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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _____________________
Commission File Number 0-27024
METRO ONE TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0995165
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8405 SW Nimbus Avenue Beaverton, OR 97008
(Address of principal executive offices)
Registrant's telephone number, including area code: 503-643-9500
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. $136,755,977.
The number of shares outstanding of the registrant's Common Stock, as
of March 15, 1999, was 11,371,312.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1999 Annual Meeting
are incorporated by reference into Part III of this Report.
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METRO ONE TELECOMMUNICATIONS, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page No.
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PART I
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote 8
of Security Holders
PART II
Item 5 Market for Registrant's Common Equity and 9
Related Stockholder Matters
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis 10
of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures 17
About Market Risk
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes In and Disagreements With Accountants 17
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial 18
Owners and Management
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, 18
and Reports on Form 8-K
Signatures 20
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PART I
ITEM 1. BUSINESS.
Metro One Telecommunications, Inc. (the "Company" or "Metro One") is
a leading independent developer and provider of Enhanced Directory Assistance
- -Registered Trademark-("EDA") for the telecommunications industry. The
Company contracts with wireless and other carriers to provide enhanced
directory assistance to the carrier's subscribers. In 1989, the Company
opened its first call center and began testing and offering EDA services. In
1991, the Company entered into its first contract to provide EDA services to
a cellular carrier's subscribers on a charge-per-call basis. The Company
operates call centers in many large metropolitan areas. In 1998, the Company
handled over 71 million requests for directory assistance on behalf of
carriers.
The Company's EDA provides callers with personalized, easy-to-use
directory assistance. The Company's operators provide EDA with a high level of
efficient, personalized service. The Company's EDA includes several connectivity
and content features in addition to those provided by traditional directory
assistance, including call completion, StarBack-Registered Trademark-,
categorical search and local event information. Call completion allows a
caller to be directly connected with the number requested, thus completing
the call without the need for redialing. The Company's StarBack feature
enables a subscriber to return to an operator at any time during a call. The
Company is developing additional EDA features including a broader array of
connectivity features and increased information content. The Company believes
that its EDA offers wireless and landline consumers a feature-rich,
user-friendly alternative to traditional directory assistance.
In addition to addressing the needs of the subscribers, the Company
believes that its EDA offers telecommunications carriers the opportunity to
differentiate their service by providing a high quality, value-added product to
subscribers, thereby assisting carriers in meeting heightened competition in the
telecommunications industry. The Company's array of connectivity features and
content, offered to subscribers in various configurations, allow the carrier to
distinguish its services from competitors and establish a separate identity in
the marketplace. The Company believes that its EDA also increases carriers'
revenues through increased call volumes and, in the case of wireless carriers,
billable air time.
The Company was incorporated in 1989 under the laws of the State of
Oregon. The Company's principal executive office is located at 8405 SW Nimbus
Avenue, Beaverton, Oregon 97008.
INDUSTRY BACKGROUND
The telecommunications industry is marked by rapid growth and increased
competition as a result of new technologies, a more favorable regulatory
environment and, specifically for carriers, an increasingly sophisticated and
demanding customer. Telecommunications carriers continue to face increasing
competitive pressures arising from the changes in the industry. Because of this
increasingly competitive environment, telecommunications carriers are confronted
with pressure to differentiate their products and establish brand loyalty. These
pressures are particularly acute for wireless and newer landline carriers, such
as competitive local exchange carriers ("CLECs"), who seek to increase market
penetration of their services and increase revenues while addressing competition
from rival carriers and new technologies. As competition increases, these
providers often seek to differentiate themselves by incorporating value-added
features into their services. Directory assistance is one such feature that
allows these carriers to compete more effectively, while increasing usage and
subscriber satisfaction.
Wireless telecommunications has been among the fastest growing segments
of the telecommunications industry during the 1990s. This growth stems largely
from technological advances that provide customers with affordable, high quality
mobile services. According to the Cellular Telecommunications Industry
Association ("CTIA"), the number of wireless subscribers at year-end 1998
exceeded 60 million. While this figure represents primarily cellular
subscribers, other types of wireless communications technologies, such as
Personal Communications Services ("PCS") and specialized mobile radio ("SMR"),
compete with cellular and have also experienced rapid growth. Industry experts
believe that the wireless telecommunications industry will continue to see rapid
growth.
Wireless subscribers need convenient and practical directory assistance
in which they are not hampered by the limited functionality of automated
operators or required to write down or memorize phone numbers. Wireless
subscribers benefit from EDA in that it can deliver features beyond mere phone
listings. Such features include call completion and connectivity,
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categorical searches, local events and movie listings. In turn, carriers
benefit from increased subscriber loyalty and the revenues derived from more
frequent usage.
THE DOMESTIC DIRECTORY ASSISTANCE MARKET
The Company believes that over ten billion directory assistance calls
are made annually by consumers and businesses in the United States. The majority
of these directory assistance calls are handled by the Regional Bell Operating
Companies ("RBOCs") from their incumbent positions as the local telephone
carriers. The majority of these local and long distance directory assistance
calls are from landline telephone users. The Company has focused on the wireless
segment of the market because of its belief that wireless directory assistance
represents a significant and rapidly growing segment of the market. This is due
to the expected continued growth in the wireless market and the natural
attractiveness of delivering directory assistance for wireless users. In
addition, the significantly larger landline directory assistance market is
beginning to represent improved opportunities for the Company due to that
segment's increased competition and need to differentiate its services.
The wireless telecommunications market is dominated by the cellular and
PCS affiliates of the established carriers as well as a few large independents.
The Federal Communications Commission ("FCC") initially granted cellular
licenses to only two systems (one for non-wireline carriers and one for wireline
carriers) in every metropolitan statistical and rural service area. The largest
U.S. cellular carriers include AT&T Wireless Services, Inc., GTE Wireless, the
cellular affiliates of the RBOCs such as Ameritech Cellular, and several
independents including AirTouch Communications Inc. and ALLTEL Corporation. In
early 1997, the FCC completed the auction of six PCS licenses in each market
area to potential PCS providers. In terms of estimated subscribers, the largest
PCS providers include Sprint PCS, AT&T Wireless Services, PrimeCo Personal
Communications L.P., Pacific Bell Wireless and Omnipoint Communications. During
1997, the majority of PCS licensees either initiated service or continued the
rollout of PCS service started in late 1996. In addition, one specialized mobile
radio provider, Nextel Communications, provides wireless communication services
utilizing SMR frequencies to customers in major metropolitan areas throughout
the U.S.
Directory assistance services for the cellular carriers were initially
provided exclusively by local exchange carriers, many of which were RBOCs.
However, because of an increasingly competitive marketplace, carriers have
sought ways to differentiate and improve their service, including outsourcing
services like directory assistance, in order to focus on their core
competencies. Meanwhile, PCS and other new providers also desire to outsource
their non-core operations, like directory assistance, and focus on ways to
acquire and retain new subscribers. Metro One believes it is well positioned to
provide the type of feature rich, easy-to-use and personalized enhanced
directory assistance that carriers desire. The Company's operating competencies,
derived from the establishment and operation of its national call center
network, allow it to provide carriers with a reliable, high-quality directory
assistance product that enables carriers operating in multiple markets to offer
a consistent EDA product, promoting greater system-wide marketing and brand
identification.
The entire telecommunications industry is currently undergoing various
regulatory, competitive and technological changes which the Company believes may
create new customers and affect existing customers of the Company. The Company
continues to monitor the ongoing changes in the marketplace and consider which
developments provide the most favorable opportunities for the Company to pursue.
METRO ONE'S STRATEGY
Metro One's mission is to be the leading provider of operator-assisted
enhanced directory assistance and information services. The key elements of
Metro One's strategy for fulfilling that mission are:
CONTINUOUSLY OFFER VALUE-ADDED PRODUCTS AND FEATURES. Metro One
endeavors to define a new standard for directory assistance by delivering
solutions that meet the expanding needs of telecommunications consumers. Through
continuous expansion of its connectivity features, enrichment of its database
and enhancement of its search capabilities, Metro One believes it can attract
and retain carriers and set an ever-increasing expectation for value-added
enhanced directory assistance.
EXPAND CALL CENTER NETWORK. Metro One expects to continue to expand its
national network of call centers in order to serve existing and new carrier
customers, which increasingly demand consistent service across their national
networks. Metro One believes its operational competencies and extensive
experience developing and maintaining its existing call center
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network will help the Company to successfully achieve its domestic growth
plans. In addition, the Company continues to examine opportunities to
leverage its operational competencies and technology in international markets.
LEVERAGE INFRASTRUCTURE; ACHIEVE GREATER OPERATING EFFICIENCIES. Metro
One intends to exploit its national call center network by providing service to
additional wireless and landline carriers from existing call centers. By
leveraging its established call center network, Metro One expects to achieve
greater operating efficiencies. The Company is also developing and implementing
software enhancements and adding new hardware to its EDA systems that are
intended to increase the productivity of its operators. Coupled with advanced
personnel training programs and operator monitoring capabilities, these
enhancements are expected to permit the Company to deliver its EDA to carrier
subscribers more efficiently while increasing call center profitability.
PURSUE OPPORTUNITIES TO PROVIDE ADDITIONAL OPERATOR-ASSISTED
SERVICES AND OTHER ENHANCED TELECOM SERVICES. Metro One intends to add
service offerings which complement its enhanced directory assistance. Such
offerings include operator-assisted services, such as concierge services, and
additional information services such as point-to-point driving directions.
The development and implementation of these services are intended to generate
incremental revenue for the Company while raising consumer expectation for
operator-assisted information services. In addition, Metro One will continue
to explore opportunities to leverage its call center infrastructure by
handling complimentary operator-assisted services and to enhance its carrier
relationships by offering additional enhanced telecom services.
CUSTOMERS AND MARKETS
The Company provides its EDA to three of the nation's largest cellular
carriers in a portion of their service areas and to three of the largest PCS
carriers, in terms of estimated subscribers. The Company has located call
centers in eighteen of the top 25 wireless markets (market size based on
estimated subscribers). The Company services the top 40 wireless markets from
these eighteen call centers. The Company believes that these major metropolitan
areas represent its greatest opportunities for future growth. Wireless usage in
these markets has attained sufficient levels to provide profitable call volumes,
while competition among carriers for these subscribers increases carrier need
for features that can differentiate their services. The Company strives to
expand relationships with existing carrier customers and to establish
relationships with new carrier customers.
The Company provides substantially all of its EDA services under ten
separate contracts that have terms that originally ranged from one to five
years. Five of these contracts have terms ending in 1999, one in 2000, one in
2001 and the remainder in 2002 and beyond. Under the EDA contracts, the
carrier generally agrees to route all local directory assistance calls to the
Company. However, these contracts generally allow the Company to offer EDA
services to competing carriers. The Company contractually agrees to staff its
EDA operations centers 24 hours a day, seven days a week, 365 days a year,
with a sufficient number of operators to perform the contracted services
within specified performance requirements.
The Company offers its services on behalf of the carrier under a brand
name selected by that carrier. For example, the Company offers its EDA to AT&T
Wireless Services subscribers in various markets as "AT&T Connect." The carrier
is generally responsible for all aspects of marketing, including advertising and
related costs. Although each carrier establishes its own fee structure with its
subscribers, Metro One charges carriers for its service on a per call basis,
usually with a set price per call and certain discounts dependent upon call
volume levels. The carrier is obligated for the charges regardless of whether it
is paid by the subscriber. During 1998, the Company's per-call charges to its
carrier customers averaged approximately $0.62.
The Company typically enters into a contract with a carrier that covers
either a large geographic market or a group of geographic markets to be served.
For example, the Company is a party to a single contract with Sprint Spectrum
L.P., doing business as Sprint PCS. Under the terms of this multi-year
agreement, the Company provides its local and nationwide EDA for each Sprint PCS
market and potentially for each Sprint PCS affiliate market. As of March 1999,
the Company was providing its EDA services from existing call centers for the
domestic markets in which Sprint PCS or its participating affiliates have
launched PCS service. The additional terms of the agreement do not differ
materially from the Company's general EDA contracts except that the Company is
required to open additional call centers in major metropolitan areas in 1999 and
2000. Because of the significant capital expenditures required of the Company by
the contract, Sprint PCS has agreed to pay, under certain circumstances, a
termination fee to the Company in the event that Sprint PCS elects to terminate
the agreement at any time after March 2000. The Company is also required, in
conjunction with the Sprint PCS contract, to develop and maintain an out-of-band
signaling system for each of its call centers.
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In 1998, eight customers accounted for the majority of the Company's
$45.1 million in revenues. For the year, the Company's five largest customers,
Sprint PCS, AirTouch, AT&T Wireless Services, Pacific Bell Wireless and
Ameritech Cellular, accounted for approximately 38, 18, 17, 12 and 11 percent of
revenues, respectively. In 1997, eight customers accounted for the majority of
the Company's $26.1 million in revenues. For the year, the Company's four
largest customers, US West NewVector (which now provides its wireless
communications services under the brand name of AirTouch), Ameritech Cellular,
Bell Atlantic Mobile and Sprint PCS, accounted for approximately 25, 24, 17 and
16 percent of revenues, respectively.
PRINCIPAL PRODUCT AND PRODUCT FEATURES
Metro One delivers its EDA using a customized array of hardware and
software and the Company's proprietary database search engines. The Company
receives incoming calls by means of contractually assigned directory assistance
numbers, typically 411 or 555-1212. Calls are answered by the Company's
operators, identifying the EDA service using the carrier's brand name. Upon
receiving information requests from subscribers, Company operators search the
Company's local database utilizing its search engine. The Company's EDA system
allows the operator to connect the caller to a party and/or supply the telephone
number, address, or other information, including movie listings, local events or
businesses of a certain type within a specific locality. The fee to a subscriber
for this service is fixed by the carrier and typically ranges from $0.75 to
$1.10 plus airtime charges.
The Company's EDA incorporates connectivity and content features
designed to make the telephone easier to use. It includes an automatic call
completion feature, as well as connectivity features such as StarBack
- -Registered Trademark-, NumberBack-Registered Trademark- and
AutoBack-Registered Trademark-. The patented StarBack feature allows a caller
to return immediately to an operator simply by pressing the star (*) key once
on the caller's telephone. The NumberBack feature provides the callers the
called number by simply pressing the number (#) key once. AutoBack
automatically returns the caller to a live operator upon a busy signal or a
"ring-no-answer" and other common situations without pressing a single key.
The Company also offers its carrier customers Short Messaging Service,
whereby its operators send customized alphanumeric messages on behalf of a
caller. In addition to these and other planned connectivity features, the
Company's EDA incorporates increased content to provide the consumer with a
broader, full-service alternative to traditional directory assistance. The
Company's database system, which is derived from a variety of sources, is
supplemented by localized information, such as information relating to local
events and amenities. This allows the Company to customize a local database
to include specialized information at the request of a carrier customer.
OPERATIONS
The Company maintains call centers in the Los Angeles, New York,
Chicago, Miami, Baltimore, San Francisco, Detroit, Philadelphia, Atlanta,
Dallas, Seattle, San Diego, Phoenix, Minneapolis, Denver, St. Louis, Sacramento
and Portland, Oregon metropolitan areas. Call center premises are leased by the
Company and range in size from approximately 4,000 to 15,000 square feet.
The Company develops a principal database for each call center,
obtaining data from a variety of sources including RBOCs, independent telephone
companies and other sources. The Company also utilizes national directory
assistance databases licensed by the Company from commercial sources. The
Company's call center network stations allow operators to efficiently query both
their local database and the national directory assistance database. The Company
has developed a database management system that it uses to maintain and update
directory listings in its database.
Metro One's EDA system incorporates programmable switching equipment,
host computers, voice response units and database servers. The Company contracts
with value-added resellers to assist in programming its switches and host
computer systems. This software enhances its call handling and billing
capabilities and provides the basis for the Company's connectivity features. The
Company has developed proprietary search engines to access information within
its databases and also licenses portions of its systems from various vendors.
The Company continues to upgrade its database management system and search
engines to increase the speed of information access and to broaden the
categorical search capabilities of its operators. The Company believes
enhancement of these tools will improve EDA search times, resulting in faster
call processing.
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Particularly because the Company's EDA is provided to subscribers on a
branded basis, the Company believes that the quality and reliability of its EDA
services are important considerations in a carrier's decision to offer the
Company's EDA. The Company maintains a national training force that incorporates
training personnel in each call center. Training personnel continually monitor,
test and evaluate all of the Company's call centers. The Company also monitors
call center performance for compliance with contract performance standards and
reports this information to carriers on a regular basis. Performance evaluations
are also solicited from customers on a regular basis. The Company's systems
maintenance and support personnel are accessible on a 24-hour basis through the
Company's Network Operations Center.
MARKETING
The Company markets directly to telecommunications carriers. Sales and
technical support personnel are based at the Company's corporate headquarters in
Beaverton, Oregon. In addition, the Company's call center managers are a key
element in the maintenance and development of carrier relationships.
The Company's major marketing programs focus on product awareness
principally through trade shows, marketing materials, including brochures and
videotape presentations and direct contacts with telecommunications carriers.
There are several major industry conferences that are important to the Company's
marketing program. The Company maintains communications with its existing
carrier customers through its quality assurance and customer service programs,
which afford the Company the opportunity to receive information regarding
evolving carrier needs. The Company also maintains an active program to identify
and meet with prospective wireless and landline carrier customers as well as new
carriers in emerging technologies.
COMPETITION
The directory assistance market is characterized by rapidly changing
market forces, technological advancements and increasing competition from large
carrier-affiliated companies and small, independent companies. The Company's
principal competitors include RBOC-owned or -affiliated carriers or non-RBOC
affiliated carriers, including GTE, that provide directory assistance both in
and outside their own operating regions. Although the Company believes that none
of these competitors offers a form of directory assistance that incorporates all
the connectivity and content features of the Company's EDA, these competitors
have substantially greater financial, technical and marketing resources than the
Company and may be able to do so in the future. The Company also faces
competition from independent companies seeking to offer forms of enhanced
directory assistance.
The Company believes that the principal competitive factors in the
directory assistance market are quality of product, available features,
technological innovation, experience, responsiveness to customers and price.
Historically, the Company has sought to distinguish itself from competitors
based on the quality of its product, the development of useful features and its
experience derived from successfully establishing a national network of call
centers. The Company is subject to competitive pressures with respect to the
pricing of its product and there can be no assurance that the Company will not
experience price or margin pressures in the future. The Company believes,
however, that its future growth will depend on its ability to maintain and
improve the quality of its product, to develop and successfully introduce new
connectivity features and content and to continue to provide superior service.
INTELLECTUAL PROPERTY
The Company regards certain aspects of its products and their features
and processes as proprietary and relies on a combination of trademark, patent
and trade secrets laws and confidentiality procedures to protect its proprietary
rights. The Company holds three United States patents, including one for its
StarBack technology and another for its "method of directions delivery"
associated with the Company's point-to-point directions service currently in
development. The Company has also obtained trademark registration in the United
States for its product names "Enhanced Directory Assistance," "StarBack,"
"AutoBack," "NumberBack" and "SureConnect" and service mark registration for
several of its other product feature names. The Company's policy has been to
enter into confidentiality agreements with all employees and limit access to
its documentation and other information related to its intellectual property.
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GOVERNMENT REGULATION
The Company's business depends upon relationships with companies that
are regulated by the FCC or state public utility commissions. Such regulation
applies to all communications common carriers, such as AT&T, RBOCs and other
long distance and local exchange carriers. Enhanced service companies such as
the Company may be subject to various levels of regulation or are completely
unregulated on a state-by-state basis.
EMPLOYEES
As of March 15, 1999, the Company had approximately 1,463 employees.
None of the Company's employees are subject to a collective bargaining
agreement. Management of the Company considers its relationship with its
employees to be good.
ITEM 2. PROPERTIES.
The Company leases its principal executive and administrative offices
at 8405 SW Nimbus Avenue, Beaverton, Oregon, comprising approximately 15,400
square feet, for a remaining term of four years with a renewal option. The
Company has entered into an agreement to relocate its principal executive and
administrative offices beginning in May 1999. The new facility comprises
approximately 35,000 square feet, with a lease term extending through 2009. The
Company intends to sublease its existing executive and administrative offices at
8405 SW Nimbus Avenue.
The Company also leases office facilities for its EDA operations. The
Company believes that expansion of its call center network will require the
Company to lease additional office facilities for its EDA operations. There are
approximately 22 facility leases in effect at March 15, 1999 with remaining
terms ranging from one month to five years.
The Company is not dependent upon any individually leased premises.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not aware of any pending legal proceedings other than
routine litigation that is incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the quarter ended December 31, 1998 to
a vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock trades on The Nasdaq National Market
- -Registered Trademark-under the symbol "MTON." The high and low sales prices
as reported on the Nasdaq National Market for each quarterly period within
the two most recent fiscal years were as follows:
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1998 HIGH LOW
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Quarter ended December 31, 1998 $13.63 $6.13
Quarter ended September 30, 1998 8.63 4.75
Quarter ended June 30, 1998 13.94 7.00
Quarter ended March 31, 1998 12.00 7.75
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1997 HIGH LOW
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Quarter ended December 31, 1997 $11.00 $7.00
Quarter ended September 30, 1997 9.50 6.50
Quarter ended June 30, 1997 8.25 5.25
Quarter ended March 31, 1997 9.75 5.63
</TABLE>
The approximate number of shareholders of record as of March 15, 1999
was 223. The Company believes it has approximately 4,656 shareholders including
an estimate of shareholders with shares held in street name.
The Company has never declared or paid cash dividends on its Common
Stock. The Company intends to retain earnings from operations for use in the
operation and expansion of its business and does not anticipate paying cash
dividends with respect to its Common Stock in the foreseeable future. The
Company's existing line of credit agreement prohibits the payment of cash
dividends.
ITEM 6. SELECTED FINANCIAL DATA
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YEARS ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
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Operations data:
Revenues $45,139 $26,090 $17,834 $13,074 $ 5,050
Direct operating costs 23,107 13,017 8,334 7,157 4,793
General and administrative costs 18,334 11,702 7,615 5,999 4,268
Income (loss) from operations 3,698 1,371 1,885 (82) (4,011)
Net income (loss) 3,603 1,432 1,166 (1,724) (5,035)
Basic earnings (loss) per share .33 .13 .13 (.31) (1.00)
Diluted earnings (loss) per share .32 .13 .12 (.31) (1.00)
Cash flow from operations 6,546 3,293 2,912 (2,252) (4,404)
Balance sheet data:
Cash and investments $ 7,570 $ 8,554 $14,137 $ 1,149 $ 310
Working capital 8,414 9,844 15,012 151 (351)
Total assets 36,311 29,125 24,529 8,716 6,299
Long-term obligations 719 1,416 1,168 1,466 6,432
Shareholders' equity 28,242 23,676 20,981 3,274 (14,713)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
All statements and trend analyses contained in this item and elsewhere
in this report on Form 10-K relative to the future constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are subject to the business and
economic risks faced by the Company and the Company's actual results of
operations may differ materially from those contained in the forward looking
statements. For a discussion of such risks, see "Issues and Uncertainties."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future period and
fluctuations in operating results may also result in fluctuations in the market
price of the Company's Common Stock. The Company's 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 Enhanced Directory Assistance-Registered Trademark-
contracts, increased competition, changes in pricing policies by the Company
or its competitors, lengthy sales cycles, lack of market acceptance or delays
in the introduction of new versions of the Company's 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
Company's expansion of its national call center network, general economic
conditions and the other factors discussed under the heading "Issues and
Uncertainties" in this Item 7.
OVERVIEW
The Company is a leading independent provider of Enhanced Directory
Assistance-Registered Trademark- ("EDA") for the telecommunications industry.
The Company provides EDA under contracts with original terms ranging
from one to five years. Under the EDA contracts, carriers generally agree to
route all local directory assistance calls to the Company, bill their
subscribers for EDA calls and market the service. These contracts generally
permit the Company to offer its EDA services to competing carriers in the same
market. Metro One provides EDA to a carrier's subscribers under a brand name
designated by the carrier, such as "AT&T Connect." Although each carrier
establishes its own EDA fee structure for its subscribers, Metro One charges
carriers directly for its service on a per call basis, usually with a set price
per call and certain discounts dependent upon call volume levels. The carrier is
obligated for the charges regardless of whether it is paid by its subscriber.
To stimulate increased call volume and to attract and expand customer
commitments, the Company's strategy has included price discounts based upon call
volumes. Volume-based pricing discounts did not materially affect the Company's
average price per call in 1998; however, the Company expects that its average
price per call will decrease in 1999 as increasing call volumes trigger
volume-based pricing discounts and if the Company enters into additional or new
contracts. The Company believes that its reduced pricing better positions the
Company to retain and expand service with existing carrier customers, to
extend service to new wireless and landline carriers and to achieve greater
operating margins over time.
The Company has ten significant EDA contracts with six different
carriers to provide EDA in numerous metropolitan markets. The Company expects to
continue to expand its share of the telecommunications directory assistance
market by adding customer carriers to the existing national network of call
centers and by expanding this network into new geographic markets to serve new
and existing carrier customers. The Company anticipates that it will open
between six and ten new call centers by the end of 1999. Based on the Company's
historical experience and technical upgrade plans, establishing a call center
generally requires an investment of $750,000 to $1,250,000, exclusive of initial
operating losses. There can be no assurance, however, that costs associated with
establishment of new call centers will be consistent with costs experienced by
the Company on a historical basis.
In the first quarter of 1999, the Company extended its contract with
Sprint PCS to provide EDA services to Sprint PCS customers through December
2002. The contract was initially signed in the fourth quarter of 1996 and was
expanded in 1998 to include service to markets served by Sprint PCS under new
licenses. In conjunction with the introduction of services
10
<PAGE>
in new markets by Sprint PCS, the Company expects to open new call centers in
several major metropolitan areas in 1999 and 2000.
In the second quarter of 1997, the Company signed a multi-year contract
with AT&T Wireless Services under which regions of AT&T Wireless Services and
its affiliates may elect to offer the Company's EDA service to their
subscribers. To date, the Company is providing service to AT&T Wireless Services
in several metropolitan markets and expects to roll out service to other markets
during 1999.
In the fourth quarter of 1998, the Company extended its relationship
with Pacific Bell Wireless into the year 2000. In addition, in 1998 and early
1999, the Company announced several new contracts to provide its EDA service.
New customers include 360 Communications (since acquired by ALLTEL Corporation),
for which the Company provides service in selected markets. Other new customers
include TeleCorp Communications, US Unwired, Triton PCS, Iowa Wireless Services,
Central Wireless Partnership and Indus, Inc.
In the second quarter of 1998, the Company announced that portions
of its contract with Ameritech Cellular would not be replaced upon expiration
in 1998. The contract accounted for approximately 10.7% of the Company's
revenues for the year. In the second quarter of 1998, the Company announced
that its contract with BellSouth Cellular would not be replaced upon its
expiration in 1998. The contract accounted for approximately 1.2% of the
Company's revenues for the year.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items
of the Company's statements of operations as a percentage of its revenues.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct operating costs 51.2 49.9 46.7
General and administrative costs 40.6 44.9 42.7
------ ------ ------
Income from operations 8.2 5.2 10.6
Other income (expense) 0.6 1.6 (0.6)
Interest and loan fees (0.6) (1.3) (3.2)
------ ------ ------
Income before income taxes 8.2 5.5 6.8
Income tax expense 0.2 0.0 0.3
------ ------ ------
Net income 8.0 5.5 6.5
------ ------ ------
------ ------ ------
New call centers opened 2 4 1
Call centers in operation 18 16 12
</TABLE>
1998 COMPARED TO 1997
Revenues increased 73.0% to $45.1 million from $26.1 million. Call
volume increased to approximately 71 million calls in 1998 from approximately 42
million calls in 1997. This increase was due primarily to increases in call
volumes under existing contracts and additional call volumes from new contracts,
offset by decreases in call volume due to the completion of contracts with
Ameritech, BellSouth and Bell Atlantic.
Direct operating costs consist of call center personnel and data costs.
These costs increased 77.5% to $23.1 million from $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 1998. As a percentage of
revenues, direct operating costs increased to 51.2% from 49.9%, as personnel
costs increased due to the continuing build-out of the Company's national
network of call centers. The costs associated with the start-up of a new call
center increase personnel and data costs as a percentage of revenue for a period
of time, as the call center launches service and prior to optimal utilization of
personnel and data. This increase was partially offset by higher call volumes
and the associated operating efficiencies due to improved personnel utilization.
The Company anticipates that direct operating costs as a percentage of revenue
will increase in 1999 from 1998 levels, reflecting a lower
11
<PAGE>
average price per call and continued costs related to the build-out of its
national call center network. Additionally, the Company expects that data
costs as a percentage of revenue may increase from 1998 levels as the Company
continues to seek additional data for enhancement of its directory assistance
listings and information and for new markets that it serves.
