<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1999
REGISTRATION NO. 333-89493
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
METRO ONE TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OREGON 93-0995165
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007, (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
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007, (503) 643-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Neal H. Brockmeyer Cary K. Hyden
Carol A. Pfaffmann R. Scott Shean
Heller Ehrman White & McAuliffe Latham & Watkins
601 South Figueroa Street, 40th Floor 650 Town Center Drive, Suite 2000
Los Angeles, California 90017-5758 Costa Mesa, California 92626
(213) 689-0200 (714) 540-1235
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value(2)........ 2,377,625 $16.75 $39,825,219 $11,072(3)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
closing sale price of the registrant's common stock on October 21, 1999, as
reported on the Nasdaq National Market.
(2) Includes 310,125 shares to be issued pursuant to the underwriters'
over-allotment option.
(3) Previously paid.
--------------------------
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>
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
2,067,500 SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
Metro One Telecommunications, Inc. is offering 2,000,000 shares and the selling
shareholders identified in this prospectus are offering 67,500 shares. Metro One
will not receive any proceeds from the sale of the shares by the selling
shareholders. This is a firm commitment underwriting.
The common stock is listed on the Nasdaq National Market under the symbol
"MTON." On November 1, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $15.69 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public............................ $ $
Underwriting discount..........................
Proceeds to Metro One..........................
Proceeds to selling shareholders...............
</TABLE>
Metro One has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 310,125 additional
shares from Metro One within 30 days following the date of this prospectus to
cover over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 1999.
<PAGE>
[Inside Front Cover]
The Metro One
National Call Center
Network
IN THE CENTER OF THE PAGE IS A MAP OF THE UNITED STATES WITH CURRENT AND
EXPECTED METRO ONE CALL CENTER CITIES INDICATED. EXPECTED CALL CENTER CITIES ARE
INDICATED BY A FOOTNOTE IN THE LOWER RIGHT-HAND CORNER OF THE PAGE, WHICH
EXPLAINS THAT OPENING IS EXPECTED BY MID-2000. BACKGROUND CONTAINS METRO ONE
LOGOS. PICTURES ARE SUPERIMPOSED ON AND AROUND THE MAP AS FOLLOWS:
[PICTURE OF OPERATOR]
[CAPTION] Live friendly operators are available to assist callers throughout
each call. Callers simply press the star [Q] key to return to the operator at
any time.
[PICTURE OF OPERATIONS CENTER]
[CAPTION] Our network operations center provides 24 hour support for our call
center network, ensuring the availability of our services 365 days a year.
[PICTURE OF THE INTERIOR OF A CALL CENTER]
[CAPTION] We provide enhanced directory assistance and information services
through our national network of call centers. Strategic locations enable us to
deliver our services on both a local and national basis.
[PICTURE OF COMPUTER AND SWITCHING EQUIPMENT]
[CAPTION] Our advanced technology is based on customized software running Sun
Microsystems servers and Excel switching equipment.
[PICTURE OF PEOPLE AROUND COMPUTER MONITOR]
[CAPTION] Ongoing operator training in advanced search techniques and etiquette
leads to consistent, high quality service.
[PICTURE OF THE INTERIOR OF LAB/EQUIPMENT ROOM]
[CAPTION] Our equipment laboratories enable the development, testing and
delivery of our services and features.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 16
Common Stock Market Price Data.............................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 27
Management.................................................. 35
Certain Transactions........................................ 38
Principal and Selling Shareholders.......................... 39
Underwriting................................................ 41
Legal Matters............................................... 44
Experts..................................................... 44
Where You Can Find More Information......................... 44
Index to Financial Statements............................... F-1
</TABLE>
------------------------
In this prospectus, "Metro One," "we," "us" and "our" refer to Metro One
Telecommunications, Inc. and the term "common stock" refers to our Common Stock,
no par value.
Metro One's principal executive offices are located at 11200 Murray Scholls
Place, Beaverton, Oregon 97007. Our telephone number is (503) 643-9500. Our
website address is http://www.metro1.com. The information on our website is not
incorporated by reference into this prospectus.
Unless otherwise stated, the information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
"Metro One Telecommunications," "Metro One," "Enhanced Directory Assistance,"
"StarBack," "AutoBack" and "NumberBack" are registered U.S. trademarks of Metro
One. Metro One also has applications pending for U.S. trademark registrations
for "MetroDex," "TeleConcierge," "LocationPro," "PagingAssistant" and
"MessageBack." Other trademarks used in this prospectus are the property of
their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
OUR COMPANY
Metro One is a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide our services to their
subscribers. Our carrier customers include Sprint PCS, AT&T Wireless Services,
Pacific Bell Wireless, AirTouch Communications, Nextel Communications and ALLTEL
Communications. The volume of requests for enhanced directory assistance and
information services that we handled for our carrier customers grew from
42 million requests in 1997 to 93 million requests in the first nine months of
1999.
As a voice telephony portal, that is, an access point to useful information
through a telephone conversation with a live operator, we offer convenient and
practical enhanced directory assistance and information services. We have
situated our live operators within a network of 22 call centers strategically
located throughout the United States. We added significantly to this network in
1999 and expect to add three new call centers by the end of 1999 and at least
three new call centers during 2000. We provide information beyond basic
telephone listings, such as local events information, movie listings, restaurant
reservations and other useful information. We deliver our services using an
array of connectivity features, including call completion and our patented
StarBack feature, which allows callers to return to a live operator by pressing
the star [Q] key on their telephone.
We plan to continue to add new services, content and connectivity features that
we can deliver through our call center network and the voice telephony portal we
have created. We also intend to develop additional versions of our services for
delivery through other portals in private networks as well as public ones, such
as the Internet. We are developing new features such as MetroDex, which allows
callers to use their telephone or the Internet to access their personal or
corporate contacts databases, and LocationPro, which provides location-based
services, including turn-by-turn driving directions. We also are developing
web-based versions of some of our services, such as TeleConcierge, in which
callers can check the status of their restaurant reservations over the telephone
or the Internet. In developing these services and features, we have an active
program of seeking U.S. patents or other protection for the underlying
technology and methods of use.
The telecommunications industry is experiencing unprecedented change and strong
growth. Two rapidly growing segments of the industry are the wireless market and
the competitive local exchange market. According to the International
Telecommunication Union, an international telecommunications industry group, the
worldwide wireless industry generated $154 billion in revenue in 1998 and is
projected to grow to $315 billion in revenue in 2002. The competitive local
exchange industry generated $6.6 billion in revenue in 1998 and is projected to
grow to $26.1 billion in revenue in 2001, according to the Yankee Group, a
telecommunications market research firm. To date, we have focused primarily on
the domestic wireless directory assistance market because of the rapid growth in
the wireless telecommunications market and our belief that our services are
especially attractive to wireless telephone users. We are also marketing to
landline carriers, particularly competitive local exchange carriers, as we
believe increasing competition will result in the need for carriers to
differentiate their product offerings and to outsource activities such as
directory assistance.
Our services offer carriers the opportunity to differentiate themselves in a
highly competitive marketplace by providing high quality, value-added services
to their subscribers. We believe that our services can increase carriers'
revenues by increasing subscriber satisfaction, the number of calls made
4
<PAGE>
and, in the case of wireless and long distance carriers, the amount of billable
airtime. Further, our national call center network and integrated search engine
and database systems allow carriers operating in multiple markets to offer
consistent enhanced directory assistance and other information services on a
nationwide basis. This consistency permits greater system-wide marketing and
brand identification for the carriers.
Under our contracts, carriers agree to route some or all of their directory
assistance and/or alphanumeric messaging calls to us. We are also able to offer
our services to multiple carriers within the same market. When a carrier's
subscribers dial a typical directory assistance number, such as "411,"
"555-1212" or "00," the calls are answered by our operators identifying the
service by that carrier's brand name, such as "AT&T Connect," "AirTouch 411
Connect" or "Sprint PCS Directory Assistance." Each carrier establishes its own
fee structure for its subscribers. Metro One charges carriers directly on a
charge per call basis and bears no subscriber collection risk.
OUR BUSINESS STRATEGY
Metro One's business strategy includes the following key elements:
- Build on our current carrier relationships, while seeking new domestic and
international customers, including landline carriers and other corporate
customers;
- Develop and offer additional value-added services and features;
- Expand our national call center network and its capabilities, while adding
greater bandwidth, storage capacity, speed and efficiency to our systems;
- Enhance the quantity and quality of our current content databases; and
- Leverage our voice telephony portal by delivering greater volumes of
existing and new services through our call center network as well as through
other portals.
RECENT DEVELOPMENTS
On October 21, 1999, we announced that we entered into a multi-year contract
with ALLTEL Communications, Inc. to provide our enhanced directory assistance
services to substantially all of its wireless subscribers. Previously, we had
provided service to a limited number of ALLTEL subscribers. We intend to service
the additional subscribers primarily through our existing call center network.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Metro One........................... 2,000,000 shares
Common stock offered by the selling shareholders............ 67,500 shares
Common stock to be outstanding after this offering.......... 13,409,877 shares
Use of proceeds............................................. To develop or acquire technologies,
features and content complementary
to our business and to expand our
call center and network capacity to
serve existing and potential
customers; to reduce certain
outstanding indebtedness; and for
general corporate purposes,
including possible acquisitions and
other corporate development
activities, and working capital. See
"Use of Proceeds."
Nasdaq National Market symbol............................... MTON
</TABLE>
- ---------------------
The number of shares to be outstanding after this offering is based on the
number of shares outstanding as of September 30, 1999, and excludes:
- 1,539,000 shares of common stock issuable on exercise of options outstanding
under our Stock Incentive Plan;
- 405,000 shares of common stock reserved for future issuance under our Stock
Incentive Plan; and
- 150,000 shares of common stock reserved for future issuance under our 1999
Employee Stock Purchase Plan.
6
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share, call center and call volume data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $17,834 $26,090 $45,139 $31,280 $52,113
------- ------- ------- ------- -------
Direct operating costs........................... 8,334 13,017 23,107 16,104 30,481
General and administrative costs................. 7,615 11,702 18,334 13,099 19,795
------- ------- ------- ------- -------
Income from operations........................... 1,885 1,371 3,698 2,077 1,837
------- ------- ------- ------- -------
Net income....................................... $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
======= ======= ======= ======= =======
Basic earnings per share(1)...................... $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
======= ======= ======= ======= =======
Diluted earnings per share(1).................... $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 3,891 $ 25,737
Working capital........................................... 3,502 27,491
Total assets.............................................. 48,100 69,946
Long-term obligations..................................... 6,480 1,409
Shareholders' equity...................................... 31,499 60,559
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER DATA (unaudited)(3):
EBITDA(4).......................... $ 3,207 $ 3,634 $ 7,472 $ 4,783 $ 6,130
Cash flow from operating
activities(3).................... $ 2,912 $ 3,293 $ 6,546 $ 5,265 $ 5,983
New call centers opened during
period........................... 1 4 2 1 4
Call centers in operation at end of
period........................... 12 16 18 17 22
Call volume........................ 30 million 42 million 71 million 49 million 93 million
</TABLE>
- ---------------------------
(1) See Note 9 of the Notes to Financial Statements included elsewhere in this
prospectus for information about how we calculated basic and diluted
earnings per share.
(2) The "as adjusted" column reflects the application of the proceeds from the
sale of 2,000,000 shares of common stock offered by Metro One in this
offering, at an assumed public offering price of $15.69 per share, and the
use of net proceeds as described under "Use of Proceeds."
(3) Cash flow from operating activities for the years ended December 31, 1996,
1997 and 1998 and for the nine months ended September 30, 1999 are audited.
(4) "EBITDA" is defined as income from operations plus depreciation and
amortization expense. EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA is not necessarily a measure of our
ability to fund our cash needs and is not necessarily comparable to
similarly titled measures of other companies.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND UNCERTAINTIES BEFORE YOU
INVEST IN OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK INVOLVES RISK. IF ANY
OF THE FOLLOWING RISKS OR UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. THE
FOLLOWING RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING US. ADDITIONAL
RISKS AND UNCERTAINTIES OF WHICH WE ARE UNAWARE OR WHICH WE CURRENTLY BELIEVE
ARE IMMATERIAL COULD ALSO MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS. IN ANY CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. SEE ALSO
"FORWARD-LOOKING STATEMENTS."
OUR QUARTERLY AND ANNUAL OPERATING RESULTS FREQUENTLY VARY SIGNIFICANTLY DUE IN
PART TO FACTORS OUTSIDE OUR CONTROL.
In the future, as in the past, our quarterly and annual operating results may
vary significantly as a result of a number of factors. We cannot control many of
these factors, which include, among others:
- Changes in the telecommunications market, including the addition or
withdrawal of carriers from the market, changes in technology and increased
competition from existing and new competitors;
- The timing of the commencement of our services under new or existing
contracts with our carrier customers, which depend in part on the customers'
ability to adapt their networks to allow them to transfer calls to us and
bill for call completion;
- The timing and expense of our call center network expansion, including
increased staffing and infrastructure expenses related to anticipated new
call volume;
- The addition or expiration of contracts with carrier customers;
- Changes in our or our competitors', customers' or suppliers' pricing
policies;
- Lengthy sales cycles for new and extended contracts;
- Lack of market acceptance or delays or increased development costs related
to the introduction of our services or features; and
- General economic conditions.
For these reasons, you should not rely on period-to-period comparisons of our
financial results as an indication of any future results. Our future operating
results could fall below the expectations of securities industry analysts or
investors. Any such shortfall could result in a decline in the market price of
our common stock. Fluctuations in our operating results will likely increase the
volatility of our common stock price.
THE RAPIDLY CHANGING TELECOMMUNICATIONS MARKET COULD UNFAVORABLY AFFECT US.
The telecommunications market is subject to rapid change and uncertainty that
may result in competitive situations which could unfavorably affect us. These
changes and uncertainties are due to, among other factors:
- Mergers, acquisitions and alliances among carriers and among our
competitors, which can result in fewer carriers in the marketplace, lost
carrier customers, increased negotiating leverage for newly affiliated
carriers and more effective competitors;
- Changes in the regulatory environment, which may affect us directly, by
affecting our ability to access and update listings data at a reasonable
cost, or indirectly, by restricting our carrier customers' ability to
operate or provide a competitive service;
8
<PAGE>
- Increasing availability of alternative methods for delivery of directory
assistance and other information services, including the Internet; and
- Evolving industry standards, including frequent technological changes and
new product introductions.
WE HAVE A LIMITED NUMBER OF CONTRACTS WITH A SMALL NUMBER OF CARRIER CUSTOMERS.
IF WE FAIL TO EXTEND OR REPLACE THESE CONTRACTS, OR IF THESE CONTRACTS ARE
TERMINATED PRIOR TO THEIR EXPIRATION, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
A limited number of customers account for substantially all our revenues. For
example, our top five customers accounted for approximately 97% of our revenues
in 1998 and approximately 98% of our revenues in the first nine months of 1999.
Of our two largest customers, Sprint PCS accounted for approximately 38% of our
revenues in 1998 and approximately 42% of our revenues for the first nine months
of 1999, and AT&T Wireless Services accounted for approximately 17% of our
revenues in 1998 and approximately 30% of our revenues for the first nine months
of 1999. The parent of Sprint PCS has entered into an agreement to be merged
into MCI WorldCom, Inc. Our business would be adversely affected by the loss of
either Sprint PCS or AT&T Wireless Services and could be adversely affected by
the loss of any other significant customer.
Of our contracts with significant customers, two expire in 2000, one expires in
2001 and the remainder, including Sprint PCS and AT&T Wireless Services, expire
in 2002 and beyond. Our contracts contain performance and other standards and
may be terminated prior to their scheduled expiration dates in specified
circumstances. In addition, Sprint PCS may, on payment of a termination fee,
accelerate the termination date of its contract to as early as March 31, 2000,
for any or no reason, by notifying us before March 31, 2000.
If we fail to extend or replace our contracts, or our contracts are terminated
prior to their expiration, our business could be adversely affected. Although we
seek to increase the number of our customers, and maintain good relationships
with our existing customers, a small number of companies dominate the
telecommunications market. This limits the potential customer base and our
expansion opportunities.
WE HAVE A LONG SALES CYCLE WHICH MAY CAUSE DELAYS THAT ADVERSELY AFFECT OUR
REVENUE GROWTH AND OPERATING RESULTS.
A customer's decision to contract for our directory assistance and information
services involves a significant commitment of technical and other resources. As
a result, we have a long sales cycle for both new and extended contracts,
particularly with larger customers. The selling process involves demonstrating
to the customer the value-added benefits of outsourcing their directory
assistance and using our services rather than those of our competitors. Any
delays due to lengthy sales cycles could significantly affect our revenue growth
and operating results.
OUR OPERATING RESULTS ARE SIGNIFICANTLY AFFECTED BY OUR ABILITY TO ACCURATELY
ESTIMATE THE AMOUNT AND TIMING OF CALL VOLUME. THE ACTUAL AMOUNT AND TIMING OF
CALL VOLUME IS OFTEN SUBJECT TO FACTORS OUTSIDE OF OUR CONTROL.
Our operating results are significantly affected by costs incurred for staffing
and expanding infrastructure. We incur significant staffing and general and
administrative costs in anticipation of call volume under our customer
contracts. If such call volume does not arrive as scheduled or in the amount
anticipated, or at all, our operating results can be adversely affected. For
example, during the second and third quarters of 1999, we expanded our call
center operations in anticipation of rolling out service in new markets for
several customers. However, due to several factors beyond our control, in some
instances the carriers were unable to deliver the anticipated volume of calls as
scheduled. This
9
<PAGE>
contributed to an increase in our operating expenses for those periods without a
corresponding increase in revenues from the anticipated call volume.
WE FACE SUBSTANTIAL COMPETITION FROM A NUMBER OF OTHER COMPANIES.
Many of our competitors in the directory assistance market, including the
regional Bell operating companies, have far greater resources and better name
recognition. The regional Bell operating companies and GTE Corporation also have
the advantageous position of being the local telephone carrier in their area of
operation. Some of these companies, including a former enhanced directory
assistance customer, Ameritech Cellular, are or may be developing their own
versions of expanded directory assistance services. We also face competition
from a number of other independent directory assistance providers. If we are
unable to compete successfully, it could have an adverse effect on our business,
financial condition and results of operations. Our ability to compete
successfully depends, in part, on our ability to anticipate and appropriately
respond to many factors, including the introduction of new services and products
by our competitors, changes in subscriber preferences, changes in economic
conditions and discount pricing strategies by our competitors.
OUR INABILITY TO ACHIEVE DESIRED PRICING LEVELS COULD ADVERSELY AFFECT OUR
PROFITABILITY AND OPERATIONS.
We are subject to competitive pressures with respect to pricing, which could
adversely affect our profitability and operations. The prices that we can charge
our carrier customers are subject to the terms of our contracts, the changing
telecommunications market, the relative leverage of the negotiating parties and
the overall competitive landscape. We currently charge our carriers on a per
call basis, with prices varying in some cases based on call volume. Our
long-term strategy is based in part on reducing the price we charge our
customers. Generally, our pricing levels have declined and, in the future, will
likely continue to decline as call volume increases. Substantially reduced
pricing without a corresponding increase in volume could adversely affect our
ability to operate profitably.
WE ARE DEPENDENT ON THE WIRELESS TELECOMMUNICATIONS INDUSTRY, AND A DECREASE IN
WIRELESS USAGE BY SUBSCRIBERS COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS OF
OPERATIONS.
Almost all of our business comes from providing enhanced directory assistance
and information services to our wireless customers' subscribers. A decrease in
wireless usage by subscribers could have an adverse effect on our results of
operations. Wireless usage by subscribers appears to be affected by a number of
factors, including pricing, safety concerns, reliability and availability of the
wireless network, government regulation and reliability and availability of
alternative technologies.
HEALTH CONCERNS RELATING TO THE USE OF WIRELESS TELEPHONES MAY REDUCE THE USE OF
SUCH TELEPHONES AND HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Media reports have suggested that certain radio frequency emissions from
wireless telephones may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emission may have the effect
of discouraging the use of wireless telephones. Any decrease in the use of
wireless telephones could result in a decrease in our call volume and, thus,
have an adverse effect on our business.
WE NEED TO EXPAND CALL VOLUME AND INCREASE EFFICIENCIES IN ORDER TO BE
SUCCESSFUL.
In order to successfully execute our business strategies, we need to increase
the volume of calls made to our call center network, while realizing the
benefits of operating leverage (that is, revenues growing at a faster rate than
operating expenses). We intend to increase call volume by seeking additional
customers, including landline carrier customers, as well as seeking additional
business from our existing customers, in the areas served by our call center
network. We have limited experience in the landline
10
<PAGE>
market, which is dominated by the regional Bell operating companies and GTE
Corporation. If we are unable to expand our wireless business or attract
significant landline business, on a cost effective basis or at all, we may be
unable to increase profitability or sustain past growth rates.
IF WE ARE UNABLE TO ANTICIPATE CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS AND
TO DEVELOP NEW SERVICES AND FEATURES, WE MAY NOT SUCCEED.
Our success depends, in part, on our ability to anticipate changes in technology
and industry standards and to develop and introduce new services and features
that are accepted by the marketplace and cost effective for us to provide as a
part of our overall service offerings. The development of new services and
features can be very expensive. Further, given the rapid technological changes,
frequent introduction of new products, services and features, and changing
consumer demands that characterize our industry, it can be difficult to
correctly anticipate future changes in technology and industry standards. If we
fail to develop new services and features, encounter difficulties that delay the
introduction of such services and features, or incorrectly anticipate future
changes and develop services and features that are not accepted by the
marketplace or are not cost effective for us to provide as a part of our overall
service offerings, we may not succeed at our business.
ALTERNATIVE METHODS FOR DELIVERY OF DIRECTORY ASSISTANCE AND INFORMATION
SERVICES COULD REDUCE THE DEMAND FOR OUR SERVICES.
Our business comes primarily from providing enhanced directory assistance and
information services to telephone users. However, information can be transmitted
in other ways, including more intelligent communications devices and other
technologies and protocols, and over the Internet. For example, as the Internet
continues to develop and becomes easier to use and access, technologies may be
developed that decrease or eliminate the demand for telephone-based or
voice-based directory or information services. Widespread acceptance of existing
and developing technologies and protocols, such as voice recognition and
wireless application protocol, could adversely affect our business. Our call
volume could decline dramatically if telephone users change their usage habits
and rely on the Internet or other alternatives as their primary source for
information.
SYSTEMS FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.
Our success also depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of our network, our
connections to third parties, our computer hardware or software or our
customers' or suppliers' computer hardware or software. Any such damage or
failure could disrupt the operations of our network and the provision of our
services and result in the loss of current and potential customers. In addition,
as call volume increases, we will need to expand and upgrade our technology and
network hardware and software in order to provide services. Capacity limits on
our technology and network hardware and software may make it difficult for us to
expand and upgrade our systems in a timely and economical manner.
IF WE ARE UNABLE TO OBTAIN OR ADEQUATELY UPDATE DIRECTORY OR INFORMATION CONTENT
AT AN ECONOMICAL COST, WE MAY BE UNABLE TO PROVIDE CURRENT LEVELS OF SERVICE OR
IMPROVE OUR SERVICE.
