<PAGE>
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, 1999
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
incorporation or organization) Identification No.)
11200 Murray Scholls Place Beaverton, OR 97007
(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. $134,677,868.
The number of shares outstanding of the registrant's Common Stock,
as of March 15, 2000, was 11,538,554.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2000 Annual
Meeting are incorporated by reference into Part III of this Report.
1
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
PART I
<S> <C> <C>
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote
of Security Holders 9
PART II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Item 7A Quantitative and Qualitative Disclosures
About Market Risk 20
Item 8 Financial Statements and Supplementary Data 20
Item 9 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 20
PART III
Item 10 Directors and Executive Officers of the Registrant 21
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial
Owners and Management 21
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 22
Signatures 24
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
Metro One is a leading independent developer and provider of enhanced
directory assistance and information services for the telecommunications
industry. We primarily contract with wireless carriers to provide our
services to their subscribers. In 1989, we opened our first call center and
began testing and offering our enhanced directory assistance and information
services. In 1991, we entered into our first contract with a wireless carrier
to provide our services to that carrier's subscribers on a charge per call
basis. Our customers include many of the leading wireless telecommunications
carriers such as Sprint PCS, AT&T Wireless Services, Nextel Communications,
Pacific Bell Wireless, Vodafone AirTouch PLC and ALLTEL Communications. In
addition, we have expanded into the landline telecommunications market and
provide our services to GST Communications, a regional competitive local
exchange carrier.
TELECOMMUNICATIONS INDUSTRY
The U.S. telecommunications industry is generally characterized by strong
growth and increased competition due to new technologies, a more favorable
regulatory environment and, for carriers, an increasingly sophisticated and
demanding subscriber. Telecommunications carriers face increasing competitive
pressures to differentiate their products and establish brand loyalty. With
rising costs to acquire new subscribers, carriers are seeking ways to
minimize subscriber turnover through the use of, among other things,
value-added services and features. In addition, carriers are increasingly
offering local, long distance, wireless, cable and Internet services bundled
into one package in order to appeal to a wider market. Competitive pressures
are particularly acute for wireless and newer landline carriers, such as
competitive local exchange carriers. The industry has also experienced a
considerable amount of consolidation and investment in new technologies and
alternative methods of delivery, including cable and the Internet.
WIRELESS TELECOMMUNICATIONS. The U.S. wireless telecommunications market has
experienced dramatic growth during the 1990s. This growth was largely due to
technological advances that give callers affordable, high-quality mobile
services. According to industry analysts, the number of wireless subscribers
in the United States approached 80 million at the end of 1999, and is
estimated to reach 177 million by the end of 2005. A relatively small number
of carriers dominate the wireless telecommunications market. In terms of
estimated number of subscribers, the largest U.S. wireless carriers include
AT&T Wireless Services, SBC Communications, Vodafone AirTouch PLC and GTE
Wireless. Other nationwide carriers include Sprint PCS and Nextel
Communications.
In the each of the major U.S. markets, at least four carriers compete for
wireless subscribers. As a result, carriers are seeking to differentiate
themselves from their competitors. While price continues to be an important
competitive factor, carriers increasingly focus on value-added services and
features as a means of differentiating themselves.
LANDLINE TELECOMMUNICATIONS. The U.S. landline telecommunications market is
significantly larger than the U.S. wireless market. For example, in 1998,
domestic landline services generated approximately $210 billion in revenues
as compared to approximately $37 billion in revenues generated by wireless
services, according to the Federal Communications Commission. Like the
wireless market, the landline market is dominated by a relatively small
number of major carriers. Carriers providing local service include the
regional Bell operating companies, such as SBC Communications, independent
telephone companies, such as ALLTEL Communications, and competitive local
exchange carriers, such as GST Communications. Carriers providing long
distance service include AT&T, MCI WorldCom and Sprint Corp.
As local and long distance carriers begin competing in each other's markets
as well as against newer and smaller independent carriers, the landline
market is becoming extremely competitive. With deregulation, the entry of new
landline competitors and the increasing affordability of wireless services,
subscribers who were historically bound to local carriers as a matter of
geography are now increasingly able to choose their carriers. Of note, the
competitive local exchange carrier segment of the landline telecommunications
industry is rapidly growing. These companies compete with incumbent local
carriers to provide a variety of services, including local, long distance and
Internet and other data services. The Yankee Group estimates that the
competitive local exchange industry generated revenues of $6.6 billion in
1998 and will generate $26.1 billion in 2001. As a result, the landline
telecommunications market is rapidly becoming subscriber-based and carriers
must find ways to differentiate their services to attract and retain
subscribers. In addition, to maintain operational focus, competitive local
exchange carriers often outsource non-core operations, including directory
assistance services. While many incumbent carriers provide directory
assistance services on an outsourced basis, the competitive local exchange
carriers may prefer to outsource their directory assistance needs to
independent companies rather than use the services of their competitors.