General and administrative costs increased 56.7% to $18.3 million from
$11.7 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 to 40.6% from 44.9%. This decrease resulted
primarily from the decreasing investment in corporate services necessary to
support additional call centers. The Company anticipates that general and
administrative costs may decrease from 1998 levels as a percentage of revenue,
as less incremental investment in corporate services should be necessary to
support the continued build-out of the national network of call centers.
Depreciation and amortization increased by 66.8% to $3.8 million from $2.3
million due primarily to equipment purchased for new call centers and upgrades
for existing call centers and corporate research and development activities.
Other income for the year ended December 31, 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 the year ended December 31, 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 declined 7.5% to $309,000 from $334,000.
This decline was attributable solely to lower interest rates. Monthly average
debt outstanding increased to $1.7 million from $1.6 million.
Income tax expense for the year ended December 31, 1998 was $75,000,
for an effective tax rate of approximately 2.1%. This rate differs from the
combined federal and state statutory rate of approximately 39% due to the use of
net operating loss carryforwards. Income tax expense for the year ended December
31, 1997 was $13,000, for an effective tax rate of approximately 0.9%. This rate
differs from the combined federal and state statutory rate of approximately 39%
due to the use of net operating loss carryforwards.
1997 COMPARED TO 1996
Revenues increased 46.3% to $26.1 million from $17.8 million. Call
volume increased to approximately 42 million calls in 1997 from approximately 30
million calls in 1996. This increase was due primarily to increases in call
volumes under existing contracts and additional call volumes from new contracts.
Direct operating costs consist of call center personnel and data costs.
These costs increased 56.2% to $13.0 million from $8.3 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 to 49.9% from 46.7%, as personnel
costs increased due to the continuing build-out of the Company's 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 increased 53.8% to $11.7 million from
$7.6 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 1997. As a percentage of revenues, general
and administrative costs increased to 44.9% from 42.7%. This increase resulted
primarily from the investment in corporate services necessary to support
additional call centers. Depreciation and amortization increased by 71.2% to
$2.3 million from $1.3 million due primarily to equipment purchased for new call
centers, upgrades for existing call centers and corporate research and
development activities.
Other income for the year ended December 31, 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 the
year ended December 31, 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.
12
<PAGE>
Interest expense and loan fees declined 41.3% to $334,000 from
$568,000. This decline was attributable solely to the reduction in monthly
average debt outstanding to $1.6 million from $2.9 million.
Income tax expense for the year ended December 31, 1997 was $13,000,
for an effective tax rate of approximately 0.9%. This rate differed from the
combined federal and state statutory rate of approximately 39% due to the use of
net operating loss carryforwards. Income tax expense for the year ended December
31, 1996 was $41,000, for an effective tax rate of approximately 3.4%. This rate
also differed from the combined federal and state statutory rate of
approximately 39% due to the use of net operating loss carryforwards.
1996 COMPARED TO 1995
Revenues increased 36.4% to $17.8 million from $13.1 million. Call
volume increased to approximately 30 million calls in 1996 from approximately 22
million calls in 1995. This increase was due primarily to increases in call
volumes under existing contracts and additional call volumes from new contracts,
offset by a decrease in call volume due to the completion of a contract with
AirTouch in the first quarter of 1996.
Direct operating costs increased 16.4% to $8.3 million from $7.2
million. The increase in direct operating costs was due primarily to the cost of
operating an additional call center in 1996. As a percentage of revenues, direct
operating costs decreased to 46.7% from 54.7%. This decline primarily resulted
from 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 increased 26.9% to $7.6 million from
$6.0 million. This increase in costs was due primarily to the support of
increased operational activity overall and costs associated with the operation
of an additional call center during 1996. As a percentage of revenues, general
and administrative costs declined to 42.7% from 45.6%. This decline resulted
primarily from the achievement of substantially higher revenues in 1996.
Depreciation and amortization increased by 32.7% to $1.3 million from $1.0
million due primarily to equipment upgrades for existing call centers.
Other expense for the year ended December 31, 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. Other
income for the year ended December 31, 1995 was $114,000, and consisted
primarily of interest income of $48,000, approximately $99,000 of income
resulting from the settlement of a vendor claim, offset by estimated litigation
settlement expenses of approximately $24,000.
Interest expense and loan fees declined 58.5% to $568,000 from $1.4
million. This decline was attributable solely to the reduction in monthly
average debt outstanding to $2.9 million from $8.9 million.
Income tax expense for the year ended December 31, 1996 was $41,000,
for an effective tax rate of approximately 3.4%. This rate differed from the
combined federal and state statutory rate of approximately 39% due to the use of
net operating loss carryforwards. The Company did not provide for income taxes
in 1995 due to net operating losses for that year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased to $8.4 million from $9.8 million at December
31, 1998 and 1997, respectively. The Company's current ratio decreased to 2.1:1
from 3.4:1 at December 31, 1998 and 1997, respectively. These decreases were due
primarily to costs associated with the continuing build-out of the Company's
national network of call centers.
The Company has a $6.0 million secured operating line of credit with a
commercial bank. The line of credit expires in 2000. Availability of funds is
subject to borrowing base requirements and compliance with loan covenants. Under
the terms of the agreement, outstanding borrowings bear interest at the prime
rate plus 0.25 percent and all assets of the Company are pledged to the bank as
collateral. The agreement contains minimum net worth and working capital
requirements as well as certain other restrictive covenants and prohibits the
payment of cash dividends by the Company. As of December 31, 1998, the Company
had $1.4 million in borrowings against this line of credit. The Company also has
a credit facility under which the Company may borrow up to $2.0 million to
finance purchases of capital equipment. Borrowing bears interest at the prime
rate plus 0.50 percent and is secured by the purchased equipment. As of December
31, 1998, the Company had no borrowings
13
<PAGE>
against this line of credit. In addition, at December 31, 1998 the Company
had borrowings of $856,000 against a credit facility under which the Company
was able to borrow up to $1.0 million to finance purchases of capital
equipment. This borrowing bears interest at the prime rate plus 0.50 percent
and is secured by the purchased equipment. The Company believes that current
cash and cash equivalents, cash flows from operations and available credit
facilities are sufficient to meet current and anticipated future capital
requirements through 1999.
The Company's cash and cash equivalents and investments are recorded
at cost that approximates their fair market value. As of December 31, 1998,
the Company had $7.6 million in cash and cash equivalents and investments
compared to $8.5 million at December 31, 1997, a decrease of approximately
$0.9 million resulting primarily from the continuing build-out of the
Company's national network of call centers.
CASH FLOW FROM OPERATIONS. 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 for the twelve months ended December 31, 1997 and 1996
was $3.3 million and $2.9 million, respectively, 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 $9.1 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 used in investing activities was
$3.4 million for 1996 and was related primarily to capital expenditures for
system redundancy capabilities and equipment upgrades for certain locations.
In the twelve months ended December 31, 1996, additional capital equipment
for the same purposes was acquired through lease financing in the amount of
$679,000.
CASH FLOW FROM FINANCING ACTIVITIES. 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 the Company's
line of credit and the exercise of warrants and options to purchase 262,087
shares of Common Stock resulting in net cash proceeds to the Company of
$963,000.
Net cash provided by financing activities for the twelve months ended
December 31, 1997 was $1.2 million resulting primarily from the exercise of
warrants and options to purchase 182,789 shares of Common Stock resulting in net
cash proceeds to the Company of $993,000. Net cash provided by financing
activities for the twelve months ended December 31, 1996 was $13.5 million
resulting primarily from the proceeds of the Company's initial public offering
of $12.5 million and the exercise throughout the year of warrants to purchase
818,756 shares of Common Stock resulting in net cash proceeds to the Company of
$2.6 million.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of capital are
expected to be the expansion of existing call centers, the funding of start-up
operating losses for newly opened call centers, the purchase of equipment and
development of technology for the improvement of existing and new call centers
and the payment of principal and interest on indebtedness.
Under the terms of its contract with Sprint PCS, the Company will be
required to open additional call centers in major metropolitan areas in 1999 and
2000. The Company is also required, in conjunction with the Sprint PCS contract,
to develop and maintain an out-of-band signaling system for each of its call
centers. The Company anticipates that its capital expenditures, including those
expenditures related to Sprint PCS, will be approximately $10.0 million to $14.0
million through the end of 1999, resulting primarily from the projected
expansion and other planned improvements. The Company believes its existing cash
and cash equivalents, credit facilities and cash from operations will be
sufficient to fund its operations through the end of fiscal 1999.
EFFECT OF INFLATION. The effect of inflation was not a material factor
affecting the Company's business during the twelve months ended December 31,
1998.
14
<PAGE>
ISSUES AND UNCERTAINTIES
Metro One does not provide forecasts of future financial performance.
While Metro One's management is optimistic about the Company's long-term
prospects, the following issues and uncertainties, among others, should be
considered in evaluating its outlook.
RAPIDLY CHANGING TELECOMMUNICATIONS MARKET. The telecommunications
environment is characterized by rapid change and uncertainty due to merger,
acquisition, alliances and introduction of new carrier licensees into the
wireless and landline markets. This may result in competitive situations which
could unfavorably impact the Company, such as the withdrawal of a customer from
a market that the Company serves or increased negotiation leverage for newly
affiliated carriers in contract discussions for EDA services.
EXPIRATION OF EDA AGREEMENTS. The Company has ten significant EDA
contracts with six different carriers. Of these contracts, five have terms
ending in 1999, one in 2000, one in 2001 and the remainder in 2002 and
beyond. Efforts to renew existing and enter into new contracts may face
lengthy sales cycles and increased competitive, pricing and service pressures.
COMPETITION. The Company intends to compete to attract and retain
customers principally on the basis of services and features of its EDA, its
emphasis on quality and customer care, and price. The Company's ability to
compete successfully will also depend, in part, on its ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in customer preferences, economic
conditions and discount pricing strategies by competitors, all of which could
adversely affect the Company's business, financial condition and results of
operation.
PRICES. Prices the Company can obtain for its services are subject to
the changing telecommunications market, the relative leverage of negotiating
parties and the overall competitive landscape. The Company expects that its
average price per call will decrease as increasing call volumes trigger
volume-based pricing discounts and if the Company enters into additional or new
contracts. The Company believes that its reduced pricing better positions the
Company to retain and expand service with existing carrier customers and to
extend service to new wireless and landline carriers. There can be no assurance
that as existing contracts are renewed, if they are renewed, or as new contracts
are entered into, that the contracts will not provide for lower prices than the
Company currently experiences. This could have an adverse impact on the
business, financial condition and results of operations of the Company.
NEED FOR EXPANSION. Although the Company has a number of contracts for
delivery of its EDA services, there is no assurance that the Company will be
successful in expanding its services to a sufficient number of new customers or
markets to achieve substantial and sustainable profitability or that it will be
able to sustain past growth rates.
CONCENTRATION OF BUSINESS; LIMITED CUSTOMER BASE. Although the Company
seeks to increase the number of its EDA contracts with telecommunications
carriers, a small number of companies dominate the telecommunications market,
which limit the Company's potential customers and expansion opportunities. Three
of the dominant wireless carriers represented approximately 73 percent, 66
percent and 76 percent of the Company's revenue in 1998, 1997 and 1996,
respectively. The failure of the Company to maintain a satisfactory relationship
with any significant customer could have a material adverse effect on the
Company's business, financial condition and results of operation.
CHANGES IN WIRELESS USAGE BY SUBSCRIBERS. The usage patterns of
wireless subscribers are impacted by a number of factors, including pricing,
safety concerns, government regulation and various other items. Any factor that
causes wireless subscribers to decrease their usage could have an adverse impact
on the results of operations of the Company.
TECHNOLOGY. Telecommunications and the related directory assistance
market are characterized by rapid technological change, frequent introductions
of new and enhanced products and service, and changing consumer demands. The
Company's success will be dependent, in part, upon its ability to anticipate
changes in technology and industry standards and to successfully develop and
introduce new and improved EDA and other telecommunications services, which may
require substantial expenditures. There is no assurance that the Company will be
able to do so, that it will have adequate financial resources to undertake such
development or that it will not encounter technical or other difficulties that
could delay the introduction of its services or enhancements thereof.
RELIANCE ON THIRD PARTY VENDORS. The Company relies on key vendors to
supply programming and engineering services and to license technology. Although
there are a limited number of such service providers, the Company believes that
15
<PAGE>
other providers could provide for the Company's needs on comparable terms.
Abrupt changes in the arrangements could, however, cause a disruption in
operations or a delay in development efforts, either of which could affect
adversely affect the Company's business, financial condition and results of
operation.
QUALITY, COST AND AVAILABILITY OF DATA. The Company's operations are
dependent upon its access to names, telephone numbers and other information
supplied to callers directly or used in providing call completion. Such data
vary widely across geographic regions as to availability, cost, quality and
usefulness for the Company's purposes. Ultimately, the satisfaction of the
Company's carrier customers is dependent upon the quality of service being
provided to the carrier's subscribers. Although the Company believes that it
obtains its data in a manner that allows it to provide quality service to its
customers, there is no assurance that the Company will have access to sufficient
and quality data or that the Company can obtain and update data in a manner and
at prices that allow the Company to successfully and economically maintain or
improve current service levels.
POTENTIAL FOR UNIONIZATION AND STAFFING. The telecommunications
industry, particularly with respect to larger telecommunications companies, is
characterized by widespread union membership among its operators and other
workers. Although the Company believes that its relations with its employees are
good, no assurance can be given that unionization will not occur in the future.
The occurrence of such an event could likely have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, the Company is dependent upon the available labor pool for its
operators and no assurances can be given that the Company will be able to
continue to attract qualified staff at competitive wages.
INTELLECTUAL PROPERTY. To a limited extent, the Company relies upon a
combination of trade secret, patent and other intellectual property law,
non-disclosure agreements and other protective measures to preserve its rights
pertaining to its EDA, but there is no assurance that the Company can
meaningfully protect its intellectual property. Further, the Company is not
aware of any pending or threatened claims that affect any of the Company's
intellectual property rights. If any infringement claim is asserted against the
Company, the Company may seek to obtain a license of the other party's
intellectual property rights. There is no assurance that a license would be
available on reasonable terms or at all. Litigation with respect to patents or
other intellectual property matters could result in substantial costs and
diversion of management and other resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE. Certain technology hardware and software systems
use two-digit fields to score and recognize years, assuming the first two digits
of the year are "19" (e.g., the number "98" is recognized as "1998"). This and
certain similar protocols give rise to possible problems related to the
recognition of dates in years after 1999--so-called "Year 2000" issues. The
Company has commenced a program to identify, remediate, test and develop
contingency plans for the Year 2000 issue (the "Y2K Program"). Significant
issues are expected to be identified by April 1999. All phases are expected to
be completed prior to July 1999. The Y2K Program includes a review of (1)
information and other technology systems used in the Company's internal
business; (2) the Company's hardware and software products delivered to
customers; and (3) third party vendors, manufacturers and suppliers. An
assessment has been made of the key internal systems, and the Company believes
that systems that are not already Year 2000 ready will be modified, upgraded or
replaced. The Company is currently assessing its products, and is working with
third party vendors, manufacturers and suppliers to identify and resolve Year
2000 issues. The Company does not believe that the historical or anticipated
costs of remediation have had, or will have, a material effect on the Company's
financial condition or results of operations. However, because of the existence
of numerous systems and related components within the Company and the
interdependency of these systems, it is possible that certain systems at the
Company, or systems at entities that provide services or goods for the Company,
may fail to operate in the Year 2000. The Company is continuing to evaluate the
risks to the Company of failure to be Year 2000 compliant and to develop a
contingency plan. Although it is not currently anticipated, the inability to
complete the Company's Y2K Program on a timely basis or the failure of a system
at the Company or at an entity that provides services or goods to the Company
may have a material impact on the Company's business, financial condition and
results of operations.
16
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Substantially all of the Company's 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 the Company's liquid investments mature within six months.
As a result, the Company believes that the market risk arising from its holdings
of financial instruments is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 through F-13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement for its 1999 Annual Meeting under the caption of
"Management."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the
Company's Proxy Statement for its 1999 Annual Meeting under the caption of
"Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference to the
Company's Proxy Statement for its 1999 Annual Meeting under the caption of
"Principal Shareholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to the
Company's Proxy Statement for its 1999 Annual Meeting under the caption of
"Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<C> <S>
3.1 Third Restated Articles of Incorporation of Metro One
Telecommunications, Inc. (5)
3.2 Amended and Restated Bylaws of Metro One Telecommunications, Inc. (1)
10.1 Form of Enhanced Directory Assistance Agreement (2)
10.2 1994 Stock Incentive Plan (3)
10.3 Consulting Agreement with G. Raymond Doucet, dated December 1, 1996 (6)
10.4 Loan and Security Agreement between Silicon Valley Bank and the Company
dated March 15, 1996 (7)
</TABLE>
18
<PAGE>
<TABLE>
<C> <S>
10.5 1995 Employment Agreement with Timothy A. Timmins (7)
10.6 Lease Agreement between and among Petula Associates, Ltd., Koll
Creekside Associates and the Company (2)
10.7 Enhanced Directory Assistance Agreement between Sprint Spectrum L.P.
and the Company dated October 23, 1996 (9)
10.8 Amendment to 1994 Stock Incentive Plan (4)
10.9 Loan Modification Agreement between Silicon Valley Bank and the Company
dated March 14, 1997 (5)
10.10 Loan and Security Agreement between Silicon Valley Bank and the Company
dated June 24, 1998 (8)
10.11 Lease Agreement between and among Murray Scholls, LLC, Gramor
Development Northwest, Inc. and the Company
10.12 Amendment #1 to Specific Agreement between Sprint Spectrum L.P. and the
Company dated December 9, 1998 (9)
23.1 Consent of Deloitte & Touche LLP, independent certified public
accountants
27.1 Financial Data Schedule
</TABLE>
- --------------------
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 dated August 22, 1996, File No. 333-05183.
(2) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2, File No. 33-88926-LA.
(3) Incorporated herein by reference to the Company's Registration
Statement on Form S-8 dated January 24, 1997, File No. 333-20387.
(4) Incorporated herein by reference to the Company's Registration
Statement on Form S-8 dated February 5, 1998, File No. 333-45643.
(5) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated March 31, 1998, Commission No. 0-27024.
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated March 31, 1997, Commission No. 0-27024.
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated August 20, 1996, Commission No. 0-27024.
(8) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-QSB dated August 14, 1998, Commission No. 0-27024.
(9) Certain portions of Exhibits 10.7 and 10.12 are the subject of a
request for confidential treatment and have been omitted from the
Exhibit and have been filed separately with the Commission.
(b) REPORTS FILED ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
METRO ONE TELECOMMUNICATIONS, INC.
By: /s/ Timothy A. Timmins
----------------------
Timothy A. Timmins
President and Chief Executive Officer
Date: March 30, 1999
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Timothy A. Timmins President, Chief Executive March 30, 1999
- ---------------------- Officer and Director
Timothy A. Timmins
/s/ Stebbins B. Chandor, Jr. Senior Vice President and March 30, 1999
- ---------------------------- Chief Financial Officer
Stebbins B. Chandor, Jr.
/s/ R. Tod Hutchinson Vice President March 30, 1999
- --------------------- Controller
R. Tod Hutchinson
/s/ A. Jean de Grandpre Chairman of the Board of Directors March 30, 1999
- -----------------------
A. Jean de Grandpre
/s/ G. Raymond Doucet Director March 30, 1999
- ---------------------
G. Raymond Doucet
/s/ William D. Rutherford Director March 30, 1999
- -------------------------
William D. Rutherford
/s/ James M. Usdan Director March 30, 1999
- ------------------
James M. Usdan
</TABLE>
20
<PAGE>
Metro One Telecommunications, Inc.
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, 1998 and 1997 and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 15, 1999
The accompanying notes are an integral part of these statements.
F-1
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share data) YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 45,139 $ 26,090 $ 17,834
------------------ ------------------ -----------------
Costs and expenses:
Direct operating 23,107 13,017 8,334
General and administrative 18,334 11,702 7,615
------------------ ------------------ -----------------
41,441 24,719 15,949
------------------ ------------------ -----------------
Income from operations 3,698 1,371 1,885
Other income (expense) 289 408 (109)
Interest and loan fees (309) (334) (569)
------------------ ------------------ -----------------
Income before income taxes 3,678 1,445 1,207
Income tax expense 75 13 41
------------------ ------------------ -----------------
Net income $ 3,603 $ 1,432 $ 1,166
------------------ ------------------ -----------------
------------------ ------------------ -----------------
Income per common share
Basic $ .33 $ .13 $ .13
Diluted $ .32 $ .13 $ .12
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31,
-------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,063 $ 8,554
Short-term investments 1,507 -
Accounts receivable 7,428 4,629
Prepaid costs and other current assets 766 694
------------------ -----------------
Total current assets 15,764 13,877
Furniture, fixtures and equipment, net 19,982 14,632
Other assets 565 616
------------------ -----------------
$ 36,311 $ 29,125
------------------ -----------------
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,501 $ 1,302
Accrued liabilities 1,992 992
Accrued payroll and related costs 1,852 1,023
Line of credit payable 1,400 -
Current portion of capital lease obligations 365 638
Current portion of long-term debt 240 78
------------------ -----------------
Total current liabilities 7,350 4,033
Capital lease obligations 103 548
Long-term debt 616 868
------------------ -----------------
8,069 5,449
------------------ -----------------
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, 11,188 and 10,926 shares,
respectively, issued and outstanding 38,477 37,514
Accumulated deficit (10,235) (13,838)
------------------ ------------------
Shareholders' equity 28,242 23,676
------------------ -----------------
$ 36,311 $ 29,125
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------
COMMON STOCK
------------------------------------- (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 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
----------------- ------------------ ------------------ -----------------
----------------- ------------------ ------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,603 $ 1,432 $ 1,166
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,774 2,263 1,322
Loss on disposal of fixed assets 73 81 151
Deferred income taxes (42) (12) (33)
Changes in certain assets and liabilities:
Accounts receivable (2,799) (1,906) (105)
Prepaid expenses and other assets (91) (238) (73)
Accounts payable, accrued liabilities and payroll costs 2,028 1,673 484
------------------ ------------------ -----------------
Net cash provided by operating activities 6,546 3,293 2,912
------------------ ------------------ -----------------
Cash flows from investing activities:
Capital expenditures (9,085) (10,096) (3,408)
Purchase of short-term investments (1,507) - -
------------------ ------------------ -----------------
Net cash used in investing activities (10,592) (10,096) (3,408)
------------------ ------------------ -----------------
Cash flows from financing activities:
Net proceeds from line of credit 1,400 - -
Proceeds from issuance of debt - 946 1,121
Repayment of debt (90) - (1,867)
Repayment of capital lease obligations (718) (719) (910)
Proceeds from issuance of common stock and exercise
of warrants and stock options 963 993 2,625
Proceeds from initial public offering of common
stock, net of expenses - - 12,515
------------------ ------------------ -----------------
Net cash provided by financing activities 1,555 1,220 13,484
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents (2,491) (5,583) 12,988
Cash and cash equivalents, beginning of year 8,554 14,137 1,149
------------------ ------------------ -----------------
Cash and cash equivalents, end of year $ 6,063 $ 8,554 $ 14,137
------------------ ------------------ -----------------
------------------ ------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (IN 000'S, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Company provides enhanced directory assistance
services to telecommunications carriers and their customers. Revenues are
derived principally through fees charged to telecommunications carriers. The
Company operates 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 three months
or less.
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. The Company classifies its investments as "held-to-maturity" and
accordingly recorded these investments at cost, which approximates fair value.
REVENUE RECOGNITION. Under existing contracts with telecommunications carriers,
the Company records revenue for the number of calls processed. Revenue is
recognized as services are provided.
MAJOR CUSTOMERS. In each of the three years ended in 1998, 1997 and 1996, twelve
customers accounted for substantially all revenue reported and the accounts
receivable balance at December 31. The Company's five largest customers
accounted for approximately 38%, 18%, 17%, 12% and 11%, respectively, of revenue
in 1998. The Company's four largest customers accounted for approximately 25%,
24%, 17% and 16%, respectively, of revenue in 1997. The Company's three largest
customers accounted for approximately 28%, 26% and 22%, respectively, of revenue
in 1996. Historically, the Company has not incurred significant losses related
to its 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 $1,323 and
$2,792 at December 31, 1998 and 1997, 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 five
to ten years. In the event that facts and circumstances indicate that the
cost of patents or trademarks may be impaired, an evaluation of
recoverability would be performed and the asset's carrying amount would be
reduced to market value or discounted cash flow value.
FAIR VALUE OF FINANCIAL INSTRUMENTS. 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.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the fiscal year. Actual results could differ from those
estimates.
COMMITMENTS AND CONTINGENCIES. The Company is party to various legal actions and
administrative proceedings arising in the ordinary course of business. The
Company believes that the disposition of these matters will not have a material
adverse effect on its financial position, results of operations, or cash flows.
RECLASSIFICATION. Certain balances in the 1996 and 1997 financial statements
have been reclassified to conform with 1998 presentations. Such
reclassifications had no effect on results of operations or accumulated deficit.
F-6
<PAGE>
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment by major classification are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Equipment $ 22,824 $ 16,409
Furniture and fixtures 3,536 2,403
Leasehold improvements 1,634 912
------------------ -----------------
27,994 19,724
Accumulated depreciation and amortization (8,012) (5,092)
------------------ -----------------
$ 19,982 $ 14,632
------------------ -----------------
------------------ -----------------
</TABLE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Secured Term Loan $ 856 $ 946
Current portion (240) (78)
------------------ -----------------
Long-term debt $ 616 $ 868
------------------ -----------------
------------------ -----------------
</TABLE>
SECURED TERM LOAN. In 1997, the Company entered into a $1,000 Secured Term Loan
agreement with a commercial bank. Under the terms of the agreement, outstanding
borrowings bear interest at prime rate (7.75 percent at December 31, 1998) plus
0.5 percent and all assets of the Company are pledged as collateral. The terms
of the loan call for an 18-month interest only accumulation period through
August 1998 followed by 42 monthly payments of approximately $27 for principal
and interest. The agreement contains minimum net worth and working capital
requirements as well as certain other restrictive covenants, as defined by the
agreement, and prohibits the payment of cash dividends. 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.
LINES OF CREDIT. At December 31, 1998, the Company had in place a $6,000 Secured
Operating Line of Credit with a commercial bank. Under the terms of the
agreement, outstanding borrowings bear interest at prime rate plus 0.25 percent
and all assets of the Company are pledged as collateral. The agreement contains
minimum net worth and working capital requirements as well as certain other
restrictive covenants, as defined by the agreement, and prohibits the payment of
cash dividends. At December 31, 1998, the Company had $1,400 in borrowings
against this line of credit. In addition, the Company has a credit facility
under which the Company may borrow up to $2,000 to finance purchases of capital
equipment. Borrowings bear interest at the prime rate plus 0.50 percent and are
secured by the purchased equipment. . At December 31, 1998, the Company had no
borrowings against this credit facility.
F-7
<PAGE>
4. LEASE OBLIGATIONS
The Company leases operating facilities and equipment under operating leases
with unexpired terms of one to ten years. Rental expense for operating leases
was approximately $2,091, $1,388 and $942 for 1998, 1997 and 1996, respectively.
Minimum annual rentals for the five years subsequent to 1998 and in the
aggregate thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------------ ------------------ ------------------
<S> <C> <C>
1999 422 2,609
2000 98 2,534
2001 17 2,194
2002 - 1,647
2003 - 988
Thereafter - 3,254
------------------ ------------------
Total minimum lease payments 537 $ 13,226
------------------
------------------
Less interest portion at rates
of 16.7% to 20.7% (69)
------------------
Present value of net minimum
lease payments, capital leases 468
Portion due within one year (365)
------------------
Long-term portion $ 103
------------------
------------------
</TABLE>
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. The Company has authorized 10,000,000 shares of preferred stock
for issuance. The Company's 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 are issued or
outstanding as of December 31, 1998.
COMMON STOCK OPTIONS AND WARRANTS. The Company has 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 of non-qualified stock options,
stock sales and grants to employees, outside directors, independent contractors
and consultants. As of December 31, 1998, 1,900,000 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 of the Company.
The option price per share of an incentive stock option may not be less than the
fair market value of a share of common stock as of the date such option is
granted. The option price per share of a non-qualified stock option may be at
any price established by the Board of Directors or a committee thereof
established for purposes of administering the plan. Options become exercisable
at the times and subject to the conditions prescribed by the Board of Directors.
Generally, options vest over a period of four years and the term of each option
may not exceed ten years. Payment for shares purchased pursuant to options may
be made in cash or by delivery of shares of common stock having a market value
equal to the exercise price of the options.
The Company has 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 in
1998, 1997 and 1996 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
F-8
<PAGE>
Standards No. 123, the Company's net income and earnings per share would have
been changed to the pro forma amounts indicated below for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $3,603 $1,432 $1,166
Diluted earnings per share, as reported 0.32 0.13 0.12
Net income, pro forma 3,311 1,048 944
Diluted earnings per share, pro forma 0.29 0.10 0.10
</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 1998, 1997 and 1996, respectively: dividend yield of 0 for all years;
risk-free interest rates of 4.5, 5.7 and 6.3 percent; expected volatility of
66.6, 55.3 and 46.5 percent; and expected life of 4.0 for all years.