Our operations depend on our access to the names, telephone numbers and other
information that we supply directly to callers or we use in providing our
services. The availability, cost, quality and usefulness of such data varies
widely across geographic regions. If we are unable to obtain or update directory
or information content at an economical cost, we may be unable to provide
current levels of service, improve our enhanced directory assistance service or
provide new services and features. Ultimately, the satisfaction of our carrier
customers, and our ability to renew and extend our current customer contracts
and enter into new customer contracts, depends on the quality of services we
11
<PAGE>
provide to the carrier's subscribers. The quality of our services is directly
related to the quality of our listings data and other information content.
AS WE RELY ON A LIMITED NUMBER OF SUPPLIERS, AN ABRUPT LOSS OF ANY KEY SUPPLIER
COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS OR DELAY OUR DEVELOPMENT EFFORTS.
We rely on some key suppliers to provide us with programming and engineering
services and to license us their technology. An abrupt loss of any current key
supplier could cause a disruption in our operations or a delay in our
development efforts, including our planned expansion of our call center network,
and could adversely affect our business operations.
IF WE ARE UNABLE TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED SENIOR MANAGEMENT,
TECHNICAL PERSONNEL AND CALL CENTER OPERATORS, OR OUR CALL CENTER STAFF IS
UNIONIZED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.
Our success depends to a significant extent on the efforts and abilities of our
senior management, technical personnel and call center operators. The loss of
the services of our senior management and technical personnel could have a
material adverse effect on our business and our ability to meet our strategic
objectives. We also depend on the continued service of our call center
operators, who we hire from the available labor pool. As we continue to expand
our call center network, the ability to attract and retain qualified senior
management, technical personnel, operators and other skilled employees is
extremely important to the operation of our business. If we are unable to
attract and retain qualified individuals, or we are required to pay
significantly higher wages and other benefits to such individuals, or if our
call center staff is unionized, it could adversely affect our business
operations. We find it more difficult to recruit and retain qualified
individuals during periods of low unemployment. We may be subject to increasing
pressure to offer higher wages and other benefits. In our call center hiring, we
may also feel the effects of the telecommunications industry in general, which
has widespread union membership among its operators and other workers.
IF WE ARE UNABLE TO USE AND PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE
TO PROVIDE SOME OF OUR ENHANCED DIRECTORY ASSISTANCE AND INFORMATION SERVICES OR
PROFITABLY OPERATE OUR BUSINESS.
We regard aspects of our enhanced directory assistance and information services
and their features and processes to be proprietary. If we are unable to use and
protect our intellectual property, we may be unable to provide some of our
enhanced directory assistance and information services or profitably operate our
business. To a limited extent, we rely on a combination of trade secret, patent
and other intellectual property law, nondisclosure agreements and other
protective measures to protect our intellectual property. However, these
measures may be difficult and costly to meaningfully enforce. Further, while we
are not aware of any pending or threatened claims that we are infringing on the
intellectual property rights of others, such claims could have a material
adverse effect on our business. If any infringement claim is asserted against
us, we may seek to obtain a license of the other party's intellectual property
rights. However, the other party may refuse to grant a license or require terms
that we would find to be unreasonable. In addition, attempts to enforce our
intellectual property rights may bring into question the validity of these
rights. Litigation with respect to patents or other intellectual property rights
can result in substantial costs and diversion of management and other resources.
See "Business--Intellectual Property."
FUTURE ACQUISITIONS MAY STRAIN OUR OPERATIONS.
We intend to evaluate, and in the future may pursue, acquisition opportunities
that are consistent with our business strategy. If we fail to adequately address
the financial and operational risks associated with such acquisitions, future
acquisitions may adversely harm our business.
12
<PAGE>
These risks can include, among other things:
- Difficulties in assimilating the operations, technology, information systems
and personnel of the acquired company, including the inability to maintain
uniform standards, controls and policies, and the loss of key employees of
the acquired company;
- Diversion of management's attention from other business concerns;
- Impairment of relationships with licensors, customers and suppliers;
- Difficulties in entering into markets in which we have no direct prior
experience;
- Use of cash resources, potentially dilutive issuances of equity securities
and incurrence of additional debt and contingent liabilities; and
- Significant write-offs and amortization expenses related to goodwill and
other intangible assets.
IF WE EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, WE WILL ENCOUNTER RISKS
WHICH COULD ADVERSELY AFFECT US.
We currently operate only in the United States; however, an element of our
business strategy is to continue to explore international business
opportunities. If we expand into one or more international markets, we will
encounter significant risks and uncertainties. These risks and uncertainties
include increased operational difficulties arising from, among other things:
- Our ability to attract sufficient business or locate a suitable partner or
joint venture candidate to enable us to overcome logistical and economic
barriers to entry;
- Our ability and cost to gather sufficient information content and listings
data, properly modify our services and features to meet applicable
standards, and hire and train personnel;
- Fluctuations in foreign currency exchange rates; and
- Political, regulatory and economic developments and cultural differences.
REGULATIONS AFFECTING OUR CUSTOMERS AND SUPPLIERS AND FUTURE REGULATIONS TO
WHICH WE MAY BE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.
Although we are not directly subject to telecommunications industry regulation,
the business of our customers and certain suppliers is subject to regulation
that indirectly affects our business. We cannot predict when, or upon what terms
and conditions, further regulation or deregulation might occur or the effect of
regulation or deregulation on our business.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING, AND WE
CANNOT GUARANTEE THAT OUR USE OF THE PROCEEDS WILL ENHANCE THE VALUE OF YOUR
INVESTMENT.
Our management will have broad discretion over the allocation of the net
proceeds from the offering, as well as over the timing of their expenditure. As
a result, you will be relying on our management's judgment with only limited
information about its specific intentions for the use of proceeds. The failure
of our management to apply the net proceeds effectively could adversely affect
our future prospects.
RESTRICTIONS AND COVENANTS IN OUR LOAN AGREEMENTS MAY LIMIT OUR ABILITY TO
CONDUCT OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM
IN THE FUTURE.
Our loan agreements contain a number of significant limitations that may
restrict our ability to, among other things, conduct our business and borrow
additional money, pay dividends or make other distributions to our shareholders,
make investments, create liens on or sell our assets, enter into transactions
with affiliates and engage in mergers or consolidations.
13
<PAGE>
These restrictions may limit our ability to obtain future financing, fund needed
capital expenditures or withstand a future downturn in our business or the
economy. If we violate the restrictions of our loan agreements, our lenders may
require us to repay our outstanding indebtedness immediately, which may
significantly impair our business. As of September 30, 1999, we did not meet one
of the financial ratio requirements under our loan agreement with a commercial
bank. Although this requirement was waived with respect to the third quarter of
1999, we may be required to meet the requirements of this agreement in the
future.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
We may require more capital in the future to fund our operations, finance
investments in equipment and infrastructure needed to maintain and expand our
call center and network capabilities, enhance and expand the range of services
and features we offer, and respond to competitive pressures and potential
opportunities, such as investments, acquisitions and international expansion. We
cannot be certain that additional financing will be available on terms favorable
to us or at all. The terms of available financing may place limits on our
financial and operating flexibility. If adequate funds are not available on
acceptable terms, we may be forced to reduce our operations or abandon expansion
opportunities. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could reduce our competitiveness as our
competitors may provide better maintained networks or offer an expanded range of
services.
OUR STOCK PRICE IS VOLATILE.
The market price of our stock has experienced and is likely to experience
significant fluctuations in response to a number of factors. These factors
include, among others:
- Announcements of extensions, expirations or changes in our contracts and the
opening of new call centers to support such activity;
- Announcements relating to material events concerning our customers;
- Actual or anticipated variations in our results of operations;
- Changes in financial estimates by securities analysts;
- Obsolescence of technologies that we or our customers use;
- Introductions of new technologies;
- General market conditions; and
- The increase in the number of publicly traded shares that will result from
this offering.
From January 1, 1999 through November 1, 1999, our stock price fluctuated from
$11.50 per share to $20.00 per share and has on several days fluctuated more
than 10%. Similar market fluctuations have affected the market prices of equity
securities of many telecommunications companies and other public companies
generally. These trading prices and valuations may change significantly. In
addition, broad market factors affecting telecommunications or technology stocks
may adversely affect the market price of our common stock. Our stock price may
also be adversely affected by general economic, political and market conditions,
including interest rate changes and recession.
OREGON LAW AND PROVISIONS OF OUR CHARTER COULD MAKE THE ACQUISITION OF OUR
COMPANY MORE DIFFICULT.
We are 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 our company, may discourage bids for the common stock at a premium
over the market
14
<PAGE>
price and may adversely affect the market price of, and the voting and other
rights of the holders of, our common stock. In addition, provisions under Oregon
law limit the ability of parties who acquire a significant amount of voting
stock to exercise control over our company. These provisions may have the effect
of lengthening the time required for a person to acquire control of our company
through a proxy contest or the election of a majority of the board of directors
and may deter efforts to obtain control of our company.
THE YEAR 2000 ISSUE COULD DISRUPT OUR BUSINESS.
The year 2000 issue results from an inability of certain computer systems to
accurately recognize dates in and after the year 2000. The year 2000 issue could
disrupt our business if we fail to achieve year 2000 readiness or our suppliers
or carrier customers fail to achieve year 2000 readiness. Any material business
disruption could have an adverse effect on our financial condition and results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Readiness Disclosure."
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus, and in the documents incorporated in
this prospectus by reference, that relate to our plans, objectives,
expectations, intentions and assumptions, and other statements that are not
statements of historical fact, are forward-looking statements within the meaning
of the federal securities laws. These statements may be found under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," among others. Forward-looking statements may, but do not
necessarily, include words such as "anticipate," "believe," "plan," "expect,"
"future," "intend," "may," "will," "should," "estimate," "predict," "potential,"
"continue" and similar expressions. Forward-looking statements are not
guarantees and involve known and unknown risks and uncertainties, any of which
could cause actual results to vary materially from anticipated results. Metro
One's future operations, financial performance, business and share price may be
affected by a number of factors, including the factors listed in "Risk Factors."
You should not place undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus. Metro One has no intention and
undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
COMMON STOCK MARKET PRICE DATA
Metro One's common stock is traded on the Nasdaq National Market under the
symbol "MTON." The following table shows, for the periods indicated, the high
and low sale prices per share of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First Quarter.............................................................. $ 9.75 $ 5.63
Second Quarter............................................................. 8.25 5.25
Third Quarter.............................................................. 9.50 6.50
Fourth Quarter............................................................. 11.00 7.00
1998
First Quarter.............................................................. $ 12.00 $ 7.75
Second Quarter............................................................. 13.94 7.00
Third Quarter.............................................................. 8.63 4.75
Fourth Quarter............................................................. 13.63 6.13
1999
First Quarter.............................................................. $ 19.44 $ 11.50
Second Quarter............................................................. 17.63 12.13
Third Quarter.............................................................. 20.00 12.00
Fourth Quarter (through November 1, 1999).................................. 19.25 14.63
</TABLE>
The last reported sale price of our common stock on the Nasdaq National Market
on November 1, 1999 was $15.69 per share. The approximate number of our
shareholders of record as of October 14, 1999 was 202.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of common stock by us
in this offering will be approximately $29.1 million. If the underwriters fully
exercise the over-allotment option, we estimate that the net proceeds from the
shares sold by us will be approximately $33.6 million. "Net proceeds" is what we
expect to receive after paying the underwriting discount and other estimated
expenses of the offering. For the purpose of estimating net proceeds, we are
assuming that the public offering price will be $15.69 per share. Metro One will
not receive any proceeds from the sale of the shares by the selling
shareholders.
We currently expect to use the net proceeds from this offering as follows:
- Approximately $13 million to $15 million will be used to develop or acquire
technologies, features and content complementary to our business and to
expand our call center and network capacity to serve existing and potential
customers;
- Approximately $9.5 million will be used to reduce outstanding balances on
our revolving line of credit, which had a current interest rate of 8.25% as
of September 30, 1999 and expires in April 2001, and on our equipment line,
which had a current interest rate of 8.25% as of September 30, 1999 and is
payable in monthly installments through March 2003; and
- The balance will be used for general corporate purposes, including possible
acquisitions and other corporate development activities, and working
capital.
The amount allocated to reduce outstanding balances on our revolving line of
credit takes into account estimated additional borrowings under the line of
credit prior to the offering.
We reserve the right to vary the use of the net proceeds among the above
categories, because our ability to use the net proceeds in the approximate
amounts listed depends on a number of factors including future revenue growth,
capital expenditures, the amount of cash generated from operations and other
factors. Although we may use a portion of the net proceeds for possible
acquisitions, we have no current agreements or commitments in that regard. Until
we use our net proceeds of the offering, we intend to invest them in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We intend to
retain earnings from operations for use in the operation and expansion of our
business and do not anticipate paying cash dividends with respect to our common
stock in the foreseeable future. Additionally, our loan agreement with a
commercial bank prohibits the payment of any dividends and other distributions
and the redemption of any stock that exceed 10% of our tangible net worth.
17
<PAGE>
CAPITALIZATION
The following table shows:
- The capitalization of Metro One as of September 30, 1999; and
- The capitalization of Metro One as of September 30, 1999, assuming the
completion of the offering, at an assumed public offering price of
$15.69 per share, and the application of the net proceeds as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments..................... $ 3,891 $ 25,737
========= =========
Current portion of long-term debt and capital lease
obligations......................................................... $ 2,718 $ 575
========= =========
Long-term debt and capital lease obligations (excluding current
portion)............................................................ $ 6,480 $ 1,409
--------- ---------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized, no
shares issued or outstanding -- --
Common Stock, no par value; 50,000,000 shares authorized, 11,410,000
shares issued and outstanding, actual; 13,410,000 shares issued
and outstanding, as adjusted...................................... 40,270 69,330
Accumulated deficit................................................. (8,771) (8,771)
--------- ---------
Total shareholders' equity...................................... 31,499 60,559
--------- ---------
Total capitalization.......................................... $ 37,979 $ 61,968
========= =========
</TABLE>
The number of outstanding shares of common stock as of September 30, 1999
excludes:
- 1,539,000 shares of common stock issuable on exercise of options outstanding
under our Stock Incentive Plan;
- 405,000 shares of common stock reserved for future issuance under our Stock
Incentive Plan; and
- 150,000 shares of common stock reserved for future issuance under our 1999
Employee Stock Purchase Plan.
The capitalization information contained in this table should be read in
conjunction with the more detailed Financial Statements and the Notes to
Financial Statements included elsewhere in this prospectus.
18
<PAGE>
SELECTED FINANCIAL DATA
This section presents selected historical financial data of Metro One.
Historical results do not necessarily predict the results to be expected for any
future period. You should read carefully "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements,
including the Notes to Financial Statements, included elsewhere in this
prospectus. The selected data in this section is not intended to replace the
Financial Statements or the Notes to Financial Statements.
We have derived the statement of operations data for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1999, and the balance sheet data as at December 31, 1996, 1997 and 1998 and
September 30, 1999, from our Financial Statements included elsewhere in this
prospectus, which have been audited by Deloitte & Touche LLP. We have derived
the statement of operations data for the year ended December 31, 1995 and the
balance sheet data as at December 31, 1995 from our financial statements not
included in this prospectus, which were audited by Deloitte & Touche LLP. We
have derived the statement of operations data for the year ended December 31,
1994 and the balance sheet data as at December 31, 1994 from our financial
statements not included in this prospectus, which were audited by a firm of
certified public accountants other than Deloitte & Touche LLP. We have derived
the statement of operations data for the nine months ended September 30, 1998
from our unaudited financial statements included in this prospectus, which, in
the opinion of our management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial data for
such period.
<TABLE>
<CAPTION>
NINE MONTHS
(In thousands, except per YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
share, call center and call volume data) ----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 5,050 $ 13,074 $ 17,834 $ 26,090 $ 45,139 $ $31,280 $ 52,113
--------- --------- --------- --------- --------- --------- ---------
Direct operating costs............................. 4,793 7,157 8,334 13,017 23,107 16,104 30,481
General and administrative costs................... 4,268 5,999 7,615 11,702 18,334 13,099 19,795
Income (loss) from operations...................... (4,011) (82) 1,885 1,371 3,698 2,077 1,837
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................................. $ (5,035) $ (1,724) $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
========= ========= ========= ========= ========= ========= =========
Basic earnings (loss) per share(1)................. $ (1.00) $ (0.31) $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss) per share(1)............... $ (1.00) $ (0.31) $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......... $ 310 $ 1,149 $ 14,137 $ 8,554 $ 7,570 $ 3,891
Working capital............................................ (351) 151 15,012 9,844 8,414 3,502
Total assets............................................... 6,299 8,716 24,529 29,125 36,311 48,100
Long-term obligations...................................... 6,432 1,466 1,168 1,416 719 6,480
Shareholders' equity....................................... (14,713) 3,274 20,981 23,676 28,242 31,499
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OTHER DATA (unaudited)(2):
EBITDA(3)...................................................... $ 3,207 $ 3,634 $ 7,472 $ 4,783 $ 6,130
Cash flow from operating activities(2)......................... $ 2,912 $ 3,293 $ 6,546 $ 5,265 $ 5,983
New call centers opened during period.......................... 1 4 2 1 4
Call centers in operation at end of period..................... 12 16 18 17 22
Call volume.................................................... 30 million 42 million 71 million 49 million 93 million
</TABLE>
- ---------------------------
(1) See Note 9 of the Notes to Financial Statements included elsewhere in this
prospectus for information about how we calculated basic and diluted
earnings per share.
(2) Cash flow from operating activities for the years ended December 31, 1996,
1997, and 1998 and for the nine months ended September 30, 1999 are audited.
(3) "EBITDA" is defined as income from operations plus depreciation and
amortization expense. EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA is not necessarily a measure of our
ability to fund our cash needs and is not necessarily comparable to
similarly titled measures of other companies.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR
FINANCIAL STATEMENTS AND THE NOTES TO FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN
THIS PROSPECTUS. RESULTS OF OPERATIONS FOR THE PERIODS DISCUSSED BELOW DO NOT
NECESSARILY PREDICT THE RESULTS TO BE EXPECTED IN ANY FUTURE PERIOD. THE
FOLLOWING DISCUSSION AND ANALYSIS CONTAINS STATEMENTS AND ANALYSES CONCERNING
THE FUTURE THAT ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO RISKS AND UNCERTAINTIES, AND OUR ACTUAL RESULTS OF OPERATIONS MAY
DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS" AND
"FORWARD-LOOKING STATEMENTS."
OVERVIEW
We are a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide enhanced directory
assistance and information services to their subscribers.
Under our contracts, the carriers agree to route some or all of their directory
assistance and/or alphanumeric messaging calls to us. We are also able to offer
our services to multiple carriers within the same market. When a carrier's
subscribers dial a typical directory assistance number, such as "411,"
"555-1212" or "00," the calls are answered by our operators identifying the
service by that carrier's brand name, such as "AT&T Connect," "AirTouch 411
Connect" or "Sprint PCS Directory Assistance."
Each carrier establishes its own directory assistance fee structure for its
subscribers. Wireless subscribers typically pay fees ranging from $0.75 to $1.10
plus airtime charges for our services. We bear no subscriber collection risk.
We charge our carriers directly on a per call basis, with prices varying in some
cases based on call volume. Our long-term strategy is based in part on reducing
the price we charge our customers. We expect that our average price per call
will decrease in 1999 and 2000 as call volume increases. We believe this reduced
pricing better positions us to retain and expand service with existing carrier
customers, to attract new wireless and landline carriers, and to achieve, if we
are able to increase call volume without incurring substantial additional
expense, greater operating margins over time.
In the fourth quarter of 1999, we will continue our aggressive call center and
network build out to prepare for significant new call volume from Nextel
Communications, AT&T Wireless Services and other carriers. We will also continue
to opportunistically pursue additional significant new business. This build out
will significantly increase our local service coverage and our capacity to
process additional call volume.
Our rapid growth plan involves both capital expenditures and operating expenses,
as we build infrastructure and recruit and train qualified personnel. To better
serve our customers and strengthen our relationships, we maintain the operating
readiness of our call centers even when our carrier customers experience
unexpected delays in transitioning call volume to us. Some of our carrier
customers have recently experienced these types of delays and may experience
some additional delays in the future. These delays increase our ongoing
operating expenses with no corresponding increase in revenues. The result under
these conditions has been, and will likely continue to be, near-term reported
earnings that vary widely. However, we intend to continue to pursue and prepare
for significant additional call volume in order to seek to achieve greater
earnings over the long term.
On October 21, 1999, we announced that we entered into a multi-year contract
with ALLTEL Communications, Inc. to provide our enhanced directory assistance
services to substantially all of its wireless subscribers. Previously, we had
provided service to a limited number of ALLTEL subscribers.
20
<PAGE>
RESULTS OF OPERATIONS
The following table shows selected items of our statements of operations data
expressed as a percentage of revenues.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Direct operating costs...................... 46.7 49.9 51.2 51.5 58.5
General and administrative costs............ 42.7 44.9 40.6 41.9 38.0
----- ----- ----- ----- -----
Income from operations...................... 10.6 5.2 8.2 6.6 3.5
Other income (expense)...................... (0.6) 1.6 0.6 0.8 0.2
Interest and loan fees...................... (3.2) (1.3) (0.6) (0.8) (0.8)
----- ----- ----- ----- -----
Income before income taxes.................. 6.8 5.5 8.2 6.6 2.9
Income tax expense.......................... 0.3 0.0 0.2 0.1 0.1
----- ----- ----- ----- -----
Net income.................................. 6.5 5.5 8.0 6.5 2.8
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE FIRST NINE MONTHS OF 1999 TO THE FIRST NINE MONTHS OF 1998
REVENUES. Revenues increased 66.6%, from $31.3 million to $52.1 million. Call
volume grew from approximately 49 million calls to over 93 million calls. This
increase was due primarily to increased call volume under existing contracts and
call volume from new contracts that commenced service during the second half of
1998 and the third quarter of 1999.
DIRECT OPERATING COSTS. Direct operating costs consist of call center personnel
and data costs. These costs increased 89.3%, from $16.1 million to
$30.5 million. This increase was primarily due to servicing increased call
volumes and the cost of operating additional call centers in 1999. In addition,
during the second and third quarters of 1999 we elected to take on an increased
amount of staffing and infrastructure expenditures in preparation for additional
scheduled call volume, some of which did not arrive as anticipated. As a
percentage of revenues, direct operating costs increased from 51.5% to 58.5%,
due primarily to increased personnel and data costs associated with the start-up
of new call centers, the increase in staffing in anticipation of additional call
volume from existing customers and a reduction in average price per call.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
51.1%, from $13.1 million to $19.8 million. This increase resulted primarily
from the costs associated with the start-up of new call centers and the
investment in infrastructure necessary to support, and the increase in
depreciation expense associated with, additional call centers. As a percentage
of revenues, general and administrative costs decreased from 41.9% to 38.0%.
