designation and relative rights, preferences, and
limitations of a class or series of shares except within limits specifically
prescribed by the Board of Directors.
4.3 Procedures; Meetings; Quorum.
(a) The Board of Directors shall appoint a
chairperson from among the members of the executive committee and shall appoint
a secretary who may, but need not, be a member of the executive committee. The
chairperson shall preside at all meetings of the executive committee and the
secretary of the executive committee shall keep a record of its acts and
proceedings, which shall be filed with the minutes of the corporation.
(b) Regular meetings of the executive committee, of
which no notice shall be necessary, shall be held on such days and at such
places as shall be fixed by resolution adopted by the executive committee.
Special meetings of the executive committee shall be called at the request of
the President or of any member of the executive committee, and shall be held
upon such notice as is required by these Restated Bylaws for special meetings of
the Board of Directors.
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(c) Attendance of any member of the executive
committee at a meeting shall constitute a waiver of notice of the meeting. A
majority of the executive committee, from time to time, shall be necessary to
constitute a quorum for the transaction of any business, and the act of a
majority of the members present at a meeting at which a quorum is present shall
be the act of the executive committee. Members of the executive committee may
hold a meeting of such committee by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such meeting shall constitute
presence in person at the meeting.
(d) Any action that is required or permitted to be
taken at a meeting of the executive committee may be taken without a meeting if
a consent in writing setting forth the action so taken shall be signed by all
members of the executive committee. The action shall be effective on the date
when the last signature is placed on the consent or at such earlier or later
time as is set forth therein. Such consent, which shall have the same effect as
a unanimous vote of the members of the executive committee, shall be filed with
the minutes of the corporation.
(e) The Board of Directors may approve a reasonable
fee for the members of the executive committee as compensation for attendance at
meetings of the executive committee.
4.4 Other Committees. By the approval of a majority of the
directors when the action is taken (unless a greater number is required by the
Articles of Incorporation), the Board of Directors, by resolution, may create
one or more additional committees, appoint directors to serve on them, and
define the duties of such committee or committees. Each such committee shall
have two or more members, who shall serve at the pleasure of the Board of
Directors. Such additional committee or committees shall not have the powers
proscribed in Section 4.2.
ARTICLE V
OFFICERS
5.1 Number. The officers of the corporation shall be a
President and a Secretary. Such other officers and assistant officers as are
deemed necessary or desirable may be appointed by the Board of Directors and
shall have such powers and duties prescribed by the Board of Directors or the
officer authorized by the Board of Directors to prescribe the duties of other
officers. A duly appointed officer may appoint one or more officers or assistant
officers if such appointment is authorized by the Board of Directors. Any two or
more offices may be held by the same person.
5.2 Appointment and Term of Office. The officers of the
corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual meeting of the
shareholders. If the officers shall not be appointed at the meeting, a meeting
shall be held as soon thereafter as is convenient for such appointment of
officers. Each officer shall hold office until a successor shall have been duly
appointed and qualified or until the officer's death, resignation, or removal.
5.3 Qualification. An officer need not be a director,
shareholder, or a resident of the State of Oregon.
5.4 Resignation and Removal. An officer may resign at any time
by delivering notice of such resignation to the corporation. A resignation is
effective on receipt unless the notice specifies a later effective date. If the
corporation accepts a specified later effective date, the Board of Directors may
fill the pending vacancy before the effective date, but the successor may not
take office until the effective date. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors. Any
officer appointed by the Board of Directors may be removed at any time with or
without cause. Appointment of an officer shall not of itself create contract
rights. Removal or resignation of an officer shall not affect the contract
rights, if any, of the corporation or the officer.
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5.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
5.6 President. The President shall be the chief executive
officer of the corporation and shall be in general charge of its business and
affairs, subject to the control of the Board of Directors. The President shall
preside at all meetings of shareholders and at all meetings of directors (unless
there is an acting Chairman of the Board presiding at the meeting). The
President may execute on behalf of the corporation all contracts, agreements,
stock certificates, and other instruments. The President shall from time to time
report to the Board of Directors all matters within the President's knowledge
affecting the corporation that should be brought to the attention of the Board
of Directors. The President shall vote all shares of stock in other corporations
owned by the corporation and is empowered to execute proxies, waivers of notice,
consents, and other instruments in the name of the corporation with respect to
such stock. The President shall perform other duties assigned by the Board of
Directors.