A summary of the status of the Company's stock option plan as of December 31,
1998 and 1997 and changes during the years ending on those dates is presented
below.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE
------------- ----------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,454,000 $ 8.58 1,291,000 $ 8.55 1,103,000 $ 8.05
Granted 407,000 10.07 262,000 8.57 189,000 11.48
Exercised (62,000) 8.07 (71,000) 8.05 0 0.00
Forfeited (34,000) 11.82 (28,000) 8.40 (1,000) 8.05
------------- ----------- -------------- ----------- ------------- -----------
Outstanding at
end of year 1,765,000 $ 8.88 1,454,000 $ 8.58 1,291,000 $ 8.55
------------- ----------- -------------- ----------- ------------- -----------
------------- ----------- -------------- ----------- ------------- -----------
Options exercisable at year-end 1,244,000 1,183,000 950,000
Weighted-average fair value of
options granted during the year $ 4.37 $ 3.15 $ 5.09
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable under the Company Plan at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------------- ----------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OF REMAINING WEIGHTED-AVERAGE OF WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE (YRS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------ ------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
$ 8.05 - 8.05 1,033,000 6.63 $ 8.05 1,019,000 $ 8.05
$ 8.50 - 13.38 732,000 9.20 $ 10.06 225,000 $ 9.89
- ------------------ --------------- ---- ------------- --------------- -------------
$ 8.05 - 13.38 1,765,000 7.69 $ 8.88 1,244,000 $ 8.38
- ------------------ --------------- ---- ------------- --------------- -------------
- ------------------ --------------- ---- ------------- --------------- -------------
</TABLE>
F-9
<PAGE>
At December 31, 1997, there were outstanding warrants to purchase 114,271 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 85,710 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
The Company has 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 $533, $740 and $971 at December 31,
1998, 1997 and 1996, respectively.
7. OTHER INCOME (EXPENSE)
Included in other income (expense) are certain items that do not relate directly
to current ongoing business activity. Included in this classification for the
year ended December 31, 1998 are loss on asset dispositions of $73; and interest
income of $365. For the year ended December 31, 1997, other income consisted
primarily of estimated litigation settlement expenses of $61; loss on asset
dispositions of $81; and interest income of $569. For the year ended December
31, 1996, other expense consisted primarily of estimated litigation settlement
expenses of $280; loss on asset dispositions of $151; and interest income of
$288.
8. INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Current:
Federal $ 42 $ 12 $ 33
State 75 13 41
------------------ ------------------ -----------------
117 25 74
------------------ ------------------ -----------------
Deferred:
Federal (42) (12) (33)
State - - -
------------------ ------------------ -----------------
(42) (12) (33)
------------------ ------------------ -----------------
Total tax expense $ 75 $ 13 $ 41
------------------ ------------------ -----------------
------------------ ------------------ -----------------
</TABLE>
At December 31, the significant components of deferred tax assets and
liabilities are as follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Deferred tax liability:
Tax depreciation in excess of book $ 1,487 $ 1,042
------------------ -----------------
Deferred tax asset:
Net operating loss carryforwards $ 5,102 $ 5,986
Expenses not currently deductible 176 179
Tax credit carryforwards 113 61
------------------ -----------------
Gross deferred tax assets 5,391 6,226
Valuation allowance (3,817) (5,139)
------------------ -----------------
Deferred tax assets 1,574 1,087
------------------ -----------------
Net deferred tax asset $ 87 $ 45
------------------ -----------------
------------------ -----------------
</TABLE>
During 1998 and 1997, the Company reduced its deferred tax valuation allowance
to reflect deferred tax assets used to reduce current year income taxes. The
Company's 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 the Company or its competitors,
lengthy sales cycles, lack of market acceptance or delays in the introduction of
new versions of the Company's 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 Company's expansion
of its national call center network, general economic conditions and the other
factors. Given the variability in operating results, the Company will continue
to review the valuation allowance on a quarterly basis and make adjustments as
appropriate.
At December 31, 1998, the Company had approximately $13.1 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 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.9% 2.6% 5.0%
Valuation allowance (36.7)% (39.5)% (39.4)%
Other (0.1)% 2.8% 2.8%
------------------ ------------------ -----------------
Effective tax rate 2.1% 0.9% 3.4%
------------------ ------------------ -----------------
------------------ ------------------ -----------------
</TABLE>
9. EARNINGS PER SHARE
The Company has adopted SFAS No. 128, Earnings Per Share. SFAS No. 128
established new standards for computing and presenting earnings per share, and
accordingly all periods have been restated. The per share amounts are based on
the weighted average number of common and dilutive common equivalent shares
assumed to be outstanding during the period of computation. Net income for the
calculation of both basic and diluted earnings per share is the same for all
periods.
F-11
<PAGE>
The calculation of weighted-average outstanding shares is as follows:
<TABLE>
<CAPTION>
AVERAGE SHARES
---------------------------------------------------------------
1998 1997 1996
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Basic earnings per share 11,063 10,820 9,152
Common stock equivalents 211 141 244
-------------------- ------------------- -------------------
Diluted earnings per share 11,274 10,961 9,396
-------------------- ------------------- -------------------
-------------------- ------------------- -------------------
</TABLE>
10. BENEFIT PLANS
The Company has a deferred compensation savings plan for the benefit of its
eligible employees. The plan permits certain voluntary employee contributions to
be excluded from the employees' current taxable income under the provisions of
Internal Revenue Code Section 401(k). Upon reaching the age of twenty-one, each
employee becomes eligible to participate in the savings plan six months
following the initial date of employment. The employee must also complete at
least 500 hours of service in any twelve-month period. Under the plan, the
Company can make discretionary contributions to the plan as approved by the
Board of Directors.
Participants' interest in Company contributions to the plan vest over a
four-year period. The Company made contributions of approximately $35, $25 and
$11 during 1998, 1997 and 1996, respectively.
11. STATEMENT OF CASH FLOWS
Supplemental disclosure of Cash Flow information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash paid for interest expense $ 297 $ 318 $ 572
Cash paid for income taxes 95 51 44
Equipment acquired by capital lease - - 679
Conversion of debt into common stock - - 1,400
Stock issued in settlement of litigation - 270 -
</TABLE>
12. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1998
Revenues $ 9,045 $ 10,922 $ 11,313 $ 13,859
Direct operating 4,793 5,525 5,786 7,003
General and administrative 4,001 4,476 4,622 5,235
Income from operations 251 922 904 1,621
Net income 209 901 916 1,577
Basic earnings per share .02 .08 .08 .14
Diluted earnings per share .02 .08 .08 .14
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1997
Revenues $ 4,486 $ 5,468 $ 7,055 $ 9,081
Direct operating 2,434 2,697 3,419 4,467
General and administrative 2,504 2,702 2,953 3,543
Income (loss) from operations (452) 69 683 1,071
Net income (loss) (390) 16 744 1,062
Basic earnings per share (.04) .00 .07 .10
Diluted earnings per share (.04) .00 .07 .10
</TABLE>
F-13
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ASTERISK * DENOTES SUCH OMISSIONS.
CONTRACT NUMBER: 96-0053
SPECIFIC AGREEMENT NO. 96-0053
BY AND BETWEEN
METRO ONE TELECOMMUNICATIONS, INC.
AND
SPRINT SPECTRUM L.P.
FOR
ENHANCED DIRECTORY ASSISTANCE SERVICE
CONFIDENTIAL
Sprint Spectrum / Metro One Page 1 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS 5
2. PROVISION OF EDA SERVICES 7
3. INTERFACE AND SUPPORT 11
4. PERSONNEL 13
5. GOVERNMENT APPROVALS AND FEDERAL REQUIREMENTS 14
6. COMPENSATION AND TERM 14
7. MARKETING 16
8. PUBLICITY/TRADEMARK/SERVICE MARK 16
9. ASSISTANCE 17
10. RECORDS 17
11. COMPLAINTS 17
12. CONFIDENTIAL INFORMATION 18
13. INDEMNIFICATION AND LIABILITY 20
14. DISPUTE RESOLUTION 20
15. TERMINATION 22
16. AFFILIATES, ASSIGNMENT AND SUBCONTRACTING 24
17. UCC 25
18. SERVICE TESTING/QUALITY ASSURANCE 25
19. SURVIVAL OF OBLIGATIONS 26
20. CAPTIONS 26
</TABLE>
Sprint Spectrum / Metro One Page 2 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
<TABLE>
<S> <C>
21. NOTICES 26
22. ENTIRE AGREEMENT 27
23. SEVERABILITY 27
24. INDEPENDENT CONTRACTOR AND INSURANCE 27
25. NO THIRD PARTY BENEFICIARIES 28
26. FORCE MAJEURE 28
27. DEFAULT/REMEDIES 28
28. WAIVER 29
29. APPLICABLE LAW 29
30. METRO ONE WARRANTIES 29
31. EMPLOYMENT PRACTICES 30
32. RIGHT OF AUDIT 31
33. *** 31
EXHIBIT 1 *** 36
EXHIBIT 2 *** 37
EXHIBIT 3 CURRENT METRO ONE CALL CENTERS 38
EXHIBIT 4 *** 39
EXHIBIT 5 *** 45
EXHIBIT 6 INVOICE. 52
EXHIBIT 7 FAILURE NOTICE / DISASTER RECOVERY. 54
EXHIBIT 8 EDA PRODUCT FEATURES. 55
</TABLE>
Sprint Spectrum / Metro One Page 3 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
<TABLE>
<S> <C>
EXHIBIT 9 RECORD FORMAT. 56
EXHIBIT 10 IMPLEMENTATION PLAN/DELIVERABLES. 57
EXHIBIT 11 58
EXHIBIT 12 APPROVED SUBCONTRACTORS. 59
EXHIBIT 13 *** 60
EXHIBIT 14 *** 61
</TABLE>
Sprint Spectrum / Metro One Page 4 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
ENHANCED DIRECTORY ASSISTANCE-Registered Trademark- AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into, effective as of this
____ day of October, 1996 by and between Sprint Spectrum L.P. a Delaware limited
partnership ("Sprint Spectrum"), and Metro One Telecommunications, Inc., an
Oregon corporation ("Metro One").
WHEREAS, among other communications services, Sprint Spectrum provides
telecommunications services in the Call Termination Area, as defined below;
WHEREAS, Metro One provides directory assistance services; and
WHEREAS, Sprint Spectrum and Metro One desire for Metro One to provide
telephonic directory assistance services to Sprint Spectrum Callers, as defined
below; and
WHEREAS, Metro One recognizes Sprint Spectrum's desire to strategically deliver,
develop and implement services and its desire to continually seek out business
process improvements by modifying, adding or deleting service levels, better
defining common goals and improving methods and procedures to lessen costs to
either party.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the sufficiency of which are hereby acknowledged, Sprint
Spectrum and Metro One agree as follows:
1. DEFINITIONS
a. "AGREEMENT" means this Agreement, all Exhibits and Additional
Documents attached hereto.
b. "CALL" means a specific session with a single Operator contact.
c. "CALLER" means a person, or entity, or phone to whom Sprint Spectrum
offers Enhanced Directory Assistance-Registered Trademark- service.
d. "CALL COMPLETION SERVICE" means that through Call Completion Service,
Metro One Operators will directly connect the Caller to the requested
business, government or residence by outpulsing to Sprint Spectrum's
directed network the digits of the requested business, government or
residence telephone. Metro One Operator shall remain accessible to the
Caller throughout the call using automatic methods
(StarBack-Registered Trademark-, AutoBack-TM-") or other means
requested by the Caller.
e. "CALL ORIGINATION AREA" means the geographic region which Sprint
Spectrum defines as its calling area which consists of the areas set
forth in Exhibit 1 as amended from time to time by mutual written
agreement of the parties.
f. "CALL TERMINATION AREA" means the United States, except to the extent
that future services extend the area.
Sprint Spectrum / Metro One Page 5 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
g. "COMPETITOR" is a carrier competing in wireless telephony with Sprint
Spectrum and contemporaneously using EDA services provided to Sprint
Spectrum pursuant to this Agreement.
h. "DOCUMENTATION" includes, in all forms of media, manuals, data
definitions, technical diagrams, templates, user methods and
procedures for the System, business process definitions and flow
charts, quick guides, tutorials, training, real-time help information
files, descriptions, instructions, requirements, records, table
Maintenance, report generation, System operations definitions and flow
charts, contact logs, and file record layouts.
i. "ENHANCED DIRECTORY ASSISTANCE-Registered Trademark- (EDA)" means the
live-Operator enhanced directory assistance services provided by
Metro One to Sprint Spectrum and its Callers pursuant to this
Agreement. EDA includes, but is not necessarily limited to (i) call
termination by outpulsing to Sprint Spectrum's directed network the
digits of the Caller-requested number; (ii) provision of name,
address, and telephone number when requested and when legally
available, and complete the call; and (iii) any other EDA product
features agreed upon between Metro One and Sprint Spectrum and
listed in Exhibit 8.
j. "ENHANCEMENT" is any change to the System which increases
functionality and/or performance of the System.
k. "LATA" means local access and transport area.
l. "LAUNCH" is the specific date that Sprint Spectrum starts providing
product and service to its customers for the purpose of receiving
compensation and Metro One starts providing EDA Services to Sprint
Spectrum within a specific market for the purpose of receiving
compensation.
m. "LEC" means a Local Exchange Carrier or Competitive Local Exchange
Carrier providing service in a Call Termination Area.
o. "NPA" means area code as defined by the Numbering Plan of the American
National Standards Institute.
p. "NXX" means the assigned local exchange within an area code.
q. "OPERATOR(S)" means the live operators utilized by Metro One in
providing EDA to Callers.
s. "SERVICE" means the provision of Services, including incidental
deliverables or goods, to Sprint Spectrum by Metro One, as authorized
and specified in a written Work Request, per Exhibit 11.
t. "SERVICE LEVELS" means minimum standards of Metro One performance
under this Agreement as set forth in Exhibit 5.
Sprint Spectrum / Metro One Page 6 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
u. "SOFTWARE" includes any computer code, modules and programs, and any
modification, patch, bug fix, update, release to such, in source code
or object form, as the case may be, including related data files,
rules, parameters, interfaces, and Documentation.
v. "SPRINT SPECTRUM NETWORK" means the communications network operated by
Sprint Spectrum.
w. "STARBACK-Registered Trademark-" means Metro One's proprietary
feature and related technology that allows Callers continuous
access to live Operators, when enabled, throughout the entire call
or calling session by pressing the star (*) key for approximately
one second. StarBack is a registered trademark of Metro One and is
protected by patents pending.
x. "SYSTEM" means Metro One has developed a proprietary system to enable
it to perform the EDA services (the "System"). The System uses
business, residential and government databases, including on-line
national database system access and a backup database connection to
the LEC's database. The System (i) presents Operators with interactive
menus allowing searches by business, governmental or residential name,
category, and/or regional searches; and (ii) allows rapid scrolling of
listings by Operators to locate multiple listings once the basic
search criteria have been established. The System utilizes an
automatic voice playback system.
y. "THIRD PARTY" is any party other than Sprint Spectrum or Metro One
which is referenced in the Agreement.
z. "WORK REQUEST" is Sprint Spectrum's and/or Sprint Spectrum Affiliates
request to purchase Services from Metro One pursuant to a Work Request
Form as shown in Exhibit 11.
2. PROVISION OF EDA SERVICES
Metro One will maintain the System in such a manner as to ensure compliance
with the Service Levels agreed to in Exhibit 5.
a. STAFFING. Metro One shall staff the EDA lines twenty-four (24) hours a
day, seven (7) days a week, three hundred and sixty-five (365) days a
year, (or 366 days as the case may be) with a sufficient number of
Operators to perform the services required hereunder. Metro One shall
utilize qualified, properly-trained, professional and courteous
Operators in providing the EDA services to Callers. Metro One, its
agents, officers, employees and Operators shall at all times interact
with Callers in a respectful and courteous manner. Sprint Spectrum
will be notified and have opportunity to comment on any substantive
changes in Operator training and hiring practices related to
performance of this Agreement at least thirty (30) days prior to
implementation.
Sprint Spectrum / Metro One Page 7 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
b. GREETING AND CLOSING. Any greeting or closing provided by Metro One
shall be Sprint Spectrum specific and mutually agreed upon by Metro
One and Sprint Spectrum. Such greeting shall not exceed five (5)
seconds and such closing shall not exceed twelve (12) seconds in
length, unless mutually agreed to by the parties. All such greetings
and closings may be made by means of the automated voice playback
system. The live Operator is connected to the call during the
greeting.
c. STARBACK-Registered Trademark-. In performing the EDA Service, the
Operator shall remain accessible to the Caller throughout the call
using STARBACK-Registered Trademark-, or other means.
d. CALL COMPLETION. At a Caller's request, Metro One shall perform the
EDA services, provided the residence, business or government related
to the requested service is located within the Call Termination Area
and the information is legally available. Under no circumstances will
Metro One knowingly perform Call Completion Services where the
requested information relates to a residence, business or government
listing located outside the Call Termination Area as then defined.
Metro One and Sprint Spectrum may remotely monitor calls for quality
assurance purposes, and shall not otherwise monitor, record, listen to
or divulge the contents of any communication, or any other information
regarding Callers or calls.
e. ROUTING. Metro One agrees to route Callers calls to any number
requested by Caller within the Call Termination Area, provided
however, that such number or service is not expressly prohibited by
Sprint Spectrum (expressly prohibited numbers are set forth in Exhibit
4). In the event Metro One should direct a call to a prohibited number
or a charge per call service, Metro One shall be solely liable for
fees associated with such call.
f. PERFORMANCE STANDARD. In the event that Metro One provides for any
other Metro One customer EDA services provided hereunder in a certain
market within the Call Origination Area, to the extent Metro One's
performance standards for that customer are more favorable than Sprint
Spectrum's, this Agreement shall be amended so as to cause Metro One
to provide Sprint Spectrum with these same performance standards in
that certain market within the Call Origination Area. Notwithstanding
the foregoing, Metro One shall implement the more favorable
performance standards for Sprint Spectrum within thirty (30) days of
such event.
g. SYSTEM.
i) At a minimum, Metro One shall use all prudent business measures
to keep the System accurate to the same degree as the database of
the LECs for listings within the Call Termination Area, including
regulatory changes that affect LEC number portability. In the
event Metro One does not have sufficient information in the
System to provide any one of the EDA services, it shall utilize
such other sources as necessary, at no additional charge to
Sprint Spectrum, to provide the requested EDA services.
Notwithstanding the foregoing Metro One shall be excused from
performance to the extent that any
Sprint Spectrum / Metro One Page 8 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
LEC or other Metro One selected data provider does not make data
available to Metro One under commercially reasonable terms
acceptable to Metro One in its sole discretion. In the event
Metro One does not have sufficient information in the System to
provide any one of the EDA services, it shall utilize such other
sources as necessary to provide the requested EDA services,
including, without limitation, the back-up database provided as
an on-line service by the LEC or LEC operator delivered directory
assistance. In the event that either (i) a Caller requests the
LEC directory assistance operator, or (ii) Metro One cannot
provide any one of the requested EDA services, Metro One shall
route a Caller's telephone call to the LEC directory assistance
operator. In such a case, Metro One shall charge Sprint Spectrum
the per call fee in Section 6.a. (Compensation and Term) only,
not the LEC's fees.
ii) System and Software Maintenance. Metro One will maintain each
Metro One Call Center in such manner as to ensure calendar
quarterly System availability equal to or greater than 99.950%,
excluding scheduled maintenance which shall be mutually agreed to
in writing, within a given service year for the provision of the
EDA services. Metro One will maintain the System in such manner
as to ensure calendar quarterly System availability equal to or
greater than 99.900%, excluding scheduled maintenance which shall
be mutually agreed to in writing, within a given service year for
the provision of the EDA services. Without limiting the
generality of the foregoing, Metro One will maintain and update
the System (including, without limitation, the databases) as
needed. Metro One will also maintain appropriate System backup
procedures and an appropriate disaster recovery plan, as
specified in Exhibit 7.
h. 911. Sprint Spectrum will not route 911 calls to Metro One. If an
emergency call is received by Metro One the Caller shall be asked to
dial "9-1-1" after disconnecting, except as otherwise required by
applicable law.
i. MULTIPLE REQUESTS. Callers shall be entitled to a maximum of four (4)
directory assistance requests per Call, including StarBack and
AutoBack.
j. MULTIPLE LISTINGS. When the System indicates that more than one
address or telephone number pertains to a directory assistance
request, Metro One shall, at the Caller's request, provide up to four
(4) multiple addresses and telephone numbers at no additional charge.
k. ALTERNATE BILLING. Callers who request "credit" or "calling" card
services shall be advised to dial "0" or "00" after disconnecting to
reach the appropriate operator for such services or other mutually
agreed instructions.
l. TIMELINE. Exhibit 1 details currently planned Call Origination Areas
and Exhibit 10 will delineate the timeline and method of provisioning
EDA services. An implementation plan will be established and mutually
agreed upon for each Call Origination Area. Exhibit 2 details the
cities where Metro One agrees to begin building new call centers
within the first eighteen (18) months of this Agreement upon
Sprint Spectrum / Metro One Page 9 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
occurrence of certain conditions outlined in this Section. Exhibit 1
and 2 may be amended from time to time with mutual written agreement
by both parties as to the location and the method of provisioning EDA
services.
i) Sprint Spectrum may add to the Call Origination Area from time
to time with sixty (60) days prior written mutual agreement of
the parties.
ii) ***
iii) In cities not listed on Exhibit 2 or cities listed on Exhibit 2
that have not yet reached the required 50,000 Calls per month,
EDA Service delivery will be made available to Sprint Spectrum
by Metro One from an existing Metro One call center listed on
Exhibit 3 ("Metro One Call Centers"), on a date mutually agreed
upon in writing by the parties. EDA Service delivery for such
cities will be made available to Sprint Spectrum by Metro One
within sixty (60) days after written notice.
iv) Upon request of Sprint Spectrum, Metro One will provide
additional language EDA services within a time frame and manner
mutually agreed upon by and between the parties.
m. SYSTEM FAILURE. A System Failure is defined as the inability of either
party to provide EDA services to Callers for a period of more than
five (5) minutes. During any System Failure, Sprint Spectrum may
direct all EDA calls to any Third Party selected by Sprint Spectrum,
until such time as notice is given, provided by telephone and
facsimile, from Metro One as to the date and time on which EDA
services are available.
i) Each party shall, as soon as it becomes aware of any System
Failure, notify the other of the System Failure by telephone
and facsimile (the "Failure Notice" as shown in Exhibit 7). The
prioritized list of all addresses, facsimile numbers and
telephone numbers for the parties related to the Failure Notice
is attached as Exhibit 7.
ii) Metro One will provide for all planning and requirements
associated with establishing and maintaining a disaster
recovery plan as set forth in Exhibit 7. Such disaster
recovery plan will set forth the service levels to be
maintained in the event the disaster recovery plan is
implemented.
Sprint Spectrum / Metro One Page 10 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
n. EDA SERVICES NUMBERS. Sprint Spectrum shall route to Metro One all
411, 1-411, 555-1212, 1-555-1212, (NPA)-555-1212 and 1-(NPA)-555-1212
calls originating in the Call Origination Area and Terminating in the
Call Termination Area or any other standard Directory Assistance
routing method that may be assigned and/or used as its successor. In
the event national numbering standards or direction from competent
jurisdiction should mandate a change to the above listed directory
assistance access numbers, Sprint Spectrum shall route all calls to
such successor numbers as described above.
o. 800 directory assistance calls are excluded from this Agreement.
p. SERVICES WARRANTY. Each Metro One employee, subcontractor, or agent
assigned to render Services under this Agreement has the proper
expertise, skills, training, and professional education to perform the
Services required under this Agreement in a professional manner and
consistent with the service levels set forth in Exhibit 5.
Any defects in workmanship shall be corrected promptly at the sole
expense of Metro One. Metro One shall, at all times, employ such
materials, tools, equipment, facilities, and labor to perform the work
as specified in the related Work Request Form, Exhibit 11.
q. NON-INFRINGEMENT WARRANTY. Metro One has full power and authority to
use the Software as described under this Agreement, and such use will
in no way constitute an infringement or other violation of any
copyright, patent, trade secret, trademark, nondisclosure, or any
other intellectual property right, moral right, or right of publicity.
r. ***
s. DATA SOURCE PRIORITY. Metro One will use its internal database(s) as a
first source to fulfill Caller EDA requests for listings within the
Call Origination Area. By September 1997 Metro One will query its
internal database(s) for nationwide queries as a first source in
fulfilling Caller EDA requests within the Call Termination Area.
3. INTERFACE AND SUPPORT
a. FACILITIES. Metro One shall maintain adequate and appropriate office
facilities, support facilities and other facilities and equipment
necessary to enable Metro One to perform its obligations under this
Agreement.
b. TELECOMMUNICATIONS EQUIPMENT. Sprint Spectrum will, at its expense,
establish and maintain all T-1 trunk lines and other
telecommunications facilities and equipment needed for adequate
performance between Sprint Spectrum's directed network and the
building minimum point of termination for Metro One's location for
purposes of
Sprint Spectrum / Metro One Page 11 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
performing the EDA services. Metro One shall be responsible for
establishing, maintaining, and paying for all other telecommunications
facilities and equipment necessary to perform the EDA services,
including but not limited to, those required for interconnection from
Metro One to the on-line LEC database.
c. (i) LOCAL CALLING ONLY CALLERS. As part of Metro One's EDA service,
and if Sprint Spectrum requests such service, Metro One agrees to
develop and make available to Sprint Spectrum, at no cost, a solution
using its Carrier Identification Code (CIC) to identify and thus block
Sprint Spectrum's customers that are restricted from making long
distance calls from long distance EDA call completion. Sprint Spectrum
will forward with each call the customer's Primary Interexchange
Carrier (PIC). In the event the customer is limited to local calling
only, Sprint Spectrum will forward Metro One's CIC. For such limited
calling customers Sprint Spectrum will provide specific direction to
Metro One on the options to be provided to the calling customer ninety
(90) days prior to initial service. Sprint Spectrum may change these
directions at any time with ninety (90) days notice to Metro One.
Further, Metro One agrees to allow Sprint Spectrum the right to use
its Carrier Identification Code for similar purposes at no charge to
Sprint Spectrum. Sprint Spectrum's right to use Metro One's CIC will
remain available for the earlier of the termination of this Agreement
or until such time as Sprint Spectrum informs Metro One that it no
longer requires use of the code. In the event this Agreement is
terminated by either party Sprint Spectrum will retain the right to
use Metro One's CIC for a period of time not less than six (6) months
and not more than eighteen (18) months.
(ii) P2K EXTRACT. Prior to Launch Metro One will develop the ability
to query Sprint Spectrum's P2K extract to determine if a Caller is
permitted long distance completion.
d. BILLING. Metro One will provide to Sprint Spectrum, or a Third Party
designated by Sprint Spectrum, Call Detail Records (CDR) for all call
types performed by Metro One, and specified by Sprint Spectrum in
writing with sixty (60) days advance written notice. The specific
record format is detailed in Exhibit 9. To aid in this process Sprint
Spectrum will provide to Metro One a list of all NPA NXXs that are to
be considered local calls for each trunk group and/or cell site and/or
local calling area. The NPA NXX information will be delivered not
less than fourteen (14) days, or shorter if mutually agreed to by the
parties, prior to traffic being delivered to Metro One on each trunk
group and/or cell site and/or local calling area. Metro One will send
CDRs to Sprint Spectrum, or a Third Party designated by Sprint
Spectrum, in near real time electronic transmission from a single
point as outlined in Exhibit 5 "Service Level Standards".
e. SS7 AND IS-41. Metro One will have SS7 links with Sprint Spectrum.
Metro One will be responsible for system improvements, at Metro One's
sole expense, to facilitate SS7 compliancy. Metro One shall comply
with BellCore document TR394 by March, 1997. IS-41 access to Sprint
Spectrum's home location register will be available by August 1997.
Sprint Spectrum / Metro One Page 12 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
f. SPRINT SPECTRUM CALLER RESTRICTIONS. Sprint Spectrum reserves the
right, at Sprint Spectrum's sole discretion, to restrict Enhanced
Directory Assistance-Registered Trademark- service for certain
Callers.
g. NPA NXX DATA. Sprint Spectrum shall provide Metro One NPA NXX data to
be used for each Call Origination Area ninety (90) days prior to Metro
One providing EDA Services in that Call Origination Area.