This decrease resulted primarily from efficiencies associated with the expansion
of our operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
58.6%, from $2.7 million to $4.3 million, due primarily to equipment purchased
for new call centers, for upgrades for existing call centers and for corporate
operations.
OTHER INCOME. Other income for the first nine months of 1999 was $112,000 and
consisted primarily of interest income offset by losses upon the disposition of
assets. Other income for the first nine months of 1998 was $248,000 and
consisted primarily of interest income offset by losses upon the disposition of
assets.
21
<PAGE>
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees increased 66.6%,
from $255,000 to $425,000. This increase was attributable to an increase in
average debt outstanding during 1999.
INCOME TAX EXPENSE. Income tax expense for the first nine months of 1999 was
$60,000, for an effective tax rate of approximately 3.9%. Income tax expense for
the first nine months of 1998 was $44,000, for an effective tax rate of
approximately 2.1%. These rates differ from the combined federal and state
statutory rate of approximately 39% due to the use of net operating loss
carryforwards.
COMPARISON OF 1998 TO 1997
REVENUES. Revenues increased 73.0%, from $26.1 million to $45.1 million. Call
volume increased from approximately 42 million calls to approximately
71 million calls. This increase was due primarily to increases in call volume
under existing contracts and additional call volume from new contracts, offset
by decreases in call volume due to the completion of contracts with Ameritech
Cellular, BellSouth and Bell Atlantic Mobile.
DIRECT OPERATING COSTS. Direct operating costs increased 77.5%, from
$13.0 million to $23.1 million. The increase in direct operating costs was due
primarily to increased call volumes and the cost of operating several additional
call centers in 1998. As a percentage of revenues, direct operating costs
increased from 49.9% to 51.2%, as personnel costs increased due to the
continuing build out of our national network of call centers. This increase was
partially offset by higher call volumes and the associated operating
efficiencies due to improved personnel utilization.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
56.7%, from $11.7 million to $18.3 million. This increase in costs was due
primarily to the support of increased operational activity overall and the costs
associated with the opening of several additional call centers in 1998. As a
percentage of revenues, general and administrative costs decreased from 44.9% to
40.6%. This decrease resulted primarily from the decreasing investment in
corporate services necessary to support additional call centers. Depreciation
and amortization increased by 66.8%, from $2.3 million to $3.8 million, due
primarily to equipment purchased for new call centers and upgrades for existing
call centers and corporate research and development activities.
OTHER INCOME. Other income for 1998 was $289,000, and consisted of interest
income of $365,000, offset primarily by asset valuation losses of $73,000
related to equipment taken out of service during the year. Other income for 1997
was $408,000 and consisted of interest income of $569,000, offset primarily by
expenses of $142,000 related to estimated litigation settlement costs and asset
valuation losses for assets taken out of service during the year.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees declined 7.5%,
from $334,000 to $309,000. This decline was attributable to lower interest
rates. Monthly average debt outstanding increased from $1.6 million to
$1.7 million.
INCOME TAX EXPENSE. Income tax expense for 1998 was $75,000, for an effective
tax rate of approximately 2.1%. Income tax expense for 1997 was $13,000, for an
effective tax rate of approximately 0.9%. These rates differ from the combined
federal and state statutory rate of approximately 39% due to the use of net
operating loss carryforwards.
COMPARISON OF 1997 TO 1996
REVENUES. Revenues increased 46.3%, from $17.8 million to $26.1 million. Call
volume increased from approximately 30 million calls to approximately
42 million calls. This increase was due primarily to increases in call volumes
under existing contracts and additional call volumes from new contracts.
22
<PAGE>
DIRECT OPERATING COSTS. Direct operating costs increased 56.2%, from
$8.3 million to $13.0 million. The increase in direct operating costs was due
primarily to increased call volumes and the cost of operating several additional
call centers in 1997. As a percentage of revenues, direct operating costs
increased from 46.7% to 49.9%, as personnel costs increased due to the
continuing build out of our national network of call centers. This increase was
partially offset by higher call volumes and the associated 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
53.8%, from $7.6 million to $11.7 million. This increase was due primarily to
increased operational activity overall and the costs associated with the opening
of several additional call centers in 1997. As a percentage of revenues, general
and administrative costs increased from 42.7% to 44.9%. This increase resulted
primarily from the investment in corporate services necessary to support
additional call centers. Depreciation and amortization increased by 71.2%, from
$1.3 million to $2.3 million, due primarily to equipment purchased for new call
centers, upgrades for existing call centers and corporate research and
development activities.
OTHER INCOME. Other income for 1997 was $408,000, and consisted of interest
income of $569,000, offset primarily by expenses of $142,000 related to
estimated litigation settlement costs and asset valuation losses for assets
taken out of service during the year. Other expense for 1996 was $109,000, and
consisted primarily of estimated litigation settlement expenses of $280,000 and
asset valuation losses of $151,000 related to equipment taken out of service
during the year, offset by interest income of approximately $288,000.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees declined 41.3%,
from $569,000 to $334,000. This decline was attributable to the reduction in
monthly average debt outstanding from $2.9 million to $1.6 million.
INCOME TAX EXPENSE. Income tax expense for 1997 was $13,000, for an effective
tax rate of approximately 0.9%. Income tax expense for 1996 was $41,000, for an
effective tax rate of approximately 3.4%. These rates differ from the combined
federal and state statutory rate of approximately 39% due to the use of net
operating loss carryforwards.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data
for the seven quarters ended September 30, 1999, as well as the percentage of
our revenues represented by each item. This data has been derived from unaudited
interim financial statements prepared on the same basis as the audited Financial
Statements contained herein and, in the opinion of management, include all
adjustments consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information when read in conjunction
with the Financial Statements and Notes to
23
<PAGE>
Financial Statements appearing elsewhere in this prospectus. The operating
results for any quarter should not be considered indicative of results of any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1998 1998 1998 1998 1999 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $9,045 $10,922 $11,312 $13,859 $14,175 $17,469 $20,469
------ ------- ------- ------- ------- ------- -------
Direct operating costs............. 4,793 5,525 5,786 7,003 7,836 10,509 12,136
General and administrative costs... 4,001 4,475 4,622 5,235 5,653 6,768 7,374
Income from operations............. 251 922 904 1,621 686 192 959
------ ------- ------- ------- ------- ------- -------
Net income......................... $ 209 $ 901 $ 916 $ 1,577 $ 682 $ 105 $ 677
====== ======= ======= ======= ======= ======= =======
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------- ------- ------- ------- ------- -------
Direct operating costs............. 53.0 50.6 51.1 50.5 55.3 60.2 59.3
General and administrative costs... 44.2 41.0 40.9 37.8 39.9 38.7 36.0
Income from operations............. 2.8 8.4 8.0 11.7 4.9 1.1 4.7
------ ------- ------- ------- ------- ------- -------
Net income......................... 2.3% 8.2% 8.1% 11.4% 4.8% 0.6% 3.3%
====== ======= ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and short-term investments are recorded at cost
that approximates their fair market value. As of September 30, 1999, we had
$3.9 million in cash and cash equivalents and short-term investments compared to
$7.6 million at December 31, 1998, a decrease of $3.7 million primarily from
capital expenditures incurred as part of the expansion of our national call
center network. Total capital expenditures were $17.9 million for the first nine
months of 1999. We have funded the expansion of our call center and network
capacity with cash on hand, cash provided by operating activities, proceeds from
the exercise of options and borrowings under credit facilities.
Working capital was $3.5 million at September 30, 1999, as compared with
$8.4 million at December 31, 1998. Our current ratio was 1.3:1 at September 30,
1999, as compared with 2.1:1 at December 31, 1998. These decreases were due
primarily to costs associated with the continuing build out of our national
network of call centers.
During the third quarter of 1999, we entered into a new loan agreement with an
equipment financing lender. The loan agreement provides us with $10 million of
borrowing capacity to fund the expansion of our call center network and for
other equipment needs. The agreement provides for fixed or floating rate
borrowings and all assets purchased pursuant to the agreement are pledged as
collateral. Borrowings under the agreement have a term of 48 months, and
prepayment of outstanding borrowings is allowable 12 months after the funding
date.
During the second quarter of 1999, we entered into a new loan agreement with a
commercial bank. The loan agreement consists of a $10 million revolving line of
credit plus a $7.5 million equipment line. Total borrowings under the two lines
cannot exceed $15 million. The revolving line of credit expires in April 2001
and advances under the equipment line are available through April 2000.
Outstanding borrowings bear interest at the prime rate (8.25% at September 30,
1999) and all of our assets are pledged to the bank as collateral, other than
assets previously pledged under existing financing and lease agreements and
assets that may be pledged pursuant to purchase money agreements. The agreement
contains minimum net worth, working capital and profitability requirements, as
well as certain other restrictive covenants, and prohibits the payment of any
dividends and other distributions and redemptions of our stock exceeding 10% of
our tangible net worth. As of September 30, 1999, we did not meet one of the
financial ratio requirements under this agreement. However, we have received a
waiver of this requirement for the third quarter of 1999 from our bank.
24
<PAGE>
CASH FLOW FROM OPERATIONS. Net cash from operations for the nine months ended
September 30, 1999 was $6.0 million, resulting primarily from net income and the
effect of non-cash depreciation and amortization. Net cash from operations for
the twelve months ended December 31, 1998 was $6.5 million, resulting primarily
from net income and non-cash expense items, such as depreciation and
amortization. Net cash from operations was $3.3 million for the twelve months
ended December 31, 1997, resulting primarily from net income and non-cash
expense items, such as depreciation and amortization, for the respective
periods.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities was
$16.8 million for the nine months ended September 30, 1999 and was related
primarily to capital expenditures for the purchase of equipment for new call
centers, the upgrade and expansion of existing call centers, investment in
corporate operations and our relocation to expanded corporate headquarters. Cash
used in investing activities was offset by proceeds from the sale of short-term
investments. Cash used in investing activities was $10.6 million for 1998 and
was related primarily to capital expenditures for new call centers and the
upgrade and expansion of existing call centers and purchase of investments. Cash
used in investing activities was $10.1 million for 1997 and was related
primarily to capital expenditures for new call centers and the upgrade and
expansion of existing call centers.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing activities
was $8.3 million for the nine months ended September 30, 1999, resulting from
the borrowing of $9.3 million under credit facilities and the repayment of
$2.8 million of debt obligations, and the receipt of cash proceeds of
$1.8 million from the exercise of options. Net cash provided by financing
activities for the twelve months ended December 31, 1998 was $1.6 million
resulting primarily from $1.4 million in borrowings against our line of credit
and the receipt of cash proceeds of $963,000 from the exercise of warrants and
options to purchase common stock. Net cash provided by financing activities for
the twelve months ended December 31, 1997 was $1.2 million resulting primarily
from the receipt of net cash proceeds of $993,000 from the exercise of warrants
and options to purchase common stock.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of our capital in the near
future are expected to be the development or acquisition of technologies,
features and content complementary to our business and to expand our call center
and network capacity to serve existing and potential customers; the reduction of
outstanding indebtedness; and for general corporate purposes, including possible
acquisitions and other corporate development activities and working capital.
Under the terms of certain contracts, we are required to open additional call
centers in major metropolitan areas in 1999 and 2000. We anticipate that our
capital expenditures will be approximately $21 million to $22 million in 1999
and approximately $14 million to $16 million in 2000, resulting primarily from
the projected expansion and planned improvements. We believe our existing cash
and cash equivalents, cash from this offering, credit facilities and cash from
operations will be sufficient to fund our operations through the end of the year
2000.
EFFECT OF INFLATION
Inflation did not materially affect our business during the last several years.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue exists because many computer systems and applications,
including those imbedded in equipment and facilities, use two-digit rather than
four-digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes it, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures.
25
<PAGE>
We recognize the importance of the year 2000 issue and have given high priority
to it. In the first quarter of 1998, we created a corporate-wide year 2000
project, called the Y2K Program, to identify, fix, test and develop contingency
plans for the year 2000 issue.
The Y2K Program includes a review of:
- Information and other technology systems used in our internal business;
- Our hardware and software products used to deliver service to customers; and
- Applications and products provided by third party manufacturers and
suppliers.
System-level testing of the call center application configuration, as designed
for Metro One's nationwide network of call centers, was completed in the third
quarter of 1999. This configuration satisfied the requirements of Metro One's
year 2000 compliance testing program. Deployment of the compliant, tested
configuration into all of Metro One's call centers will be completed during the
remainder of 1999.
We do not separately track the internal costs incurred for the Y2K Program
because there is little differentiation between costs that relate to the normal
upgrade and replacement of our operating systems and costs that relate solely to
year 2000 compliance-related issues. However, we do not believe that the
historical or anticipated costs of remediation have had, or will have, a
material effect on our financial condition or results of operations.
We intend to continue to monitor and test year 2000 compliance in all of our new
and existing business critical systems. The failure of our systems, the systems
of an entity that provides us essential services or goods, or the systems of our
carrier customers may have a material adverse impact on our business, financial
condition and results of operations. These material adverse effects could
include, among others, the delay or loss of revenue, cancellation of customer
contracts, diversion of development resources, damage to our reputation and
litigation costs.
Contingency plans are being developed in the event of a failure of an entity
that provides services or goods, such as a local electric company. These plans
will be finalized and implemented during the remainder of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our liquid investments are invested in money market
instruments, and therefore the fair market value of these investments is
affected by changes in market interest rates. However, substantially all of our
liquid investments mature within nine months. As a result, we believe the market
risk arising from our holdings of financial instruments is minimal. In addition,
we are exposed to interest rate risk primarily through our use of short-term and
long-term borrowings to finance operations. A hypothetical 1% fluctuation in
interest rates would not have a material adverse effect on our financial
position, results of operations or cash flows.
26
<PAGE>
BUSINESS
Metro One is a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide our services to their
subscribers. In 1989, we opened our first call center and began testing and
offering our enhanced directory assistance and information services. In 1991, we
entered into our first contract with a wireless carrier to provide our services
to that carrier's subscribers on a charge per call basis. Our customers include
many of the leading wireless telecommunications carriers such as Sprint PCS,
AT&T Wireless Services, Pacific Bell Wireless, AirTouch Communications, Nextel
Communications and ALLTEL Communications. In addition, we have expanded into the
landline telecommunications market and currently provide our services to GST
Communications, a regional competitive local exchange carrier.
TELECOMMUNICATIONS INDUSTRY
The U.S. telecommunications industry is generally characterized by strong growth
and increased competition due to new technologies, a more favorable regulatory
environment and, for carriers, an increasingly sophisticated and demanding
subscriber. Telecommunications carriers face increasing competitive pressures to
differentiate their products and establish brand loyalty. With rising costs to
acquire new subscribers, carriers are seeking ways to minimize subscriber
turnover through the use of, among other things, value-added services and
features. In addition, carriers are increasingly offering local, long distance,
wireless, cable and Internet services bundled into one package in order to
appeal to a wider market. Competitive pressures are particularly acute for
wireless and newer landline carriers, such as competitive local exchange
carriers. The industry has also experienced a considerable amount of
consolidation and investment in new technologies and alternative methods of
delivery, including cable and the Internet.
WIRELESS TELECOMMUNICATIONS. The U.S. wireless telecommunication market has
experienced dramatic growth during the 1990s. This growth was largely due to
technological advances that give callers affordable, high-quality mobile
services. According to the Yankee Group, the number of wireless subscribers in
the United States approached 69 million at the end of 1998, and is estimated to
reach 177 million by the end of 2005. This estimated growth is illustrated by
the following graph:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 32.2
1996 42.1
1997 53.8
1998 68.7
1999 86.4
2000 104.9
2001 122.6
2002 138.8
2003 152.8
2004 165.5
2005 177.1
Source: The Yankee Group Report, October 1999
Estimated
</TABLE>
27
<PAGE>
A relatively small number of carriers dominate the wireless telecommunications
market. In terms of estimated number of subscribers, the largest U.S. wireless
carriers include AT&T Wireless Services, SBC Communications, AirTouch
Communications and GTE Wireless. Other nationwide carriers include Sprint PCS
and Nextel Communications.
In each of the major U.S. markets, at least four carriers compete for wireless
subscribers. As a result, carriers are seeking to differentiate themselves from
their competitors. While price continues to be an important competitive factor,
carriers increasingly focus on value-added services and features as a means of
differentiating themselves.
LANDLINE TELECOMMUNICATIONS. The U.S. landline telecommunications market is
significantly larger than the U.S. wireless market. For example, in 1998,
landline services generated approximately $210 billion in revenue as compared to
approximately $37 billion in revenue generated by wireless services, according
to the Federal Communications Commission. Like the wireless market, the landline
market is dominated by a relatively small number of major carriers. Carriers
providing local service include the regional Bell operating companies, such as
SBC Communications, independent telephone companies, such as ALLTEL
Communications, and competitive local exchange carriers, such as GST
Communications. Carriers providing long distance service include AT&T, MCI
WorldCom and Sprint Corp.
As local and long distance carriers begin competing in each other's markets as
well as against newer and smaller independent carriers, the landline market is
becoming extremely competitive. With deregulation, the entry of new landline
competitors and the increasing affordability of wireless services, subscribers
who were historically bound to local carriers as a matter of geography are now
increasingly able to choose their carriers. Of note, the competitive local
exchange carrier segment of the landline telecommunications industry is rapidly
growing. These companies compete with incumbent local carriers to provide a
variety of services, including local, long distance and Internet and other data
services. The Yankee Group estimates that the competitive local exchange
industry generated $6.6 billion in revenue in 1998 and will generate
$26.1 billion in revenue in 2001. As a result, the landline telecommunications
market is rapidly becoming subscriber-based and carriers must find ways to
differentiate their services to attract and retain subscribers. In addition, to
maintain operational focus, competitive local exchange carriers often outsource
non-core operations, including directory assistance services. While many
incumbent carriers provide directory assistance services on an outsourced basis,
the competitive local exchange carriers may prefer to outsource their directory
assistance needs to independent companies rather than use services of their
competitors.
INTERNATIONAL TELECOMMUNICATIONS. The international telecommunications market
is characterized by increasing privatization, competition and, in the wireless
market, rapid growth. As governments privatize their national telecommunications
companies, these companies face increased competition from large international
carriers who have access to and interest in the newly-opened markets. According
to the International Telecommunication Union, an international
telecommunications industry group, the worldwide wireless industry generated
$154 billion in revenue in 1998 and is projected to grow to $315 billion in
revenue by 2002. As a whole, the worldwide telecommunications services market
generated over $744 billion in revenue in 1998 and is expected to grow to
$925 billion in revenue by 2002, according to the International
Telecommunication Union.
DIRECTORY ASSISTANCE MARKET
Revenues generated by the wireless directory assistance market in the United
States are estimated to grow from $390 million in 1998 to $594 million in 2002,
according to Frost & Sullivan, a telecommunications market research firm.
Wireless subscribers tend to be heavy users of directory assistance services.
According to Frost & Sullivan, growth in the wireless directory assistance
market is driven by a number of factors, including growth in the wireless
subscriber base, rising wireless
28
<PAGE>
penetration, increasing subscriber mobility and the offering of enhanced
directory assistance services by wireless carriers.
The landline directory assistance market is significantly larger than the
wireless directory assistance market. Revenue generated by the landline
directory assistance market is estimated to grow from approximately $3 billion
in 1998 to $4 billion in 2002, according to Frost & Sullivan. Growth in the
landline directory services market is driven by a number of factors, including
the growing information needs of subscribers and the offering by landline
carriers of call completion services.
OUR BUSINESS STRATEGY
Metro One's business strategy includes the following key elements:
- BUILD ON OUR CURRENT CARRIER RELATIONSHIPS, WHILE SEEKING NEW DOMESTIC AND
INTERNATIONAL CUSTOMERS, INCLUDING LANDLINE CARRIERS AND OTHER CORPORATE
CUSTOMERS
We are continuing to expand our relationships with our existing carrier
customers. We believe that our services can increase carriers' revenues by
minimizing subscriber turnover and increasing the number of calls made and,
in the case of wireless and long distance carriers, billable airtime.
Further, our national call center network and integrated search engines and
database systems allow carriers operating in multiple markets to offer
consistent enhanced directory assistance and other information services on a
nationwide basis. This consistency permits greater system-wide marketing
opportunities and brand identification for these carriers. We believe that
our existing relationships and the quality of our services will allow us to
expand our business with our existing customers, providing us an opportunity
to deliver our services to them and their affiliates in additional markets,
including international markets.
We are also aggressively pursuing business opportunities with additional
wireless and landline carriers with a view to leveraging our reputation for
high quality service. We believe increasing competition among landline
carriers is leading to an increasingly subscriber-based business, which will
result in the need to differentiate their product offerings. Our services
provide them an opportunity to do so and, accordingly, could help us expand
into the significantly larger landline directory assistance market.
The information content that resides in our database systems, along with our
ability to store, maintain, manipulate and deliver it, provides an
opportunity to pursue other business customers and provide them with our
services over private networks or otherwise.
- DEVELOP AND OFFER ADDITIONAL VALUE-ADDED SERVICES AND FEATURES
We believe we are well positioned to continue developing and providing the
types of services and features that enhance the utility of the telephone and
other communications devices. For example, our MetroDex service is designed
to provide individual callers, as well as corporate users, with the ability
to quickly and efficiently access their personal or corporate contacts
databases, including otherwise unpublished numbers, and potentially take
advantage of additional services like having a personal assistant available
over the telephone. Such innovative features should permit our customers to
distinguish themselves further from their competitors by increasing their
subscribers' satisfaction.
- EXPAND OUR NATIONAL CALL CENTER NETWORK AND ITS CAPABILITIES, WHILE ADDING
GREATER BANDWIDTH, STORAGE CAPACITY, SPEED AND EFFICIENCY TO OUR SYSTEMS
We intend to continue to expand our network capacity and efficiency,
including adding to our call routing flexibility, redundancy and signaling
systems. We may also build additional call centers as required by demand and
customer commitments. We also intend to add to our storage capacity both for
purposes of database backup and for delivery of personal database, concierge
and other
29
<PAGE>
personalized or fulfillment-oriented services. We may build or license
specialty call centers to deliver special products such as customer service
and fulfillment assistance, as well as international call centers, should
attractive opportunities arise.
- ENHANCE THE QUANTITY AND QUALITY OF OUR CURRENT CONTENT DATABASES
We intend to continue to improve the scope, breadth and depth of the
information content within our database systems. We intend to seek
additional content to make our directory listings data more useful and to
enhance our ability to provide other services. Additions to this content may
be virtual, through the Internet or other links that allow us to license or
barter content. Some of this information will be deliverable to subscribers
through portals other than the voice telephony portal, such as those
available on the Internet.
- LEVERAGE OUR VOICE TELEPHONY PORTAL BY DELIVERING GREATER VOLUMES OF
EXISTING AND NEW SERVICES THROUGH OUR CALL CENTER NETWORK AS WELL AS THROUGH
OTHER PORTALS
Our strength has been to provide enhanced services through the voice
telephony portal we have created. We are seeking opportunities to provide
access to some of the content we acquire, develop and maintain, as well as
our applications and related features, to other portals, including those
available through the Internet. We believe that telephone carriers and
perhaps other customers, could use our content, applications and features to
provide high quality services that are consistent across various portals and
geographic areas. In so doing, these customers, particularly the telephone
carriers, could further bind their subscribers to them as competition in
their markets becomes increasingly subscriber-based.