5.7 Vice Presidents. In the absence of the President or in the
event of the President's death or inability or refusal to act, the Vice
President (or, in the event there be more than one Vice President, the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation, then in the order of their election), if any, shall
perform the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President shall perform other duties assigned by the President or by the Board
of Directors.
5.8 Secretary. The Secretary shall prepare the minutes of all
meetings of the directors and shareholders, shall have custody of the minute
books and other records pertaining to the corporate business, and shall be
responsible for authenticating the records of the corporation. The Secretary
shall countersign all instruments requiring the seal of the corporation and
shall perform other duties assigned by the Board of Directors. In the event no
Vice President exists to succeed to the President under the circumstances set
forth in Section 5.7 above, the Secretary shall make such succession.
5.9 Assistant Secretaries. The Assistant Secretaries, when
authorized by the Board of Directors or these Restated Bylaws, may sign, with
the President or Vice President, certificates for shares of the corporation the
issuance of which shall have been authorized by resolution of the Board of
Directors. The Assistant Secretaries shall, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries shall, in general, perform such duties as shall be specifically
assigned to them in writing by the President or the Board of Directors.
5.10 Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be prevented
from receiving such salary because the officer is also a director of the
corporation.
ARTICLE VI
ISSUANCE OF SHARES
6.1 Certificates for Shares.
(a) Certificates representing shares of the
corporation shall be in a form determined by the Board of Directors. Such
certificates shall be signed, either manually or in facsimile, by two officers
of the corporation, at least one of whom shall be the President or a Vice
President, and may be sealed with the seal of the corporation or a facsimile
thereof. All certificates for shares shall be consecutively numbered or
otherwise identified.
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(b) Every certificate for shares of stock that are
subject to any restriction on transfer pursuant to the Articles of
Incorporation, these Restated Bylaws, applicable securities laws, agreements
among or between shareholders, or any agreement to which the corporation is a
party shall have conspicuously noted on the face or back of the certificate
either (i) the full text of the restriction or (ii) a statement of the existence
of such restriction and that the corporation retains a copy of the restriction.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the designations, relative rights, preferences, and limitations of
the shares of each class and series authorized to be issued and the authority of
the Board of Directors to determine variations for future series or (ii) a
statement of the existence of such designations, relative rights, preferences,
and limitations and a statement that the corporation will furnish a copy thereof
to the holder of such certificate upon written request and without charge.
(c) The name and mailing address of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the stock transfer books of the corporation.
Each shareholder shall have the duty to notify the corporation of his or her
mailing address. All certificates surrendered to the corporation for transfer
shall be canceled, and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors prescribes.
6.2 Transfer of Shares. A transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation by
the holder of record thereof or by the holder's legal representative, who shall
furnish proper evidence of authority to transfer, or by the holder's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation. The person in whose name shares stand on the books
of the corporation shall be deemed by the corporation to be the owner thereof
for all purposes.
6.3 Transfer Agent and Registrar. The Board of Directors may
from time to time appoint one or more transfer agents and one or more registrars
for the shares of the corporation, with such powers and duties as the Board of
Directors determines by resolution. The signatures of officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or by a registrar other than the corporation itself or an
employee of the corporation.
6.4 Officer Ceasing to Act. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
ARTICLE VII
CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS
7.1 Contracts. The Board of Directors may authorize any
officer or officers and agent or agents to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
7.2 Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
7.3 Checks; Drafts. All checks, drafts, or other orders for
the payment of money and notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers and agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
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<PAGE> 13
7.4 Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Seal. The Board of Directors from time to time may provide
for a seal of the corporation, which shall be circular in form and shall have
inscribed thereon the name of the corporation, the state of incorporation and
the words "Corporate Seal."
8.2 Severability. Any determination that any provision of
these Restated Bylaws is for any reason inapplicable, invalid, illegal, or
otherwise ineffective shall not affect or invalidate any other provision of
these Restated Bylaws.
ARTICLE IX
AMENDMENTS
These Restated Bylaws may be altered, amended, or repealed and
new bylaws may be adopted by the Board of Directors at any regular or special
meeting, subject to repeal or change by action of the shareholders of the
corporation.
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ADOPTED:
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