4. PERSONNEL
Metro One agrees to provide the appropriate quantity and skill level of
resources to provide the following services, and any other work related to
the startup transition, to Sprint Spectrum:
Metro One agrees to provide necessary resources, management, personnel,
expertise, and services required to provide Sprint Spectrum an efficient,
responsive, and fully integrated EDA Service. Metro One will communicate
directly and effectively, in a medium(s) mutually agreed to by the parties,
with any Sprint Spectrum suppliers regarding any transition throughout this
Agreement.
a. SERVICES IMPLEMENTATION. The implementation of Metro One's EDA
Services, and Service Levels, have been jointly defined in a plan that
is incorporated into and made a part of this Agreement as Exhibits 5
and 10. Both parties can initiate modifications to the plan, and upon
mutual agreement, such modifications will be incorporated into the
plan. The parties will commit resources to meet the Milestones of the
plan.
b. MILESTONES. Milestones will be incorporated into the implementation
plan as Exhibit 10.
c. SERVICE LEVELS. All Service Level are effective upon commercial
availability of EDA Services to Callers. Additional Service Levels may
be mutually agreed to and incorporated into this Agreement.
d. SPRINT SPECTRUM'S AGENTS, CONTRACTORS, AND THIRD PARTIES. Metro One
agrees to provide cooperative and professional interaction with Sprint
Spectrum and any Sprint Spectrum agents, contractors and third parties
during the Implementation and any subsequent interaction.
e. CUSTOMER SERVICE. Sprint Spectrum may notify Metro One if, in Sprint
Spectrum's opinion, any Metro One employee performing EDA services is
unqualified, discourteous or fails to conform to Sprint Spectrum's
standards for customer service. Metro One shall take such prompt
action as it deems reasonable to correct such non-conformance.
f. PROJECT MANAGER. Metro One shall make available a Metro One employee,
herein referred to as the "Project Manager", to be Sprint Spectrum's
single-point-of-contact
Sprint Spectrum / Metro One Page 13 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
for the term of this Agreement. The Project Manager shall a) be
available to Sprint Spectrum at all reasonable times; b) be responsive
to Sprint Spectrum's questions, problems and concerns; c) be the
liaison between Metro One and Sprint Spectrum for planning and
implementation; and d) have the authority to make necessary decisions
and enlist necessary resources to ensure successful completion of all
contracted work within the mutually agreed upon time frames. If Sprint
Spectrum determines the Project Manager is not providing adequate
service, Metro One shall make available a different Project Manager to
Sprint Spectrum.
5. GOVERNMENT APPROVALS AND FEDERAL REQUIREMENTS
a. Sprint Spectrum shall obtain all necessary regulatory approvals
required of it for the provision of EDA services in the Call
Termination Area. To the extent necessary, Metro One and Sprint
Spectrum shall reasonably cooperate with each other in order to obtain
such approvals.
b. If Sprint Spectrum or the federal government determines that this
Agreement supports specific requirements included in a customer
contract or subcontract with the federal government, to the extent
that executive orders and associated regulations apply to Metro One,
Metro One will make its best efforts to comply with those orders and
regulations.
6. COMPENSATION AND TERM
a. ***
b. INVOICES. Metro One shall provide Sprint Spectrum with, and Sprint
Spectrum shall have received, EDA call count volume records in the
format shown in Exhibit 6 by the tenth of each month for the previous
month's calls, which records shall be made part of Metro One's invoice
to Sprint Spectrum.
EDA call count volume records and electronic CDR files shall not be
delivered to Sprint Spectrum or Sprint Spectrum's designated
representative after sixty (60) days of the actual call date and such
calls will not be charged to Sprint Spectrum.
c. PAYMENT TERMS.
i.) When invoicing for EDA Services payment terms are fifty (50)
days after the date of an invoice in the form of Exhibit 6.
Invoices shall be mailed on or before the tenth (10th) day of
the month of the date of invoice. Sprint Spectrum requires that
Metro One provide the Purchase Order and/or Contract Number as
appropriate, on all invoices. If payment is not made when due
Metro One will provide Sprint Spectrum written notice of
non-payment. If
Sprint Spectrum / Metro One Page 14 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
payment is not made within a ten (10) day cure period following
the receipt of written notice, Metro One will follow the
process for resolution as set forth in Section 14. Any
undisputed portion of an invoice paid after fifty (50) days
from the date of invoice shall incur interest in the amount of
one and one half percent (1.5%) a month from fifty (50) days of
the date of invoice until paid.
Sprint Spectrum will deduct any disputed amounts from the
applicable Metro One invoice. Disputed amounts are not to be
considered a late payment or default under this Agreement.
Metro One agrees that disputed amount payments may be withheld
from pending Sprint Spectrum payments until such time as both
parties agree as to the disposition of the disputed amount or
until the dispute is resolved pursuant to Section 14 of this
Agreement. Disputed amounts will be paid, if owed, within
thirty (30) days of resolution of the dispute. The undisputed
portion of an invoice will be paid within fifty (50) days of
the date of the invoice.
ii.) When invoicing for Services, payment terms are net fifty (50)
days after the date of an invoice, but no earlier than the date
of Sprint Spectrum's final acceptance of any Software and/or
Services. In addition to the instructions provided in 6.c.i,
which also apply to invoicing for Services, Metro One must
maintain and submit, as applicable, itemized time records and
expense reports with each invoice. Metro One will be
reimbursed, at reasonable and actual costs, for travel, living,
and other expenses incurred by Metro One's technical support
personnel and authorized by Sprint Spectrum's Work Request.
d. INVOICE ADDRESS. Invoices shall be mailed to Sprint Spectrum on or
before the tenth (10th) day of the month of the date of invoice at the
following address:
Original sent to: Sprint Spectrum L.P.
Attn: Accounts Payable
4717 Grand Ave.
Kansas City, Missouri 64112
With a copy to: Sprint Spectrum L.P.
Attn: Manager - Directory Assistance
4900 Main
Kansas City, Missouri 64112
e. TAXES, DUTIES, AND FEES. Metro One will pay when due, all local,
state, and federal sales and use taxes, excise taxes, taxes on
personal property owned by Metro One, duties, and all other
governmental fees and taxes (excluding income taxes) of whatever
nature applicable to the performance of Metro One's technical support
services required under this Agreement.
f. TERM. Except as provided in Section 15 ("Termination") below, the term
of this Agreement begins on the Effective Date and continues ***
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CONTRACT NUMBER: 96-0053
***("Initial Term"). This Agreement will automatically renew for
successive one (1) year terms unless terminated by either party
with ninety (90) days written notice prior to the next ensuing
renewal period.
7. MARKETING
Sprint Spectrum shall have sole and exclusive control of the manner of
publicizing, advertising and marketing the EDA services provided under this
Agreement in the Call Termination Area. Without limiting the generality of
the foregoing, Sprint Spectrum shall be responsible for the following:
a. Establish the rates and other terms and conditions under which the EDA
services will be available to Callers.
b. Conduct such promotional programs and advertising of the EDA services
as is commercially reasonable after notifying Metro One in writing of
such promotional programs and advertising.
8. PUBLICITY/TRADEMARK/SERVICE MARK
a. Metro One will not, without Sprint Spectrum's prior written consent
and such consent will not be unreasonably withheld:
i) make any news release, public announcement, or denial or
confirmation of this Agreement or its subject matter; or
ii) in any manner advertise or publish the fact of this Agreement.
Notwithstanding the foregoing, Metro One may make such
announcements upon advice of its counsel that such announcement
is reasonably required, by generally accepted accounting
principles (GAAP), SEC requirement or other statutory or
regulatory obligation.
b. Sprint Spectrum shall own its trademarks and service marks, and Metro
One will acquire no rights in such marks. Metro One acknowledges the
validity of Sprint Spectrum's marks and will not challenge or assist
others in challenging the validity and Sprint Spectrum's sole
ownership of such marks.
c. Metro One shall own its trademarks and service marks, including but
not limited to the Metro One Telecommunications, Inc.-Registered
Trademark-Enhanced Directory Assistance-Registered Trademark-, The
Enhanced Directory Assistance People-Registered Trademark-,
StarBack!-Registered Trademark-, SureConnect-TM-, AutoBack-TM-,
CallBack-TM-, MessageBack-TM-, TeleConcierge-TM- and NumberBack-TM-
service marks, and Sprint Spectrum will acquire no rights in such
marks, other than the non-exclusive license set forth in Section
8.e of this Agreement. Sprint Spectrum acknowledges the
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CONTRACT NUMBER: 96-0053
validity of Metro One's marks and will not challenge or assist others
in challenging the validity and Metro One's sole ownership of such
marks.
d. Each party acknowledges the goodwill associated with the other's
trademarks and service marks. Except as provided herein, neither party
will use any mark owned by the other without prior written consent.
Neither party shall register any of the other party's trademarks,
service marks or trade names.
e. Metro One hereby grants Sprint Spectrum a non-exclusive license to use
the Metro One Telecommunications-Registered Trademark-, Enhanced
Directory Assistance-Registered Trademark-, The Enhanced Directory
Assistance People-Registered Trademark-, StarBack-Registered
Trademark-, SureConnect-TM-, AutoBack-TM-, CallBack-TM-,
MessageBack-TM-, TeleConcierge-TM- and NumberBack-TM-service marks
in Sprint Spectrum's marketing of EDA services within the Call
Origination Area during the term of this Agreement.
f. If a party uses a mark owned by the other, the use of the mark shall
be only in accordance with the guidance and directions furnished in
writing by the owner of the mark, and the quality of any associated
goods or services must always be satisfactory to the owner of the
mark.
9. ASSISTANCE
Each party shall provide the other reasonable assistance in any matters
affecting this Agreement before any insurer, governmental authority, trade
association or other organization. Such assistance may include preparing
and furnishing documents, providing advice and providing qualified
personnel to participate in hearings or other proceedings.
10. RECORDS
During the term of this Agreement both parties shall maintain complete and
accurate records of each call using the EDA services, and shall provide the
other access to such records upon request, subject to Section 31, Right of
Audit. Records shall be in the format provided in Exhibit 9, as amended
from time to time by mutual written agreement. The records shall include
the following:
a. The date and time the call is received;
b. The telephone number of the Caller; and
c. The number to which the call is connected.
11. COMPLAINTS
a. PROMOTE GOODWILL. Metro One, its agents, officers, employees and
Operators shall at
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CONTRACT NUMBER: 96-0053
all times interact with Callers in a respectful and courteous manner.
Both parties will refrain from any action that could reasonably be
anticipated to discredit or damage the name, reputation, goodwill or
good public relations of the other. Each party will use its best
efforts to investigate and respond to all oral or written complaints
received by Sprint Spectrum or Metro One from any Caller arising out
of or in connection with such party's obligations under this
Agreement. In handling any complaints, each party will use its best
efforts to maintain and promote the goodwill of and good public
relations of the other party.
b. COMPLAINTS. Both parties shall refrain from any action that could
reasonably be anticipated to discredit or damage the name, reputation,
goodwill or good public relations of the other. Each party shall use
its best efforts to investigate and respond to all oral or written
complaints received by Sprint Spectrum or Metro One from any Caller
arising out of or in connection with such party's obligations under
this Agreement. In handling any complaints, each party shall use its
best efforts to maintain and promote the goodwill of and good public
relations of the other party.
If Sprint Spectrum receives a complaint from a Caller, and the nature
of the complaint deserves immediate attention, Sprint Spectrum will
promptly notify Metro One's Project manager by telephone and / or
pager. The Project Manager will promptly take whatever reasonable
action is necessary to investigate the complaint and respond back to
Sprint Spectrum in a reasonable time frame outlined in Exhibit 5
Service Level Standards. If Metro One receives a complaint from a
Caller, and the nature of the complaint deserves immediate attention,
Metro One's Project Manager will promptly notify Sprint Spectrum's
designated representative by telephone and / or pager.
Both parties shall document any and all complaints from Callers and
others, whether verbal or written, and notify the other, in writing,
within five (5) business days of receipt of such complaint. Both
parties' notice to each other shall set forth the name and telephone
number of the complaining party, the time and nature of the complaint,
and a description of any action taken (or proposed to be taken) by
both parties in connection with the complaint. Both parties shall
provide each other with a copy of all written complaints. In handling
any complaint, both parties shall maintain and promote the goodwill of
Metro One and Sprint Spectrum.
12. CONFIDENTIAL INFORMATION
During the course of the Services, the parties may be given access to
information that (a) relates to the other's past, present, and future
research, development, business activities, products, services, and
technical knowledge, and (b) has been identified as confidential
("Confidential Information"). In connection therewith, the following
subsections shall apply:
a. The Confidential Information of Sprint Spectrum may be used by Metro
One only in connection with the Services. Sprint Spectrum's
Confidential Information may only be copied by Metro One corporate
staff as necessary to perform the Services under this
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CONTRACT NUMBER: 96-0053
Agreement. Individuals performing Services under this Agreement in
Metro One call centers may not copy Sprint Spectrum's Confidential
Information;
b. The Confidential Information of Metro One may be used by Sprint
Spectrum only for its internal business purposes and only to the
extent related to the Services. Without limiting the foregoing, Sprint
Spectrum shall be expressly prohibited from using the Confidential
Information of Metro One to provide services in competition with Metro
One's EDA service or to assist others in performing EDA Services in
any market or Call Origination Area served by Metro One;
c. Each party agrees to protect the confidentiality of the Confidential
Information of the other in the same manner that it protects the
confidentiality of its own proprietary and confidential information of
like kind. Access to the Confidential Information shall be restricted
to those personnel with a need to know the same;
d. All Confidential Information shall be considered trade secrets and
shall be entitled to all protections given by law to trade secrets. In
no event shall either party use the Confidential Information of the
other party to reverse engineer or otherwise develop products or
services functionally equivalent to the products or services of the
disclosing party;
e. All Confidential Information made available hereunder, including
copies thereof, shall be returned upon the first to occur of (a)
completion of the Services or (b) request by the disclosure;
f. Nothing in this Agreement shall prohibit or limit either party's use
of information (including, but not limited to, ideas, concepts,
know-how, techniques, and methodologies) (i) previously known to it,
(ii) independently developed by it, (iii) acquired by it from a Third
Party which is not, to its knowledge, under an obligation not to
disclose such information, or (iv) which is or becomes publicly
available through no breach of this Agreement; and
g. In the event either party receives a subpoena or other validly issued
administrative or judicial process requesting Confidential Information
of the other party, it shall provide prompt notice to the other of
such receipt with the opportunity to contest such disclosure. The
party receiving the subpoena shall thereafter be entitled to comply
with such subpoena or other process to the extent permitted by law.
h. The parties acknowledge that disclosure of Confidential Information by
the other party will cause irreparable to the other party that is
inadequately compensable in monetary damages. Accordingly, the
aggrieved party may seek injunctive relief in any court of competent
jurisdiction for the breach or threatened breach of this section, in
addition to any other remedies in law or equity.
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CONTRACT NUMBER: 96-0053
13. INDEMNIFICATION AND LIABILITY
a. Sprint Spectrum and Metro One agree to defend, indemnify, and hold
harmless the other (the "Indemnified Party"), its employees and
agents, its affiliates and its successors and assigns from and against
all losses, damages, and liability (including all claims, actions,
suits, fines, interest, penalties, costs and expenses) including
reasonable attorney's fees incurred by indemnitee before the
indemnitors act or where indemnitee reasonably fears the adequacy of
the defense provided incurred on account thereof, incident, relative
to or arising from (i) any claim relating to the subject matter of a
misrepresentation or breach of covenant, representation or warranty of
the Indemnifying Party contained herein, and (ii) any injury to any
Indemnifying Party employee or agent, including death to persons, or
damage to property, including theft, resulting from the acts or
omissions of the Indemnifying Party, its employees or agents whether
negligent or otherwise, (iii) any claim of infringement of a patent,
copyright trademark or other legally protected proprietary right of
any third party and (iv) any injury to any person (including death) or
damage to tangible property (including theft) resulting from the acts
or omissions of the Indemnifying Party, its employees or agents,
whether negligent or otherwise.
b. NOTICE OF CLAIMS. The obligations of Indemnifying Party stated in
Section 13.a. above apply only if (i) Indemnified Party shall promptly
inform Indemnifying Party in writing of any claim within the scope of
Section 13.a.; (ii) Indemnifying Party is given exclusive control of
the defense of such claim and all negotiations relating to its
settlement, except that Indemnified Party shall have final approval of
settlement provisions; and (iii) Indemnified Party shall assist
Indemnifying Party in all necessary respects in conduct of the suit
and settlement negotiations.
c. NO SPECIAL DAMAGES. Except for the indemnity provisions contained in
this Article 13, neither party will be liable to the other for
special, indirect, or consequential loss or damage, whether or not
such loss or damage is caused by the fault or negligence of that
party, its employees, agents, or subcontractors.
d. SURVIVAL OF INDEMNITY. Indemnity obligations for acts arising prior to
expiration or termination of this Agreement under this Article 13 will
survive any expiration or termination of this Agreement or the Orders
hereunder for a period of three (3) years following any expiration or
termination of this Agreement or the Orders hereunder.
e. NO LIABILITY LIMITATION. No limitation of liability contained in this
Agreement will be applicable in the event of indemnitor's gross
negligence or intentional misconduct, or in the event of personal
injury or property damage. Furthermore, no limitation of liability
contained in this Agreement will apply with respect to any indemnitor
liability arising under or relating to Section 2.q or Article 13
hereof.
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14. DISPUTE RESOLUTION
a. NEGOTIATION. The parties will attempt in good faith to resolve any
issue, dispute, or controversy arising out of or relating to this
Agreement, including but not limited to any Section of this Agreement
that requires mutual agreement of the parties, promptly by negotiation
between the parties' representatives who have authority to settle any
issue, dispute, or controversy. Any party may give the other party
written notice of any dispute not resolved in the normal course of
business. Within ten (10) days after delivery of such notice,
representatives of both parties will meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve
the dispute by the respective representatives of Metro One and Sprint
Spectrum within the time frames here:
<TABLE>
<CAPTION>
SPRINT SPECTRUM METRO ONE
--------------- ---------
<S> <C> <C>
Within 10 days Manager Directory Vice President
Assistance Call Center Operations
Within 20 days Director Partner Services Chief Operating Officer
Operations
Within 30 days Vice President President
Customer Care
</TABLE>
If the matter has not been resolved within thirty (30) days of the
disputing party's notice, or if the parties fail to meet within ten
(10) days, either party may initiate mediation of the dispute as
provided below. If a negotiator intends to be accompanied at a meeting
by an attorney, the other negotiator will be given at least two (2)
business days notice of such intention and may also be accompanied by
an attorney. All negotiations pursuant to this clause are confidential
and will be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and State Rules of Evidence.
b. MEDIATION. If the dispute has not been resolved by negotiation as
provided above, the parties will endeavor to settle the dispute by
mediation. If the parties encounter difficulty in agreeing on a Third
Party neutral, they will seek the assistance of the Center for Public
Resources in the selection process. The cost of mediation will be
borne equally by the parties.
c. ARBITRATION. Any dispute arising out of or relating to this Agreement
that has not been resolved by non-binding means as provided above
within thirty (30) days of the initiation of such procedure will be
finally settled by arbitration in accordance with the rules of the
American Arbitration Association applying the substantive law of
Missouri without regard to any conflict of laws provision; provided,
however, that if one party has requested the other to participate in a
non-binding procedure and the
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CONTRACT NUMBER: 96-0053
other has failed to participate, the requesting party may initiate
arbitration before expiration of the above period. The arbitration
will be governed by the United States Arbitration Act, 9 U.S.C.
Section 1, ET SEQ., and judgment upon the award rendered by the
arbitrator(s) may be entered by any court with jurisdiction. The
arbitration will be held in the Kansas City, Missouri metropolitan
area. The arbitrator(s) are not empowered to award damages in
excess of compensatory damages and each party waives any damages in
excess of compensatory damages.
d. CONTINUING PERFORMANCE. Metro One agrees to continue performance
during the pendency of any dispute, unless performance is terminated
by Sprint Spectrum under Section 14. Sprint Spectrum agrees to
continue to pay all non-disputed invoice amounts.
e. LIMITATION OF CLAIMS. No Claim may be brought by Metro One after
Sprint Spectrum has made final payment to Metro One and Metro One has
accepted such final payment. Claims made by Metro One may only be
brought against the Sprint Spectrum Affiliate which issued the Request
for Services or Work Request giving rise to the Claim.
15. TERMINATION
a. DEFAULT. In the event of any material breach of this Agreement by
either party, the non-breaching party will give the breaching party
written notice specifying such breach. The breaching party will then
have thirty (30) days to cure the breach. Failure to cure any such
breach, including Metro One breach of any of the Service Levels set
forth in Exhibit 5, and modifications thereto, in accordance with this
agreement, will constitute a default hereunder. No default under this
Agreement will constitute a default under any other agreement.
b. TERMINATION UPON METRO ONE MERGER OR SALE TO COMPETITOR. This
Agreement and/or Work Requests hereto, may be terminated by Sprint
Spectrum without penalty if there is any merger, consolidation, or
sale of all of the assets of Metro One to or with a Competitor of
Sprint Spectrum, or if Metro One becomes a Competitor of Sprint
Spectrum. Metro One must give Sprint Spectrum no less than thirty (30)
days written notice of any merger, consolidation, or sale of all of
the assets of Metro One.
c. TERMINATION FOR OTHER CAUSES. Either party may terminate this
Agreement upon the occurrence of any of the following events by giving
thirty (30) days written notice to the other:
i. If at any time after one (1) year of commercially available
service the average monthly call volume for the preceding three
(3) months is less than seventy percent (70%) of the average
monthly call volume for the same three (3) month period in the
preceding year; or
ii. If any circumstance would render the continued performance of
this Agreement by either party in violation of any applicable
law, statute, rule or regulation
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CONTRACT NUMBER: 96-0053
despite the parties' good faith efforts to rewrite the terms of
this Agreement.
d. RETURN OF SPRINT SPECTRUM-OWNED PROPERTY. All equipment, materials,
drawings, Software or data of every description that Metro One
receives directly or indirectly from Sprint Spectrum or from a Third
Party on behalf of Sprint Spectrum, or that is paid for, in whole or
in part, by Sprint Spectrum, is the property of Sprint Spectrum
("Sprint Spectrum-owned"). Metro One must return all Sprint
Spectrum-owned property to Sprint Spectrum within twenty (20) business
days upon Sprint Spectrum's request, or upon the termination or
expiration of this Agreement, as Sprint Spectrum determines. Metro One
is responsible and must account for all Sprint Spectrum-owned
property, and bears the risk of loss while the property is in Metro
One's possession. Sprint Spectrum-owned property may only be used in
Metro One's performance of this Agreement.
e. RETURN OF METRO ONE-OWNED PROPERTY. All equipment, materials,
drawings, Software or data of every description that Sprint Spectrum
receives directly or indirectly from Metro One or from a Third Party
on behalf of Metro One, or that is paid for, in whole or in part, by
Metro One, is the property of Metro One ("Metro One-owned"). Sprint
Spectrum must return all Metro One-owned property to Metro One within
twenty (20) business days upon Metro One's request, or upon the
termination or expiration of this Agreement, as Metro One determines.
Sprint Spectrum is responsible and must account for all Metro
One-owned property, and bears the risk of loss while the property is
in Sprint Spectrum's possession. Metro One-owned property may only be
used in Sprint Spectrum's performance of this Agreement.
f. WIND-DOWN TRANSITION. Upon receipt of notice from Sprint Spectrum of
termination of this Agreement, Metro One agrees to continue providing
Services under this Agreement until the effective date of the
termination as provided by Sprint Spectrum. Metro One agrees to
provide cooperative and professional interaction with Sprint Spectrum
during the wind-down transition and any subsequent interaction.
g.
i.
***
ii.
Sprint Spectrum / Metro One Page 23 of 61
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CONTRACT NUMBER: 96-0053
iii. ***
iv. If the contract is assigned pursuant to Section 16. c. below,
or the entity to whom the license was transferred or sold has
EDA Services provided by Metro One for the affected Call
Origination Area with terms and conditions comparable to this
Agreement, then the obligations of Sprint Spectrum with respect
to the affected Call Origination Area cease upon successful
transfer of the obligations hereunder.
16. AFFILIATES, ASSIGNMENT AND SUBCONTRACTING
a. ***
b. AFFILIATE RIGHTS. Notwithstanding anything herein to the contrary,
Sprint Spectrum Affiliates may exercise the right to place Work
Requests under this Agreement. Work Requests placed by Affiliates may
provide for specific requirements that differ from time to time, from
the requirements set forth in this Agreement. Metro One and the
requesting Affiliate will negotiate any such differences in good
faith.
Sprint Spectrum / Metro One Page 24 of 61
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CONTRACT NUMBER: 96-0053
c. ASSIGNMENT. Sprint Spectrum may transfer, sublicense, or assign this
Agreement and any Work Request or license hereunder to any Sprint
Spectrum Affiliate or any Partner without the prior consent of Metro
One. Notwithstanding the foregoing, any successor in interest by
merger, operation of law, or purchase of the entire or substantially
all of the business or assets of either party may acquire all interest
and be subject to all obligations of such party hereunder. Otherwise,
neither party may assign this Agreement nor any of its rights nor
delegate its obligations hereunder without the prior written consent
of the other party, and any such written consent will not be
unreasonably withheld. No assignment will relieve either party of its
obligations hereunder. This Agreement will be binding upon the
parties' successors and permitted assigns.
d. SUBCONTRACTING. Metro One may not subcontract any portion of the
Services, without prior written consent of Sprint Spectrum's Director,
Negotiations, and such consent will not be unreasonably withheld, and
will remain fully liable for the Services and all other obligations
under this Agreement and for the acts or omissions of any
subcontractor. Metro One must request in writing for approval of
subcontractors, including but not limited to, the specific work
function, timeframe, name, address, and contact number. Approved
initial subcontractors will be listed in Exhibit 12 and will be
revised as others are agreed upon.
e. CONFIDENTIALITY AND OTHER PROVISIONS OF THIS AGREEMENT. Any Sprint
Spectrum Affiliate entering into an executed Work Request (Exhibit
11), will be bound, and Metro One will also be bound, by all
provisions of this Agreement as applicable to the Work Request.
f. CONFIDENTIALITY WITH RESPECT TO AFFILIATES. If any Sprint Spectrum
Affiliate listed in Exhibit 13 hereto, which has contracted for Metro
One services by way of a Work Request Form hereunder, by merger,
acquisition or otherwise acquires an interest other than a passive
investment interest in a competitor of Metro One listed in Exhibit 14
hereto (as it may be hereafter amended by mutual consent of the
parties), the confidentiality provisions of Section 12 of this
Agreement shall fully pertain as regards protection of proprietary
information of Metro One from disclosure to such competitor.
17. UCC
This Agreement shall be subject to the provisions of the Uniform Commercial
Code as adopted in Missouri.
18. SERVICE TESTING/QUALITY ASSURANCE
Unless Sprint Spectrum is prohibited by law and if Sprint Spectrum has
adequate supply, Sprint Spectrum shall provide Metro One at Sprint
Spectrum's expense one (1) wireless telephone and access on Sprint
Spectrum's system for technical support and quality control of the Metro
One System for each Metro One call center that resides within a Call
Origination
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CONTRACT NUMBER: 96-0053
Area. Additionally, Sprint Spectrum shall provide Metro One at Sprint
Spectrum's expense one (1) landline access line into each Call Origination
Area on Sprint Spectrum's system for technical support and quality control
of the Metro One System for each Metro One call center providing EDA
Services under this Agreement.
Unless Metro One is prohibited by law, Metro One will provide Sprint
Spectrum with remote access monitoring capabilities, to the Metro One
System, for quality assurance purposes.
19. SURVIVAL OF OBLIGATIONS
The obligations set forth in Sections 8 ("Publicity/Trademark/
Servicemark"), 12 ("Confidential Information") and in this Section 19
hereof will survive the termination or expiration of this Agreement, in
addition to any other provisions that, by their content, are intended to
survive the performance, termination, or cancellation of this Agreement.
20. CAPTIONS
Section captions are inserted only for convenience and are in no way to be
construed as part of this Agreement.
21. NOTICES
Notices required by this Agreement must be sent by certified mail, return
receipt requested, to the address listed below, or to such address as the
parties may from time to time by notice provide.
To Metro One: Metro One Telecommunications, Inc.
8405 S.W. Nimbus Avenue
Beaverton, OR 97008
Attn: Timothy A. Timmins
Phone: (503) 643-9500
Fax: (503) 643-9600
To Sprint Spectrum: Sprint Spectrum L.P.
4900 Main
Kansas City, MO 64112
Attn: Director, Negotiations
Phone: (816) 559-6048
Fax:(816) 559-1481
Notice shall be deemed effective on the date the return receipt shows the
notice was accepted or refused.
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22. ENTIRE AGREEMENT
This Agreement and the Exhibits attached hereto constitute the entire
Agreement between the parties, and supersedes any and all prior
negotiations, representations, correspondence, understandings and
agreements with respect to the subject matter hereof. No amendment or
modification of any of the terms of this Agreement will be effective unless
in writing signed by both parties.