CUSTOMERS
Metro One provides enhanced directory assistance and information services to
several of the nation's leading wireless carriers in all or a portion of their
service areas. Our customers include Sprint PCS, AT&T Wireless Services, Pacific
Bell Wireless, AirTouch Communications, Nextel Communications and ALLTEL
Communications. In addition, we have expanded into the landline
telecommunications market and currently provide our services to GST
Communications, a regional competitive local exchange carrier. Customers that
accounted for more than 10% of our revenues during any of the periods indicated
were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
CUSTOMER 1997 1998 SEPTEMBER 30, 1999
- -------- ---------- ---------- ------------------
<S> <C> <C> <C>
Sprint PCS................................... 17% 38% 42%
AT&T Wireless Services....................... 7 17 30
AirTouch Communications...................... 25 18 12
Pacific Bell Wireless........................ 6 12 12
Ameritech Cellular........................... 24 11 0
Bell Atlantic Mobile......................... 16 1 0
</TABLE>
We offer our services to a carrier's subscribers under a brand name selected by
the carrier, such as "AT&T Connect," "AirTouch 411 Connect" or "Sprint PCS
Directory Assistance." The carrier establishes its own fee structure with its
subscribers. Subscribers typically pay the carriers fees ranging from $0.75 to
$1.10 plus airtime charges for our services. Metro One charges carriers directly
and bears no subscriber collection risk. We currently charge our carriers on a
per call basis. To stimulate increased call volume and to attract and expand
customer commitments, we vary in some cases the per call charge based on volume.
Beginning in 1999, we have decreased the average price per call as increasing
call volumes from existing and new contracts have triggered the volume-based
pricing we put
30
<PAGE>
in place to attract business. During the nine months ended September 30, 1999,
our per call charges averaged approximately $0.55.
We currently have contracts with 13 carriers. These contracts are generally
similar, with variations in the geographic market to be served, the services and
features we are to provide the carriers' subscribers and the term, which is
typically up to five years. Several also require us to build out call centers in
specified locations. None of these contracts preclude us from providing services
to other carriers. The carriers agree to route some or all of their directory
assistance and/or alphanumeric messaging calls to us.
CALL CENTER NETWORK
We operate 22 call centers located in strategic local markets throughout the
United States, and expect to add three new call centers by the end of 1999 and
at least three new call centers during the year 2000. Although our call center
network enables us to provide enhanced directory assistance and information
services nationwide, we are situated locally with respect to over one-half of
the population of the United States because of the geographic nature of our call
centers. We believe that the local nature of our call centers and operators
permits us to offer more accurate and valuable service than would be available
through a single or a few call centers attempting to serve the entire U.S.
market. We operate our call centers 24 hours a day, seven days a week, 365 days
a year.
We continually upgrade our network and systems to allow greater utility, speed
and efficiency in processing calls. We are also expanding capacity to store,
manipulate and manage the additional data that we acquire. In addition, our
telephone switching systems allow scalability, including the ability to join
multiple switches together or configure switches so they can handle large
volumes of calls in tandem. These systems are monitored from our network
operations center located at our corporate headquarters, which provides 24 hour
support for our call center network. Our systems are designed to permit
redundancy and avoid downtime from natural disasters or other adverse events.
For example, all of our call centers on the Eastern Seaboard continued to
operate during Hurricane Floyd in September 1999.
Because a carrier offers our services to its subscribers under its brand name,
we believe quality and reliability are important considerations in a carrier's
decision to use us. To ensure high quality and consistency, we emphasize
training, monitoring and customer support. We maintain a national training force
with training personnel in each call center. Our operators undergo extensive
training and testing on search techniques, etiquette and local information,
including landmarks, major thoroughfares and geography. Our training personnel
continually monitor, test and evaluate call center performance. We also monitor
our call centers for compliance with contract performance standards and report
this information to the carriers on a regular basis. In addition to accessing
our systems maintenance and support personnel, carriers can obtain extensive
customer usage information.
OUR SERVICES AND FEATURES
Metro One uses a customized array of hardware and software, along with
proprietary database search engines, to provide its enhanced directory
assistance and information services. We receive incoming calls by means of
assigned telephone numbers, which are "411," "555-1212" or "00" in almost all
cases. Our operators answer incoming calls and identify the service using the
carrier's brand name. Upon receiving information requests from callers, our
operators search the applicable database using one or more of our search
engines. The operator then connects the caller to a party or supplies the caller
with the requested information. We offer a variety of information, including:
- Directory listings information, which may be retrieved by methods that
include reverse and category searches;
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<PAGE>
- Time, weather and traffic information;
- Movie, restaurant and local event information;
- TeleConcierge services, which currently consists of restaurant reservations;
and
- Geographic directions.
Our enhanced directory assistance and information services also incorporate
connectivity features that make the telephone more useful and easier to use.
These connectivity features include:
- Call completion--allows a caller to be directly connected with the number
requested without the need to redial;
- StarBack--allows callers to return to a live operator simply by pressing the
star [* ] key at any time during a call;
- AutoBack--automatically returns the caller to a live operator or other
options upon a busy signal, "ring-no-answer" or other common situations
without pressing a single key;
- MessageBack--delivers a caller's message to a desired party and, when
configured with AutoBack, provides a convenient tool for ensuring
communication;
- NumberBack--sends the caller the called number simply by pressing the number
[#] key; and
- PagingAssistant--allows our operators to send customized alphanumeric
messages on behalf of a caller.
We are developing and testing new services that add new content and connectivity
features, such as MetroDex, which allows callers to use their telephone or the
Internet to access their personal or corporate contacts databases, and
LocationPro, which provides location-based services, including turn-by-turn
driving directions. Other features under development include on-line research
and verification utilities for use by businesses with a direct private
connection to us, and fulfillment-oriented services, such as reservations and
procurement capabilities for use by our carriers' subscribers. Our equipment
laboratories at our corporate headquarters facilitate this development and
testing by simulating normal call center operations.
DATABASE SYSTEMS AND CONTENT
We believe the quality of our services is in large measure related to the scope,
quality and quantity of the information content that resides in our database
systems. The majority of the information or data that we acquire, develop and
maintain is telephone listings data. We obtain this listings data from multiple
sources, including the regional Bell operating companies, independent telephone
companies and other commercial sources, to ensure that our data is of high
quality and accuracy. This data is enhanced by our data collection efforts and a
principal database of local information is developed for each call center or
region.
Our proprietary operator interface software allows operators to efficiently
search and reverse search both their local databases and other national
databases. We use proprietary database management systems to maintain and update
our directory listings. We continually acquire additional content or access to
content that will, in many cases, build on this listings data to make them more
useful. Acquisitions are made from a variety of sources and are supplemented
with information relating to local events and amenities.
MARKETING
Our marketing is conducted directly with the telecommunications carriers. The
marketing process involves a considerable amount of time and attention by our
senior management. Our senior
32
<PAGE>
management and all of our sales and technical support personnel are based at our
corporate headquarters in Beaverton, Oregon. Call center managers also play a
key role in maintaining and developing carrier relationships. Some of our
contracts provide for customer promotion of the services we provide to their
subscribers. In addition, we occassionally assist our carrier customers in the
promotion of these services.
We communicate on a regular basis with our existing carrier customers through
our quality assurance and customer service programs. We have developed
proprietary programs that allow us and our customers to monitor the quality of
our performance and the volume and duration of directory assistance and
information requests on a real-time basis. These programs also give us an
opportunity to learn more about our carriers' evolving needs.
TECHNOLOGY
Our ability to provide enhanced directory assistance and information services is
dependent to a great extent on our proprietary technology. Our proprietary
software applications enhance our call handling and delivery capabilities and
provide the basis for our connectivity features. We have developed search
engines to access information from our databases. We continue to upgrade our
operator interface software, database management systems and search engines to
increase the access speed and the efficiency and search capability of our
operators.
Our call processing systems incorporate programmable switching equipment, host
computers, voice response units and database servers. Our advanced technology is
based on customized software running Sun Microsystems servers and Excel
switching equipment. One of the characteristics of our call processing systems
is the ability to take all calls from a carrier's switch and have them run
through our switch for the entire length of the call so that we are able to
provide the full range of our services to the subscriber.
We are also monitoring technological advances in the methods of delivery of
information and data and are working to insure that our systems are compatible
with, and we can take advantage of, these developments. As an example, the
wireless application protocol (or WAP) allows telephone users with the proper
type of telephone to access the Internet. We are exploring the opportunities
that this may present. The possibilities include using the content we have
available to us in this new format. We believe that by expanding reliance on the
telephone as a source of information and data, the application of this
technology will also benefit our enhanced directory assistance and information
services business.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, patent and trade secrets laws and
confidentiality procedures to protect our intellectual property rights. We hold
five U.S. patents, including one relating to our StarBack technology and another
associated with our point-to-point directions service currently in development.
We have approximately 15 applications pending for additional U.S. patents. We
also have U.S. registered trademarks for, among others, "Metro One
Telecommunications," "Metro One," "Enhanced Directory Assistance," "StarBack,"
"AutoBack" and "NumberBack," and applications pending for U.S. trademark
registrations for, among others, "MetroDex," "TeleConcierge," "LocationPro,"
"PagingAssistant" and "MessageBack."
In August 1999, we commenced an action against a competitor in the United States
District Court in Delaware claiming infringement of one of our patents relating
to our StarBack feature. The defendant has denied that it is infringing the
patent and has asserted that our patent is invalid.
33
<PAGE>
COMPETITION
The directory assistance and information services markets are characterized by
rapidly changing market forces, technological advancements and increasing
competition from large carrier-affiliated companies and small, independent
companies. Our principal competitors include regional Bell operating companies
and other local providers, including GTE Corporation. These carriers provide
directory assistance or information services both in and outside their own
operating regions. Although we believe that none of these competitors offers a
form of directory assistance that incorporates all our features, they have
substantially greater financial, technical and marketing resources than we do
and may be able to offer features similar to ours in the future. We also face
competition from independent companies seeking to offer forms of enhanced
directory assistance and, in some cases, other information services.
We believe the principal competitive factors in the directory assistance market
are quality and range of features, technological innovation, experience,
responsiveness to customers and price. Historically, we have sought to
distinguish ourselves from our competitors based on the quality of our services,
the development of useful features, the breadth of the content provided and our
extensive network of call centers.
GOVERNMENT REGULATION
While our business is not directly regulated, it is dependent upon relationships
with companies that are regulated by the Federal Communications Commission and
state public utility commissions. This regulation applies to all communications
common carriers, such as AT&T, the regional Bell operating companies and other
long distance and local exchange carriers.
EMPLOYEES
As of September 30, 1999, Metro One had approximately 2,200 employees,
approximately 12% of whom were employed on a part-time basis. Most of our
employees are operators, and the number of full-time and part-time operators
varies from time to time reflecting fluctuations in the volume of calls. None of
our employees are subject to a collective bargaining agreement. Our management
considers relations with our employees to be good.
We invest significant resources in the recruitment, training and retention of
qualified operators. Our organizational structure provides opportunities and
encourages talented individuals to take on roles of increasing responsibility.
We also invest considerable resources in personnel motivation, including
providing incentive plans for our operators and others.
PROPERTIES
In July 1999, we relocated our principal executive and administrative offices in
Beaverton, Oregon. We lease our new offices, with approximately 35,000 square
feet of space. The lease term extends through 2009. We have subleased our former
executive and administrative offices, which have approximately 15,400 square
feet of space and a remaining lease term of three years.
We also lease office facilities for our call center operations, which range in
size from 3,600 to 15,500 square feet. Currently, we have 28 leases for call
center facilities, 22 of which are in operation, with remaining terms ranging
from one month to five years. We believe the expansion of our call center
network may require us to lease additional office facilities within the next
year. From time to time, we are required to move our call centers or lease
additional space to meet expanding volume from existing or new customers.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Metro One's executive officers, key employees and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Timothy A. Timmins........ 42 President, Chief Executive Officer and Director
Stebbins B. Chandor, 39 Senior Vice President, Chief Financial Officer and
Jr...................... Secretary
Gary E. Henry............. 43 Senior Vice President--Operations
Karen L. Johnson.......... 49 Senior Vice President--Corporate Development
Hugh E. Knox.............. 59 Vice President--Sales and Marketing
R. Tod Hutchinson......... 36 Vice President--Finance
Janice I. Aday............ 37 Vice President--Customer Care
Nicholas J. Elsey......... 34 Vice President--Development
Michael A. Kepler......... 36 Vice President--Research
L. Lynne Michaelson....... 53 Vice President--Human Resources
Kevin M. Swayze........... 37 Vice President--Technical Operations
A. Jean de Grandpre....... 78 Chairman of the Board of Directors
William D. Rutherford..... 60 Director
James M. Usdan............ 49 Director
</TABLE>
TIMOTHY A. TIMMINS has served as President and Chief Executive Officer of Metro
One since 1995 and as a director since 1994. He served as Metro One's Executive
Vice President and Chief Financial Officer from 1993 to 1995. From 1985 to 1993,
Mr. Timmins served in various capacities with 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.
STEBBINS B. CHANDOR, JR. joined Metro One in 1995 and serves as its Senior Vice
President and Chief Financial Officer. He has served as its Secretary since
1996. 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 and
Continental Bank N.A. 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 Metro One in 1992 and serves as its Senior Vice
President--Operations. From 1992 to 1999, he served Metro One in a variety of
positions, most recently as Senior Vice President--Call Center Operations. Prior
to 1992, he was Senior Vice President, Corporate Services Director for Imperial
Corporation of America, Inc., a financial institution, with which he was
employed since 1985. Mr. Henry holds a Bachelor of Arts degree in Public
Administration from San Diego State University.
KAREN L. JOHNSON joined Metro One in 1993 and since 1998 has served as its
Senior Vice President--Corporate Development. From 1993 to 1998, she served as
its Vice President--Controller. From 1989 to 1993, she was Financial Operations
Manager for Care Medical Equipment, Inc. and Care Ambulance, Inc. Ms. Johnson is
a 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.
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<PAGE>
HUGH E. KNOX joined Metro One in 1998 and serves as its Vice President--Sales
and Marketing. From 1989 to 1998, Mr. Knox worked as Vice President--Sales and
Marketing with ACS Wireless, a developer, manufacturer and distributor of
telephone headset equipment to various telecommunications concerns, including
the regional Bell operating companies and major long distance telephone
companies. Prior to joining ACS Wireless, Mr. Knox served in senior sales and
marketing positions with Pacific Bell, Centex Telemanagement and PacTel
Connection. Mr. Knox attended San Diego State University.
R. TOD HUTCHINSON joined Metro One in 1998 and has served as Vice
President--Finance since 1999. From 1998 to 1999, he served as Vice
President--Controller. From 1995 to 1998, he served as the Chief Financial
Officer for various start-up and early stage companies. From 1990 to 1995, he
was the Controller and Chief Financial Officer for InterVen Partners, Inc., a
regional venture capital firm. From 1987 to 1990, he was an associate with Price
Waterhouse, LLP. Mr. Hutchinson is a certified public accountant and holds a
Bachelors degree in Finance from the University of Texas at Austin and a Masters
degree in Business Administration from the University of Oregon.
JANICE I. ADAY joined Metro One in 1996 and has served as Vice
President--Customer Care since 1998. From 1997 to 1998, she served as Vice
President--Training and, before that, as Director--Training. From 1993 to 1996,
Ms. Aday was Executive Vice President for Image One, a national design and
advertising agency specializing in yellow page ad design. Ms. Aday holds a
Bachelor of Arts degree in Business Communications from National University.
NICHOLAS J. ELSEY has served as Vice President--Development since 1998. From
1995 to 1998, he held a similar position at Interactive Northwest, an
independent solutions vendor for Lucent Technologies. From 1989 to 1995, he held
senior software development and management positions at various software
development firms in the United Kingdom, specializing in mobile computing and
Interactive Voice Response technologies. Mr. Elsey holds a Bachelor of Science
from the University of Wales and attended post graduate studies at the Imperial
College in London.
MICHAEL A. KEPLER joined Metro One in 1989 and has served as Vice
President--Research since 1998. From 1993 to 1998, he was Vice
President--Information Systems. From 1989 to 1993, he was Director of
Information Systems. Prior to joining the Company, Mr. Kepler was a programmer
with ComLink West, a supplier of computer programming services for Metro One.
L. LYNNE MICHAELSON joined Metro One in 1990 and has served as Vice
President--Human Resources since 1998. From 1990 until 1998, she served as
Assistant Vice President--Human Resources and, before that, as Manager--Human
Resources. Prior to 1990, she worked as the Human Resources/ Operations Manager
for Meier and Frank Department Stores, a division of May Company. She attended
Southern Oregon State College and Portland State University.
KEVIN M. SWAYZE joined Metro One in 1995 and has served as Vice
President--Technical Operations since 1999. Prior to 1999, he served as
Assistant Vice President--Technical Operations and, before that, as
Manager--Systems Administration Group. From 1990 to 1995, he was a systems
administrator for Xerox Corporation. He attended San Jose State University.
A. JEAN DE GRANDPRE is Chairman of Metro One's Board of Directors and has served
as a director since 1995. Mr. de Grandpre is the founding Director and Chairman
Emeritus of Bell Canada Enterprises, from which he retired in 1989. He has
served on the Board of Thera Technologies since 1993. 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 and a
36
<PAGE>
Companion of the Order of Canada, the highest honor 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.
WILLIAM D. RUTHERFORD has served as a director of Metro One since 1995. He is
the Principal of Rutherford Investment Management, an investment advisory
service. During 1997, Mr. Rutherford was Chief Executive Officer of Fiberboard
Asbestos Compensation Trust. From 1995 to 1996, 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 degree in History
from the University of Oregon and an LL.B. from Harvard University Law School.
JAMES M. USDAN has served as a director of Metro One since 1997. He is the Chief
Executive Officer of NextCARE Hospitals, Inc., a provider of long-term acute
care hospital services. From 1990 to 1998, Mr. Usdan was the President, Chief
Executive Officer and a director of RehabCare Group Inc. (NYSE: RHB), a provider
of physical therapy, rehabilitation staffing and outsourcing services. Prior to
joining RehabCare, Mr. Usdan founded and was President and Chief Executive
Officer of American Transitional Care, Inc. from 1987 to 1990, and, from 1986 to
1987, he was Executive Vice President and Chief Operating Officer of Rehab
Hospital Services Corporation, the rehabilitation subsidiary of National Medical
Enterprises. Mr. Usdan serves on the Board of D & K Healthcare Services, Inc.
(Nasdaq: DKWD) a pharmaceutical distribution company, and is an Advisory Board
member of Mercantile Bank, the MedStat Group and Maryville College. Mr. Usdan
holds a Bachelor of Arts degree from Harvard College.
37
<PAGE>
CERTAIN TRANSACTIONS
During 1994, A. Jean de Grandpre, the Chairman of the Board of Directors,
purchased Metro One's 8% Convertible Secured Notes in the principal amount of
$150,000, using investment companies he controlled, as a part of Metro One's
then convertible secured note financing. Metro One converted these Notes into
64,932 shares of its common stock during the fourth quarter of 1995.
In 1996, Metro One and the lenders in the convertible secured note financing,
including Mr. de Grandpre, entered into a Shareholder Rights Agreement. In the
Shareholder Rights Agreement, Metro One granted the lenders registration rights
on their shares of common stock and a right of first refusal on future sales of
its common stock, preferred stock or other securities. Some of these lenders
will be entitled to exercise their right of first refusal for up to 147,963 of
the shares being offered by us in this prospectus. See "Underwriting." The right
of first refusal terminates on the completion of an underwritten public offering
of common stock if Metro One receives cash proceeds of $10 million at a per
share price of at least $10.50.
The Board of Directors and Timothy A. Timmins, our President, Chief Executive
Officer and a director, are discussing an extension and modification of his
employment agreement, which expires in 2000.
38
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table shows certain information regarding the ownership of our
common stock as of October 15, 1999, and as adjusted to reflect the sale by us
of 2,000,000 shares of common stock and the sale of 67,500 shares of common
stock by the selling shareholders, of the following:
- Each person we know to beneficially own more than 5% of the outstanding
shares of our common stock;
- Each director;
- Each named executive officer;
- All directors and executive officers as a group; and
- All other selling shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(3) AFTER THE OFFERING(3)
5% OWNERS, DIRECTORS -------------------- SHARES ----------------------
AND EXECUTIVE OFFICERS: NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
WM Advisors, Inc. (1).................... 801,845 7.0% 0 801,845 6.0%
A. Jean de Grandpre...................... 212,071 1.8% 0 212,071 1.6%
William D. Rutherford (2)................ 128,759 1.1% 18,000 110,759 1.0%
Timothy A. Timmins....................... 408,910 3.5% 15,000 393,910 2.9%
James M. Usdan........................... 40,300 * 0 40,300 *
Gary E. Henry............................ 63,252 * 0 63,252 *
Stebbins B. Chandor, Jr.................. 80,826 * 7,500 73,326 *
Karen L. Johnson......................... 50,806 * 7,500 43,306 *
All directors and executive
officers as a group (9 persons)........ 1,008,361 8.7% 48,000 960,361 7.2%
<CAPTION>
OTHER SELLING SHAREHOLDERS:
- ---------------------------
<S> <C> <C> <C> <C> <C>
Janice I. Aday........................... 7,857 * 2,500 5,357 *
Jack G. Blesener......................... 6,803 * 3,000 3,803 *
Michael A. Kepler........................ 73,926 * 10,000 63,926 *
Steven D. McGavran....................... 11,964 * 4,000 7,964 *
</TABLE>
- ---------------------------
* Less than one percent
(1) Includes (a) 615,995 shares held by WM Northwest Fund, (b) 12,520 shares
held by WM Variable Trust Northwest Fund, (c) 107,000 shares held by WM
Emerging Growth Fund, (d) 32,700 shares held by WM Variable Trust Emerging
Growth Fund, and (e) 33,630 shares held by Composite Deferred Series, Inc.
Northwest Portfolio. WM Advisors, Inc. has sole investment and voting power
with respect to the shares held by these entities and is, therefore, deemed
the beneficial owner of the shares held by such entities. Information as to
WM Advisors, Inc. shareholdings is given as of September 30, 1999. The
address of WM Advisors, Inc. is 1201 Third Avenue, 22nd Floor, Seattle,
Washington 98101.
(2) Includes 15,238 shares held by Karen Anderegg, Mr. Rutherford's spouse, of
which she will be selling 3,000 shares in this offering.
(3) We believe that the persons listed in the above table have sole investment
and voting power with respect to their shares of common stock. Applicable
percentage ownership in the table is based on 11,409,877 shares of common
stock outstanding as of October 15, 1999.