23. SEVERABILITY
If for any reason any provision of this Agreement shall be deemed by a
court of competent jurisdiction to be legally invalid or unenforceable, the
validity, legality and enforceability of the remainder of this Agreement
shall not be affected and such provision shall be deemed modified to the
minimum extent necessary to make such provision consistent with applicable
law, and, in its modified form, such provision shall then be enforceable
and enforced.
24. INDEPENDENT CONTRACTOR AND INSURANCE
It is agreed and understood that Metro One and Sprint Spectrum are not
agents, representatives or employees of each other.
INDEPENDENT CONTRACTORS. Metro One, its subcontractors, employees, or
agents are independent contractors for all purposes and at all times. Metro
One has the responsibility for, and control over, the means and details of
performing the technical support services, subject to Sprint Spectrum's
inspection. Metro One will provide all training, hiring, supervising, hours
of work, work policies and procedures, work rules, compensation, payment
for expenses, and discipline and termination of its employees.
INSURANCE. Metro One will obtain and maintain during the term of this
Agreement with financially reputable insurers, licensed to do business in
all jurisdictions where work is performed and that are reasonably
acceptable to Sprint Spectrum, not less than the following insurance:
i. Workers' Compensation as required under any Workers'
Compensation or similar law in the jurisdiction where work is
performed, with an Employer's Liability limit of not less than
$500,000 per accident. Workers Compensation insurance must
waive the insurer's right of subrogation against Sprint
Spectrum.
ii. Commercial General Liability, including coverage for
Contractual Liability and Products/Completed Operations
Liability, with a limit of not less than $1,000,000 combined
single limit per occurrence for bodily injury, personal injury,
and property damage liability, naming Sprint Spectrum as an
additional insured.
Sprint Spectrum / Metro One Page 27 of 61
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CONTRACT NUMBER: 96-0053
iii. Business Auto Insurance covering the ownership, Maintenance,
or use of any owned, non-owned, or hired automobile with a
limit of not less than $1,000,000 combined single limit per
accident for bodily injury and property damage liability.
iv. Independent Contractor Liability coverage with a minimum
combined single limit of $1,000,000. If Metro One is utilizing
subcontractors in the performance of this Agreement and does
not carry Independent Contractors Liability Insurance, all
subcontractors will be required to meet the same insurance
requirements as Metro One.
vi. Metro One must, as a material condition of this Agreement, and
prior to commencement of any work hereunder and to any renewal
of insurance, deliver to Sprint Spectrum a certificate of
insurance, satisfactory in form and content to Sprint Spectrum,
evidencing that the above insurance is in force and will not be
canceled or materially altered without giving Sprint Spectrum
thirty (30) days prior written notice thereof.
vii. Nothing contained in this Section 24 limits Metro One's
liability to Sprint Spectrum to the limits of insurance
certified or carried.
25. NO THIRD PARTY BENEFICIARIES
Callers shall not be Third Party beneficiaries under this Agreement.
Nothing expressed or implied in this Agreement is intended or shall be
construed to confer or give any person other than Sprint Spectrum and Metro
One, their respective successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
26. FORCE MAJEURE
Neither party is responsible for delays in performance caused by wars,
fires, strike, embargoes, priority exclusion of either party's business by
government authorities, transportation conditions (including
telecommunication transmission failures), material shortages, natural
disasters, severe weather or other causes beyond its reasonable control.
Such delays shall not be construed as a breach under Section 15
("Termination").
27. DEFAULT/REMEDIES
a. DEFAULT. In the event of any breach of this Agreement or Work Request
hereto by either party, the non-breaching party will give the
breaching party written notice specifying such breach. The breaching
party will then have thirty (30) days to cure the breach. Failure to
cure any such breach will constitute a default hereunder. No default
under this Agreement or any Work Request hereto will constitute a
default under any
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CONTRACT NUMBER: 96-0053
other agreement, license, or Work Request between the parties.
b. PERFORMANCE ADJUSTMENT. Metro One will incur liability to Sprint
Spectrum for Performance Adjustments, which will not be construed as a
penalty, for each and every failure to meet Deliverables and/or
Service Levels as set forth in Exhibit 5.
c. OTHER DAMAGES AND RELIEF. A breach of certain provisions of this
Agreement may cause either party irreparable injury and may be
inadequately compensable in monetary damages. The parties agree that
in such instances a court may grant either party injunctive relief,
specific performance and/or are not adequately compensable in money
damages, in addition to any other remedies which may be available.
Except as is otherwise provided in Section 13, neither party will be
liable to the other or any Third Party for loss of profits, loss of
business or indirect consequential or punitive damages. This
limitation is not intended to affect or eliminate Sprint Spectrum's
right to performance adjustment pursuant to Section 27.b.
28. WAIVER
The waiver or failure of any party to exercise any rights under this
Agreement shall not be deemed a waiver of any other right or any future
right.
29. APPLICABLE LAW
This Agreement will be governed by, construed and enforced in accordance
with the law of the State of Missouri, without regard to its principles of
conflicts of law.
30. METRO ONE WARRANTIES
a. GENERAL WARRANTY. Metro One warrants and represents that the System
shall function in accordance with all requirements of this Agreement,
including Sprint Spectrum and Metro One documents stipulating
performance criteria and standards, and current specifications and
descriptions published or disseminated by the System manufacturer(s)
as documented performance and operational procedures with respect to
each respective System as a whole as well as all individual component
and application elements of each System.
The Software will strictly conform to the description, definition,
specification, and functional requirements set forth in a Work Request
for development services hereto, and will be free from programming
errors and material defects in operational performance. Metro One
will, at its own expense, and in strict conformance with any Metro One
technical support requirements contained in this Agreement and the
Work Request hereto, promptly correct all deficiencies in the Software
reported by Sprint Spectrum during the warranty period set forth
herein, even if the period to perform
Sprint Spectrum / Metro One Page 29 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
those corrections extends beyond the Warranty period.
b. METRO ONE PERSONNEL WARRANTY. To the best of Metro One's knowledge,
after investigation, neither Metro One nor its personnel performing
Services under this Agreement has any existing obligation that would
violate or infringe upon the rights of third parties, including
property, contractual, employment, trademark, trade secrets,
copyright, patent, proprietary information and non-disclosure rights,
that might affect Metro One's ability to fulfill its obligations under
this Agreement.
c. ***
31. EMPLOYMENT PRACTICES
a. COMPLIANCE WITH LAWS. Metro One must comply with laws, regulations,
and orders relating to equal employment opportunity, workers'
compensation, unemployment compensation, and FICA. Upon request, Metro
One will furnish Sprint Spectrum with its EEO policies and procedures,
verification of workers' compensation, unemployment compensation,
FICA, and the number of hours any individual performs technical
support services for Sprint Spectrum within any twelve (12)
consecutive month period.
b. METRO ONE AGENTS. Sprint Spectrum will incur no responsibility or
obligation to employees, agents, subcontractors, or other parties
utilized by Metro One to perform the Services set forth in this
Agreement. Such person or parties will, at all times, remain
employees, agents, or subcontractors (whichever is applicable) of
Metro One.
c. PAYMENT OF WAGES. Metro One is solely responsible for payment of
wages, salaries, fringe benefits, and other compensation of, or
claimed by, Metro One's employees including, without limitation,
contributions to any employee benefit, medical, or savings plan, and
is responsible for all payroll taxes including, without limitation,
the withholding and payment of all federal, state, and local income
taxes, FICA, unemployment taxes, and all other payroll taxes. Metro
One is also solely responsible for compliance with applicable Workers'
Compensation laws with respect to maintenance of workers' compensation
coverage on Metro One's employees. Metro One will indemnify and defend
Sprint Spectrum from all claims by any person, government, or agency
relating to payment of taxes and benefits, including without
limitation, any penalties and interest which may be assessed against
Sprint Spectrum. Metro One will similarly indemnify and defend Sprint
Spectrum from all claims by
Sprint Spectrum / Metro One Page 30 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
any person or governmental agency which arise directly or indirectly
from any failure by Metro One to comply with applicable Workers'
Compensation laws with respect to maintenance of Workers' Compensation
coverage on Metro One's employees.
d. REQUIRED COMPLIANCE WITH AGREEMENT. The parties will require their
employees, agents, and subcontractors to comply with the terms and
conditions of this Agreement.
32. RIGHT OF AUDIT
Sprint Spectrum or its authorized representative will have the right to
audit Metro One's performance under this Agreement. The parties will
maintain all records and reports pertaining to this Agreement for a period
of at least three (3) years after Sprint Spectrum's final payment of all
undisputed amounts due hereunder, and shall provide the other access to
such records upon request. All audits will be conducted at a mutually
agreeable location during regular business hours during the term of this
Agreement and for the three (3) year period described above.
Notwithstanding the specified service levels in Exhibit 5, audits may be
conducted no more frequently than once annually.
33. ***
Sprint Spectrum / Metro One Page 31 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
Entered into as of the date first above written.
METRO ONE SPRINT SPECTRUM L.P.
TELECOMMUNICATIONS, INC.
By: /s/ Timothy Timmins By: /s/ Faerie Kizzire
--------------------------------- ---------------------------------
Name: Timothy Timmins Name: Faerie Kizzire
Its: President Its: Vice President, Customer Care
Date: October 22, 1996 Date: October 23, 1996
Sprint Spectrum / Metro One Page 35 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 1 ***
Sprint Spectrum / Metro One Page 36 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 2 ***
Sprint Spectrum / Metro One Page 37 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 3 ***
Sprint Spectrum / Metro One Page 38 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 4 ***
Sprint Spectrum / Metro One Page 39 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 4 ***
Sprint Spectrum / Metro One Page 40 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 5 ***
Sprint Spectrum / Metro One Page 45 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
ATTACHMENT 1: REPORTING
<TABLE>
<S> <C>
NUMBER OF CALLS
Incoming calls Answered (not including StarBack calls) X.X
Incoming calls Abandoned (not including StarBack calls) X.X
Total Incoming Calls (not including StarBack calls) X.X
Calls Answered (including StarBack calls) X.X
Calls Abandoned (including StarBack calls) X.X
Total Calls Accepted (including StarBack calls) X.X
Star-Back Calls X.X
Outgoing Calls Dialed (including StarBack calls) X.X
Call Completion rate as % of total X.X%
ABANDONMENT
Avg. Abandoned Time (including StarBack calls)
Calls Abandoned < = 6 sec X.X%
Calls Abandoned > 6 sec X.X%
Calls Abandoned 24 sec X.X%
Calls Abandoned > = 42 sec X.X%
Abandoned calls are calls held in queue and disconnected by the caller
before an operator has answered.
SPEED OF ANSWER
Average Speed of Answer XX.X
Calls Connected form Queue (calls from Queue answered by operator) XX.X%
Average Queue time (average time held in queue before being
answered by an operator) XX.X%
Calls Answered (including StarBack) < = 20 seconds XX.X%
Calls Answered (including StarBack) < = 24 seconds XX.X%
Calls Answered (including StarBack) < = 40 seconds XX.X%
Calls Answered (including StarBack) < = 42 seconds XX.X%
Calls Answered (including StarBack) < 42 seconds XX.X%
OPERATOR CALL PROCESSING TIME
Average Call Processing Time (DCP)
DCPs < =30 sec XX.X%
*** DCPs < =45 sec XX.X%
DCPs < =50 sec XX.X%
DCPs < =55 sec XX.X%
DCPs < =60 sec XX.X%
DCPs < =70 sec XX.X%
DCPs < =80 sec XX.X%
DCPs < =90 sec XX.X%
DCPs > 90 sec XX.X%
Maximum Call Processing time (DCP) XX.X%
</TABLE>
----------------------------------------------------------------------------
Metro One shall provide such EDA call count volume records by site location, in
a summarized total for all sites, and in summarized total for certain sites as
requested by Sprint Spectrum. Additional Reports may be defined with prior
mutual written agreement of both parties.
Sprint Spectrum / Metro One Page 51 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 6 INVOICE.
INVOICE,
[LOGO]
Sprint Spectrum Account No. 2001
EDA Sprint Spectrum
100 Main Street
Anywhere, U.S.A.
INVOICE SUMMARY
ENHANCED DIRECTORY ASSISTANCE SPRINT SPECTRUM
APRIL 1, 1996
SITE LOCATION: SPOKANE, WA
<TABLE>
<S> <C>
Previous Balance $238,076.40
Payments (238,076.40)
Interest on late payments 0.00
Current Charges 0.00
TOTAL DUE $0.00
</TABLE>
A charge of 1.5% per month will be assessed on accounts past 50 days.
Federal ID 93-0995165
Page 1 of 2
Sprint Spectrum / Metro One Page 52 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
ENHANCED DIRECTORY ASSISTANCE CUSTOMER
SITE LOCATION: SPOKANE, WA
DETAIL OF CURRENT MONTH'S CHARGES
<TABLE>
<CAPTION>
CALL CALL NET CALL NET
DAY DATE VOLUME CREDITS VOLUME CHARGE
- -------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sat 01-Mar 0 0 0 0.00
Sun 02-Mar 0 0 0 0.00
Mon 03-Mar 0 0 0 0.00
Tue 04-Mar 0 0 0 0.00
Wed 05-Mar 0 0 0 0.00
Thu 06-Mar 0 0 0 0.00
Fri 07-Mar 0 0 0 0.00
Sat 08-Mar 0 0 0 0.00
Sun 09-Mar 0 0 0 0.00
Mon 10-Mar 0 0 0 0.00
Tue 11-Mar 0 0 0 0.00
Wed 12-Mar 0 0 0 0.00
Thu 13-Mar 0 0 0 0.00
Fri 14-Mar 0 0 0 0.00
Sat 15-Mar 0 0 0 0.00
Sun 16-Mar 0 0 0 0.00
Mon 17-Mar 0 0 0 0.00
Tue 18-Mar 0 0 0 0.00
Wed 19-Mar 0 0 0 0.00
Thu 20-Mar 0 0 0 0.00
Fri 21-Mar 0 0 0 0.00
Sat 22-Mar 0 0 0 0.00
Sun 23-Mar 0 0 0 0.00
Mon 24-Mar 0 0 0 0.00
Tue 25-Mar 0 0 0 0.00
Wed 26-Mar 0 0 0 0.00
Thu 27-Mar 0 0 0 0.00
Fri 28-Mar 0 0 0 0.00
Sat 29-Mar 0 0 0 0.00
Sun 30-Mar 0 0 0 0.00
Mon 31-Mar 0 0 0 0.00
TOTAL CURRENT
MONTHLY 0 0 0 0.00
CHARGES
</TABLE>
Page 2 of 2
Sprint Spectrum / Metro One Page 53 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 7 FAILURE NOTICE / DISASTER RECOVERY.
Metro One and Sprint Spectrum agree to have the Failure Notice and Disaster
Recovery Plan completed and incorporated into this Agreement by Launch.
Sprint Spectrum / Metro One Page 54 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 8 EDA PRODUCT FEATURES.
Service Set:
- - Local search types and services:
Name
Number
Key Word
Address
Category
Movie Listings
Major local current events
Directions based on local operator knowledge
Residential, business, and government listings
Compound String Search
Call Completion
StarBack
Branding (pre & post)
Number to Name Reverse Search
- - National search types and services:
Name
Number
Key Word
Address
Residential, business, and government listings
Compound String Search
Call Completion
StarBack
Branding (pre & post)
Number to Name Reverse Search
DATA SOURCE PRIORITY. Metro One will use its internal database(s) as a
first source to fulfill Caller EDA requests for listings within the Call
Origination Area. By September 1997 Metro One will query its internal
database(s) for nationwide queries as a first source in fulfilling Caller
EDA requests within the Call Termination Area.
Sprint Spectrum / Metro One Page 55 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 9 RECORD FORMAT.
The record format must conform to the Securicor Common Format Technical Summary,
Publication Number: 17-0159-02, Release 1, June 1996.
Sprint Spectrum / Metro One Page 56 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 10 IMPLEMENTATION PLAN/DELIVERABLES.
Ml -Establish Connectivity
M2 -Receive appropriate NPANXX for LCA's for that market
M3 -Complete Product Test
M4 -Complete Operational Readiness Test
M5 -Hire Call Center Staff if necessary
M6 -Train Call Center Staff
M7 -Signoff by Sprint PCS and Metro One for Call Center Readiness
Dates for all Milestones will be established based on the launch date
determined by Sprint PCS
Sprint Spectrum / Metro One Page 57 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 11
WORK REQUEST FORM # _________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURUSANT TO METRO ONE/SPRINT SPECTRUM EDA AGREEMENT NO. 96-0053
MUST BE COMPLETED OR REQUEST IS NULL AND VOID
/ / EDA Services and other benefits under Section 33.
/ / Unrelated Spring Spectrum Suggested Development - Section 33.a.
/ / Related Spring Spectrum suggested Development - Section 33.b.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREPARED BY:
--------------------------------------------------------
NAME/TITLE/COMPANY
STATEMENT OF WORK - REFERENCE ATTACHMENT IF NECESSARY
DESCRIPTION OF WORK TO BE PERFORMED:
DESCRIPTION OF RESOURCES TO BE UTILIZED:
RATE PLAN FOR RESOURCES (SKILL LEVEL, QUANTITY, DAYS):
DESCRIPTION OF DELIVERABLE(S):
DELIVERABLE(S) DUE DATE(S):
TEST PLAN:
COST ESTIMATE: LABOR: $ TRAVEL: $ OTHER: $ TOTAL: S
(PROVIDE DETAILS IN ATTACHMENT, I.E. HOURS, TRIP COSTS/LOCATIONS, OTHER COSTS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZATION
METRO ONE: SPRINT SPECTRUM:
NAME: TITLE: PRESIDENT NAME: TITLE:
SIGNATURE: SIGNATURE:
DATE: DATE:
DATE WORK IS AUTHORIZED TO BEGIN: _________________________
ALL INFORMATION ABOVE MUST BE COMPLETE PRIOR TO AUTHORIZATION. WORK PERFORMED
PRIOR TO AUTHORIZATION WILL BE AT METRO ONE'S EXPENSE. IF THE COST OF THE
WORK REQUEST IS EXCEEDED BY 10%, A REVISED WORK REQUEST MUST BE SUBMITTED FOR
APPROVAL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVOICE INSTRUCTIONS
SUBMIT INVOICE WITH VALID DOCUMENTATION TO:
NAME:
ADDRESS:
PHONE: FAX:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCEPTANCE OF DELIVERABLES
ACCEPTED BY:
DATE:
EXCEPTION:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONFIDENTIALITY AND OTHER PROVISIONS OF THIS AGREEMENT. Any Sprint Spectrum
Affiliate entering into this executed Work Request has read and understands
and will be bound, and Metro One will also be bound, by all provisions of
this Specific Agreement 96-0053 as applicable to the Work Request.
Sprint Spectrum / Metro One Page 58 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 12 APPROVED SUBCONTRACTORS.
XNT Systems, Inc.
Tactix Reengineering, Inc.
Sprint Spectrum / Metro One Page 59 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 13 ***
Sprint Spectrum / Metro One Page 60 of 61
<PAGE>
CONTRACT NUMBER: 96-0053
EXHIBIT 14 ***
Sprint Spectrum / Metro One Page 61 of 61
<PAGE>
METRO ONE
35,575 s.f.
COMMERCIAL LEASE
THIS LEASE, dated as of the 2 day of Sept, 1998 between Murray
Scholls, LLC, an Oregon limited liability company, as "Landlord" and Metro One
Telecommunications, Inc., an Oregon corporation, as "Tenant".
Section 1. - PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord approximately 35,575 rentable square feet of space (consisting of
approximately 32,655 rentable square feet of office space together with
approximately 2,920 rentable square feet of underground storage space) in the
Building shown crosshatched on the site plan attached as EXHIBIT A-1 (the
"PREMISES") in the Project constructed or to be constructed by Landlord on the
real property described in attached EXHIBIT A-2 (the "PROJECT"). Tenant's lease
of the Premises shall initially include the exclusive right to use the parking
in the area identified as "Initial Parking" on the site plan attached as EXHIBIT
A-1 during the hours 8 a.m. to 5 p.m. Such right shall terminate upon written
notice from Landlord that Landlord has substantially completed the improvements
to the area identified as "Replacement Parking" on the site plan attached as
Exhibit A-1 and such Replacement Parking is available for use by Tenant, its
employees, agents and invitees. Following such notice, Tenant's lease of the
Premises shall include the exclusive right to use the Replacement Parking during
the hours 8 a.m. to 5 p.m. Tenant shall have the non-exclusive right to parking
in the Project for four (4) automobiles for every 1,000 square feet of net
rentable area in the Premises during the hours 5:01 p.m. to 7:59 a.m. Landlord
shall provide parking in the Project to satisfy the following ratios: (i) 4
automobiles per 1,000 square feet of net rentable area of retail space, (ii) 7
automobiles per 1,000 square feet of net rentable area of stand alone restaurant
space, and (iii) 3.5 automobiles per 1,000 square feet of net rentable area of
office space. Tenant's lease of the Premises shall include the appurtenant right
to use in common with others all common areas (except parking) within the
Project as Landlord may from time to time designate. Landlord reserves the right
to alter or relocate any common area provided, however, that Landlord shall not
make any changes which have a material adverse impact on Tenant in the area
denoted as the "No Change" area on attached EXHIBIT A-1. Tenant acknowledges
that Landlord may from time to time, at its sole discretion, make such
modifications, alterations, deletions or improvements to the Project other than
the Premises as Landlord may deem necessary or desirable, without compensation
or notice to Tenant. The Lease is subject to all easements, restrictions,
agreements of record, mortgages and deeds of trust in effect on the date of this
Lease, and zoning and building laws.
Section 2. -TERM. The lease term shall commence March 1, 1999 and continue for
one hundred twenty (120) full calendar months and expire on February 28, 2009,
unless sooner terminated. If Landlord, for any reason, cannot deliver possession
of the Premises to Tenant upon the scheduled commencement date set forth above
with the work to be performed by Landlord pursuant to Section 15 and Exhibit B
(except regarding landscaping and resurfacing of replacement parking areas)
substantially complete, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting from such delay.
In that event, however, Landlord shall deliver possession of the Premises as
soon as practicable, the commencement date, the expiration date, and the date
for payment of rent shall be determined in accordance with paragraph 9 of
EXHIBIT B, and all other terms and conditions of this Lease remaining in full
force and effect. Landlord shall give Tenant thirty (30) days prior written
notice of the delivery date and upon the giving of such notice Tenant shall be
entitled to enter the Premises for the purpose of installing Tenant's equipment
and voice and data cabling; provided Tenant has obtained all necessary permits
and provided further that Tenant shall not interfere with the performance of
Landlord's Work. Such entry shall be subject to all terms and conditions of this
Lease except the obligation to pay rent. Landlord anticipates acquiring the real
property of which
MURRAY SCHOLLS
<PAGE>
the Premises is a part on or before December 1, 1998. If Landlord, fails to
acquire such real property by December 1, 1998, then Landlord shall pay to
Tenant $500 per day from December 1, 1998 until the earlier of the day that
Landlord acquires such real property or Tenant terminates this Lease pursuant to
the following sentence (but in no event after January 10, 1998). If Landlord
fails to acquire such real property by January 1, 1999, then Tenant shall be
permitted to terminate this Lease by written notice to Landlord given on or
before January 10, 1998 (but in no event after Landlord has acquired such
property).
If Landlord, for any reason except Force Majeure as defined in Section
16.16 cannot deliver possession of the Premises to Tenant by May 1, 1999 with
Landlord's Work as provided for in Section 15 and EXHIBIT B (except
regarding landscaping and resurfacing of replacement parking areas)
substantially complete, then Landlord shall pay to Tenant $500 per day from May
1, 1999 until the earlier of the day that Landlord does deliver possession of
the Premises to Tenant with Landlord's Work substantially complete or Tenant
terminates this Lease pursuant to the following sentence (but in no event after
June 10, 1999) If Landlord for any reason except Force Majeure as defined in
Section 16.16 cannot deliver possession of the Premises to Tenant by May 31,
1999 with Landlord's Work substantially complete, then Tenant shall be permitted
to terminate this Lease by written notice to Landlord given on or before June
10, 1999 (but in no event after Landlord has delivered possession). In the event
Tenant gives timely notice to terminate this Lease pursuant to the previous
sentence, Landlord shall instruct the escrow holder to release to Tenant any
funds deposited for excess Tenant improvements or change orders, as provided for
in paragraphs 7 and 8 of Exhibit B and Landlord shall return the first month's
minimum rent and neither party will have any further obligation hereunder.
Payment of any penalty under this Section shall be paid monthly and shall
be due on the last day of the month. Interest shall accrue on the past due
payments at the rate provided for in this Lease for unpaid rent.
Concurrently with delivery of possession of the Premises to Tenant with
Landlord's Work substantially complete, Landlord shall deliver to Tenant a
letter which shall specify the date of delivery of possession as the term
commencement date.
Section 3.- RENT.
3.1 MINIMUM RENT. Tenant shall pay to Landlord, during the term of this
Lease as minimum rent for the office space the following sums per month:
(1) During the first through the sixtieth months the sum of Forty
Thousand Eight Hundred Eighteen and 75/100 Dollars ($40,818.75) per month; and
(2) During the sixty-first through one hundred twentieth months the
sum of Forty-eight Thousand Nine Hundred Eighty-two and 50/100 Dollars
($48,982.50) per month.
In addition, Tenant shall pay to Landlord during the term of this Lease a
minimum rent for the underground storage space the sum of Two Thousand One
Hundred Ninety and No/100 Dollars ($2,190.00) per month. Rent will be paid in
advance on the first day of each month at such place as Landlord may designate.
Minimum rent is uniformly apportionable day to day. Minimum rent for the partial
month (if any) in which the lease term commences shall be prorated and paid at
commencement of the lease term. Upon execution hereof, Tenant shall pay
Forty-Three Thousand Eight and 75/100 Dollars ($43,008.75) to be applied to the
first month's minimum rent and additional rent when due.
3.2 ADDITIONAL RENT.
(1) OPERATING EXPENSES. In addition to the minimum rent, Tenant shall
pay as additional rent its share of all operating expenses for the Project. As
used herein "operating expenses" shall mean all costs of ownership, operation,
maintenance and repair of the Project as determined by standard real estate
accounting practice, including, but not limited to: wages, salaries and benefits
of employees engaged in the operation, maintenance and repair of the Project;
cost of consumable supplies, materials, tools and equipment used in the
operation, management and maintenance of the Project; the cost of all insurance
relating to the Project, including but not limited to the cost of casualty,
rental abatement and liability insurance (and all deductibles); all accounting,
legal and professional fees incurred in connection with the operation of the
Project; costs of repairs, replacements and general maintenance; cost or rental
value of the Project office; and a management fee of two and one-half percent (2
1/2%) of the minimum rent.
MURRAY SCHOLLS
2
<PAGE>
Operating Expenses shall not include (i) the initial cost of any
construction of the Project or any part thereof; (ii) costs for any capital
expenditure in excess of $10,000; provided, however that operating expenses
shall include the annual amortization charge for such capital expenditure
assuming amortization over the useful life of the capital asset in question
together with interest thereon at the rate of 9% per annum; (iii) salary,
employee benefit and payroll taxes for offsite executive or managerial
personnel; (iv) brokerage fees and commissions incurred in connection with the
sale or leasing of space in the Project; (v) such portion of any expenses for
which Landlord is entitled to reimbursement by insurance proceeds, condemnation
awards, other tenants (excluding reimbursements of operating expenses pursuant
to lease provisions similar to this Section) or any other source; (vi) cost of
performing additions, alterations, improvements or individual services for other
tenants or vacant or vacated space; (vii) any payments required in connection
with any debt or ground lease encumbering the Project; (viii) any amounts not
actually expended, such as contingency funds, reserve funds or sinking funds;
(ix) costs and expenses of enforcing lease provisions against other tenants in
the Project, including legal fees; (x) expenses resulting from a violation of
Landlord of the terms of any lease of space in the Project or of any ground
lease or mortgage to which this Lease is subordinate; (xi) the repair of any
part of the Common Area to the extent covered by a construction warranty; (xii)
costs attributable to maintenance, repair and replacement of any building;
(xiii) all costs associated with the removal and clean up of hazardous wastes
and toxic substances; (xiv) cost of compliance with ADA access requirements in
connection with the initial construction of the Common Area of the Project; (xv)
all management fees other than the two and one-half percent (2 1/2%) fee set
forth above; and (xvi) expenses incurred to keep the Project clean, and in good
condition during Landlord's construction activities.
The charges for any services provided by affiliates, related or designated
parties of Landlord which are included in operating expenses shall be
reasonable, customary and competitive with charges for similar services of
independent contractors in the area where the Project is located.