For purposes of this table, beneficial ownership is determined in accordance
with rules of the SEC, 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
of October 15, 1999 are considered outstanding for purposes of calculating
the percentage owned by a person, but not for purposes of calculating the
percentage owned by any other person. The numbers of shares that are
issuable upon the exercise of options that are currently exercisable or
exercisable within
39
<PAGE>
60 days are as follows: A. Jean de Grandpre--147,139 shares; William D.
Rutherford--97,140 shares; Timothy A. Timmins--399,981 shares; James M.
Usdan--40,000 shares; Gary E. Henry--62,252 shares; Stebbins B. Chandor,
Jr.--76,426 shares; Karen L. Johnson--50,406 shares; and all directors and
officers as a group--896,781 shares; Janice I. Aday--7,857 shares; Jack G.
Blesener--5,803 shares; Michael A. Kepler--73,926 shares; and Steven D.
McGavran--11,964 shares.
In connection with an issuance of subordinated notes in 1994 and 1995, we
granted warrants to purchase shares of our common stock that permitted the
original holders of such warrants limited registration rights on shares that
they acquired on exercise of the warrants. As of November 1, 1999, holders of
approximately 87,568 shares of our common stock had yet to inform us as to
whether they wished to exercise such registration rights and sell their shares
in this offering. If any holder timely elects to exercise such registration
rights, that holder would become a selling shareholder and we would amend this
prospectus accordingly.
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<PAGE>
UNDERWRITING
Metro One and the selling shareholders will enter into an underwriting agreement
with the underwriters named below. CIBC World Markets Corp., U.S. Bancorp Piper
Jaffray Inc. and Needham & Company, Inc. are acting as representatives of the
underwriters.
The underwriting agreement will provide for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations will be several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
CIBC World Markets Corp.....................................
U.S. Bancorp Piper Jaffray Inc..............................
Needham & Company, Inc......................................
---------
Total................................................... 2,067,500
=========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The shares should be ready for delivery on or about , against payment
in immediately available funds. The representatives have advised Metro One and
the selling shareholders that the underwriters propose to offer the shares
directly to the public at the public offering price that appears on the cover
page of the prospectus. In addition, the representatives may offer some of the
shares to other securities dealers at the same price less a concession of
$______ per share. The underwriters may also allow, and such dealers may
reallow, a concession not in excess of $____ per share to other dealers. After
the shares are released for sale to the public, the representatives may change
the offering price and other selling terms at various times.
Metro One will grant the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 310,125 additional shares from
us to cover over-allotments. If the underwriters exercise all or part of this
option, they will purchase shares covered by the option at the public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$______, the total proceeds to Metro One will be $______ and the total proceeds
to the selling shareholders will be $______. The underwriters will severally
agree that, to the extent the over-allotment option is exercised, they will each
purchase a number of additional shares proportionate to the underwriter's
initial amount reflected in the foregoing table.
41
<PAGE>
The following table provides information regarding the amount of the discount to
be paid to the underwriters by Metro One and the selling shareholders.
<TABLE>
<CAPTION>
TOTAL WITH FULL EXERCISE
TOTAL WITHOUT EXERCISE OF OF OVER-ALLOTMENT
PER SHARE OVER-ALLOTMENT OPTION OPTION
--------- ------------------------- ------------------------
<S> <C> <C> <C>
Metro One............................. $ $ $
Selling shareholders.................. $ $ $
------- ------- -------
Total............................. $ $
</TABLE>
Metro One and the selling shareholders estimate that their portions of the total
expenses of the offering, excluding the underwriting discount, will be
approximately $______ for Metro One and $______ for the selling shareholders as
a group.
Metro One and the selling shareholders will agree to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
Metro One, its officers and directors and the selling shareholders will agree to
a 90-day "lock up" with respect to all shares of common stock that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions, for a period of
90 days following the date of this prospectus, Metro One and such persons may
not offer, sell, pledge or otherwise dispose of these Metro One securities
without the prior written consent of CIBC World Markets Corp.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed the specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids--If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who
sold those shares as part of this offering.
- Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is made.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither Metro One nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
CIBC World Markets Corp. or its affiliates have provided and may in the future
provide investment banking or other financial services to Metro One in the
ordinary course of business. In consideration
42
<PAGE>
for such services performed to date, CIBC World Markets Corp. or its affiliates
have received customary fees and expenses.
Some of the shareholders who participated in our convertible secured note
financing in 1994 have a right of first refusal on future sales of our stock,
including the shares to be sold by us in this offering. We have reserved 147,963
shares for sale to them at the public offering price. Any reserved shares not
purchased by them will be offered by the underwriters to the general public on
the same basis as the other shares offered by this prospectus. The underwriters
will not receive any underwriting discounts from the sale of shares under this
right of first refusal.
43
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will be
passed upon for us by Heller Ehrman White & McAuliffe, Los Angeles, California,
counsel to Metro One. Certain legal matters will be passed upon for the
underwriters by Latham & Watkins, Costa Mesa, California, counsel to the
underwriters.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and September 30, 1999
and for each of the three years in the period ended December 31, 1998 and for
the nine months in the period ended September 30, 1999, either included or
incorporated by reference in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report included and
incorporated by reference herein and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our filings are
available to the public over the Internet at the SEC's web site at
"http://www.sec.gov." You can read and copy any document that we file with the
SEC at the following SEC public reference facilities:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661
</TABLE>
You can also obtain copies of the documents at prescribed rates by writing to
the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call 1-800-SEC-0330 for further information on the operation of
the SEC's public reference facilities. You also can inspect copies of our
filings at The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. Information incorporated
by reference is part of this prospectus. Information that we later file with the
SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed:
- Our Annual Report on Form 10-K for the year ended December 31, 1998;
- Our Amendment to Annual Report on Form 10-K/A for the year ended
December 31, 1998;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
- Our Current Report on Form 8-K filed July 1, 1999;
- Our Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
and
44
<PAGE>
- The description of our common stock contained in our Registration Statement
on Form 8-A, filed with the Commission on October 19, 1995.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Metro One Telecommunications, Inc.
11200 Murray Scholls Place
Beaverton, Oregon 97007
Telephone: (503) 643-9500
Attention: Investor Relations
This prospectus is part of a registration statement that we filed with the SEC.
This prospectus does not contain all of the information included in the
registration statement. We have omitted certain parts of the registration
statement in accordance with the rules and regulations of the SEC. For further
information, we refer you to the registration statement, including its exhibits
and schedules.
* * * *
Metro One has authorized no one to provide you with any information that differs
from that contained in this prospectus. Accordingly, you should not rely on any
information that is not contained in this prospectus. Metro One is not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front cover of this prospectus.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
METRO ONE TELECOMMUNICATIONS, INC.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999................... F-3
Balance Sheets as at December 31, 1997 and 1998 and
September 30, 1999........................................ F-4
Statements of Shareholders' Equity for years ended
December 31, 1996, 1997 and 1998 and the nine months ended
September 30, 1999........................................ F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Metro One Telecommunications, Inc.
Beaverton, Oregon
We have audited the accompanying balance sheets of Metro One Telecommunications,
Inc. as of December 31, 1997 and 1998 and September 30, 1999 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998 and for the nine months in the
period ended September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all respects, the
financial position of Metro One Telecommunications, Inc. as of December 31, 1997
and 1998 and September 30, 1999 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 and for
the nine months in the period ended September 30, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
October 29, 1999
F-2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $17,834 $26,090 $45,139 $31,280 $52,113
------- ------- ------- ------- -------
Costs and expenses:
Direct operating........................... 8,334 13,017 23,107 16,104 30,481
General and administrative................. 7,615 11,702 18,334 13,099 19,795
------- ------- ------- ------- -------
15,949 24,719 41,441 29,203 50,276
------- ------- ------- ------- -------
Income from operations....................... 1,885 1,371 3,698 2,077 1,837
Other income (expense)....................... (109) 408 289 248 112
Interest and loan fees....................... (569) (334) (309) (255) (425)
------- ------- ------- ------- -------
Income before income taxes................... 1,207 1,445 3,678 2,070 1,524
Income tax expense........................... 41 13 75 44 60
------- ------- ------- ------- -------
Net income................................... $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
======= ======= ======= ======= =======
Income per common share
Basic...................................... $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
Diluted.................................... $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
(IN THOUSANDS) -------- -------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,554 $ 6,063 $ 3,491
Short-term investments.................................... -- 1,507 400
Accounts receivable....................................... 4,629 7,428 8,700
Prepaid costs and other current assets.................... 694 766 1,032
-------- -------- -------
Total current assets.................................... 13,877 15,764 13,623
Furniture, fixtures and equipment, net...................... 14,632 19,982 33,660
Other assets................................................ 616 565 817
-------- -------- -------
$ 29,125 $ 36,311 $48,100
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,302 $ 1,501 $ 2,245
Accrued liabilities....................................... 992 1,992 2,731
Accrued payroll and related costs......................... 1,023 1,852 2,427
Line of credit payable.................................... -- 1,400 --
Current portion of capital lease obligations.............. 638 365 193
Current portion of long-term debt......................... 78 240 2,525
-------- -------- -------
Total current liabilities............................... 4,033 7,350 10,121
Capital lease obligations................................. 548 103 41
Long-term debt............................................ 868 616 6,439
-------- -------- -------
5,449 8,069 16,601
-------- -------- -------
Commitments and contingencies............................... -- -- --
Shareholders' equity:
Preferred stock, no par value; 10,000 shares authorized, no
shares issued or outstanding.............................. -- -- --
Common stock, no par value; 50,000 shares authorized,
10,926, 11,188 and 11,410 shares issued and outstanding as
of December 31, 1997 and 1998 and September 30, 1999,
respectively.............................................. 37,514 38,477 40,270
Accumulated deficit......................................... (13,838) (10,235) (8,771)
-------- -------- -------
Shareholders' equity........................................ 23,676 28,242 31,499
-------- -------- -------
$ 29,125 $ 36,311 $48,100
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------------
COMMON STOCK
------------------- (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
(IN THOUSANDS) -------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996........................ 7,937 $19,711 $(16,436) $ 3,275
Common stock issued in public offering............. 1,675 12,515 -- 12,515
Stock options/warrants exercised, net.............. 819 2,625 -- 2,625
Conversion of long-term debt to common stock....... 262 1,400 -- 1,400
Net income......................................... -- -- 1,166 1,166
------ ------- -------- -------
Balances at December 31, 1996...................... 10,693 36,251 (15,270) 20,981
Stock options/warrants exercised, net.............. 183 993 -- 993
Stock issued for legal settlement.................. 50 270 -- 270
Net income......................................... -- -- 1,432 1,432
------ ------- -------- -------
Balances at December 31, 1997...................... 10,926 37,514 (13,838) 23,676
Stock options/warrants exercised, net.............. 262 963 -- 963
Net income......................................... -- -- 3,603 3,603
------ ------- -------- -------
Balances at December 31, 1998...................... 11,188 38,477 (10,235) 28,242
Stock options/warrants exercised, net.............. 222 1,793 -- 1,793
Net income......................................... -- -- 1,464 1,464
------ ------- -------- -------
Balances at September 30, 1999..................... 11,410 $40,270 $ (8,771) $31,499
====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 1,322 2,263 3,774 2,706 4,293
Loss on disposal of fixed assets....... 151 81 73 32 48
Deferred income taxes.................. (33) (12) (42) (23) (8)
Changes in certain assets and
liabilities:
Accounts receivable.................... (105) (1,906) (2,799) (830) (1,272)
Prepaid expenses and other assets...... (73) (238) (91) (103) (600)
Accounts payable, accrued liabilities
and payroll costs.................... 484 1,673 2,028 1,457 2,058
------- -------- -------- ------- --------
Net cash provided by operating
activities......................... 2,912 3,293 6,546 5,265 5,983
------- -------- -------- ------- --------
Cash flows from investing activities:
Capital expenditures..................... (3,408) (10,096) (9,085) (5,371) (17,929)
Purchase of short-term investments....... -- -- (1,507) -- --
Sale of short-term investments........... -- -- -- -- 1,107
------- -------- -------- ------- --------
Net cash used in investing
activities......................... (3,408) (10,096) (10,592) (5,371) (16,822)
------- -------- -------- ------- --------
Cash flows from financing activities:
Net proceeds from line of credit......... -- -- 1,400 -- (1,400)
Proceeds from issuance of debt........... 1,121 946 -- -- 9,250
Repayment of debt........................ (1,867) -- (90) (22) (1,142)
Repayment of capital lease obligations... (910) (719) (718) (643) (234)
Proceeds from issuance of common stock
and exercise of warrants and options... 2,625 993 963 465 1,793
Proceeds from initial public offering of
common stock, net of expenses.......... 12,515 -- -- -- --
------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities............... 13,484 1,220 1,555 (200) 8,267
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 12,988 (5,583) (2,491) (306) (2,572)
Cash and cash equivalents, beginning of
period................................... 1,149 14,137 8,554 8,554 6,063
------- -------- -------- ------- --------
Cash and cash equivalents, end of period... $14,137 $ 8,554 $ 6,063 $ 8,248 $ 3,491
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. We provide enhanced directory assistance services to
telecommunications carriers and their customers. Revenues are derived
principally through fees charged to telecommunications carriers. We operate call
centers located in many metropolitan areas throughout the United States.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash deposits in
banks and highly liquid investments with original maturity dates of less than
three months.
SHORT-TERM INVESTMENTS. Short-term investments include highly liquid
investments such as money market instruments with original maturity dates of
three months to one year. We classify our investments as "held-to-maturity" and
accordingly record these investments at cost, which approximates fair value.
REVENUE RECOGNITION. Under existing contracts with telecommunications carriers,
we record revenue for the number of calls processed. Revenue is recognized as
services are provided.
MAJOR CUSTOMERS. In each of the years ended December 31, 1996, 1997 and 1998
and the nine months ended September 30, 1998 and 1999, twelve customers
accounted for substantially all revenue reported and accounts receivable. Our
three largest customers accounted for approximately 28%, 26% and 22% of revenue
in 1996. Our four largest customers accounted for approximately 25%, 24%, 17%
and 16% of revenue in 1997. Our five largest customers accounted for
approximately 38%, 18%, 17%, 12% and 11% of revenue in 1998. Our five largest
customers accounted for approximately 37%, 19%, 14%, 14% and 12% of revenue
during the nine months ended September 30, 1998, and our four largest customers
accounted for approximately 42%, 30%, 12% and 12% of revenue during the nine
months ended September 30, 1999. Historically, we have not incurred significant
losses related to our accounts receivable and accordingly, no allowance for
uncollectible accounts has been provided.
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. Capital lease assets were $2,792,000,
$1,323,000 and $1,184,000 at December 31, 1997 and 1998 and September 30, 1999,
respectively. Accumulated amortization for capital leases is included in
accumulated depreciation. In the event that facts and circumstances indicate
that the cost of furniture, fixtures and equipment 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.
PATENTS AND TRADEMARKS. Patents, patents pending and trademarks are included in
other assets and are carried at cost less accumulated amortization. Costs are
amortized over the estimated useful lives of the related assets of three 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. The carrying value of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
accrued liabilities and line of credit payable approximate fair value due to the
short-term maturities of these assets and liabilities.
F-7
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires us 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.
COMMITMENTS AND CONTINGENCIES. We are party to various legal actions and
administrative proceedings arising in the ordinary course of business. We
believe the disposition of these matters will not have a material adverse effect
on our financial position, results of operations or cash flows.
RECLASSIFICATION. Certain balances in the 1996, 1997 and 1998 financial
statements have been reclassified to conform with 1999 presentations. Such
reclassifications had no effect on results of operations or accumulated deficit.
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment by major classification are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
(IN THOUSANDS) -------- -------- --------------
<S> <C> <C> <C>
Equipment..................................... $16,409 $22,824 $ 36,390
Furniture and fixtures........................ 2,403 3,536 5,823
Leasehold improvements........................ 912 1,634 3,308
------- ------- --------
19,724 27,994 45,521
Accumulated depreciation and amortization..... (5,092) (8,012) (11,861)
------- ------- --------
$14,632 $19,982 $ 33,660
======= ======= ========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
(IN THOUSANDS) -------- -------- --------------
<S> <C> <C> <C>
Secured Equipment Line........................ -- -- 7,214
Secured Equipment Financing Loan.............. -- -- 1,750
Secured Term Loan............................. $ 946 $ 856 $ --
Current portion............................... (78) (240) (2,525)
------- ------- --------
Long-term debt................................ $ 868 $ 616 $ 6,439
======= ======= ========
</TABLE>
F-8
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
3. LONG-TERM DEBT (CONTINUED)
LOAN AGREEMENTS. In April 1999, we entered into a new loan agreement with a
commercial bank that replaced prior agreements. The loan agreement consists of a
$10 million Revolving Line of Credit plus an Equipment Line under which we may
borrow up to $7.5 million to finance purchases of capital equipment. Total
borrowings under the two lines cannot exceed $15 million in the aggregate. The
Revolving Line of Credit expires in April 2001 and advances under the Equipment
Line are available through April 2000. Availability under the loan agreement may
be subject to borrowing base requirements and requires compliance with loan
covenants. Under the terms of the loan agreement, outstanding borrowings bear
interest at the prime rate (8.25 percent at September 30, 1999) and all of our
assets are pledged as collateral, except for assets previously pledged under
existing financing and lease agreements and assets that may be pledged pursuant
to purchase money agreements. The agreement contains minimum net worth, working
capital and profitability requirements as well as certain other restrictive
covenants and prohibits the payment of cash dividends exceeding 10% of our
tangible net worth. As of September 30, 1999, we did not meet one of the
financial ratio requirements under this agreement, however we have received a
waiver of this requirement for the third quarter of 1999 from our bank. As of
September 30, 1999, we had no borrowings against the Revolving Line of Credit
and $7.2 million in borrowings against the Equipment Line. This loan bears an
interest rate that approximates current market rates; thus, the recorded value
of this loan is considered to be at fair value.
In September 1999, we entered into a new loan agreement with an equipment
financing lender. The loan agreement provides us with $10 million of borrowing
capacity to fund the expansion of our call center network and for other
equipment needs. The agreement provides for fixed or floating rate options and
all assets purchased pursuant to the agreement are pledged as collateral.
Borrowings under the agreement have a term of 48 months, and prepayment of
outstanding borrowings is allowable 12 months after the funding date. As of
September 30, 1999, we had $1.8 million in borrowings against this facility,
bearing interest at a fixed rate of 8.77%. This interest rate approximates
current market rates; thus, the recorded value of this loan is considered to be
at fair value.
At December 31, 1998, we had in place a $6 million Secured Operating Line of
Credit with a commercial bank. Under the terms of the agreement, outstanding
borrowings bore interest at prime rate plus 0.25 percent and all of our assets
were pledged as collateral. The agreement contained minimum net worth and
working capital requirements as well as certain other restrictive covenants, as
defined by the agreement, and prohibited the payment of cash dividends. At
December 31, 1998, we had $1.4 million in borrowings against this line of
credit. In addition, we had a credit facility under which we could borrow up to
$2 million to finance purchases of capital equipment. Borrowings bore interest
at the prime rate plus 0.50 percent and were secured by the purchased equipment.
At December 31, 1998, we had no borrowings against this credit facility.
In 1997, we entered into a $1 million Secured Term Loan agreement with a
commercial bank. Under the terms of the agreement, outstanding borrowings bore
interest at prime rate plus 0.5 percent. The terms of the loan called for an
18-month interest only accumulation period through August 1998 followed by 42
monthly payments of approximately $27,000 for principal and interest. The
agreement contained minimum net worth and working capital requirements as well
as certain other restrictive covenants and prohibited the payment of cash
dividends. We had $946,000 and $856,000 in borrowings against this credit
facility at December 31, 1997 and 1998, respectively. This loan bore an interest
rate
F-9
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
3. LONG-TERM DEBT (CONTINUED)
that approximated current market rates; thus, the recorded value of this loan
was considered to be at fair value.
Aggregate long-term debt payments are scheduled to be $0.6 million for the three
months ended December 31, 1999, $2.5 million in 2000, $2.6 million in 2001, $2.5
million in 2002 and $0.7 million in 2003.
4. LEASE OBLIGATIONS
We lease operating facilities and equipment under operating leases with
unexpired terms of one to ten years. Rental expense for operating leases was
approximately $942,000, $1,388,000 and $2,091,000 for the years ended December
31, 1996, 1997 and 1998, respectively. Rental expense for operating leases was
approximately $1,519,000 and $2,374,000 for the nine months ended September 30,
1998 and 1999, respectively.
Minimum annual rentals for the five years subsequent to September 30, 1999 and
in the aggregate thereafter are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
TWELVE MONTHS
ENDED SEPTEMBER 30, CAPITAL LEASES OPERATING LEASES
- ------------------- -------------- ----------------
<S> <C> <C>
2000............................................ 214 3,838
2001............................................ 42 3,451
2002............................................ -- 3,115
2003............................................ -- 2,607
2004............................................ -- 1,846
Thereafter...................................... -- 2,930
----- -------
Total minimum lease payments.................... 256 $17,787
=======
Less interest portion at rates of 16.7% to
20.7%......................................... (22)
-----
Present value of net minimum lease payments,
capital leases................................ 234
Portion due within one year..................... (193)
-----
Long-term portion............................... $ 41
=====
</TABLE>
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. We have authorized 10,000,000 shares of preferred stock for
issuance. Our board of directors has the power to issue one or more series of
preferred shares and the authority to fix and determine the rights and
preferences of such shares. No preferred shares were issued or outstanding as of
September 30, 1999.
COMMON STOCK OPTIONS AND WARRANTS. We have a Stock Incentive Plan (the "Plan"),
approved by the shareholders, which provides for the award of incentive stock
options to key employees and the award
F-10
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
5. SHAREHOLDERS' EQUITY (CONTINUED)
of non-qualified stock options, stock sales and grants to employees, outside
directors, independent contractors and consultants. As of September 30, 1999,
2,300,000 shares of common stock were reserved for issuance under the Plan. It
is intended that the Plan will be used principally to attract and retain key
employees.
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 price of the options.
In 1999, our shareholders approved the Metro One Telecommunications, Inc. 1999
Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to attract
and retain qualified employees essential to our success, and to provide such
persons with an incentive to perform in our best interests. As of September 30,
1999, 150,000 shares of common stock were reserved for issuance under the ESSP.
We have elected to continue to account for stock options according to Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost has been recognized for this plan in the
financial statements. If compensation cost on stock options granted under this
plan had been determined based on the fair value of the options granted as of
the grant date in a method consistent with that described in Statement of
Financial Accounting Standards No. 123, our net income and earnings per share
would have been changed to the pro forma amounts indicated below for the years
ended December 31, 1996, 1997, 1998 and the nine months ended September 30, 1998
and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income, as reported.................. $1,166 $1,432 $3,603 $2,026 $1,464
Diluted earnings per share, as
reported............................... 0.12 0.13 0.32 0.18 0.12
Net income, pro forma.................... 944 1,048 3,311 1,883 978
Diluted earnings per share, pro forma.... 0.10 0.10 0.29 0.17 0.08
</TABLE>
The pro forma amounts may not be indicative of the effects on reported net
income for future periods due to the effect of options vesting over a period of
years and the awarding of stock compensation in future years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in the years ended December 31, 1996, 1997 and 1998, respectively:
dividend yield of 0 for all years; risk-free interest rates of 6.3, 5.7 and 4.5
percent; expected volatility of 46.5, 55.3 and 66.6 percent; and expected life
of 4.0 for all years. The following assumptions were used for grants in the nine
months ended September 30, 1998 and 1999,
F-11
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
5. SHAREHOLDERS' EQUITY (CONTINUED)
respectively: dividend yield of 0 for both periods; risk-free interest rates of
4.5 and 5.9 percent; expected volatility of 66.6 and 73.6 percent; and expected
life of 4.0 for both periods.