Tenant shall have the right, but not more than once per year on reasonable
prior notice to Landlord, to inspect, examine and make copies of, Landlord's
books, records and computations with respect to Operating Expenses, real estate
taxes and insurance and Landlord shall retain such books, records and
computations for at least three (3) years following the period to which they
relate. In the event of any overpayment by Tenant, Landlord shall, within thirty
(30) days after demand, refund the amount of overpayment to Tenant with interest
thereon, from the date of overpayment to the date refunded at the rate set forth
in Section 13.3 of the Lease. Alternatively, in the event of any overpayment by
Tenant, Tenant shall be entitled to offset such excess against payments becoming
due as additional rent. If the audit discloses a discrepancy in excess of five
percent (5%), Landlord shall be obligated to pay all costs associated with such
audit.
(2) TAXES AND ASSESSMENTS. In addition to the minimum rent, Tenant
shall pay as additional rent its share of all real property taxes and
assessments of any public authority against the Project and the cost of
contesting any tax. Real property taxes and assessments shall include all real
property taxes and assessments of any public authority assessed against the
Project and any rent tax, gross receipts tax, tax on Landlord's interest under
this Lease, or any tax in lieu of the foregoing, whether or not such tax is now
in effect (excluding any tax based upon Landlord's net income). Real property
taxes and assessments shall not include any interest or penalties imposed by the
assessing authority except if arising as a result of Tenant's late payment of
Tenant's share thereof. If general or special assessments may be paid in
installments over a period of years, only the installments coming due during the
tax year in question during the Lease term shall be included in taxes and
assessments payable by Tenant for such year. If Landlord shall obtain a refund
or abatement of any taxes or assessments to which Tenant contributes, Landlord
shall refund to Tenant its share thereof less its share of Landlord's reasonable
expenses of obtaining same. If any portion of the Project is occupied by a tax
exempt tenant so that the Project has a partial tax exemption under ORS 307.112
or a similar statute, the real property taxes and assessments shall mean real
property taxes and assessments computed as if such partial exemption did not
exist.
(3) TENANT'S SHARE. Tenant's share of operating expenses shall be a
percentage thereof equal to the percentage which the net rentable area of the
Premises (i.e., 35,575
MURRAY SCHOLLS
3
<PAGE>
square feet) bears to the total net rentable area of the Project. During any
period that the total net rentable area of the Project is less than 135,000
square feet, the total net rentable area of the Project for the purpose of
determining Tenant's share of operating expenses shall be deemed to be 135,000
and during such period operating expenses which vary with occupancy will be
adjusted to reflect the operating expenses which in the reasonable judgment of
Landlord would have been incurred had occupancy been 135,000 square feet for the
entire period. Notwithstanding the foregoing, Landlord shall be permitted to
adjust Tenant's percentage share of any item of operating expense to allocate
such operating expense among tenants in the Project in an equitable manner based
upon the usage of and benefits afforded to such tenants, respectively. Tenant's
share of taxes and assessments shall be a percentage thereof equal to the
percentage which the net rentable area of the Premises bears to the total net
rentable area of the Project. During any period that the total net rentable area
of the Project is less than 165,000 square feet, the total net rentable area of
the Project for the purpose of determining Tenant's share of taxes attributable
to land (but not improvements) shall be deemed to be 165,000. Landlord shall
modify Tenant's share if the net rentable area of the Project is increased or
decreased.
(4) PAYMENT. Upon commencement of the Lease and at the beginning of
each calendar year during the term of the Lease, Landlord may estimate Tenant's
share of operating expenses and taxes and assessment for the ensuing calendar
year or portion thereof. Landlord may revise the estimate during the course of
any year. Tenant will pay Tenant's estimated share of operating expenses and
taxes and assessments on the first day of each calendar month during the term
hereof. If Landlord bills on an estimated basis, Landlord shall within 120-days
(or as soon thereafter as possible) after the end of any calendar year give
Tenant written notice of Tenant's actual share of operating expenses and taxes
and assessments. If Tenant's payments of its estimated share for such calendar
year differ from Tenant's actual share, an appropriate adjustment shall be made
within 30-days after the giving of such notice. Any objections by Tenant to the
annual statement shall be made in writing within 30-days after receipt thereof.
Otherwise, the annual statement shall be deemed conclusive and binding on the
parties. If Landlord bills on an actual basis Tenant will pay Tenant's actual
share of operating expenses and taxes and assessments on the first day of the
first calendar month after such bill.
(5) LAND DIVISION. Landlord reserves the right to divide the Project
into multiple lots or parcels. In the event of such division, the term the
"Project" shall thereafter be deemed to mean the lot or parcel of which the
Premises are a part. Landlord also reserves the right at the time of any such
division to subject the Project to reciprocal easements, covenants and
restrictions to which this Lease shall automatically be subordinate. In such
event, the operating expenses for the Project shall be deemed to include,
without limitation, Landlord's share of such costs under the reciprocal
easements, covenants and restrictions.
3.3 INTEREST AND LATE CHARGES. All rent or other payments not paid
within thirty (30) days after it is due shall bear interest from the due date
until fully paid at the prime rate, as quoted in THE WALL STREET JOURNAL from
time to time, plus five percent (5%) per annum, but not in any event at a
rate greater than the maximum rate of interest permitted by law. In addition,
Tenant acknowledges that late payment of any rent or other payment required
by this Lease from Tenant to Landlord will result in collection costs to
Landlord, the extent of which additional costs is extremely difficult and
economically impractical to ascertain. Tenant therefore agrees that if Tenant
fails to make any rent or other payment required by this Lease to be paid to
Landlord within five (5) day after it is due, Landlord may elect to impose a
late charge of three cents (3 CENTS) per dollar of the overdue payment, to
reimburse Landlord for the costs of collecting the overdue payment. Tenant
shall pay the late charge upon demand by Landlord. Tenant agrees that the
late charge is a reasonable estimate of the costs to Landlord of collecting
the overdue payment. Landlord may levy and collect a late charge in addition
to all other remedies available for Tenant's default, and collection of a
late charge shall not waive the breach caused by the late payment.
3.4 NET LEASE PROVISION. All payments required to be paid by Tenant under
this Lease, other than minimum rent, will constitute additional rent. Except as
specifically set forth herein, this is intended to be a net lease, meaning that
Tenant shall pay all expenses of every type relating to the Premises after
commencement of the lease term, and all rent
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(including minimum and additional rent) shall be received by Landlord without
set off, offset, abatement, or deduction of any kind.
SECTION 4.- BUSINESS PURPOSE.
4.1 PERMITTED USE. Tenant shall use the Premises only for the purpose of
general office and telecommunication business center with administrative
offices, hardware and software testing, operators and auditorium and for no
other purpose without the written consent of the Landlord. Tenant shall not
place any antenna, satellite dish or other equipment ("EQUIPMENT") on the roof
of the Premises except in accordance with the terms of attached EXHIBIT C.
Tenant shall not use the Premises for retail purposes. If Tenant fails to occupy
or use the Premises for the purposes permitted by this Lease for a total of
ninety (90) consecutive days during the Lease term, Landlord shall have the
right at its option, to terminate this Lease by written notice to Tenant and
upon the giving of such notice neither party shall have any further obligation
hereunder to the other except for matters occurring or obligations arising prior
to the date of such termination.
4.2 COMPLIANCE WITH LAWS. In connection with its use, Tenant shall comply
at its expense with all applicable laws, regulations and requirements of any
public authority, including those regarding maintenance, operation and use of
the Premises and any appliances on the Premises (including signs as well as any
master plans or restrictive covenants that Landlord may from time to time
adopt).
4.3 INSURANCE. Tenant shall not conduct or permit any activities on the
Premises which will: increase the fire insurance rate upon the Project or cause
a cancellation of the fire insurance policy; or create a nuisance or damage the
reputation of the Project.
4.4 SUPERVISION. Tenant shall keep the Premises clean and orderly. Tenant
will supervise its employees and cause Tenant's agents, independent contractors
and employees to conduct their activities in such a manner as to comply with the
requirements of this Lease and the rules and regulations described herein.
Tenant shall take reasonable steps to cause its suppliers to comply with the
requirements of this Lease and the rules and regulations described herein.
Except as relates to the requirements set forth in SECTION 9.2, Tenant shall not
be responsible to Landlord for noncompliance of Tenant's customers and invitees
with the requirement of this Lease and the rules and regulations described
herein.
4.5 COMMON AREAS. All common areas within the Project shall be used in
strict compliance with Landlord's nondiscriminatory rules, regulations and
requirements for such areas as modified from time to time.
4.6 STORAGE, TRASH. Tenant shall not store anything outside except in
areas approved by Landlord. Tenant will use only trash and garbage receptacles
approved by Landlord. Tenant shall dispose of trash and other matter in a manner
acceptable to Landlord, at Tenant's expense.
4.7 GENERATORS. Tenant may, at its expense, furnish and install a
permanent backup generator outside the Premises. The location of the generator
shall be subject to Landlord's prior written consent which consent shall not be
unreasonably withheld. Tenant shall comply with all laws regarding the
installation, operation, maintenance and removal of the generator. Tenant shall
maintain the generator at Tenant's expense. The generator shall remain the
personal property of Tenant and Tenant shall remove the generator upon
expiration of the Term.
Section 5.- UTILITIES.
5.1 UTILITIES. Tenant shall pay for all charges for utilities and services
supplied to the Premises, including (without limitation) the cost for permits
for Tenant's improvements and service charges for electricity, gas, telephone,
water, and sewer. Electricity, gas and water service to the Premises shall be
separately metered. If consumption of any other utility is not separately
metered to the Premises, Tenant shall pay Landlord for all utilities consumed on
the Premises at a rate which as nearly as possible represents the cost to
Landlord of providing such utilities to Tenant. Payments shall be made within 10
days after billings from Landlord, or within the time permitted for payment by
the utility company where Tenant is directly billed. Tenant, at its expense,
shall be responsible for providing janitorial services using a contractor
approved by Landlord. Landlord shall give Tenant at least 24 hours prior notice
if Landlord, its agents, employees or contractors intend to
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perform any work within five (5) feet of the electrical lines and telephone
lines servicing the Building and Tenant may at its option observe such work.
5.2 INTERRUPTION OF SERVICE. Landlord shall not be liable for any failure
or interruption of utilities or services to the Premises except if such
interruption of utilities or services is caused by Landlord's negligence
provided however that Landlord shall not in any event be liable for
consequential damages or lost profits. Landlord shall take reasonable steps to
restore service as soon as practical subject to causes beyond Landlord's
reasonable control.
Section 6.- INSURANCE; INDEMNITY.
6.1 PUBLIC LIABILITY INSURANCE. Tenant shall continuously maintain at its
expense comprehensive general liability insurance, with limits of not less than
$2,000,000 per person, $2,000,000 per occurrence for injury to, illness of, or
death of persons occurring in, upon or about the Premises or Project, and
$100,000 per occurrence for property damage occurring in, upon or about the
Project with fire legal liability endorsement with limits no less than $100,000.
All such insurance shall insure the performance by Tenant of the indemnity
agreement set forth in Section 6.5 hereof.
6.2 FIRE INSURANCE OF TENANT. Tenant, at its expense, shall maintain in
effect; (a) fire and extended coverage insurance on furnishings, leasehold
improvements, fixtures, inventory and equipment located on the Premises, for the
full replacement value, and (b) insurance on all plate glass on the Premises for
its replacement cost. The proceeds of such insurance, so long as this Lease
remains in effect, shall be used to repair or replace the leasehold
improvements, fixtures, equipment and plate glass so insured.
6.3 INSURANCE POLICIES. All insurance policies shall name Landlord as
additional insured and shall be with companies and with loss-payable clauses
satisfactory to Landlord and with ratings no less than A+ by A.M. Best. Copies
of all policies or certificates evidencing such insurance shall be delivered to
Landlord by Tenant prior to Tenant's occupancy of the Premises. All policies
shall bear endorsements requiring 30 days written notice to Landlord prior to
any change or cancellation.
6.4 WAIVER OF SUBROGATION. Neither party shall be liable to the other for
any loss or damage caused by water damage or any of the risks covered by a
standard fire insurance policy with extended coverage endorsements or for any
other risks which the other party has insurance coverage for, and there shall be
no subrogated claim by one party's insurance carrier against the other party
arising out of any such loss.
6.5 INDEMNITY OF LANDLORD. Except to the extent caused by Landlord's
negligence, Tenant hereby waives all claims against Landlord for damage to any
property or injury, illness or death of any person in, upon, or about the
Premises and/or Project arising at any time and from any cause whatsoever.
Tenant shall indemnify and hold Landlord harmless and defend Landlord from any
and all claims or liability for any damage to any property or injury, illness,
or death of any person occurring in or on the Premises or occurring elsewhere in
the Project to the extent such damage, injury, illness, or death shall be caused
by the act or failure to act of Tenant, its agents, servants, employees,
licensees or contractors.
6.6 INDEMNITY. Landlord shall indemnify, hold harmless and defend Tenant
from and against any and all claims, demands, damages, judgments, fines,
penalties, losses, costs and expenses, including reasonable attorneys' fees
incurred by Tenant as a result of the negligent or wilful acts or omissions of
Landlord, its agents, contractors or employees.
Section 7. - REPAIRS, MAINTENANCE AND ALTERATIONS.
7.1 CONDITION OF PREMISES. By entry hereunder upon delivery of possession
of the Premises to Tenant with work to be performed by Landlord substantially
complete, Tenant accepts the Premises as being in the condition in which
Landlord is obligated to deliver the Premises. Landlord shall maintain, replace
and repair the structural parts of the Premises which shall include only the
foundations, bearing and exterior walls (excluding glass but including exterior
repainting), subflooring and roof (including replacement of the roof membrane),
electrical, plumbing and sewerage systems lying outside the Premises, exterior
doors (excluding glass) window frames, and gutters and downspouts. Landlord
shall maintain a service contract for repairs and maintenance of the heating,
ventilating and air conditioning system, said maintenance contract to conform to
the requirements under the warranty, if any, on said system. Landlord shall bill
Tenant for the cost of all such
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maintenance, repairs and replacements to the Premises and such heating,
ventilating and air conditioning system service contract and Tenant shall pay
such billings within ten (10) days after receipt. Any capital expenditure in
excess of $10,000 shall be amortized over the useful life of the capital asset
in question and Tenant shall pay the monthly amortization charge on account of
such expenditures including interest thereon at the rate of nine percent (9%)
per annum. Landlord shall take reasonable steps to minimize interference with
Tenant's business in the performance of such work. Notwithstanding the foregoing
during the original term, Landlord shall maintain the roof at Landlord's
expense, except for damage caused by Tenant which damage shall be repaired by
Landlord at Tenant's expense and Landlord shall make extraordinary repairs to
the heating, ventilating and air conditioning system at Landlord's expense
except for damage caused by Tenant, which damage shall be repaired by Landlord
at Tenant's expense. Subject to the foregoing, Tenant shall, at Tenant's own
expense, keep the Premises in good condition and repair, including without
limitation, the maintenance, replacement and repair of any walls, floors,
ceilings, interior doors, exterior and interior windows and fixtures, plumbing,
electrical wiring and conduits, as well as damage caused by Tenant, its agents,
employees, contractors or invitees (subject to Section 6.4). Tenant shall, at
Tenant's expense, obtain janitorial services for the Premises. Tenant shall,
upon the termination of this Lease, surrender the Premises to Landlord, in good
condition except for ordinary wear and tear and for damage covered by Landlord's
fire and extended coverage insurance. If Landlord has not commenced repair or
maintenance required to be performed by Landlord hereunder within thirty (30)
days after written notice thereof from Tenant, or if so commenced, is not
diligently pursuing same to completion, and such failure materially impairs
Tenant's ability to conduct its business in the Premises, then Tenant shall have
the right, but not the obligation, to make such repairs and Landlord shall
reimburse Tenant for the reasonable cost thereof plus an administrative fee of
15% within thirty (30) days after receipt of a bill therefor from Tenant. In the
event of an emergency, Tenant may (but shall not be obligated to) perform such
repairs which would otherwise be Landlord's obligation hereunder which may be
reasonably necessary after having given Landlord such notice, if any, as may be
practicable under the circumstances if such failure materially impairs Tenant's
ability to conduct its business in the Premises.
7.2 ALTERATIONS. Tenant shall not make any alterations or improvements to
the Premises without the prior written consent of Landlord which consent shall
not be unreasonably withheld. If Landlord gives its consent to such alterations,
Landlord may post notices of nonresponsibility in accordance with Oregon law.
Any alterations or improvements to the Premises (excluding trade fixtures
installed by Tenant), shall become part of the Premises and belong to Landlord
and shall be surrendered with the Premises without disturbance upon the
termination of the Lease. In the event Landlord consents to the making of any
alterations or improvement, the same shall be made at Tenant's sole expense.
Notwithstanding anything to the contrary herein, Tenant, without Landlord's
consent may make nonstructural alterations or improvements to the interior of
the Premises if the aggregate costs thereof, for any calendar year do not exceed
$25,000 and provided that Tenant shall upon expiration or termination of this
Lease remove any alterations or improvements made without Landlord's consent and
repair any damage caused by such removal.
7.3 TRADE FIXTURES. Upon expiration or earlier termination of the Lease,
Tenant shall remove all trade fixtures, movable furniture and equipment located
on the Premises which belong to the Tenant, and repair at its expense any damage
caused to the Premises by such removal. If Tenant fails to remove such property,
this shall be an abandonment of the property and Landlord may retain the
property and all rights of Tenant with respect to it shall cease or, by notice
in writing given to Tenant within 20 days after removal was required, Landlord
may elect to hold Tenant to its obligation of removal. If Landlord elects to
require Tenant to remove, Landlord may effect a removal and place the property
in storage for Tenant's account. Tenant shall be liable to Landlord for the cost
or reasonable value of removal, restoration, transportation to storage and
storage, with interest on all such as expenses as provided in paragraph 13.3
below.
7.4 COMPLIANCE WITH THE LAWS. Tenant should not use the Premises or permit
anything to be done in or about the Premises which will conflict with any law or
regulation.
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7.5 ENTRY AND INSPECTION. With at least 24 hours prior written or oral
notice in a non-emergency and without notice in an emergency, Landlord or its
agents may enter the Premises at any time to determine Tenant's compliance with
this Lease, to make necessary repairs, or to show the Premises to prospective
tenants or purchasers. Landlord shall take reasonable steps to minimize
interference with Tenant's business because of such entry.
Section 8.- RECONSTRUCTION AND RESTORATION.
8.1 MINOR DAMAGE. If during the term hereof the Premises are destroyed or
damaged by fire or other perils and such damage is not "substantial," Landlord
shall promptly repair such damage.
8.2 SUBSTANTIAL DAMAGE. If during the term hereof the Premises are
destroyed or damaged by fire or other perils exceeding twenty-five percent (25%)
of its full construction-replacement cost, then Landlord may elect to terminate
this Lease by giving Tenant written notice of such termination within 60 days
after the date of such damage provided that Landlord concurrently terminates the
leases of all other similarly affected tenants in the Project. Otherwise,
Landlord shall proceed to restore the Premises to a condition comparable to that
existing prior to the damage. If Landlord fails to complete the restoration
within one hundred eighty (180) days after the date of the damage for any reason
except Force Majeure as defined in SECTION 16.16, Tenant may terminate this
Lease by written notice to Landlord within ten (10) days after the expiration of
such one hundred eighty (180) day period (but not in any event after Landlord
completes the restoration).
8.3 RESTORATION. Tenant shall cooperate with Landlord during the period of
repair and vacate all or any part of the Premises to the extent necessary for
the performance of the required work.
8.4 ABATEMENT OF RENT. The minimum rent and additional rent shall be
abated during the period and to the extent the Premises is not reasonably usable
for Tenant's use. If the damage does not cause any material interference with
Tenant's use, there shall be no rent abatement.
8.5 REPAIR OF TENANT'S PROPERTY. Repair, replacement, or restoration of
any fixtures, equipment and personal property owned by Tenant, and tenant
improvements shall be the responsibility of Tenant.
Section 9.- ASSIGNMENT AND SUBLETTING.
9.1 ASSIGNMENT AND SUBLETTING. Tenant shall not (voluntarily or by
operation of law) assign; mortgage, pledge, hypothecate or encumber the Premises
or Tenant's leasehold estate or sublet any portion of the Premises, or otherwise
transfer any interest in the Premises without Landlord's prior written consent
in each instance which shall not be unreasonably withheld. If Tenant requests
consent to a proposed transfer, Tenant shall pay a review fee of $200 at the
time of the request for application to Landlord's expenses in reviewing the
request for consent to transfer. For a period of ten (10) days after a request
for consent, Landlord shall have the right by written notice to Tenant, if
Tenant has requested consent to an assignment of this Lease or a sublease of all
of the Premises, to terminate this Lease as of a date specified in such notice.
If Landlord so terminates this Lease, Landlord may, if it elects, enter into a
new lease with the intended assignee or sublessee on such terms as Landlord and
such person may agree, or enter into a new lease with any other person. If
Landlord terminates this Lease and enters into a new lease covering all or part
of the Premises, for all or part of the remainder of what would have been the
current term of this Lease but for such termination, Tenant shall be entitled to
receive, during the remainder of what would have been the current term of this
Lease but for such termination, one-half of the amount, if any, by which the
minimum rent and additional rent received on such reletting, after deduction of
the amortized amount (amortized over the life of the new lease with interest at
nine percent (9%)) of brokerage commissions, tenant improvement costs,
attorneys' fees and any other costs of reletting, exceeds the minimum rent and
additional rent which would otherwise have been payable pursuant to the terms of
this Lease for such period. Landlord shall pay such amount to Tenant within
thirty (30) days after receipt by Landlord. From and after the date of such
termination of this Lease, Tenant shall have no further obligation to Landlord
hereunder with respect to the Premises, except for matters occurring or
obligations arising hereunder prior to the date of such termination and
surrender of the Premises in accordance with the
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terms of this Lease. Landlord's right to terminate is in addition to and not a
limitation upon Landlord's right to reasonably withhold consent to a proposed
assignment, subletting or other transfer. Notwithstanding the foregoing, Tenant
shall be permitted to sublet up to twenty percent (20%) of the Premises in
cumulative total without Landlord's consent. Tenant shall be permitted to assign
this Lease or sublet all or part of the Premises to an entity controlling,
controlled by or under common control with Tenant or in connection with a merger
or consolidation or the sale of all or substantially all of the stock or assets
of Tenant without Landlord's consent.
9.2 LICENSE OF AUDITORIUM. Tenant shall be permitted to license the use of
the auditorium in the Premises for a period not to exceed seven (7) consecutive
days. Without implying consent to any other use, Tenant shall not use or permit
the use of the auditorium for any of the uses set forth in EXHIBIT D hereto
("PROHIBITED USES") or for restaurant or training facility (except onsite
training by Tenant incidental to its business) purposes or for educational
purposes if the use of the Auditorium for educational purposes involves the use
of the Auditorium by more than 100 occupants (except for purposes that are
incidental to educating Tenant's employees or customers about Tenant's
business), or for entertainment purposes if the use of the Auditorium for
entertainment purposes involves entertainment solicited to the general public
(provided that such restriction shall not restrict Tenant from using the
Auditorium for incidental fundraising by local organizations). Tenant shall
restrict parking in connection with such use to the Replacement Parking. Tenant
shall restrict access to the auditorium in connection with such use to the area
denoted on attached EXHIBIT A-1 ("AUDITORIUM ACCESS"). In any license of the
auditorium pursuant to this Section 9.2, Tenant shall limit occupancy in the
auditorium to 150 persons; provided, however, that Tenant shall be permitted to
exceed such limit for not more than twelve corporate annual meetings per year;
provided further that Tenant shall at all times comply with laws relating to
occupancy. Such use shall be subject to all terms and conditions of this Lease.
Section 10. - CONDEMNATION.
10.1 ENTIRE OR SUBSTANTIAL TAKING. If more than twenty-five percent (25%)
of the Premises (notwithstanding restoration by Landlord as herein provided)
shall be taken under the power of eminent domain, this Lease shall automatically
terminate on the date the condemning authority takes possession provided that
the leases of all other similarly affected tenants in the Project terminate
concurrently..
10.2 PARTIAL TAKING. In the event of any taking under the power of eminent
domain which does not so result in a termination of this Lease, the minimum rent
payable hereunder shall be reduced, effective on the date the condemning
authority takes possession, in the same proportion as the reduction in rentable
floor area of the Premises. Landlord shall promptly, at its sole expense,
restore the portion of the Premises not taken to as near its former condition as
is reasonably possible, and this Lease shall continue in full force and effect.
10.3 AWARDS. Any award for taking of all or any part of the Premises under
the power or eminent domain shall be the property of the Landlord, whether such
award shall be made as compensation for diminution in value of the leasehold or
for taking of the fee. Nothing herein, however, shall be deemed to preclude
Tenant from obtaining, or to give Landlord any interest in, any award to Tenant
for loss of or damage to or cost of removal of Tenant's trade fixtures and
removable personal property, or for damages for cessation or interruption of
Tenant's business.
10.4 SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord to any
authority with power of eminent domain, either under threat of condemnation or
while condemnation proceedings are pending, shall be deemed a taking under the
power of eminent domain under this Section. Landlord need not incur expenses for
restoration in excess of the amount of condemnation proceeds received by
Landlord after payment of all reasonable costs, expenses and attorneys' fees
paid or incurred by Landlord in connection with the condemnation.
Section 11. - SIGNS. Tenant shall not construct or install any signs visible
from the exterior of the Premises without the prior written consent of Landlord
which consent shall not be unreasonably withheld. Tenant shall comply with
Landlord's signage criteria for the Project as may be modified from time to
time. Any sign on the Premises will be designed
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and constructed in compliance with applicable sign codes. Tenant shall place no
window covering on exterior windows without Landlord's prior written consent.
Tenant shall, at its expense, have identification on a monument sign to be
located within thirty (30) feet of the Building at a mutually approved location.
The monument sign shall be for the exclusive use of Tenant. Tenant shall, at its
expense, be permitted to place two identification signs on the Building up to
sixty-four (64) square feet in size each.
Section 12. - OTHER OBLIGATIONS OF PARTIES.
12.1 LIENS. Tenant shall pay as due all claims for work done on the
Premises or for services rendered or materials furnished to the Premises at
Tenant's request or on Tenant's behalf or on behalf of any person claiming under
Tenant and shall keep the Premises free from any other liens created by Tenant.
If Tenant fails to pay such claim or to discharge any lien, Landlord may do so
and collect such amount as additional rent. Amounts paid by Landlord shall bear
interest and be repaid by Tenant as provided in paragraph 13.3 below. Such
payment by Landlord shall not constitute a waiver of any right or remedy
Landlord may have because of Tenant's default.
12.2 HOLDING OVER. If Tenant does not vacate the Premises at the time
required, Landlord shall have the option to treat Tenant as a tenant from month
to month, subject to all of the provisions of this Lease (except that the term
will be month to month and the initial minimum monthly rent will be one hundred
twenty-five percent (125%) of the minimum monthly rent then being paid by
Tenant), or to eject Tenant from the Premises and recover damages caused by
wrongful hold over.
12.3 NON MERGER. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, shall not work a merger, and shall, at the
option of the Landlord, terminate all and any existing subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any and all such
subtenancies.
12.4 RIGHTS OF LANDLORD. Landlord shall have the right to change the name
or designation of the Project without notice or liability to Tenant.
12.5 PRIORITY OF LEASE. This Lease shall be subject and subordinated at all
times to the lien of all mortgages and deeds of trust subsequently placed upon
the Project all without the necessity of having further instruments executed on
the part of Tenant to effectuate such subordination provided that the holder of
such encumbrance shall execute an agreement in commercially reasonable form
whereby such holder agrees that Tenant will be permitted to remain in
undisturbed possession, use and enjoyment of the Premises so long as Tenant is
not in default under the terms and conditions of this Lease after the giving of
notice by Landlord and the expiration of the applicable grace or cure periods
provided hereunder. If any party providing financing or funding to Landlord
requires, as a condition to such financing or funding, that Tenant send such
party written notice of any default by Landlord under this Lease, giving such
party the right to cure such default until it has completed foreclosure and
preventing Tenant from terminating this Lease unless such default remains
uncured after foreclosure has been completed, Tenant will execute and deliver
any agreement required by such party in order to accomplish this purpose.
12.6 LANDLORD'S LIABILITY; SALE. Following completion of Landlord's Work as
provided for in Section 15 and EXHIBIT B, the liability of Landlord under this
Lease will be limited to Landlord's interest in the Project, and any judgment
against Landlord will be enforceable solely against Landlord's interest in the
Project, including, without limitation, Landlord's interest in any casualty
insurance proceeds or condemnation award relating thereto. In the event the
original Landlord hereunder, or any successor owner of the Project, shall sell
or convey the Project, all liabilities and obligations on the part of the
original Landlord, or such successor owner, under this Lease accruing thereafter
shall terminate, and thereupon all such liabilities and obligations shall be
binding upon the new owner. Tenant agrees to attorn to such new owner.
12.7 ESTOPPEL CERTIFICATE. Within 10 days after written request by either
party, the other party shall deliver a written statement stating the date to
which the rent and other charges have been paid, whether the Lease is unmodified
and in full force and effect, and any other matters that may reasonably be
requested by the requesting party.
12.8 RULES AND REGULATIONS. Tenant agrees to comply with any rules and
regulations for the Project adopted and published by Landlord from time to time
and to cause Tenant's agents, employees, contractors and invitees to abide by
such rules and regulations provided
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the same are applied in a non-discriminatory manner. Tenant agrees that Landlord
shall not be responsible to Tenant for the noncompliance by any other tenant or
occupancy of the Project with such rules and regulations.
Section 13.- DEFAULTS; REMEDIES.
13.1 DEFAULT. The following shall be events of default:
(1) PAYMENT DEFAULT. Failure of Tenant to make any base or additional
rent or other payment under this Lease within five (5) days after written notice
that it is due.
(2) UNAUTHORIZED TRANSFER. Any transfer by Tenant without Landlord's
prior written consent as required under Section 9.
(3) DEFAULT IN OTHER COVENANT. Failure of Tenant to comply with any
other term or condition or fulfill any other obligation of this Lease within 20
days after written notice by Landlord specifying the nature of the default with
reasonable particularity. No notice and no opportunity to cure shall be required
if Landlord has previously given Tenant notice of failure to comply with such
term or condition or fulfill such other obligation of this Lease during the
preceding twelve (12) months of the term hereof.
(4) INSOLVENCY DEFAULTS. Dissolution, termination of existence,
insolvency on a balance sheet basis or business failure of Tenant; the
commencement by Tenant of a voluntary case under the federal bankruptcy laws or
under any other federal or state law relating to insolvency or debtor's relief;
the entry of a decree or order for relief against Tenant in an involuntary case
under the federal bankruptcy laws or under any other applicable federal or state
law relating to insolvency or debtor's relief; the appointment of or the consent
by Tenant to the appointment of a receiver, trustee or custodian of Tenant or of
any of Tenant's property; an assignment for the benefit of creditors by Tenant;
Tenant's failure generally to pay its debts as such debts become due; the making
or suffering by Tenant of a fraudulent transfer under applicable federal or
state law; concealment by Tenant of any of its property in fraud of creditors;
the making or suffering by Tenant of a preference within the meaning of federal
bankruptcy law; or the imposition of a lien through legal proceedings or
distraint upon any of the property of Tenant which is not discharged or bonded.
During any period in which there is a Guarantor(s) of this Lease, each reference
to "Tenants" in this paragraph shall be deemed to refer to "Guarantor or
Tenant," separately.
13.2 REMEDIES ON DEFAULT. Upon default, Landlord may exercise any one or
more of the following remedies, or any other remedy available under applicable
law:
(1) RETAKE POSSESSION. To the extent permitted by law, Landlord may
reenter and retake possession of the Premises, without notice, either by summary
proceedings, force, any other applicable action or proceeding, or otherwise.
Landlord may use the Premises for Landlord's own purposes or relet it upon any
reasonable terms without prejudice to any other remedies that Landlord may have
by reason of Tenant's default. None of these actions will be deemed an
acceptance of surrender by Tenant. To the extent permitted by law, Tenant
expressly waives the service of any notice of intention to terminate this Lease
or to retake the Premises, and waives service of any demand for payment of rent
or for possession, and of any and every other notice or demand required or
permitted under applicable law.
(2) RELET THE PREMISES. Landlord at its option may relet the whole or
any part of the Premises, from time to time, either in the name of Landlord or
otherwise, to such tenants, for such terms ending before, on, or after the
expiration date of the lease term, at such rentals and upon such other
conditions (including concessions and free rent periods) as Landlord, in its
sole discretion, may determine to be appropriate. Landlord shall have no
obligation to relet the Premises or any part and shall not be liable for refusal
or failure to relet the Premises, or in the event of any such reletting, for
refusal or failure to collect any rent due upon such reletting. No such refusal
or failure shall operate to relieve Tenant of any liability under this Lease or
otherwise affecting such liability except as to Landlord's obligation under
Oregon law to mitigate damages. Landlord at its option may make such physical
changes to the Premises as Landlord, in its sole discretion, considers advisable
or necessary in connection with any such reletting or proposed reletting without
relieving Tenant of any liability under this Lease or otherwise affecting
Tenant's liability. If there is other comparable unleased space in the Project,
Landlord shall have no obligation to attempt to relet the Premises prior to
leasing other space in the Project.
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(3) DAMAGES FOR DEFAULT. Whether or not Landlord retakes possession or
relets the Premises, Landlord may recover all damages caused by the default
(including but not limited to unpaid rent, attorneys' fees relating to the
default, and costs of reletting). Landlord may sue periodically to recover
damages as they accrue during the remainder of the lease term without barring a
later action for further damages. Landlord may at any time bring an action for
accrued damages plus damages for the remaining lease term equal to the
difference between the rent specified in this Lease and the reasonable rental
value of the Premises for the remainder of the term, discounted to the time of
judgment at the rate of nine percent (9%) per annum.
13.3 CURE OF TENANT'S DEFAULT. Without prejudice to any other remedy for
default, Landlord may perform any obligation or make any payment required to
cure a default by Tenant. The cost of performance, including attorneys' fees and
all disbursements, shall immediately be repaid by Tenant upon demand, together
with interest from the date of expenditure until fully paid at the rate of
eighteen percent (18%) per annum, but not in any event at a rate greater than
the maximum rate of interest permitted by law.
Section 14.- SECURITY DEPOSITS. Intentionally Deleted
Section 15. - LANDLORD'S AND TENANT'S WORK.
15.1 BY LANDLORD. Landlord shall perform the work to be performed by
Landlord pursuant to attached EXHIBIT B. Landlord warrants that as of the date
of substantial completion of Landlord's Work all building mechanical systems are
in good working order and the building is in conformity with current legal
requirements regarding asbestos and other Hazardous Substances as defined in
Section 16.8.
15.2 BY TENANT. Tenant shall perform all other work required to ready the
Premises for Tenant's use and occupancy.
Section 16. - MISCELLANEOUS.
16.1 WAIVERS. No waiver by Landlord of performance of any provision of this
Lease shall be deemed to be a waiver of nor prejudice Landlord's right to
otherwise require performance of the same provision or any other provision.
16.2 RECORDING. Tenant shall not record this Lease without the prior
written consent of Landlord, which consent Landlord may withhold in its sole
discretion.
16.3 NOTICES. All notices under this Lease shall be in writing effective
when delivered in person, or if mailed, upon deposit in the United States Mail,
certified and postage prepaid and addressed to the address of Tenant or Landlord
shown below or at such other address as may be designated by either party by
notice to the other.
16.4 EXHIBITS AND RIDERS. The following exhibits and riders are attached to
this Lease and made a part hereof:
Exhibit A - 1 Premises
Exhibit A-2 Project
Exhibit B Work Letter
Schedule 1 Parking Area Report
Schedule 2 Mechanical/HVAC Report
Schedule 3 Roof Report
Schedule 4 Exterior Plans
Schedule 5 Schedule
Exhibit C Satellite Equipment
Exhibit D Prohibited Uses
Rider Option to Extend
16.5 CONSTRUCTION. (a) This Lease shall be construed and governed by the
laws of the State of Oregon; (b) the invalidity or unenforceability of any
provision hereof shall not affect or impair any other provisions hereof; (c)
this Lease constitutes the entire agreement of the parties and supersedes all
prior agreements or understandings between the parties with respect to the
subject matter hereof; (d) this Lease may not be modified or amended except by
written agreement signed and acknowledged by both parties; (e) if there be more
MURRAY SCHOLLS
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than one tenant, the obligations hereunder imposed upon Tenant shall be joint
and several; (f) time is of the essence of this Lease in each and every
provision hereof; and (g) nothing contained herein shall create the relationship
of principal and agent or of partnership or of joint venture between the parties
hereto and no provisions contained herein shall be deemed to create any
relationship other than that of landlord and tenant.
16.6 SUCCESSOR. Subject to any limitations on assignments herein, all of
the provisions of this Lease shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
16.7 ATTORNEYS' FEES. In the event suit or action is instituted to
interpret or enforce the terms of this Lease, the prevailing party shall be
entitled to recover from the other party such sum as the court may adjudge
reasonable as attorneys' fees at trial, on petition for review, or on appeal, in
addition to all other sums provided by law.
16.8 HAZARDOUS SUBSTANCES. Tenant shall not use, generate transport, treat,
store, dispose of or otherwise handle Hazardous Substances on the Premises
without the prior written consent of Landlord. Landlord may withhold such
consent in its sole discretion or may condition such consent upon Tenant's
agreement to comply with requirements designated by Landlord. The term
"Hazardous Substances" shall mean any and all hazardous, toxic, infectious or
radioactive substances, wastes or materials as defined or listed by any federal,
state or local statute, regulation or ordinance pertaining to the protection of
human health or the environment and shall specifically include petroleum oil and
its fractions. Tenant agrees to indemnify, hold harmless and defend Landlord
from any and all claims, demands, losses, liabilities, penalties, damages, costs
and expenses, including without limitation, reasonable attorneys' fees and cost
arising out of or in any way connected with Tenants' breach of this provision.
Landlord agrees to indemnify, hold harmless and defend Tenant from any and all
claims, demands, losses, liabilities, penalties, damages (excluding
consequential damages or lost profits) cost and expenses arising out of or
connected with the presence of pre-existing Hazardous Substances (except
asbestos) located in, on, or under the Project as of the date hereof or the
presence of any Hazardous Substances located in, on, or under the Project after
the date hereof caused by Landlord or its agents.
16.9 ASBESTOS-CONTAINING MATERIALS. Landlord has advised Tenant that
asbestos-containing materials ("ACM") as defined by the Oregon Department of
Environmental Quality ("DEQ") are present in the Premises. Landlord has
provided to Tenant a copy of the environmental assessment prepared by Agra
Earth & Environmental dated January _, 1997 (the "ENVIRONMENTAL ASSESSMENT").
Landlord shall, at its own expense prior to delivery of possession of the
Premises to Tenant, remove all ACM identified in the Environmental Assessment
and all ACM discovered during the work to be performed by Landlord pursuant
to Section 15 and Exhibit B in compliance with all laws, requirements,
orders, directives, rules and regulations of all federal, state and local
government authorities with respect to ACM (collectively, the "ACM
REGULATIONS"). Upon taking possession of the Premises following delivery of
possession of the Premises to Tenant with work to be performed by Landlord
substantially complete, Tenant shall not have any obligation to perform any
survey, testing, notification or abatement work described below, provided
that in the event that Tenant discovers any additional ACM in the Premises in
connection with any alterations or repairs to the Premises by Tenant, Tenant
shall be responsible, at its sole cost and expense, for performing all
survey, testing, notification and abatement work that may be required under
the ACM Regulations. Tenant's ACM testing and abatement work will be
performed in compliance with the ACM Regulations. In such event, Tenant shall
engage a qualified consultant to prepare an Asbestos Control Operation and
Maintenance ("O&M") Program for the Premises. Tenant shall take all steps
required to implement the O&M Program, including abatement of any ACM debris
and monitoring of air quality within the Premises. If the ACM Regulations
require the removal or containment of ACM in the Premises, Tenant shall
notify Landlord in writing at least 30 days before taking any action to
remove or contain such ACM. Tenant shall (i) promptly deliver to Landlord
copies of all notices, sampling results, and removal or containment plans
submitted to any government agency, (ii) employ at Tenant's expense a
government certified person to remove or contain such ACM in compliance with
the ACM Regulations, and (iii) deliver to Landlord copies of all certificates
of compliance issued by government agencies upon completion of the removal or
containment action. Tenant shall, at its expense, transport and
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13
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dispose of all ACM removed from the Premises in compliance with the ACM
Regulations. Tenant shall pay all costs, expenses, liabilities, losses, damages,
fines, penalties, claims and demands including attorney fees and costs that may
arise in any manner from Tenant's failure to comply with the ACM Regulations or
in connection with the testing for, or containment, removal, disposal or
replacement of, any ACM in the Premises.
16.10 BROKERS. Landlord shall pay the commissions owing to Gordon D. King
of Cushman & Wakefield of Oregon, Inc. and Dave Squier of Grubb & Ellis pursuant
to a separate agreement.
16.11 NO OFFER. This Lease is submitted to Tenant on the understanding that
it will not be considered an offer and will not bind Landlord in any way until
(a) Tenant has duly executed and delivered duplicated originals to Landlord and
(b) Landlord has executed and delivered one of such originals to Tenant.
16.12 LIEN WAIVER. Landlord hereby waives and releases any liens for
minimum or additional rent which Landlord may have against Tenant's personal
property, trade fixtures, or equipment whether the lien is statutory or
contractual or arises out of operation of law or otherwise. Landlord agrees
that it will execute any reasonable document requested by Tenant's lender to
evidence this waiver and to allow such lender access to the Premises to realize
on its security interest.
16.13 ZONING. Landlord represents, warrants and covenants that the Premises
are presently zoned so as to permit the use of the Premises for offices and that
title to the Premises will not at the commencement of the term be subject to any
covenant, agreement, reservation, lien, easement, restriction or encumbrance
which would prohibit Tenant from using the Premises for the use permitted by
Section 4.1.
16.14 CONSENT. Unless Landlord's consent or approval is required by the
express terms of this Lease not to be unreasonably withheld, such approval or
consent may be withheld, delayed or conditioned by Landlord in its sole and
arbitrary discretion.
16.15 QUIET ENJOYMENT. So long as Tenant complies with all terms of this
Lease, Tenant shall be entitled to peaceable and undisturbed possession of
the Premises free from interference by Landlord or those claiming through
Landlord.
16.16 FORCE MAJEURE. In the event that Landlord or Tenant is delayed or
hindered in or prevented from the performance of any act required hereunder
(except for the payment of Rent or any other payment required by a party
under this Lease) by acts of God, floods, fire, riots or other similar events
beyond the control of either party, then performance of such act shall be
excused for the period of delay and the period for the performance of any
such act shall be extended for a period equivalent to the period of such
delay.
16.17 AUTHORITY. Each party hereby warrants to the other that the execution
of this Lease by such party and the performance of all of the obligations to be
performed by such party hereunder have been duly authorized by all necessary
corporate or limited liability company action. Each party further warrants to
the other that each individual signing this Lease on behalf of such party has
been fully authorized and empowered to do so by each party.
16.18 PROHIBITED USES. No portion of the Project shall be used for any of
the Prohibited Uses described on EXHIBIT D.
16.19 ADDRESS OF PREMISES. Landlord and Tenant will mutually agree on the
name and address for the Premises.
NO FURTHER TEXT ON THIS PAGE
MURRAY SCHOLLS
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WHEREFORE, the parties have executed this Lease this 2 day of SEPT, 1998.
LANDLORD: TENANT:
Murray Scholls, LLC Metro One Telecommunications, Inc.
By: Gramor Development Northwest, Inc., By: /s/ Timothy A. Timmons
Manager -------------------------------
Timothy A. Timmons
By: /s/ Barry A. Cain Title: President and Chief
-------------------------------- Executive Officer
Barry A. Cain, Vice President
LANDLORD ADDRESS: TENANT ADDRESS:
9895 SE Sunnyside Rd., Suite P 8405 SW Nimbus Avenue
Clackamas, OR 97015 Beaverton, OR 97008
(503) 245-1976
and a copy to:
Thomas R. Page
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
MURRAY SCHOLLS
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STATE OF OREGON
ss.
County of Washington
------------
This instrument was acknowledged before me on September 2, 1998, by Timothy
A. Timmins, President and Chief Executive Officer of METRO ONE COMMUNICATIONS,
INC., an Oregon corporation.
OFFICIAL SEAL /s/ Susan de Guzman
SUSAN DE GUZMAN -------------------------------------
NOTARY PUBLIC-OREGON Notary Public for Oregon
COMMISSION NO.059309 My commission expires: Nov. 12, 2000
MY COMMISSION EXPIRES NOV 12, 2000
STATE OF OREGON
ss.
County of Washington
This instrument was acknowledged before me on September 2, 1998, by Barry
A. Cain, Vice President of GRAMOR DEVELOPMENT NORTHWEST, INC., as Manager of
MURRAY SCHOLLS, LLC, an Oregon limited liability company.
OFFICIAL SEAL /s/ Susan de Guzman
SUSAN DE GUZMAN -------------------------------------
NOTARY PUBLIC-OREGON Notary Public for Oregon
COMMISSION NO.059309 My commission expires: Nov 12, 2000
MY COMMISSION EXPIRES NOV 12, 2000
MURRAY SCHOLLS
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EXHIBIT "A-1"
PREMISES
[BLUEPRINT]
<PAGE>
EXHIBIT "A-2"
PROJECT
A parcel of land situated in the Southeast One-quarter of Section 32,
Township 1 South, Range 1 West of the Willamette Meridian, City of Beaverton,
Washington County, Oregon, said parcel being more particularly described as
follows:
Commencing at the one-quarter corner common to Section 32 and Section 33,
said corner being marked by a Washington County Surveyor's Brass Cap in a
monument box and being on the centerline of Southwest Murray Boulevard (C.R.
No. 2018); thence southerly along the section line common to Section 32 and
Section 33, said section line being the centerline of Southwest Murray
Boulevard, South 00 DEG. 13'10" East, a distance of 639.75 feet to a point;
thence leaving said section line, South 89 DEG. 46'50" West, a distance of
50.00 feet to a point on the west right-of-way line of Southwest Murray
Boulevard, said point being the TRUE POINT OF BEGINNING; thence southerly
along said west right-of-way line, South 00 DEG. 13'10" East, a distance of
105.50 feet to a point on a nontangent curve to which a radial line bears
South 62 DEG. 57'12" East; Thence southwesterly on the arc of a 45.00 foot
radius curve, concave northwesterly, through a central angel of 25 DEG.
07'16", an arc distance of 19.73 feet (the long chord bears South 39 DEG.
36'26" West, a distance of 19.57 feet) to a point of tangency, said point
being on the north right-of-way line of Southwest Old Scholls Ferry Road
(C.R. No. 2156), said north right-of-way line being 45.00 feet (as measured
by right angles) north of the Southwest Old Scholls Ferry Road centerline;
thence southwesterly along said north right-of-way line, South 52 DEG. 10'04"
West, a distance of 1240.93 feet to a point on the northeasterly line a 20.00
foot wide easement granted to Southern Pacific Pipe Lines, Inc. as recorded
in Book 457, Page 550, Washington County Deed Records; thence northwesterly
along said northeasterly line, North 32 DEG. 32'20" West, a distance of
264.97 feet to a point; thence leaving said northeasterly line, North 52 DEG.
11'36" East, a distance of 197.36 feet to a point; thence North 37 DEG.
48'24" West, a distance of 35.32 feet to a point; thence North 52 DEG. 11'36"
East, a distance of 184.22 feet to a point; thence North 37 DEG. 48'24" West,
a distance of 646.69 feet to a point on the east line of Lot 56, Plat of
Murrayhill as recorded in Book 64, Page 5, Washington County Deed Records;
thence northerly along said east line, North 08 DEG. 36'47" East, a distance
of 100.54 feet to the Northeast corner of said Lot 56; thence easterly along
the south line of Tract 'D', Plat of Murrayhill, North 81 DEG. 57'05" East, a
distance of 579.18 feet to the South corner common to Tract 'D' and Lot 55,
Plat of Murrayhill, said corner being marked by a 5/8 inch iron rod with a
yellow plastic cap inscribed "Otak, Inc."; thence easterly along the south
line of said Lot 55, South 87 DEG. 15'17" East, a distance of 77.42 feet to
a point, said point being marked by a 5/8 inch iron rod with a yellow plastic
cap inscribed "Otak, Inc."; thence South 76 DEG. 05'49" East, a distance of
211.51 feet to a point, said point being marked by a 5/8 inch iron rod with a
yellow plastic cap inscribed "Otak, Inc."; thence South 54 DEG. 45'37" East,
a distance of 99.20 feet to a point, said point being marked by a 5/8 inch
iron rod with a yellow plastic cap inscribed "Otak, Inc."; thence South
43 DEG. 49'56" East, a distance of 34.35 feet to a point, said point being
marked by a 5/8 inch iron rod with a yellow plastic cap inscribed "Otak,
Inc."; thence South 60 DEG. 05'25" East, a distance of 317.61 feet to the
TRUE POINT OF BEGINNING.
Containing an area of 17.8 acres more or less.
The Basis of Bearings for this description is the Plat of Murrayhill and;
Lot 55, Murrayhill, in the City of Beaverton, County of Washington and State of
Oregon.
SAVE AND EXCEPTING THEREFROM that portion described in Dedication Deed recorded
September 16, 1988 as Fee No. 88-41537.
<PAGE>
EXHIBIT "B"
WORK LETTER
This WORK LETTER is dated Sept. 2, 1998, between Murray Scholls LLC, an
Oregon limited liability company ("LANDLORD") and Metro One Telecommunications,
Inc. ("TENANT").
RECITALS
This WORK LETTER is attached to and forms a part of the certain commercial
lease dated Sept. 2, 1998 (the "LEASE"), pursuant to which Landlord has leased
to Tenant space in the building shown crosshatched on the site plan attached as
EXHIBIT A-1 to the Lease.
Landlord desires to make improvements to the Premises, and Tenant desires
to have Landlord make them, upon the terms and conditions contained in this WORK
LETTER.
1. DEFINITIONS. In this WORK LETTER, some defined terms are used. They
are:
(a) Tenant's representative: (to be identified prior to commencement
of the Improvements)
(b) Landlord's representative: (to be identified prior to commencement
of the Improvements)
(c) Tenant allowance: $25 per rentable square foot, which equals
$889,375 and is to be applied by Landlord to the cost of the improvements.
Tenant is not entitled to a cash allowance in any circumstance.
(d) Final space plan: a final drawing of the Premises showing all
tenant improvements.
(e) Final space plan submission date: Ten (10) days after the date
hereof.
(f) Working drawings: construction documents detailing the
improvements and conforming to codes, complete in form and content and
containing sufficient information and detail to allow for competitive bidding by
contractors selected by Landlord.
(g) Improvements:
(1) The development of working drawings, including supporting
engineering studies (that is, structural design or analysis, lighting or
acoustical evaluations, or others as determined by Landlord's architect).
(2) All construction work necessary to construct Tenant
improvements in accordance with the Working Drawings.
The improvements will NOT include personal property items, such as decorator
items or services, art work, plants, furniture, equipment, or other fixtures not
permanently affixed to the Premises, exterior work and work to repair the roof
or HVAC system, ACM removal, parking lot work and work on any other portions of
the Project.
(h) Cost of the improvements: the cost includes, but is not limited
to, the following:
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(1) All architectural and engineering fees and expenses to
prepare the Working Drawings.
(2) The price of the construction contract for construction of
the work specified in the Working Drawings.
(3) All building permit fees necessary to construct the work
specified in the Working Drawings.
(4) A construction management fee to Landlord, pursuant to
paragraph 4b(4). No other management fee to Landlord or its affiliates of any
kind or nature will be included as part of the cost of improvements.
(i) Change order: any change, modification, or addition to the final
space plan or working drawings after Tenant has approved the same.
(j) Base building: Base building defines the existing conditions to
which improvements are added.
2. REPRESENTATIVES. Landlord appoints Landlord's representative to act
for Landlord in all matters associated with this WORK LETTER. Tenant appoint
Tenant's representative to act for Tenant in all matters associated with this
WORK LETTER. All inquiries, requests, instructions, authorizations, and other
communications with respect to the matters covered by this WORK LETTER will
be made to Landlord's representative or Tenant's representative, as the case
may be. Tenant will not make any inquiries of or requests to, and will not
give any instructions or authorizations to, any employee or agent of
Landlord, including without limitation Landlord's architect, engineers, and
contractors, or any of their agents or employees, with regard to matters
associated with this WORK LETTER. Either party may change its representative
under this WORK LETTER at any time by providing 3 days' prior written notice
to the other party.
3. PROJECT DESIGN AND CONSTRUCTION. All work will be performed by designers
and contractors selected and engaged by Landlord and as reasonably approved by
Tenant.
4. COST RESPONSIBILITIES.
(a) Landlord: Landlord will pay up to the amount of the Tenant
allowance for the cost of the improvements.
(b) Tenant: Tenant will pay for:
(1) Tenant-initiated changes to the final space plan or working
drawings after Tenant's approval which cause the cost of the improvements to
exceed the Tenant allowance.
(2) Tenant-initiated change orders, modifications, or additions
to the improvements after Tenant's approval of the working drawings which cause
the cost of the improvements to exceed the Tenant allowance.
(3) All costs in excess of the Tenant allowance that are not
included in (1) or (2) (but excluding non-Tenant-initiated change orders).
(4) The cost of the Landlord's overhead for coordination and
administration at a rate of four percent (4%) of the total cost to the Landlord
of (1), (2), and (3).
5. LANDLORD'S APPROVAL. Landlord, in its sole discretion, may withhold its
approval of any final space plan, working drawings, or change order that:
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(a) Exceeds or adversely affects the structural integrity of the
building, or any part of the heating, ventilating, air conditioning, plumbing,
mechanical, electrical, communication, or other systems of the building;
(b) Is not approved by the holder of any mortgage or deed of trust
encumbering the building at the time the work is proposed;
(c) Would not be approved by a prudent owner of property similar to
the building;
(d) Landlord reasonably believes will increase the cost of
operation or maintenance of any of the systems of the building;
(e) Landlord reasonably believes will reduce the market value of the
Premises or the building at the end of the term; or
(f) Does not conform to applicable building code or is not approved by
any governmental, quasi-governmental, or utility authority with jurisdiction
over the Premises.
If Landlord fails to approve the space plan or the Working drawings for any
of the reasons set forth in (b), (c), (d) or (e), Tenant may terminate this
Lease by written notice to Landlord given within ten (10) days after notice of
such disapproval.
6. SCHEDULE OF IMPROVEMENT ACTIVITIES.
(a) On or before the final space plan submission date, Tenant will
submit to Landlord final space plan.
(b) Upon receipt of the final space plan, Landlord's architect will
consult with Tenant and prepare working drawings within thirty (30) days after
receipt of the final space plans. Landlord's architect will forward the working
drawings to Tenant. Tenant will give Landlord written notice whether or not
Tenant approves the working drawings within five (5) business days after its
receipt.
(c) Following approval of the working drawings, Landlord will
obtain bids for the improvements from at least three (3) general contractors
and submit the bids to Tenant. If the cost of the improvements based on the
lowest responsive bid is less than or equal to the Tenant allowance, Tenant
will be deemed to have approved the cost of the improvements without further
action and Landlord will accept such bid. If the cost of the improvements
based on the lowest responsive bid is more than the Tenant allowance, Tenant
shall have five (5) business days to approve the bid or to modify the working
drawings to reduce the cost. If Tenant modifies the working drawings to
reduce the cost, Landlord will obtain new bids or negotiated prices for the
improvement. Landlord shall submit the new bids or negotiated prices to
Tenant. If the new bids or negotiated prices still exceed the Tenant
allowance, Tenant shall have the right, within five business days, to repeat
the modification process described above until the cost of the improvements
based on the lowest bid is less than or equal to the Tenant allowance,
provided, however, that (i) if any such repeat of the modification process
causes a delay in the commencement of Landlord's construction of the
improvements, then (a) the outside date of May 1, 1999 by which Landlord must
deliver possession of the Premises to Tenant pursuant to Section 2 of the
Lease, and (b) the date of May 31, 1999 after which Tenant has the right to
terminate the Lease for the failure of landlord to deliver possession
pursuant to Section 2 of the Lease, will each be extended by one day for each
day during the repeating of such modification process until Tenant accepts a
bid and (ii) if after a period of 30 days from the date Landlord first
submitted bids to Tenant, the lowest responsive bid or negotiated price still
exceeds the Tenant allowance, then Tenant shall be deemed to have approved
the lowest responsive bid or negotiated price without further action and
Landlord will accept such bid or negotiated price without further action and
Landlord will accept such bid or negotiated price. Following such approval,
the cost of the improvements shall be fixed,
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subject to approved change orders under PARAGRAPH 8, and Tenant shall be
obligated to pay the amount by which the cost of the improvements exceeds the
allowance. Except for approved change orders under PARAGRAPH 8, all risk of
construction cost overruns or costs of unknown conditions shall be borne by
Landlord.
(d) Following approval of the working drawings, Landlord will cause
application to be made to the appropriate governmental authorities for necessary
approvals and building permits. Upon receipt of the necessary approvals and
permits, Landlord will begin construction of the improvements.
7. PAYMENT BY TENANT. Tenant shall deposit in a mutually acceptable
escrow one-half of the amount by which the cost of the improvements exceeds the
allowance within ten (10) days after Landlord notifies Tenant that Landlord has
acquired the Property and is prepared to commence construction. The remaining
one half of the amount by which the cost of the improvements exceeds the
allowance will be billed periodically, as the work proceeds, and Tenant agrees
to deposit the amount billed on each such invoice in the escrow within fifteen
(15) business days following its delivery. Unless the Lease is terminated as
provided for in paragraph 2 of the Lease, all amounts deposited shall be
released to Landlord upon the date of delivery of the Premises to Tenant, the
Improvements, substantially complete.