A summary of the status of our stock option plan for the years ended December
31, 1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999
and changes during the periods ending on those dates is presented below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 1,103 $ 8.05 1,291 $8.55 1,454 $ 8.58
Granted............................. 189 11.48 262 8.57 407 10.07
Exercised........................... -- -- (71) 8.05 (62) 8.07
Forfeited........................... (1) 8.05 (28) 8.40 (34) 11.82
------ ------ ------ ----- ------ ------
Outstanding at end of year.......... 1,291 $ 8.55 1,454 $8.58 1,765 $ 8.88
------ ------ ------ ----- ------ ------
Options exercisable at year-end..... 950 1,183 1,244
Weighted-average fair value of options
granted during the year........... $ 5.09 $ 3.15 $ 4.37
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
-------------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................. 1,454 $ 8.58 1,765 $ 8.88
Granted.......................................... 84 8.51 24 13.03
Exercised........................................ -- -- (222) 8.07
Forfeited........................................ (28) 12.46 (28) 12.15
------ ------ ------ ------
Outstanding at end of year....................... 1,510 $ 8.51 1,539 $ 9.01
====== ====== ====== ======
Options exercisable at year-end.................. 1,245 1,153
Weighted-average fair value of options
granted during the year........................ $ 2.73 $ 6.70
</TABLE>
F-12
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable under the Plan at September 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------- EXERCISABLE
WEIGHTED- ---------------------
(IN THOUSANDS, EXCEPT PER AVERAGE WEIGHTED- WEIGHTED-
SHARE AMOUNTS) REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE (YRS) PRICE OPTIONS PRICE
- ------------------------ --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.05 - 8.05 814 5.89 $ 8.05 814 $ 8.05
$ 8.50 - 14.00 725 8.54 $10.08 339 $10.11
--------------------- ----- ---- ------ ----- ------
$ 8.05 - 14.00 1,539 7.14 $ 9.01 1,153 $ 8.66
===================== ===== ==== ====== ===== ======
</TABLE>
At December 31, 1997, there were outstanding warrants to purchase 114,000 shares
of common stock. The warrants were fully exercisable at a price of $2.31 per
share, and were exercised on various dates through February 1998. At December
31, 1997, there was an outstanding option to purchase 86,000 shares of common
stock. This option was granted prior to the adoption of the Plan, was fully
exercisable at a price of $2.31 per share, and was exercised in September 1998.
6. RELATED PARTIES
We have entered into various capital lease arrangements for furniture, fixtures
and equipment with a company owned by a shareholder (non-officer/director) of
the Company. These leases bear interest at rates ranging from 16.7% to 20.7% and
expire in 2001. Minimum capital lease obligations to this related party totaled
$740,000, $533,000 and $256,000 at December 31, 1997 and 1998 and September 30,
1999, respectively.
7. OTHER INCOME (EXPENSE)
Included in other income (expense) are certain items that do not relate directly
to current ongoing business activity. For the year ended December 31, 1996,
other expense consisted primarily of estimated litigation settlement expenses of
$280,000; loss on asset dispositions of $151,000; and interest income of
$288,000. For the year ended December 31, 1997, other income consisted primarily
of estimated litigation settlement expenses of $61,000; loss on asset
dispositions of $81,000; and interest income of $569,000. For the year ended
December 31, 1998, other income consisted primarily of loss on asset
dispositions of $73,000 and interest income of $365,000. For the nine months
ended September 30, 1998, other income consisted primarily of loss on asset
dispositions of $32,000 and interest income of $283,000. For the nine months
ended September 30, 1999, other income consisted primarily of loss on asset
dispositions of $49,000 and interest income of $159,000.
F-13
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
8. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $ 33 $ 12 $ 42 $ 23 $ 8
State.................................. 41 13 75 44 60
---- ---- ---- ---- ---
74 25 117 67 68
---- ---- ---- ---- ---
Deferred:
Federal................................ (33) (12) (42) (23) (8)
State.................................. -- -- -- -- --
---- ---- ---- ---- ---
Total tax expense........................ $ 41 $ 13 $ 75 $ 44 $60
==== ==== ==== ==== ===
</TABLE>
At December 31, 1997 and 1998 and September 30, 1999 the significant components
of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
(IN THOUSANDS) -------- -------- --------------
<S> <C> <C> <C>
Deferred tax liability:
Tax depreciation in excess of book.......... $ 1,042 $ 1,487 $ 2,391
Deferred tax asset:
Net operating loss carryforwards............ 5,986 $ 5,102 $ 6,002
Expenses not currently deductible........... 179 176 235
Tax credit carryforwards.................... 61 113 124
------- ------- -------
Gross deferred tax assets................... 6,226 5,391 6,361
Valuation allowance......................... (5,139) (3,817) (3,875)
------- ------- -------
Deferred tax assets......................... 1,087 1,574 2,486
------- ------- -------
Net deferred tax asset...................... $ 45 $ 87 $ 95
======= ======= =======
</TABLE>
During 1997 and 1998 and the first nine months of 1999, we reduced our deferred
tax valuation allowance to reflect deferred tax assets used to reduce current
year income taxes. Our quarterly and annual operating results have in the past
and may in the future vary significantly depending on factors such as changes in
the telecommunications market, the addition or expiration of contracts,
increased competition, changes in pricing policies by us or our competitors,
lengthy sales cycles, lack of market acceptance or delays in the introduction of
new versions of our product or features, the timing of the initiation of
wireless services or their acceptance in new market areas by telecommunications
customers, the timing and expense of the expansion of our national call center
network, general economic conditions and other factors. Given the variability in
operating results, we will continue to review the valuation allowance on a
quarterly basis and make adjustments as appropriate.
F-14
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
8. INCOME TAXES (CONTINUED)
At September 30, 1999, we had approximately $13.3 million of net operating loss
carryforwards expiring during the years 2005 to 2010. Ownership changes as
defined by section 382 of the Internal Revenue Code could limit the amount of
net operating loss carryforwards used in any one year or in the aggregate.
The difference between taxes calculated at the statutory federal and state tax
rates and the effective combined rates for the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate: 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal
benefit............................ 5.0 2.6 3.9 3.9 4.5
Valuation allowance.................. (39.4) (39.5) (36.7) (36.7) (35.5)
Other................................ 2.8 2.8 (0.1) (0.1) (0.1)
----- ----- ----- ----- -----
Effective tax rate................... 3.4 0.9 2.1 2.1 3.9
===== ===== ===== ===== =====
</TABLE>
9. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," requires dual presentation of basic and diluted earnings per share
("EPS"). Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. There were no adjustments to net income for the calculation
of both basic and diluted earnings per shares for all periods.
The calculation of weighted-average outstanding shares is as follows:
<TABLE>
<CAPTION>
AVERAGE SHARES
-------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding (used in computing
Basic EPS)...................... 9,152 10,820 11,063 11,039 11,383
Common stock equivalents.......... 244 141 211 190 629
----- ------ ------ ------ ------
Weighted average common shares
outstanding (used in computing
Diluted EPS).................... 9,396 10,961 11,274 11,229 12,012
===== ====== ====== ====== ======
</TABLE>
F-15
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
10. BENEFIT PLANS
We have a deferred compensation savings plan for the benefit of our 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 at
least 500 hours of service in any twelve-month period. Under the plan, we 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. We made contributions of approximately $11,000, $25,000 and
$35,000 during 1996, 1997 and 1998, respectively, and $25,000 and $40,000 for
the nine months ended September 30, 1998 and 1999, respectively.
11. STATEMENT OF CASH FLOWS
Supplemental disclosure of Cash Flow information:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest expense........ $ 572 $318 $297 $246 $347
Cash paid for income taxes............ 44 51 95 55 59
Equipment acquired by capital lease... 679 -- -- -- --
Conversion of debt into common
stock............................... 1,400 -- -- -- --
Stock issued in settlement of
litigation.......................... -- 270 -- -- --
</TABLE>
F-16
<PAGE>
[Inside Back Cover]
Innovative Features
and Services
[Vignette of a portion of a telephone keypad surrounded by service and feature
logos, as follows:]
[STARBACK-REGISTERED TRADEMARK- LOGO]
[CAPTION] StarBack allows callers to return to a live operator simply by
pressing the star [Q] key at any time during a call.
[AUTOBACK-REGISTERED TRADEMARK- LOGO]
[CAPTION] AutoBack automatically returns the caller to a live operator or other
options upon a busy signal or "ring-no-answer" or other common situations
without pressing a single key.
[NUMBERBACK-REGISTERED TRADEMARK- LOGO]
[CAPTION] NumberBack sends the caller the called number simply by pressing the
[#] key.
[LOCATIONPRO-TM- LOGO]
[CAPTION] LocationPro, under development, provides location-based services,
including turn-by-turn driving directions.
[MESSAGEBACK-TM- LOGO]
[CAPTION] MessageBack delivers a caller's message to a desired party, and when
configured with AutoBack, provides a convenient tool for ensuring communication.
[METRODEX-TM- LOGO]
[CAPTION] MetroDex, under development, allows callers to use their telephone or
the Internet to access their personal or corporate contacts databases.
[PAGINGASSISTANT-TM- LOGO]
[CAPTION] PagingAssistant allows our operators to send customized alphanumeric
messages on behalf of a caller.
[TELECONCIERGE LOGO]
[CAPTION] TeleConcierge provides a means of making advance restaurant
reservations, and is being developed for use in a variety of other
fulfillment-oriented scenarios.
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
METRO ONE
TELECOMMUNICATIONS, INC.
2,067,500 SHARES
COMMON STOCK
----------------
PROSPECTUS
-------------------
, 1999
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
NEEDHAM & COMPANY, INC.
------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT
AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Metro One will pay all expenses incident to the offering and sale to the public
of the shares being registered, other than any commissions and discounts of
underwriters, dealers or agents, any transfer taxes and the amounts allocated to
the selling shareholders below. Such expenses are shown in the following table.
All of the amounts shown are estimates except the SEC registration fee, the NASD
filing fee and the Nasdaq fee.
<TABLE>
<CAPTION>
SELLING
METRO ONE SHAREHOLDERS
--------- ------------
<S> <C> <C>
SEC registration fee........................................ $ 10,718 $354
NASD filing fee............................................. 4,339 144
Nasdaq fee.................................................. 17,500 --
Printing and engraving expenses............................. 148,500 1,500
Legal fees and expenses..................................... 247,500 2,500
Accounting fees and expenses................................ 50,000 --
Blue sky expenses........................................... 5,000 --
Transfer agent and registrar fees and expenses.............. 3,000 --
Miscellaneous expenses...................................... 13,443 1,502
-------- --------
Total..................................................... $500,000 $6,000
======== ========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation, Metro One 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 Metro One's Third Restated Articles of Incorporation (the
"Articles") eliminates the liability of its directors to Metro One or its
shareholders, 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
shareholders or otherwise.
II-1
<PAGE>
Article X of the Articles requires Metro One to indemnify its directors and
officers to the fullest extent not prohibited by law. The Bylaws of Metro One
also require it to indemnify its directors and officers to the fullest extent
permitted by the OBCA.
ITEM 16. EXHIBITS.
The following documents are filed herewith (unless otherwise indicated) and made
a part of this registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1.. Form of Underwriting Agreement
5.1.. Opinion of Heller Ehrman White & McAuliffe
23.1.. Consent of Deloitte & Touche LLP, Independent Auditors
23.2.. Consent of Counsel (included in Exhibit 5.1)
24.1.. Power of Attorney (included on page II-4)*
</TABLE>
- ---------------------------
* Included in this registration statement as originally filed on October 22,
1999.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) Securities
Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (a)(l)(i) and
(a)(l)(ii) do not apply if the registration statement is on
Form S-3, Form S-8 or Form F-3, and the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act
of 1934) that is incorporated by reference in the registration statement
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.
(c) 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 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, 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 Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly
caused this Amendment No. 1 to Registration Statement on Form S-3 to be signed
on its behalf by the undersigned, thereunto duly authorized, in Beaverton,
Oregon on November 1, 1999.
<TABLE>
<S> <C> <C>
METRO ONE TELECOMMUNICATIONS, INC.
By /s/ TIMOTHY A. TIMMINS
------------------------------------------
Timothy A. Timmins
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
President, Chief Executive
/s/ TIMOTHY A. TIMMINS Officer and a Director
--------------------------------------- (Principal Executive November 1, 1999
Timothy A. Timmins Officer)
Senior Vice President and
/s/ STEBBINS B. CHANDOR, JR. Chief Financial Officer
--------------------------------------- (Principal November 1, 1999
Stebbins B. Chandor, Jr. Financial Officer)
/s/ R. TOD HUTCHINSON Vice President, Finance
--------------------------------------- (Principal Accounting November 1, 1999
R. Tod Hutchinson Officer)
/s/ A. JEAN DE GRANDPRE*
--------------------------------------- Chairman of the Board November 1, 1999
A. Jean de Grandpre
/s/ WILLIAM D. RUTHERFORD*
--------------------------------------- Director November 1, 1999
William D. Rutherford
/s/ JAMES M. USDAN*
--------------------------------------- Director November 1, 1999
James M. Usdan
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ TIMOTHY A. TIMMINS
--------------------------------------
Timothy A. Timmins
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ----------------------
<C> <S> <C>
1.1.................. Form of Underwriting Agreement
5.1.................. Opinion of Heller Ehrman White & McAuliffe
23.1................. Consent of Deloitte & Touche LLP, Independent Accountants
23.2................. Consent of Counsel (included in Exhibit 5.1)
24.1................. Power of Attorney (included on page II-4)*
</TABLE>
- ---------------------
* Included in this registration statement as originally filed on October 22,
1999
<PAGE>
EXHIBIT 1.1
2,067,500 Shares
METRO ONE TELECOMMUNICATIONS, INC.
Common Stock
UNDERWRITING AGREEMENT
November __, 1999
CIBC World Markets Corp.
U.S. Bancorp Piper Jaffray Inc.
Needham & Company, Inc.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule II attached hereto.
Ladies and Gentlemen:
Metro One Telecommunications, Inc., an Oregon corporation (the
"Company"), and the several shareholders of the Company listed in Schedule I
hereto (the "Selling Shareholders," each a "Selling Shareholder"), propose,
subject to the terms and conditions contained herein, to sell to you and the
other underwriters named on Schedule II to this Agreement (the "Underwriters"),
for whom you are acting as Representatives (the "Representatives"), an aggregate
of 2,067,500 shares (the "Firm Shares") of the Company's Common Stock, no par
value (the "Common Stock"). Of the 2,067,500 Firm Shares, 2,000,000 are to be
issued and sold by the Company and 67,500 are to be sold by the Selling
Shareholders. The respective amounts of the Firm Shares to be purchased by each
of the several Underwriters are set forth opposite their names on Schedule II
hereto. In addition, the Company proposes to grant to the Underwriters an option
to purchase up to an additional 310,125 shares (the "Option Shares") of Common
Stock from it for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
-1-
<PAGE>
(a) The Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at a price of $_____ per share (the "Initial
Price"), the number of Firm Shares set forth opposite the name of such
Underwriter under the column "Number of Firm Shares to be Purchased
from the Company" on Schedule II to this Agreement, subject to
adjustment in accordance with Section 11 hereof. Each of the Selling
Shareholders agrees to sell to the Underwriters the number of Firm
Shares set forth opposite his name on Schedule I, and each of the
Underwriters agrees, severally and not jointly, to purchase from the
Selling Shareholders, at the Initial Price, the number of Firm Shares
set forth opposite the name of such Underwriter under the column
"Number of Firm Shares to be Purchased from the Selling Shareholders"
on Schedule II to this Agreement, subject to adjustment in accordance
with Section 11 hereof.
(b) The Company grants to the several Underwriters an option
to purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (adjusted by
the Representatives to eliminate fractions) of the total number of
Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only to
cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date (as defined below), and from time to time
thereafter within 30 days after the date of this Agreement, in each
case upon written, facsimile or telegraphic notice, or verbal or
telephonic notice confirmed by written, facsimile or telegraphic
notice, by the Representatives to the Company no later than 12:00 noon,
New York City time, on the business day before the Firm Shares Closing
Date or at least two business days before the Option Shares Closing
Date (as defined below), as the case may be, setting forth the number
of Option Shares to be purchased and the time and date (if other than
the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company and the
Selling Shareholders of the Firm Shares to the Representatives for the
respective accounts of the Underwriters, and payment of the purchase price by
wire transfer of New York Clearing House (same day) funds to the Company for the
shares purchased from the Company and to each Selling Shareholder for the shares
purchased from that Selling Shareholder, against delivery of the respective
certificates therefor to the Representatives, shall take place at the offices of
CIBC World Markets Corp., One World Financial Center, New York, New York 10281,
at 10:00 a.m., New York City time, on the third business day following the date
of this Agreement, or at such time on such other date, not later than 10
business days after the date of this Agreement, as shall be agreed upon by the
Company and the Representatives (such time and date of delivery and payment are
called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares is
exercised in whole or in part on one or more occasions, delivery by the Company
of the Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price thereof in immediately available
funds by wire transfer of New York Clearing House (same day) funds to the
-2-
<PAGE>
Company shall take place at the offices of CIBC World Markets Corp. specified
above at the time and on the date (which may be the same date as, but in no
event shall be earlier than, the Firm Shares Closing Date) specified in the
notice referred to in Section 1(b) (such time and date of delivery and payment
are called the "Option Shares Closing Date"). The Firm Shares Closing Date and
the Option Shares Closing Date are called, individually, a "Closing Date" and,
together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall request at
least two full business days before the Firm Shares Closing Date or, in the case
of Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
Company has prepared and filed in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement (as hereinafter
defined) on Form S-3 (No. 333-89493), including a preliminary prospectus
relating to the Shares, and such amendments thereof as may have been required to
the date of this Agreement. Copies of such Registration Statement (including all
amendments thereof) and of the related Preliminary Prospectus (as hereinafter
defined) have heretofore been delivered by the Company to you. The term
"Preliminary Prospectus" means any preliminary prospectus (as described in Rule
430 of the Rules) included at any time as a part of the Registration Statement
or filed with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules. The term "Registration
Statement" as used in this Agreement means the initial registration statement
(including all exhibits, financial schedules and information deemed to be a part
of the Registration Statement through incorporation by reference or otherwise),
as amended at the time and on the date it becomes effective (the "Effective
Date") including the information (if any) deemed to be part thereof at the time
of effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an
abbreviated registration statement to register additional Shares pursuant to
Rule 462(b) under the Rules (the "462(b) Registration Statement"), then any
reference herein to the Registration Statement shall also be deemed to include
such 462(b) Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement at the time of effectiveness or, if Rule 430A of the Rules is relied
on, the term Prospectus shall also include the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules.
The Company and the Selling Shareholders understand that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the Prospectus, as soon after the Effective Date and the date of
this Agreement as the Representatives deem advisable. The Company and the
Selling Shareholders hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each Preliminary Prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby, represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement
complied, and on the date of the Prospectus, the date any
post-effective amendment to the Registration Statement becomes
effective, the date any supplement or amendment to the Prospectus is
filed with the Commission and each Closing Date, the Registration
Statement and the Prospectus (and any amendment thereof or supplement
thereto) will comply, in all material respects, with the applicable
provisions of the Securities Act and the Rules and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Registration
Statement did not, as of the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and on the Effective Date and the
other dates referred to above neither the Registration Statement nor
the Prospectus, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether
filed as part of the Registration Statement or any amendment thereto or
pursuant to Rule 424(a) of the Rules) and when any amendment thereof or
supplement thereto was first filed with the Commission, such
preliminary prospectus as amended or supplemented complied in all
material respects with the applicable provisions of the Securities Act
and the Rules and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
Notwithstanding the foregoing, none of the representations and
warranties in this Section 4(a) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon, and in conformity with, information herein or otherwise
furnished in writing by the Representatives on behalf of the several
Underwriters for use in the Registration Statement or the Prospectus.
With respect to the preceding sentence, the Company acknowledges that
the only information furnished in writing by the Representatives on
behalf of the several Underwriters for use in the Registration
Statement or the Prospectus is the statements contained under the
caption "Underwriting" in the Prospectus.
(b) The Registration Statement is effective under the
Securities Act and no stop order preventing or suspending the
effectiveness of the Registration Statement or suspending or preventing
the use of the Prospectus has been issued and no proceedings for that
purpose have been instituted or are threatened under the Securities
Act. Any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules has been or will be made in the
manner and within the time period required by such Rule 424(b).
(c) The documents incorporated by reference in the
Registration Statement and the Prospectus, at the time they were filed
with the Commission, complied in all material respects with the
requirements of the Exchange Act and, when read together and with the
other information in the Registration Statement and the Prospectus, do
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or
-4-
<PAGE>
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The financial statements of the Company (including all
notes and schedules thereto) included or incorporated by reference in
the Registration Statement and Prospectus present fairly the financial
position, the results of operations, the statements of cash flows and
the statements of shareholders' equity and the other information
purported to be shown therein of the Company at the respective dates
and for the respective periods to which they apply; and such financial
statements and related schedules and notes have been prepared in
conformity with generally accepted accounting principles, consistently
applied throughout the periods involved, and all adjustments necessary
for a fair presentation of the results for such periods have been made.
The summary and selected financial data included in the Prospectus
present fairly the information shown therein as at the respective dates
and for the respective periods specified and the summary and selected
financial data have been presented on a basis consistent with the
consolidated financial statements so set forth in the Prospectus and
other financial information.
(e) Deloitte & Touche LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants
as required by the Securities Act and the Rules.
(f) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oregon.
The Company has no subsidiary or subsidiaries and does not control,
directly or indirectly, any corporation, partnership, joint venture,
association or other business organization. The Company is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business
conducted by it or location of the assets or properties owned, leased
or licensed by it requires such qualification, except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets or properties, business, results of
operations or financial condition of the Company (a "Material Adverse
Effect"). Except as set forth on Schedule 4(h) to this Agreement, the
Company does not own, lease or license any asset or property or conduct
any business outside the United States of America. The Company has all
requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and
permits of and from all governmental or regulatory bodies or any other
person or entity (collectively, the "Permits"), to own, lease and
license its assets and properties and conduct its business, all of
which are valid and in full force and effect, as described in the
Registration Statement and the Prospectus, except where the lack of
such Permits, individually or in the aggregate, would not have a
Material Adverse Effect. The Company has fulfilled and performed in all
material respects all of its material obligations with respect to such
Permits and no event has occurred that allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the Company thereunder.