8. CHANGE ORDERS. Tenant may authorize changes to the improvements during
construction only by written instructions to Landlord's representative on a form
approved by Landlord. All such changes will be subject to Landlord's prior
written approval in accordance with PARAGRAPH 5. Prior to commencing any change,
Landlord will prepare and deliver to Tenant, for Tenant's approval, a change
order setting forth the total amount by which the cost of such change, which
will include associated architectural, engineering, construction contractor's
costs and fees, completion schedule changes, and the cost of Landlord's overhead
will cause the cost of the improvements to exceed the allowance. If Tenant fails
to approve such change order within five (5) business days after delivery by
Landlord, Tenant will be deemed to have withdrawn the proposed change and
Landlord will not proceed to perform the change. Tenant shall deposit in a
mutually acceptable escrow one-half of the total amount by which the cost of
such change will cause the cost of the improvements to exceed the allowance
upon Tenant's approval of such change order. Upon Landlord's receipt of Tenant's
approval and such payment, Landlord will proceed with the change. The remaining
one-half of the total amount by which the cost of such change will cause the
cost of the improvements to exceed the allowance will be billed periodically as
the work proceeds, and Tenant agrees to deposit the amount billed in each such
invoice in the escrow within fifteen (15) business days following its delivery.
Unless the Lease is terminated as provided for in paragraph 2 of the Lease, all
amounts deposited shall be released to Landlord upon the date of delivery of the
Premises to Tenant, the Improvements, substantially complete.
9. COMPLETION AND COMMENCEMENT DATE. Tenant's obligation for payment of
rent pursuant to the Lease will commence on the commencement date; however, the
commencement date may be delayed on a day-to-day basis for each day the
substantial completion of the improvements are delayed by any cause other than
Tenant. The commencement date will not be delayed by a delay of substantial
completion due to Tenant, provided that if substantial completion of the
improvements are delayed beyond March 1, 1998 due to Tenant, the commencement
date will be the date substantial completion would have occurred but for Tenant
delay. The following are some examples of delays that will not affect the
commencement date:
(a) Late submissions of preliminary space plan;
(b) Change orders requested by Tenant;
(c) Delays in obtaining construction materials requested by Tenant;
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(d) Tenant's failure to approve timely any item requiring Tenant's
approval; and
(e) Delays by Tenant according to PARAGRAPH 6.
Landlord shall notify Tenant as soon as practical of any delay of substantial
completion due to Tenant. In the event that substantial completion of the
improvements is delayed by any cause other than Tenant, the commencement date
will be the date of substantial completion of the improvements, subject only to
the completion of Landlord's punchlist items (that is, those items which do not
materially interfere with Tenant's use and enjoyment of the Premises) and the
expiration date will be the day preceding the tenth anniversary of the
commencement date.
10. CONDITION OF THE PREMISES.
(a) Within five (5) business days after the commencement date,
Landlord and Tenant will conduct a joint walk-through inspection of the Premises
and will jointly prepare a punch-list of items needing additional work by
Landlord. Other than the items specified in the punch-list and latent defects
(as defined below), by taking possession of the Premises, Tenant will be deemed
to have accepted the Premises in their condition on the date of delivery of
possession and to have acknowledged that Landlord has installed the improvements
as required by this WORK LETTER and that there are no items needing additional
work or repair. The punch-list will not include any damage to the Premises
caused by Tenant's move-in or early access, if permitted. Damage caused by
Tenant will be repaired or corrected by Landlord at Tenant's expense. Tenant
acknowledges that neither Landlord nor its agents or employees have made any
representations or warranties as to the suitability or fitness of the Premises
for the conduct of Tenant's business or for any other purpose, nor has Landlord
or its agents or employees agreed to undertake any alterations or construct any
tenant improvements to the Premises except as expressly provided in this Lease
and this WORK LETTER. If Tenant fails to submit a punch-list to Landlord prior
to the commencement date, it will be deemed that there are no items needing
additional work or repair. Landlord's contractor will complete all reasonable
punch-list items within 30 days after the walk-through inspection or as soon as
practicable after such walk-through.
(b) A "latent defect" is a defect in the condition of the Premises,
caused by Landlord's failure to construct the improvements in a good and
workmanlike manner and in accordance with the working drawings, which would not
ordinarily be observed during a walk-through inspection. If Tenant notifies
Landlord of a latent defect within one year following the commencement date,
then Landlord, at its expense, will repair the latent defect as soon as
practicable. Except as set forth in this paragraph 10, Landlord will have no
obligation or liability to Tenant for latent defects.
11. ADDITIONAL IMPROVEMENTS. Landlord shall, at Landlord's expense,
perform the following:
(a) Relandscaping: Landlord shall modify the landscaping on the site
in accordance with City of Beaverton Development Code Requirements.
(b) Parking Areas: Landlord shall construct all parking areas as shown
on the final site plan. Landlord shall recondition parking areas as recommended
by Carlson Testing and Associates in the report dated June 14, 1998, a copy of
which is attached as SCHEDULE 1.
(c) Mechanical / HVAC System: Landlord shall perform the improvement
to the mechanical/HVAC System as recommended by Air Rite Control, Inc. in the
report dated June 18, 1998, a copy of which is attached as SCHEDULE 2.
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(d) Roof. Landlord shall perform the improvements to the roof as
recommended by Carlson Testing and Associates in the report dated June 3, 1998,
a copy of which is attached as SCHEDULE 3.
(e) Exterior Remodel:
(1) Landlord shall remodel the exterior consistent with design
review approval and Tenant's approved plans for the interior remodel.
(2) Landlord shall design Landlord's exterior remodel to
coordinate with Tenant's approved design for the interior of the Premises.
(3) Landlord shall design the exterior remodel to accommodate
Tenant's identification sign on the Building.
(4) Landlord's design for the exterior remodel shall be
substantially in conformance with the plans attached as SCHEDULE 4.
(5) Landlord and Tenant shall use best efforts to submit for
design review concurrently.
(6) Landlord estimates that Landlord will commence the exterior
remodel on or about December 1, 1998.
(7) Tenant hereby acknowledges that Landlord does not anticipate
commencing the relandscaping or parking area work prior to April 1, 1999. Tenant
also acknowledges that Landlord intends to construct additional buildings and
other improvements in the Project. The building height of any commercial
buildings constructed on the land between the Premises and SW Scholls Ferry Road
and SW Murray Blvd. and of any townhouses constructed on the land between the
Premises and SW Murray Blvd. will not exceed thirty (30) feet. Landlord shall
have the right to alter the site plan (including buildings and parking) and its
intended uses of the site in its sole discretion; provided, however, that
Landlord shall not alter the portion of the Site Plan identified as the "No
Change Area" except for minor changes in curbs, landscaping, etc. Tenant hereby
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's use or occupancy occasioned by the foregoing provided, however,
that Landlord shall take reasonable steps to minimize such interference.
12. ANTICIPATED SCHEDULE. Landlord's estimated Schedule for design and
construction of the Project is attached as SCHEDULE 5.
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EXHIBIT "B"
SCHEDULE 1
PARKING AREA REPORT
PARKING AREA REPORT
As per report from Carlson Testing, Inc. dated June 14, 1998 the pavement
inspection of the replacement parking area included three core samples revealing
an average asphalt thickness of 3.75 inches and an average base course thickness
of 8.25 inches. Landlord will provide leveling and an overlay as recommended in
the report. The improvements will take place after land use and site development
permit approvals by the City of Beaverton.
/s/ LDL
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EXHIBIT "B"
SCHEDULE 2
MECHANICAL / HVAC REPORT
MECHANICAL / HVAC REPORT
Air Rite Control, Inc. has maintained the HVAC system for many years. Based on
Air Rite's assessment of the system (letter dated June 18, 1998) a chiller unit
has one compressor in need of replacement. Landlord will replace the compressor
unit as recommended.
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EXHIBIT "B"
SCHEDULE 3
ROOF REPORT
ROOF REPORT
As per inspection report form Carlson Testing dated June 3, 1998, the existing
office was examined. The roof inspection for the existing office indicates the
sloped roof areas with heavy cedar shakes are in immediate need of attention.
The office roof appears in sound condition according to the report. Landlord
will replace the cedar shake shingles and complete improvements to provide a
10-year guarantee on the roof performance.
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EXHIBIT "B"
SCHEDULE 4
EXTERIOR PLANS
PAGE 1 OF 2
[BLUEPRINT]
<PAGE>
EXHIBIT "B"
SCHEDULE 4
EXTERIOR PLANS
PAGE 2 OF 2
[BLUEPRINT]
<PAGE>
EXHIBIT "B"
SCHEDULE 5
SCHEDULE
[CHART]
<PAGE>
EXHIBIT C
SATELLITE EQUIPMENT
Any placement of Equipment (as defined in Section 4.1) in the
Project shall comply with the provisions of this EXHIBIT C.
(a) Tenant shall not penetrate the roof in connection with any
installation or reinstallation of the Equipment. The plans and specifications
for all the Equipment shall be approved by Landlord in writing prior to any
installation. Tenant shall be responsible for any damage to the roof or conduit
systems as a result of Tenant's installation, maintenance and/or removal of the
Equipment.
(b) The location of the Equipment shall be subject to Landlord's
prior written approval. Tenant shall not change the location of, or alter or
install additional Equipment or paint the satellite dish or the other Equipment
without Landlord's prior written consent.
(c) Tenant, at Tenant's sole expense, shall comply with all laws,
rules, ordinances, regulations, statutes, codes and governmental regulations
("LAWS") regarding the installation, construction, operation, maintenance and
removal of the Equipment and shall be solely responsible for obtaining and
maintaining in force all permits, licenses and approvals necessary for such
operations.
(d) Tenant shall be responsible for and promptly shall pay when due
all taxes, assessments, charges, fees and other governmental impositions levied
or assessed on the Equipment or based on the operation thereof.
(e) Landlord may require Tenant to relocate the Equipment during the
term of the Lease to a location approved by Tenant, which approval shall not be
unreasonably withheld or delayed.
(f) Operation of the Equipment shall not interfere in any manner with
equipment systems or utility systems of other tenants, including without
limitation, telephones, dictation equipment, lighting, heating and air
conditioning, computers, electrical systems, and elevators. If operation of the
Equipment causes such interference, Tenant immediately shall suspend operation
of the Equipment until such interference is eliminated.
(g) Tenant shall maintain The Equipment in good condition and repair,
at Tenant's cost and expense. Landlord may from time to time require that Tenant
repaint the satellite dish at Tenant's expense to keep the same in an attractive
condition.
(h) Tenant shall indemnify, defend, protect and hold harmless
Landlord pursuant to the Lease from and against any and all claims related to
the Equipment or operation of the same as if the Equipment were located wholly
within the Premises. Tenant shall provide evidence satisfactory to Landlord that
Tenant's property and liability insurance policies required under the Lease
include coverage for the Equipment and any claim, loss, damage, or liability
relating to the Equipment.
(i) Landlord shall have no responsibility or liability whatsoever
relating to (i) maintenance or repair of the Equipment; (ii) damage to the
Equipment; (iii) damage to persons or property relating to the Equipment or the
operation thereof; or (iv) interference with use of the Equipment arising out of
utility interruption or any other cause. Upon installation of the Equipment,
Tenant shall accept the area where the Equipment is located in its "as is"
condition. Tenant acknowledges that Landlord shall have no obligation whatsoever
to improve, maintain or repair the area in which the Equipment will be
installed.
EXHIBIT C - page 1 of 2
1
<PAGE>
(j) Tenant shall use the Equipment solely for operations within the
Premises and shall not use or allow use of the Equipment, for consideration or
otherwise, for the benefit of other tenants in the Project or any other person
or entity.
(k) Tenant shall, at Tenant's sole expense, remove the satellite
dish(es) and such other portions of the Equipment as Landlord may designate, and
restore the affected areas to their condition prior to installation of the
Equipment (i) immediately upon request of Landlord, if Tenant fails to perform
any of its obligations under this EXHIBIT C; (ii) immediately if such removal is
required by any governmental agency having jurisdiction over the Equipment, and
(iii) in any event, no later than thirty (30) days after expiration or earlier
termination of the Lease. If Tenant fails to remove the Equipment when and as
required under this EXHIBIT C, Landlord reserves the right to do so, and the
expense of the same shall be immediately due and payable from Tenant to Landlord
as additional rent, together with interest and late charges as provided in the
Lease.
(l) The covenants, obligations and indemnities of Tenant under this
EXHIBIT C shall survive expiration or earlier termination of the Lease for any
reason.
EXHIBIT C - page 2 of 2
2
<PAGE>
EXHIBIT D
PROHIBITED USES
1. Any operation primarily used as a warehouse operation and any
assembling, manufacturing, distilling, refining, smelting, agricultural or
mining operation;
2. any "second hand" store or "surplus" store over 2,500 square feet;
3. any mobile home park, trailer court, labor camp, junkyard, or
stockyard (except that this provision shall not prohibit the temporary use of
construction trailers during periods of construction, reconstruction or
maintenance).
4. any drilling for or removal of hydrocarbon or mineral substances;
5. any bar, tavern restaurant or other establishment whose reasonably
Projected annual gross revenues from the sale of alcoholic beverages for
on-premises consumption exceeds eighty percent (80%) of the gross revenues of
such business.
6. any flea market;
7. any church or other place of public assembly;
8. the establishment or maintenance of a massage parlor, bingo parlor,
gambling operation (except video poker incidental to a restaurant), adult
theater, adult bookstore, sex shop, peep show, or bawdy house or brothel;
9. any dumping, disposing, incineration or reduction of garbage
(exclusive of trash receptacles located in trash enclosures);
10. any automobile, truck, trailer or recreational vehicle sales, leasing,
display or repair;
11. any bowling alley;
12. any skating rink;
13. any animal raising facilities (except that this prohibition shall not
prohibit veterinary hospitals or pet shops; and
14. any mortuary.
3
<PAGE>
RIDER: OPTION TO EXTEND
TERMS OF OPTION: Tenant shall have an option to extend the term of this Lease
for one (1) additional term of five (5) years so long as Tenant is not in
default hereunder at the time it exercises such option or at the time the
extended term begins. The other terms and conditions of this Lease will remain
the same except the minimum monthly rent shall be as provided below and Tenant
shall have no further option to extend. Tenant shall exercise the five (5) year
option by delivering written notice to Landlord not more than 220 days nor less
than 180 days prior to the end of the preceding Lease term.
The minimum monthly rent, as specified in Section 3.1 hereof, for such
extended term shall be a sum agreed upon by Landlord and Tenant as the then
current fair market rental rate. In the event the parties are unable to agree on
such fair market rent at least 90 days prior to commencement of the extended
term, the fair market rent shall be determined by appraisal in the following
manner:
(i) If appraisal is required, each party shall select an appraiser
at least 75 days prior to commencement of the extended term. Each of the
appraisers shall be instructed to deliver its approval at least 45 days prior to
commencement of the extended term. If either appraiser fails to deliver its
appraisal by such date, such delinquent appraisal shall be disregarded and the
minimum monthly rent shall be the amount stated in the timely appraisal. The
fair market rent shall be the average of two appraisals. Each party shall bear
the cost of its own appraiser.
(ii) If either appraisal exceeds the other by more than ten percent
(10%), a third appraiser shall be selected by mutual agreement of the Landlord
and Tenant or, in the absence of agreement within ten (10) days, by the
presiding Judge of the Washington County Circuit Court. The third appraiser
shall be requested to complete its appraisal as soon as possible.
(iii) If a third appraiser is required, the rent shall be the
average of the two appraisals which are closest in amount to each other. The
cost of the third appraisal shall be shared equally between Landlord and Tenant.
(iv) If notice of exercise is given by the date set herein above,
the fact that the monthly rental has not been finally determined by the date the
extended term begins shall not interfere with or limit Tenants right hereunder
to extend, however; such new monthly rental shall be effective as of the first
day of the extended term.
In no event shall the rent in any year of the extended term be less than
the rent due during the last year of the original term.
LANDLORD: TENANT:
Murray Scholls, LLC Metro One Telecommunications, Inc.
By: Gramor Development Northwest, Inc.,
Manager By: /s/ Timothy A. Timmins
------------------------------
Timothy A. Timmins
By: /s/ Barry A. Cain President and Chief
----------------------------------- Executive Officer
Barry A. Cain, Vice President
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<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ASTERISK * DENOTES SUCH OMISSIONS.
CONTRACT NUMBER: 96-0053
AMENDMENT NO. 1 TO
SPECIFIC AGREEMENT NO. 96-0053
BY AND BETWEEN
METRO ONE TELECOMMUNICATIONS, INC.
AND
SPRINT SPECTRUM L.P.
THIS AMENDMENT No. 1 (the "Amendment") is made and entered into, effective as
of December 9, 1998 (the "Effective Date"), by and between Metro One
Telecommunications, Inc., an Oregon corporation ("Metro One") and Sprint
Spectrum L.P., a Delaware limited partnership ("Sprint Spectrum"), for the
purpose of amending Specific Agreement No. 96-0053 dated October 23, 1996, by
and between Metro One and Sprint Spectrum (the "Agreement"). In the event of
any conflict between the terms of this Amendment and the Agreement, the terms
of this Amendment will supersede and control. The term "Agreement," as used
in this Amendment, will collectively refer to the Agreement as modified by
this Amendment.
1. Section 2.1.ii) is amended by deleting the present language and replacing
it with the following:
***
CONFIDENTIAL
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
1
<PAGE>
CONTRACT NUMBER: 96-0053
***
2. Section 6.a., Rate, is amended by deleting the present language and
replacing it with the following:
(i) Effective January 1, 1999, Sprint Spectrum and each Sprint Spectrum
Affiliate will be invoiced by Metro One based on the EDA call count
volume at the rates set forth in the table below:
***
(ii) If a Sprint Spectrum Affiliate is operating under this Agreement,
their volumes will be included with Sprint Spectrum's in all of the
calculations.
(iii) Sprint Spectrum will be provided with a report of the total call
volumes for all of Sprint Spectrum and all Sprint Spectrum
Affiliates combined, during the same month.
(iv) Sprint Spectrum Affiliates will receive only their call
information.
(v) If Metro One requests and Sprint Spectrum agrees, the configuration
of Call Origination and Call Termination areas may be modified at
no incremental cost increase to Sprint Spectrum, based on a six (6)
month cost comparison.
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
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<PAGE>
CONTRACT NUMBER: 96-0053
(vi) The example below illustrates how the monthly invoices will be
calculated:
***
3. Section 6.c.i.), Payment Terms, following the fourth sentence, insert the
following:
"Notice of non-payment is to be mailed to Sprint Spectrum at the following
address:
Original sent to: Sprint PCS
Manager, Directory Assistance
7900 College Boulevard
Overland Park, KS 66210
With a copy to: Sprint PCS
Project Manager/Vendor Payments
7900 College Boulevard
Overland Park, KS 66210"
4. Beginning in the second line of Section 6.f., Term, delete the words "for a
period of three (3) years following commercial availability of Metro One
EDA Services in twenty (20) markets listed in Exhibit 1 prior to any
amendment(s)" and replace them with "through December 31, 2002."
5. Exhibit 5, Service Level Standards, Performance Monitoring, is amended by
deleting the current Measurement and replacing it with the following:
***
6. Section 13.a., Indemnification and Liability, is amended by adding the
following:
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
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<PAGE>
CONTRACT NUMBER: 96-0053
"and (v) any misuse or misappropriation by Indemnitor of web enabled call
monitoring recordings. Sprint Spectrum shall indemnify Metro One for claims
arising from web enabled call recordings, if such claims are not the result
of Metro One's failure to comply with Sprint Spectrum's requirements and
procedures for such recordings, as described in a valid Work Order. Metro
One shall indemnify Sprint Spectrum for claims arising from the recording
of calls which result from the actions of Metro One, its employees, agents,
representatives, or contractors."
7. Section 15, Termination, is amended by adding the following:
"h. TERMINATION FOR CONVENIENCE. At any time, but no later than March 31,
2000, Sprint Spectrum may notify Metro One of the month Sprint Spectrum
will terminate this Agreement, in whole or in part, taking into
consideration Section 16.g, at any time, with no liability other than the
fees set forth in Exhibit 15, attached hereto. Sprint Spectrum will provide
Metro One a wind-down transition period plan which details the timeframe
and market-by-market plan to re-route the Calls. The termination effective
date will be as determined by Sprint Spectrum during the wind-down
transition period. This termination for convenience option may not be
exercised prior to March 1, 2000.
If Sprint Spectrum terminates this Agreement for convenience as provided in
this Section 15.h., Sprint Spectrum agrees to pay Metro One a termination
fee in an amount equal to the amounts set forth in Exhibit 15, attached
hereto. The amount of the termination fee will be based upon the effective
date of the termination for convenience."
8. In Section 16.a., Affiliate Transactions, delete the Section in its
entirety and replace it with the following:
"This Agreement is entered into by Sprint Spectrum on its own behalf and
for the benefit of all Sprint Spectrum embedded and independent affiliated
entities (each a "Sprint Spectrum Affiliate"). An embedded Affiliate means
any entity who is authorized to sell digital wireless products or services
under the Sprint PCS brand name or any other brand name(s) subsequently
primarily used by Sprint Spectrum to market its digital wireless products
and services and Sprint Spectrum is Metro One's day-to-day contact and
responsible party for accounts receivable. An independent Affiliate means:
a) any entity in which Sprint Spectrum holds or controls an equity or
similar interest; b) any entity which holds or controls an equity or
similar interest in Sprint Spectrum; c) any subsidiary, and any
corporation, partnership, limited liability company, limited liability
partnership, joint venture or other entity controlling, controlled by or
under common control with Sprint Spectrum, directly or indirectly by or
through one or more intermediaries; d) Tele-Communications, Inc., Comcast
Corporation, Cox Communications, Inc. or Sprint Corporation; e) SprintCom,
Inc.; or f) any entity that is authorized to sell digital wireless products
or services under the Sprint PCS brand name or any other brand name(s)
subsequently primarily used by Sprint Spectrum to market its digital
wireless products and services and Sprint Spectrum is not Metro One's
day-to-day contact and responsible party for accounts receivable.
All references to Sprint Spectrum refer equally to each Sprint Spectrum
Affiliate executing a Work Request with terms in accordance with this
Agreement. No Sprint Spectrum Affiliate is authorized or allowed to modify
any policies, processes, procedures, scripts, etc. that Metro One and
Sprint Spectrum have agreed to without the prior written consent of Sprint
Spectrum. Any embedded or independent Affiliate not executing a Work
Request under this Agreement is considered an Alternate Channel for
purposes of this Agreement. No commitment is made by Sprint Spectrum or any
Sprint Spectrum Affiliate, or any liability accepted, except as set forth
in
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
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<PAGE>
CONTRACT NUMBER: 96-0053
a properly signed Work Request. All communications and invoices must be
directed to the Sprint Spectrum Affiliate issuing the Work Request under
the instructions contained in the Work Request. Services performed on
behalf of any Sprint Spectrum Affiliate will be invoiced to and collected
from that Sprint Spectrum Affiliate only. Only the Sprint Spectrum
Affiliate issuing a specific Work Request under this Agreement will incur
any obligation or liability for any claim which may arise from or relate to
that Work Request.
9. In the second line of Section 16.b., Affiliate Rights, after the word
"Agreement", insert "with the prior written consent of Sprint Spectrum and
Metro One, which consent will not be unreasonably withheld."
10. Exhibit 13 in its entirety and all references to Exhibit 13 contained in
the Agreement are deleted.
11. Add the following new subsection to Section 16:
"g. ACQUISITIONS: If Sprint Spectrum acquires a controlling interest in
any entity which has Services provided to it by Metro One, Sprint
Spectrum may, in its sole discretion, terminate the contract for
Services between Metro One and such entity, without liability, and the
acquired entity will be provided Services pursuant to the terms and
conditions of this Agreement for the greater of a) the remaining term
of this Agreement; or b) the initial term remaining on the acquired
entity's agreement, which shall be limited to no more than five (5)
years."
12. In Section 2.n., EDA Services Numbers, insert the following as the second
and third sentence:
"At Sprint Spectrum's sole discretion, Sprint Spectrum may or may not route
such calls to Metro One if such calls are associated with an "Alternate
Channel". The term Alternate Channel means a distribution channel for
Sprint Spectrum products and services which may be branded under a
different name, co-branded, or marketed in such a way that Sprint Spectrum
does not solely own the end user relationship or any entity to whom Sprint
Spectrum is required by law, regulation or contract to provide products or
services involving products or services to be provided pursuant to this
Agreement."
13. Exhibits 1, 2, and 3 are deleted in their entirety and replaced by the
attachments hereto and Exhibit 15 is added.
14. Section 2.r. is deleted in its entirety and replaced with the following:
"YEAR 2000 WARRANTY. Metro One warrants that the hardware, software and
firmware used to provide Enhanced Directory Assistance under this Agreement
which contain or depend upon a date processing function (the "Systems")
will be "Year 2000 Compliance" no later than ***, which means the
functions, calculations, and other computing processes of the System
(collectively "Processes") perform and otherwise process, perform date
arithmetic, display, print or pass date/time data in a consistent manner,
regardless of the date in time on which the Processes are actually
performed or the dates used in such data, whether on, during or after
January 1, 2000 and whether or not the date/time data is affected by leap
years. To the extent the System is intended to be used in combination with
other Sprint Spectrum software, hardware and/or firmware, the System will
properly exchange date/time data with such software, hardware and/or
firmware to the extent the Sprint Spectrum software, hardware and firmware,
correctly processes date/time data input. The System will accept and
respond to two-digit year-date input, correcting or supplementing as
necessary, and store, print, display or pass date/time data in a manner
that is unambiguous as to
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
5
<PAGE>
CONTRACT NUMBER: 96-0053
century. No date/time data will cause the System to perform an abnormally
ending routine or function within the Processes or generate incorrect
values or invalid results.
Metro One warrants that the System will be been tested by Metro One to
determine whether the System is Year 2000 Compliant. Upon the written
request of Sprint Spectrum, Metro One will deliver the test objectives and
results of such tests.
If determined by Metro One or Sprint Spectrum that the System is not Year
2000 Compliant, Metro One will, at its expense, within thirty (30) days
after notice of the non-compliance, either (1) immediately correct or
modify the System such that it is Year 2000 Compliant; or (2) replace the
System with a System that is functionally equivalent to the non-compliant
System and is Year 2000 Compliant. If neither of these options are
available, Sprint Spectrum may terminate this Agreement without any
liability.
Except as expressly modified by this Amendment, the terms and conditions of the
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment Number 1 to be
executed and represent and warrant that the signatory whose signature appears
below has been and is on the Effective Date duly authorized by all necessary and
appropriate corporate action to execute this Amendment Number 1.
METRO ONE TELECOMMUNICATIONS, SPRINT SPECTRUM L.P.
INC.
/s/ Timothy A. Timmins /s/ Kevin L. Neuer
- ----------------------------------- ------------------------------
Signature Signature
Timothy A. Timmins Kevin L. Neuer
- ----------------------------------- ------------------------------
Print Name Print Name
President & CEO Vice President, Bus. Svcs.
- ----------------------------------- ------------------------------
Title Title
December 11, 1998 12/15/98
- ----------------------------------- ------------------------------
Date Date
SPRINT SPECTRUM L.P. PROPRIETARY INFORMATION
6
CONTRACT NUMBER: 96-0053
<PAGE>
EXHIBIT 1 ***
EXHIBIT 2 ***
EXHIBIT 3 CURRENT METRO ONE CALL CENTERS.
Baltimore, Maryland
Chicago, Illinois
Dallas, Texas
Denver, Colorado
Detroit, Michigan
Ft. Lauderdale, Florida
Los Angeles, California
Minneapolis, Minnesota
New York, New York
Philadelphia, Pennsylvania
Phoenix, Arizona
Portland, Oregon
Sacramento, CA
San Diego, California
San Francisco, California
Seattle, Washington
St. Louis, Missouri
EXHIBIT 15 ***
7
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-20387 and 333-45643 both on Form S-8 of our report dated February 15,
1999, appearing in this Annual Report on Form 10-K of Metro One
Telecommunications, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND THE RELATED STATEMENTS OF OPERATIONS,
SHAREHOLDER'S EQUITY AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,570
<SECURITIES> 0
<RECEIVABLES> 7,428
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,764
<PP&E> 27,994
<DEPRECIATION> 8,012
<TOTAL-ASSETS> 36,311
<CURRENT-LIABILITIES> 7,350
<BONDS> 719
0
0
<COMMON> 38,477
<OTHER-SE> (10,235)
<TOTAL-LIABILITY-AND-EQUITY> 36,311
<SALES> 0
<TOTAL-REVENUES> 45,139
<CGS> 0
<TOTAL-COSTS> 41,441
<OTHER-EXPENSES> (289)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 3,678
<INCOME-TAX> 75
<INCOME-CONTINUING> 3,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,603
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