Except as may be required under the Securities Act and state and
foreign Blue Sky laws, no other Permits are required to enter into,
deliver and perform this Agreement and to issue and sell the Shares.
-5-
<PAGE>
(g) The Company owns or possesses adequate and enforceable
rights to use all patents, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses,
know-how and other similar rights and proprietary knowledge
(collectively, "Intangibles") described in the Prospectus as being
owned by it necessary for the conduct of its business. The Company has
not received any notice of, or is not aware of, any infringement of or
conflict with asserted rights of others with respect to any
Intangibles.
(h) The Company owns no real property and has good and
marketable title to all personal property described in the Prospectus
as being owned by it. Any real property and buildings described in the
Prospectuses as being held under lease by the Company is held by it
under valid, existing and enforceable leases, free and clear of all
liens, encumbrances, claims, security interests and defects, except
such as are described in the Registration Statement and the Prospectus
or would not have a Material Adverse Effect.
(i) There are no litigation or governmental proceedings to
which the Company is subject or which is pending or, to the knowledge
of the Company, threatened, against the Company, which, individually or
in the aggregate, would have a Material Adverse Effect, affect the
consummation of this Agreement or which is required to be disclosed in
the Registration Statement and the Prospectus that is not so disclosed.
(j) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described therein, (a) there has not been any material adverse change
with regard to the assets or properties, business, results of
operations or financial condition of the Company; (b) the Company has
not sustained any loss or interference with its assets, businesses or
properties (whether owned or leased) from fire, explosion, earthquake,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental
action, order or decree which would have a Material Adverse Effect; and
(c) since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected therein,
the Company has not (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money, except such
liabilities or obligations incurred in the ordinary course of business,
(ii) entered into any transaction not in the ordinary course of
business or (iii) declared or paid any dividend or made any
distribution on any shares of its stock or redeemed, purchased or
otherwise acquired or agreed to redeem, purchase or otherwise acquire
any shares of its stock.
(k) There is no document, contract or other agreement of a
character required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described, incorporated by reference or filed as required
by the Securities Act or the Rules. Each description of a contract,
document or other agreement in the Registration Statement and the
Prospectus accurately reflects in all material respects the terms of
the underlying document, contract or agreement. Each agreement
-6-
<PAGE>
described in the Registration Statement and Prospectus or listed in the
Exhibits to the Registration Statement or incorporated by reference is
in full force and effect and is valid and enforceable by and against
the Company in accordance with its terms. Neither the Company, nor to
the Company's knowledge, any other party is in default in the
observance or performance of any term or obligation to be performed by
it under any such agreement, and no event has occurred which with
notice or lapse of time or both would constitute such a default, in any
such case which default or event, individually or in the aggregate,
would have a Material Adverse Effect. No default exists, and no event
has occurred which with notice or lapse of time or both would
constitute a default, in the due performance and observance of any
term, covenant or condition, by the Company of any other agreement or
instrument to which the Company is a party or by which it or its
properties or business may be bound or affected which default or event,
individually or in the aggregate, would have a Material Adverse Effect.
(l) The Company is not in violation of any term or provision
of its charter or by-laws or of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation, where the
consequences of such violation, individually or in the aggregate, would
have a Material Adverse Effect.
(m) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision of,
or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or require any consent or
waiver under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company
pursuant to the terms of, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party or by
which it or any of its properties or businesses is bound, or any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation applicable to the Company or violate any provision of the
charter or by-laws of the Company, except for (i) such rights to
terminate or accelerate, conflicts, breaches, defaults, executions,
impositions or violations which, in the aggregate, would not result in
a Material Adverse Effect and (ii) such consents or waivers which have
already been obtained and are in full force and effect or, if not
obtained, would not result in a Material Adverse Effect.
(n) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the Shares are in due and proper legal form and
have been duly authorized for issuance by the Company. All of the
issued and outstanding shares of Common Stock have been duly and
validly issued and are fully paid and nonassessable. There are no
statutory preemptive or other similar rights to subscribe for or to
purchase or acquire any shares of Common Stock of the Company or any
such rights pursuant to its Third Restated Articles of Incorporation or
by-laws or any agreement or instrument to or by which the Company is a
party or bound, other than as disclosed in the Preliminary Prospectus
dated November 2, 1999. The Shares, when
-7-
<PAGE>
issued and sold pursuant to this Agreement, will be duly and validly
issued, fully paid and nonassessable and none of them will be issued
in violation of any preemptive or other similar right. Except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of,
and there is no commitment, plan or arrangement to issue, any share of
stock of the Company or any security convertible into, or exercisable
or exchangeable for, such stock. The Common Stock and the Shares
conform in all material respects to all statements in relation thereto
contained in the Registration Statement and the Prospectus.
(o) No holder of any security of the Company has a right
(other than a right which has been waived) to have any security owned
by such holder included in the Registration Statement (other than the
shares included in the Registration Statement) or to cause the Company
to initiate registration of any security owned by such holder during
the period ending 90 days after the date of this Agreement. Each
director of the Company, each officer of the Company at or above the
vice president level, and each Selling Shareholder has delivered to the
Representatives his enforceable written lock-up agreement in the form
attached to this Agreement ("Lock-Up Agreement").
(p) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares
by the Company. This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes and will
constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(q) The Company is not involved in any labor dispute nor, to
the knowledge of the Company, is any such dispute threatened, which
dispute would have a Material Adverse Effect. The Company is not aware
of any threatened or pending litigation between the Company and any of
its executive officers which, if adversely determined, could have a
Material Adverse Effect.
(r) No transaction has occurred between or among the Company
and any of its officers, directors or 5% shareholders or any affiliate
or affiliates of any such officer, director or 5% shareholders that is
required to be described in and is not described in the Registration
Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which would reasonably be
expected to cause or result in, or which has constituted or which would
reasonably be expected to constitute, the stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of
any of the Shares.
(t) The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes
shown on such returns and all assessments received by it to the extent
that the
-8-
<PAGE>
same are material and have become due. There are no tax audits or
investigations pending, which if adversely determined would have a
Material Adverse Effect; nor are there any material proposed additional
tax assessments against the Company.
(u) The Shares have been duly authorized for quotation on the
Nasdaq National Market, subject to official Notice of Issuance. A
registration statement has been filed on Form 8-A pursuant to Section
12 of the Exchange Act, which registration statement complies in all
material respects with the Exchange Act.
(v) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions in, and
dispositions of, the assets of, and the results of operations of, the
Company. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which it is engaged or propose to engage
after giving effect to the transactions described in the Prospectus;
all policies of insurance and fidelity or surety bonds insuring the
Company or its business, assets, employees, officers and directors are
in full force and effect; the Company is in compliance with the terms
of such policies and instruments in all material respects; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect. To the best of the Company's knowledge, Company has not been
denied any insurance coverage which it has sought or for which it has
applied.
(x) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed
by the Company (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or may be
necessary to qualify the Shares for public offering by the Underwriters
under the state securities or Blue Sky laws) has been obtained or made
and is in full force and effect.
(y) There are no affiliations with the NASD among the
Company's officers, directors or, to the best of the knowledge of the
Company, any five percent or greater shareholder of the Company, except
as set forth in the Registration Statement or otherwise disclosed in
writing to the Representatives.
-9-
<PAGE>
(z) To the Company's knowledge, (i) the Company is in
compliance in all material respects with all rules, laws and regulation
relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental
Law") which are applicable to its business; (ii) the Company has not
received any notice from any governmental authority or third party of
an asserted claim under Environmental Laws; (iii) the Company has
obtained all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and is in
compliance with all terms and conditions of any such permit, license or
approval; (iv) no facts currently exist that will require the Company
to make future material capital expenditures to comply with
Environmental Laws; and (v) no property which is or has been owned,
leased or occupied by the Company has been designated as a Superfund
site pursuant to the Comprehensive Environmental Response, Compensation
of Liability Act of 1980, as amended (42 U.S.C. Section 9601, et. seq.)
("CERCLA") or otherwise designated as a contaminated site under
applicable state or local law. The Company has not been named as a
"potentially responsible party" under CERCLA.
(aa) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of proceeds thereof
as described in the Prospectus, will not be an "investment company"
within the meaning of the Investment Company Act of 1940, as amended
(the "Investment Company Act").
(bb) None of the Company, any director, officer or employee of
the Company or, to the Company's knowledge, any other person associated
with or acting on behalf of the Company has, directly or indirectly,
while acting on behalf of the Company, (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any other unlawful payment.
(cc) The Company has reviewed its operations to evaluate the
extent to which the business or operations of the Company will be
affected by the Year 2000 Problem (that is, any significant risk that
computer hardware or software applications used by the Company will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (i) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
described or referred to in the Registration Statement or Prospectus
which have not been accurately described in the Registration Statement
or Prospectus and (B) the Year 2000 Problem will have a Material
Adverse Effect, or result in any material loss or interference with the
business or operations of the Company; and (ii) the Company reasonably
believes, after due inquiry, that the suppliers, vendors, customers or
other material third parties used or served by the Company are
addressing or will address the Year 2000 Problem in a timely manner,
except to the extent that a failure to
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address the Year 2000 Problem by a supplier, vendor, customer or
material third party would not have a Material Adverse Effect.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder hereby represents and warrants, severally and not
jointly, to each Underwriter as follows:
(a) The Selling Shareholder has caused certificates for the
number of Shares to be sold by such Selling Shareholder hereunder to be
delivered to ChaseMellon Shareholder Services, L.L.C. (the
"Custodian"), endorsed in blank or with blank stock powers duly
executed, with a signature appropriately guaranteed, such certificates
to be held in custody by the Custodian for delivery, pursuant to the
provisions of this Agreement and an agreement dated November ___, 1999
among the Custodian and the Selling Shareholders (the "Custody
Agreement").
(b) The Selling Shareholder has granted an irrevocable power
of attorney (the "Power of Attorney") to the person named therein, on
behalf of the Selling Shareholder, to execute and deliver this
Agreement and any other document necessary or desirable in connection
with the transactions contemplated hereby and to deliver the shares to
be sold by the Selling Shareholder pursuant hereto.
(c) This Agreement, the Custody Agreement, the Power of
Attorney and the Lock-Up Agreement have each been duly authorized,
executed and delivered by or on behalf of the Selling Shareholder and,
assuming due authorization, execution and delivery by the other parties
hereto, constitutes the valid and legally binding agreement of the
Selling Shareholder, enforceable against the Selling Shareholder in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles.
(d) The execution and delivery by the Selling Shareholder of
this Agreement and the performance by the Selling Shareholder of his or
her obligations under this Agreement (i) will not contravene any
provision of applicable law, statute, regulation or filing or any
agreement or other instrument binding upon the Selling Shareholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Selling Shareholder, (ii) does not require
any consent, approval, authorization or order of or registration or
filing with any court or governmental agency or body having
jurisdiction over it, except such as may be required by the Blue Sky
laws of the various states in connection with the offer and sale of the
Shares which have been or will be effected in accordance with this
Agreement, and (iii) does not and will not violate any statute, law,
regulation or filing or judgment, injunction, order or decree
applicable to the Selling Shareholder.
(e) The Selling Shareholder has, and on the Firm Shares
Closing Date will have, valid and marketable title to the Shares to be
sold by the Selling Shareholder free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation,
any restriction on transfer, except as otherwise described in the
Registration Statement and Prospectus.
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(f) The Selling Shareholder has, and on the Firm Shares
Closing Date will have, full legal right, power and authorization, and
any approval required by law to sell, assign, transfer and deliver the
Shares to be sold by the Selling Shareholder in the manner provided by
this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by
the Selling Shareholder pursuant to this Agreement, the several
Underwriters will receive valid and marketable title to such Shares
free and clear of any lien, claim, security interest or other
encumbrance.
(h) All information relating to the Selling Shareholder
furnished in writing by the Selling Shareholder expressly for use in
the Registration Statement and Prospectus is, and on each Closing Date
will be, true, correct, and complete, and does not, and on each Closing
Date will not, contain any untrue statement of a material fact or omit
to state any material fact necessary to make such information not
misleading.
(i) If the Selling Shareholder is an executive officer or
director of the Company (a "Management Shareholder"), the Selling
Shareholder has reviewed the Registration Statement and Prospectus and,
although such Selling Shareholder has not independently verified the
accuracy or completeness of all the information contained therein,
nothing has come to the attention of such Selling Shareholder that
would lead such Selling Shareholder to believe that (i) on the
Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein in order to make the statements made
therein not misleading and (ii) on the Effective Date the Prospectus
contained and, on each Closing Date contains, an untrue statement of a
material fact or omitted or omits to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) The sale of Shares by the Selling Shareholder pursuant to
this Agreement is not prompted by the Selling Shareholder's knowledge
of any material information concerning the Company which is not set
forth in the Prospectus.
(k) If the Selling Shareholder is a Management Shareholder,
the Selling Shareholder does not have any actual knowledge that any
representation or warranty of the Company set forth in Section 4 above
is untrue or inaccurate in any material respect.
(l) The representations and warranties of the Selling
Shareholder in the Custody Agreement are and on each Closing Date will
be, true and correct.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Shares are
subject to each of the following terms and conditions:
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(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives and the
Prospectus shall have been timely filed with the Commission in
accordance with Section 7(a) of this Agreement.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be in
effect and no order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the satisfaction of the Commission and the
Representatives.
(c) The representations and warranties of the Company and the
Selling Shareholders contained in this Agreement and in the
certificates delivered pursuant to Section 6(d) shall be true and
correct when made and on and as of each Closing Date as if made on such
date. The Company and the Selling Shareholders shall have performed all
covenants and agreements and satisfied all the conditions contained in
this Agreement required to be performed or satisfied by them at or
before such Closing Date.
(d) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial officer or chief accounting officer of the Company to
the effect that (i) the signers of such certificate have carefully
examined the Registration Statement, the Prospectus and this Agreement
and that the representations and warranties of the Company in this
Agreement are true and correct on and as of such Closing Date with the
same effect as if made on such Closing Date and the Company has
performed all covenants and agreements and satisfied all conditions
contained in this Agreement required to be performed or satisfied by it
at or prior to such Closing Date, and (ii) no stop order suspending the
effectiveness of the Registration Statement has been issued and to the
best of their knowledge, no proceedings for that purpose have been
instituted or are pending under the Securities Act.
(e) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated such
Closing Date, of each Selling Shareholder, to the effect that the
Selling Shareholder has carefully examined the Registration Statement,
the Prospectus and this Agreement and that the representations and
warranties of the Selling Shareholder in this Agreement are true and
correct on and as of such Closing Date with the same effect as if made
on such Closing Date and the Selling Shareholder has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by it at or prior to
such Closing Date.
(f) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date a signed letter from
Deloitte & Touche LLP addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and substance reasonably satisfactory to the Representatives,
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confirming that they are independent accountants within the meaning of
the Securities Act and the Rules, that the response to Item 10 of the
Registration Statement is correct insofar as it relates to them and
stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Securities
Act and the Rules;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the headings "Prospectus Summary-Summary Financial Data"
and "Selected Financial Data," carrying out certain procedures
(but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters
of significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
shareholders and directors of the Company, and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to
their attention which caused them to believe that:
(A) the amounts in "Prospectus
Summary-Summary Financial Data," and "Selected
Financial Data" included in the Registration
Statement and the Prospectus do not agree with the
corresponding amounts in the audited and unaudited
financial statements from which such amounts were
derived; or
(B) with respect to the Company, there were,
at a specified date not more than three business days
prior to the date of the letter, any increases in the
current liabilities and long-term liabilities of the
Company or any decreases in net income or in working
capital or the shareholders' equity in the Company,
as compared with the amounts shown on the Company's
audited balance sheet for the nine months ended
September 30, 1999 included in the Registration
Statement;
(iii) they have performed certain other procedures as
may be permitted under Generally Acceptable Auditing Standards
as a result of which they determined that certain information
of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information
derived from the general accounting records of the Company)
set forth in the Registration Statement and the Prospectus and
reasonably specified by the Representatives agrees with the
accounting records of the Company; and
(iv) based upon the procedures set forth in clauses
(ii) and (iii) above and a reading of the amounts included in
the Registration Statement under the headings
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<PAGE>
"Prospectus Summary-Summary Financial Data" and "Selected
Financial Data" included in the Registration Statement and
Prospectus and a reading of the financial statements from
which certain of such data were derived, nothing has come to
their attention that gives them reason to believe that the
"Prospectus Summary-Summary Financial Data" and "Selected
Financial Data" included in the Registration Statement and
Prospectus do not comply as to the form in all material
respects with the applicable accounting requirements of the
Securities Act and the Rules or that the information set forth
therein is not fairly stated in relation to the financial
statements included in the Registration Statement or
Prospectus from which certain of such data was derived are not
in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited financial statements included in the Registration
Statement and Prospectus.
References to the Registration Statement and the
Prospectus in this Section 6(f) are to such documents as
amended and supplemented at the date of the letter.
(g) The Representatives shall have received on each Closing
Date from Heller Ehrman White & McAuliffe, counsel for the Company, an
opinion, addressed to the Representatives and dated such Closing Date,
and stating in effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Oregon. The Company is qualified to
business and in good standing as a foreign corporation in the
states of ________, ________ and ________. To such
counsel's knowledge, the Company does not have a subsidiary
or record ownership of any interest in any corporation,
partnership, joint venture, association or other business
organization in excess of 50% of the equity interests of
that entity.
(ii) The Company has all requisite corporate power
and authority to own, lease and license its assets and
properties and conduct its business as now being conducted and
as described in the Registration Statement and the Prospectus
and to enter into, deliver and perform this Agreement and to
issue and sell the Shares.
(iii) The Company has authorized and issued capital
stock as set forth in the Registration Statement and the
Prospectus under the caption "Capitalization"; the
certificates evidencing the Shares are in due and proper legal
form and have been duly authorized for issuance by the
Company. The Shares when issued and sold pursuant to this
Agreement will be duly and validly issued, outstanding, fully
paid and nonassessable and none of them will have been issued
in violation of any preemptive or other similar right
contained in the Company's Third Restated Articles of
Incorporation or by-laws or any other document listed as an
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 or otherwise identified by the
Company on a schedule as material to the Company
(collectively, the "Material Documents"). To the best of such
counsel's knowledge, except as disclosed in the Registration
Statement and the Prospectus, there are no preemptive or other
rights to subscribe for or to purchase or any restriction upon
the voting or transfer of any securities of the Company
pursuant to the Material Documents
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<PAGE>
To such counsel's knowledge, except as disclosed in the
Registration Statement and the Prospectus, the Material
Documents do not provide for any outstanding option,
warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any share of
stock of the Company or any security convertible into,
exercisable for, or exchangeable for stock of the Company.
The Common Stock and the Shares conform in all material
respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(iv) Each of the Lock-Up Agreements executed by the
Company's directors and officers has been duly and validly
delivered by such persons and constitutes the legal, valid and
binding obligation of each such person enforceable against
each such person in accordance with its terms, except as the
enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(v) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution,
delivery and performance of this Agreement and the issuance
and sale of the Shares. This Agreement has been duly and
validly authorized, executed and delivered by the Company and
this Agreement constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles.
(vi) Neither the execution, delivery and performance
of this Agreement by the Company nor the consummation of any
of the transactions contemplated hereby (including, without
limitation, the issuance and sale by the Company of the
Shares) will give rise to a right to terminate or accelerate
the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or
constitute a default (or any event which with notice or lapse
of time, or both, would constitute a default) under, or
require consent or waiver under, or result in the execution or
imposition of any lien, charge, claim, security interest or
encumbrance upon any properties or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of
trust, note or other agreement or instrument of which such
counsel is aware and to which the Company is a party or by
which it or any of its properties or businesses is bound, or
any franchise, license, permit, judgment, decree, order,
statute, rule or regulation of which such counsel is aware or
violate any provision of the charter or by-laws of the
Company.
(vii) To such counsel's knowledge, no default
exists, and no event has occurred which with notice or
lapse of time, or both, would constitute a default, in the
due performance and observance of any term, covenant or
condition by the Company of any indenture, mortgage, deed
of trust, note or any other
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<PAGE>
agreement or instrument to which the Company is a party
or by which it or any of its assets or properties or
businesses may be bound or affected, where the consequences of
such default, individually or in the aggregate, would have a
Material Adverse Effect.
(viii) To such counsel's knowledge, the Company is
not in violation of any term or provision of its charter or
by-laws or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation, where the
consequences of such violation, individually or in the
aggregate, would have a Material Adverse Effect.
(ix) No consent, approval, authorization or order
of any court or governmental agency or regulatory body is
required for the execution or delivery of this Agreement by
the Company or the consummation of the transactions
contemplated hereby or thereby, except such as have been
obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares
by the several Underwriters.
(x) To such counsel's knowledge, there is no
litigation or governmental or other proceeding or
investigation, before any court or before or by any public
body or board pending or threatened against, or involving
the assets, properties or businesses of, the Company which
would have a Material Adverse Effect.
(xi) The statements in the Prospectus under the
captions "Risk Factors--We have a limited number of contracts
with a small number of carrier customers. If we fail to extend
or replace these contracts, or if these contracts are
terminated prior to their expiration, our business could be
adversely affected," "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and
Capital Resources," "Business--Customers" and "Certain
Transactions," and the description of the Common Stock
incorporated by reference into the Prospectus insofar as such
statements constitute a summary of documents referred to
therein or matters of law, are fair summaries in all material
respects and accurately present the information called for
with respect to such documents and matters. Accurate copies of
all contracts and other documents required to be filed as
exhibits to, or described in, the Registration Statement have
been so filed with the Commission or are fairly described in
the Registration Statement, as the case may be.
(xii) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or
supplement thereto (except for the financial statements and
schedules and other financial and statistical data included
therein, as to which such counsel expresses no opinion) comply
as to form in all material respects with the requirements of
the Securities Act and the Rules.
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(xiii) The Registration Statement is effective under
the Securities Act, and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that
purpose have been instituted or are threatened, pending or
contemplated. Any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the
time period required by such Rule 424(b).
(xiv) The Shares have been approved for quotation on
the Nasdaq National Market.
(xv) The Common Stock of the Company conforms in all
material respects to the description thereof incorporated by
reference into the Prospectus.
(xvi) The Company is not an "investment company" or
an entity controlled by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York and the Federal laws of the United States; provided that
such counsel shall state that in their opinion the Underwriters and they are
justified in relying on such other opinions. Copies of such certificates and
other opinions shall be furnished to the Representatives and counsel for the
Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except
as specified in the foregoing opinion), on the basis of the foregoing, no
facts have come to the attention of such counsel which lead such counsel to
believe that the Registration Statement at the time it became effective
(except with respect to the financial statements and notes and schedules
thereto and other financial and statistical data, as to which such counsel
need express no belief) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus as
amended or supplemented (except with respect to the financial statements,
notes and schedules thereto and other financial and statistical data, as to
which such counsel need make no statement) on the date thereof contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) The Representatives shall have received on the Closing
Date an opinion (satisfactory to the Representatives and counsel for
the Underwriters), dated the Closing Date, of _________________, patent
counsel for the Company, to the effect that:
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(i) The Company is listed on the records of the
United States Patent and Trademark Office as the sole holder
of record of the patents for the Company's "StarBack" and
point-by-point directions service technology (the "Patents").
Except as disclosed in the Prospectus, such counsel knows of
no claims of third parties to any ownership interest or lien
with respect to any of the Patents.
(ii) Such counsel has no knowledge of any facts that
(a) would preclude the Company from having clear, exclusive
rights to the Patents or (b) would lead such counsel to
conclude that any of the Patents are invalid or unenforceable.
Such counsel has knowledge of no facts that would preclude the
Company from using the Patents against third parties to
prevent such third parties from engaging in infringing
conduct.
(iii) Such counsel has reviewed the statements under
the Registration Statement/Prospectuses captions "Risk
Factors--If we are unable to protect our intellectual
property, we may be unable to provide enhanced directory
assistance services or profitably operate our business,"
"Business-- Technology" and "--Intellectual Property"
(collectively, the "Intellectual Property Portion") of the
Registration Statement and the Prospectus. Insofar as such
statements constitute a summary of the Company's patents and
applications for patents and the rights derived therefrom, and
matters related thereto, such counsel believes them to fairly,
accurately and completely summarize the legal matters,
documents and proceedings relating to such patents and
applications described therein. Nothing has come to the
attention of such counsel which causes it to believe that the
information in the Intellectual Property Portion contains any
untrue statement of a material fact or omits to state a
material fact which is required to be stated therein or
necessary to make the statements therein not misleading.
(i) The Representatives shall have received on the Firm Shares
Closing Date from Heller Ehrman White & McAuliffe an opinion, addressed
to the Representatives and dated such Closing Date, and stating in
effect that:
(i) This Agreement has been duly and validly
executed and delivered by or on behalf of each Selling
Shareholder.
(ii) This Agreement, the Custody Agreement, the Power
of Attorney and the Lock-Up Agreement each constitute the
legal, valid and binding obligation of each Selling
Shareholder enforceable against the Selling Shareholder in
accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles; and each Selling Shareholder has full legal right
and authority to enter into this Agreement and to sell,
transfer and deliver in the manner provided in this Agreement,
the Shares to be sold by the Selling Shareholder hereunder.
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(iii) The transfer and sale by the Selling
Shareholders of the Shares to be sold by the Selling
Shareholders as contemplated by this Agreement will not
conflict with, result in a breach of, or constitute a default
under any agreement or instrument known to such counsel to
which any Selling Shareholder is a party or by which any
Selling Shareholder or any of its properties may be bound, or
any franchise, license, permit, judgment, decree, order,
statute, rule or regulation.
(iv) All of the Selling Shareholders' rights in the
Shares to be sold by the Selling Shareholders pursuant to this
Agreement, have been transferred to the Underwriters who have
severally purchased such Shares pursuant to this Agreement,
free and clear of adverse claims, assuming for purposes of
this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims.
(v) No consent, approval, authorization, license,
certificate, permit or order of any court, governmental or
regulatory agency, authority or body or financial institution
is required in connection with the performance of this
Agreement by the Selling Shareholders or the consummation of
the transactions contemplated hereby, including the delivery
and sale of the Shares to be delivered and sold by the Selling
Shareholders, except such as may be required under state
securities or blue sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of each Selling Shareholder and on the
opinions of other counsel satisfactory to the Representatives as to matters
which are governed by laws other than the laws of the State of New York or the
Federal laws of the United States; provided that such counsel shall state that
in their opinion the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives and counsel for the Underwriters.
(j) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives,
and their counsel and the Underwriters shall have received from Latham
& Watkins a favorable opinion, addressed to the Representatives and
dated such Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have
furnished to Latham & Watkins such documents as they may reasonably
request for the purpose of enabling them to pass upon such matters.
(k) The Representatives shall have received copies of the
Lock-up Agreements executed by each entity or person described in
Section 4(o).
(l) The Company and the Selling Shareholders shall have
furnished or caused to be furnished to the Representatives such further
certificates or documents as the Representatives shall have reasonably
requested.
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7. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees as follows:
(i) The Company will use its commercially reasonable
efforts to cause the Registration Statement, if not effective
at the time of execution of this Agreement, and any amendments
thereto, to become effective as promptly as possible. The
Company shall prepare the Prospectus in a form approved by the
Representatives and file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than the
Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act.
(ii) The Company shall promptly advise the
Representatives in writing (i) when any amendment to the
Registration Statement shall have become effective, (ii) of
any request by the Commission for any amendment of the
Registration Statement or the Prospectus or for any additional
information, (iii) of the prevention or suspension of the use
of any preliminary prospectus or the Prospectus or of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution
or threatening of any proceeding for that purpose and (iv) of
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or supplement to the
Prospectus unless the Company has furnished the
Representatives a copy for its review prior to filing and
shall not file any such proposed amendment or supplement to
which the Representatives reasonably object. The Company shall
use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(iii) If, at any time when a prospectus relating to
the Shares is required to be delivered under the Securities
Act and the Rules, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the
light of the circumstances under which they were made not
misleading, or if it shall be necessary to amend or supplement
the Prospectus to comply with the Securities Act or the Rules,
the Company promptly shall prepare and file with the
Commission, subject to the second sentence of Section
7(a)(ii), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(iv) The Company shall make generally available to
its security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs (or 90 days
if such 12-month period coincides
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with the Company's fiscal year), an earnings statement (which
need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a)
of the Securities Act or Rule 158 of the Rules.
(v) The Company shall furnish to the Representatives
and counsel for the Underwriters, without charge, copies of
the Registration Statement (including all exhibits thereto and
amendments thereof) and to each other Underwriter a copy of
the Registration Statement (without exhibits thereto) and all
amendments thereof and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Securities Act
or the Rules, as many copies of any preliminary prospectus and
the Prospectus and any amendments thereof and supplements
thereto as the Representatives may reasonably request.
(vi) The Company shall cooperate with the
Representatives and their counsel in endeavoring to qualify
the Shares for offer and sale in connection with the offering
under the laws of such jurisdictions as the Representatives
may designate and shall maintain such qualifications in effect
so long as required for the distribution of the Shares;
provided, however, that the Company shall not be required in
connection therewith, as a condition thereof, to qualify as a
foreign corporation or to execute a general consent to service
of process in any jurisdiction or subject itself to taxation
as doing business in any jurisdiction.
(vii) Without the prior written consent of CIBC World
Markets Corp., for a period of 90 days after the date of this
Agreement, the Company shall not issue, sell or register with
the Commission (other than on Form S-8 or on any successor
form), or otherwise dispose of, directly or indirectly, any
equity securities of the Company (or any securities
convertible into, exercisable for or exchangeable for equity
securities of the Company), except for the issuance of Shares
pursuant to the Registration Statement and the issuance of
shares pursuant to the Company's existing stock option plan
or stock purchase plan as described in the Registration
Statement and the Prospectus.
(viii) On or before completion of this offering, the
Company shall make all filings required under applicable
securities laws and by the Nasdaq National Market (including
any required registration under the Exchange Act).
(ix) The Company will apply the net proceeds from the
offering of the Shares in the manner set forth under "Use of
Proceeds" in the Prospectus.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses
relating to: (i) the preparation, printing, filing and distribution of
the Registration Statement including all exhibits thereto, each
preliminary prospectus, the Prospectus, all amendments and supplements
to the Registration Statement and the Prospectus, and the printing,
filing and distribution of this Agreement; (ii) the
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preparation and delivery of certificates for the Shares to the
Underwriters; (iii) the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of the
various jurisdictions referred to in Section 7(a)(vi), including the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs
of shipping and mailing) to the Representatives and to the
Underwriters of copies of each preliminary prospectus, the Prospectus
and all amendments or supplements to the Prospectus, and of the
several documents required by this Section to be so furnished, as may
be reasonably requested for use in connection with the offering and
sale of the Shares by the Underwriters or by dealers to whom Shares
may be sold; (v) the filing fees of the NASD in connection with its
review of the terms of the public offering and reasonable fees and
disbursements of counsel for the Underwriters in connection with such
review; (vi) inclusion of the Shares for quotation on the Nasdaq
National Market; and (vii) all transfer taxes, if any, with respect
to the sale and delivery of the Shares by the Company to the
Underwriters. Subject to the provisions of Section 10, the
Underwriters agree to pay, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, all costs and
expenses incident to the performance of the obligations of the
Underwriters under this Agreement not payable by the Company pursuant
to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or in any
Blue Sky application or other information or other documents executed
by the Company filed in any state or other jurisdiction to qualify any
or all of the Shares under the securities laws thereof (any such
application, document or information being hereinafter referred to as a
"Blue Sky Application") or arise out of or are based upon any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) in whole or in part upon any breach of the
representations and warranties set forth in Section 4 hereof, or (iii)
in whole or in part upon any failure of the Company to perform any of
its obligations hereunder or under law; provided, however, that such
indemnity shall not inure to the benefit of any Underwriter (or any
person controlling such Underwriter) on account of any losses, claims,
damages or liabilities arising from the sale of the Shares to any
person by such Underwriter if such untrue statement or omission
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<PAGE>
or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement thereto, or in any Blue Sky Application in
reliance upon and in conformity with information furnished in writing
to the Company by the Representatives on behalf of any Underwriter
specifically for use therein; provided, further, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter who failed to deliver a
Prospectus (as then amended or supplemented, provided by the Company to
the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the
person asserting any losses, claims, damages and liabilities and
judgments caused by any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in such Prospectus
and such Prospectus was required by law to be delivered at or prior to
the written confirmation of sale to such person. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Management Shareholder agrees, severally in
proportion to the total number of shares to be sold by the Management
Shareholders hereunder and not jointly, to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out
of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) in whole or in part upon
any breach of the representations and warranties of such Management
Shareholder set forth in Section 5 hereof; provided, however, that such
indemnity shall not inure to the benefit of any Underwriter (or any
person controlling such Underwriter) on account of any losses, claims,
damages or liabilities arising from the sale of the Shares to any
person by such Underwriter if such untrue statement or omission or
alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives
on behalf of any Underwriter specifically for use therein; provided,
further, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any
Underwriter who failed to deliver a Prospectus (as then amended or
supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery
on or prior to the Closing Date) to
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<PAGE>
the person asserting any losses, claims, damages and liabilities and
judgments caused by any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in such Prospectus
and such Prospectus was required by law to be delivered at or prior to
the written confirmation of sale to such person. Notwithstanding the
foregoing, (i) the Underwriters agree that any claim for indemnity
pursuant to this Section 8(b) shall be first sought to be satisfied
by the Company and shall be only then sought to be satisfied by each
Management Shareholder in accordance with this Section 8(b) if, and
to the extent that, such claim for indemnity has not been satisfied
in full by the Company within 60 days; provided, however, that the
Underwriters shall not be required to effect such initial demand upon
the Company and wait such 60-day period if it would prejudice their
right to indemnification from such Management Shareholder hereunder,
and (ii) the liability of each Management Shareholder pursuant to the
provisions of this Section 8(b) shall be limited to an amount equal
to the net proceeds received by such Management Shareholder from the
sale of the Shares sold by such Management Shareholder hereunder.
This indemnity agreement will be in addition to any liability which
each Management Shareholder may otherwise have.
(c) Each Selling Shareholder who is not a Management
Shareholder agrees, severally and not jointly, to indemnify and hold
harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject
under the Securities Act, the Exchange Act or other Federal or state
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
and only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with information furnished in writing by or on behalf of
such Selling Shareholder specifically for use therein and (ii) in whole
or in part upon any breach of the representations and warranties of
such Selling Shareholder set forth in Section 5 hereof; provided,
however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any
Underwriter who failed to deliver a Prospectus (as then amended or
supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery
on or prior to the Closing Date) to the person asserting any losses,
claims, damages and liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements
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<PAGE>
therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in such Prospectus
and such Prospectus was required by law to be delivered at or prior
to the written confirmation of sale to such person. Notwithstanding
the foregoing, the liability of each such Selling Shareholder pursuant
to the provisions of this Section 8(c) shall be limited to an amount
equal to the net proceeds received by such Selling Shareholder from
the sale of the Shares sold by such Selling Shareholder hereunder.
This indemnity agreement will be in addition to any liability which
each such Selling Shareholder may otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
each director of the Company, and each officer of the Company who signs
the Registration Statement, to the same extent as the foregoing
indemnity from the Company and the Selling Shareholders to each
Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the Prospectus,
or any amendment thereof or supplement thereto, contained in the (i)
concession and reallowance figures appearing under the caption
"Underwriting" and (ii) the stabilization information contained under
the caption "Underwriting" in the Prospectus; provided, however, that
the obligation of each Underwriter to indemnify the Company or the
Selling Shareholders (including any controlling person, director or
officer thereof) shall be limited to the net proceeds received by the
Company from such Underwriter.
(e) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of
all papers served. No indemnification provided for in Section 8(a),
8(b), 8(c) or 8(d) shall be available to any party who shall fail to
give notice as provided in this Section 8(e) if the party to whom
notice was not given was unaware of the proceeding to which such notice
would have related and was prejudiced by the failure to give such
notice but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise
than under this Section. In case any such action, suit or proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, except as provided below and except for
the reasonable costs of investigation subsequently incurred by such
indemnified party in
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<PAGE>
connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have been advised by counsel that there may
be one or more legal defenses available to it which are different
from or in addition to those available to the indemnifying party (in
which case the indemnifying parties shall not have the right to direct
the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement
of any action, suit, proceeding or claim effected without its written
consent, which consent shall not be unreasonably withheld or delayed.
9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8(a), 8(b), 8(c) or 8(d) is due in accordance with its terms but for
any reason is held to be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), 8(b), 8(c) or 8(d), then each
indemnifying party shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claims asserted, but after deducting
any contribution received by any person entitled hereunder to contribution
from any person who may be liable for contribution) to which the indemnified
party may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other from the offering of the Shares
or, if such allocation is not permitted by applicable law or indemnification
is not available as a result of the indemnifying party not having received
notice as provided in Section 8 hereof, in such proportion as is appropriate
to reflect not only the relative benefits referred to above but also the
relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Shareholders and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting discounts but before
deducting expenses) received by the Company or the Selling Shareholders, as
set forth in the table on the cover page of the Prospectus, bear to (y) the
underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
and the Selling Shareholders or the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company
and the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the
provisions of this Section 9, (i) in no case shall any Underwriter (except as
may be provided in the
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Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by
such Underwriter hereunder; (ii) the Company shall be liable and responsible
for any amount in excess of such underwriting discount; and (iii) in no case
shall a Selling Shareholder be liable and responsible for any amount in
excess of the aggregate net proceeds of the sale of Shares received by such
Selling Shareholder; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls
the Company within the meaning of the Section 15 of the Securities Act or
Section 20 of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) in the immediately preceding sentence of this Section 9.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this Section. No party shall
be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriter's obligations to
contribute pursuant to this Section 9 are several in proportion to their
respective underwriting commitments and not joint.
10. TERMINATION. This Agreement may be terminated with
respect to the Shares to be purchased on a Closing Date by the
Representatives by notifying the Company and the Selling Shareholders at any
time:
(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted,
or in the opinion of the Representatives will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (iii) if there shall be such
a material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States is such as to make it, in the judgment of
the Representatives, inadvisable or impracticable to market the Shares;
(iv) if trading in the Shares has been suspended by the Commission or
trading generally on the New York Stock Exchange, Inc., on the American
Stock Exchange, Inc. or the Nasdaq National Market has been suspended
or limited, or minimum or maximum ranges for prices for securities
shall have been fixed, or maximum ranges for prices for securities have
been required, by said exchanges or by order of the Commission, the
National Association of Securities Dealers, Inc., or any other
governmental or regulatory authority; or (v) if a banking moratorium
has
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been declared by any state or Federal authority; or (vi) if, in the
judgment of the Representatives, there has occurred a Material Adverse
Effect, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 6 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, neither the Company nor the Selling Shareholders shall be under any
liability to any Underwriter, and no Underwriter shall be under any liability to
the Company, except that (y) if this Agreement is terminated by the
Representatives or the Underwriters because of any failure, refusal or inability
on the part of the Company or the Selling Shareholders to comply with the terms
or to fulfill any of the conditions of this Agreement, the Company will
reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) incurred by them in
connection with the proposed purchase and sale of the Shares or in contemplation
of performing their obligations hereunder and (z) no Underwriter who shall have
failed or refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company, the Selling Shareholders or to the other Underwriters
for damages occasioned by its failure or refusal.
11. SUBSTITUTION OF UNDERWRITERS. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 10) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event
shall the maximum number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 11
by more than one-ninth of such number of Shares without the written
consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to one additional business day
within which it may, but is not obligated to, find one or more
substitute underwriters reasonably satisfactory to the Representatives
to purchase such Shares upon the terms set forth in this Agreement.
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In any such case, either the Representatives or the Company
shall have the right to postpone the applicable Closing Date for a period of not
more than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration Statement
or Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company or the Selling
Shareholders and without liability on the part of the Company, except in both
cases as provided in Sections 7(b), 8, 9 and 10. The provisions of this Section
shall not in any way affect the liability of any defaulting Underwriter to the
Company, the Selling Shareholders or the nondefaulting Underwriters arising out
of such default. A substitute underwriter hereunder shall become an Underwriter
for all purposes of this Agreement.
12. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, of
the Selling Shareholders and of the Underwriters set forth in or made pursuant
to this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or the
Selling Shareholders or any of the officers, directors or controlling persons
referred to in Sections 8 and 9 hereof, and shall survive delivery of and
payment for the Shares. The provisions of Sections 7(b), 8, 9 and 10 shall
survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently confirmed
in writing, (a) if to the Representatives, c/o CIBC World Markets Corp., One
World Financial Center, New York, New York 10281 Attention: , with a copy to
Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa, California
92626 Attention: Cary K. Hyden, (b) if to the Company, to its agent for service
as such agent's address appears on the cover page of the Registration Statement
with a copy to Heller Ehrman White & McAuliffe, 601 South Figueroa, 40th Floor,
Los Angeles, California 90017-5758 Attention: Neal Brockmeyer, and (c) if to the
Selling Shareholder to with a copy to Heller Ehrman White & McAuliffe,
601 South Figueroa, 40th Floor, Los Angeles, California 90017-5758 Attention:
Neal Brockmeyer.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
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This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
were upon the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
METRO ONE TELECOMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS NAMED IN
SCHEDULE I HERETO, ACTING
SEVERALLY
By:
---------------------------------
Attorney-in-fact
Confirmed:
CIBC WORLD MARKETS CORP.
U.S. BANCORP PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule II annexed
hereto.
By: CIBC WORLD MARKETS CORP.
By:
--------------------------------
Name:
Title:
-32-
<PAGE>
SCHEDULE I
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Shares to be Sold to the
Name Underwriters
- ------------------------------------ --------------------------
<S> <C>
William D. Rutherford 15,000
Karen Anderegg 3,000
Timothy A. Timmons 15,000
Stebbins B. Chandor, Jr. 7,500
Karen L. Johnson 7,500
Janice I. Aday 2,500
Jack G. Blesener 3,000
Michael A. Kepler 10,000
Steven D. McGavran 4,000
--------------------------
Total.................... 67,500
</TABLE>
-33-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Firm Shares to be
Number of Firm Shares to be Purchased from the Selling
Name Purchased from the Company Shareholders
- ---------------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
CIBC World Markets Corp.
U.S. Bancorp Piper Jaffray Inc.
Needham & Company, Inc.
Total.........................
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE]
November 2, 1999
Metro One Telecommunications, Inc.
11200 Murray Scholls Place
Beaverton, Oregon 97007
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as counsel to Metro One Telecommunications, Inc., an
Oregon corporation (the "Company"), in connection with the registration of up to
2,377,625 shares of the Company's common stock, no par value per share (the
"Shares"), on a Registration Statement on Form S-3 (Registration No. 333-89493),
including all amendments and exhibits thereto (collectively, the "Registration
Statement"), filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"). Of the 2,377,625
Shares, 310,125 Shares are subject to an over-allotment option that the Company
has granted to the underwriters and 67,500 Shares may be sold by the selling
shareholders listed in the Registration Statement (the "Selling Shareholders").
The Shares are expected to be issued and sold in an underwritten public
offering.
In connection with this opinion, we have assumed the authenticity of
all records, documents and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents and instruments submitted
to us as copies. We have based our opinion upon our review of the following
records, documents, instruments and certificates:
(a) The Company's Articles of Incorporation, as amended and restated
to date, certified by the Oregon Secretary of State as of October
29, 1999, and certified to us by an officer of the Company as
being complete and in full force and effect as of this date;
(b) The Company's Bylaws, as amended and restated to date, certified
to us by an officer of the Company as being complete and in full
force and effect as of this date;
<PAGE>
Metro One Telecommunications, Inc.
November 2, 1999
Page 2
(c) A Certificate of Officers of the Company: (i) certifying that
copies of all records of proceedings and actions of the Company's
Board of Directors, including any committee thereof, and
shareholders relating to the issuance and sale of the Shares have
been provided to us; and (ii) certifying as to certain factual
matters;
(d) The Registration Statement; and
(e) The Underwriting Agreement, in the form being filed as an exhibit
to the Registration Statement (the "Underwriting Agreement"), to
be entered into among the Company, the Selling Shareholders and
CIBC World Markets Corp., U.S. Bancorp Piper Jaffray Inc. and
Needham & Company, Inc., as representatives of the several
underwriters.
This opinion is limited to the Oregon Business Corporation Act (without
review of the rules, regulations or case law applicable to that statute), and we
disclaim any opinion as to the laws of any other jurisdiction. We further
disclaim any opinion as to any other statute, rule, regulation, ordinance, order
or other promulgation of any other jurisdiction or any regional or local
governmental body or as to any related judicial or administrative opinion.
Our opinion to the effect that the Shares to be sold by the Selling
Shareholders, when sold, will be fully paid and nonassessable is based on the
Company's certification identified in item (c) above that the Company received
the consideration for such Shares recited in the Board of Directors' resolutions
authorizing the issuance of such Shares.
Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of this opinion, it
is our opinion that, at such time as (i) the registration or qualification
requirements of the Securities Act and such "Blue Sky" and securities laws as
may be applicable have been complied with, (ii) the Underwriting Agreement is
duly executed and delivered by the parties thereto, and (iii) the certificates
representing the Shares have been duly signed by the Company and registered by
the transfer agent/registrar, and delivered against payment therefor as
contemplated in the Registration Statement and in accordance with the terms of
the Underwriting Agreement, the Shares to be issued and sold by the Company, and
the Shares to be sold by the Selling Shareholders, will be legally issued, fully
paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. We hereby consent to the filing of
this opinion as an exhibit to
<PAGE>
Metro One Telecommunications, Inc.
November 2, 1999
Page 3
the Registration Statement. We also consent to the reference to our firm
under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Metro One Telecommunications, Inc. on Form S-3 of our report dated February 15,
1999 included in the Annual Report on Form 10-K of Metro One Telecommunications,
Inc. for the year ended December 31, 1998 and to the use of our report dated
October 29, 1999 in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Portland, Oregon
November 1, 1999