3
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS. The international telecommunications market
is characterized by increasing privatization, competition and, in the
wireless market, rapid growth. As governments privatize their national
telecommunications companies, these companies face increased competition from
large international carriers who have access to and interest in the
newly-opened markets. According to the International Telecommunications
Union, an international telecommunications industry group, the worldwide
wireless industry generated $154 billion in revenue in 1998 and is projected
to grow to $315 billion in revenue by 2002. As a whole, the worldwide
telecommunications services market generated over $744 billion in revenue in
1998 and is expected to grow to $925 billion in revenue by 2002, according to
the International Telecommunication Union.
DIRECTORY ASSISTANCE MARKET
Revenues generated by the wireless directory assistance market in the United
States are estimated to grow from $390 million in 1998 to $594 million in
2002, according to Frost & Sullivan, a market research firm. Wireless
subscribers tend to be heavy users of directory assistance services.
According to Frost & Sullivan, growth in the wireless directory assistance
market is driven by a number of factors, including growth in the wireless
subscriber base, rising wireless penetration, increasing subscriber mobility
and the offering of enhanced directory assistance services by wireless
carriers.
The landline directory assistance market is significantly larger than the
wireless directory assistance market. Revenue generated by the landline
directory assistance market is estimated to grow from approximately $3
billion in 1998 to $4 billion in 2002, according to Frost & Sullivan. Growth
in the landline directory services market is driven by a number of factors,
including the growing information needs of subscribers and the offering by
landline carriers of call completion services.
OUR BUSINESS STRATEGY
Metro One's business strategy includes the following key elements:
- - BUILD ON OUR CURRENT CARRIER RELATIONSHIPS, WHILE SEEKING NEW DOMESTIC AND
INTERNATIONAL CUSTOMERS, INCLUDING LANDLINE CARRIERS AND OTHER CORPORATE
CUSTOMERS
We are continuing to expand our relationships with our existing carrier
customers. We believe that our services can increase carriers' revenues
by minimizing subscriber turnover, increasing the number of calls made
and, in the case of wireless and long distance carriers, billable
airtime. Further, our national call center network and integrated
search engines and database systems allow carriers operating in
multiple markets to offer consistent enhanced directory assistance and
other information services on a nationwide basis. This consistency
permits greater system-wide marketing opportunities and brand
identification for these carriers. We believe that our existing
relationships and the quality of our services will allow us to expand
our business with our existing customers, providing us an opportunity
to deliver our services to them and their affiliates in additional
markets, including international markets.
We are also aggressively pursuing business opportunities with
additional wireless and landline carriers with a view to leveraging our
reputation for high quality service. We believe increasing competition
among landline carriers is leading to an increasingly subscriber-based
business, which will result in the need to differentiate their product
offerings. Our services provide them an opportunity to do so and,
accordingly, could help us expand into the significantly larger
landline directory assistance market.
The information content that resides in our database systems, along
with our ability to store, maintain, manipulate and deliver it,
provides an opportunity to pursue other business customers and provide
them with our services over private networks or otherwise.
- - DEVELOP AND OFFER ADDITIONAL VALUE-ADDED SERVICES AND FEATURES
We believe we are well positioned to continue developing and providing
the types of services and features that enhance the utility of the
telephone and other communications devices. For example, our
MetroDex-TM-service is designed to provide individual callers and
corporate users with the ability to quickly and efficiently access
their personal or corporate contacts databases, including otherwise
unpublished numbers, and potentially take advantage of additional
services such as having a personal assistant available over the
telephone. Such innovative features should permit our customers to
distinguish themselves further from their competitors and increase
their subscriber satisfaction.
4
<PAGE>
- - EXPAND OUR NATIONAL CALL CENTER NETWORK AND ITS CAPABILITIES, WHILE ADDING
GREATER BANDWIDTH, STORAGE CAPACITY, SPEED AND EFFICIENCY TO OUR SYSTEMS
We intend to continue to expand our network capacity and efficiency,
including adding to our call routing flexibility, redundancy and
signaling systems. We may also build additional call centers as
required by demand and customer commitments. We also intend to add to
our storage capacity both for purposes of database backup and for
delivery of personal database, concierge and other personalized and
fulfillment-oriented services. We may build or license specialty call
centers to deliver special products such as customer service and
fulfillment assistance, as well as international call centers, should
attractive opportunities arise.
- - ENHANCE THE QUANTITY AND QUALITY OF OUR CURRENT CONTENT DATABASES
We intend to continue to improve the breadth and depth of the
information content within our database systems. We intend to seek
additional content to make our directory listings and other data more
useful and to enhance our ability to provide other services. Additions
to this content may be virtual, through the Internet or other links
that allow us to license or barter content. Some of this information
will be deliverable to subscribers through portals other than the voice
telephony portal, such as those available on the Internet.
- - LEVERAGE OUR VOICE TELEPHONY PORTAL BY DELIVERING GREATER VOLUMES OF
EXISTING AND NEW SERVICES THROUGH OUR CALL CENTER NETWORK AS WELL AS
THROUGH OTHER PORTALS
Our strength has been to provide enhanced services through the voice
telephony portal we have created. We are seeking opportunities to
provide access to some of the content we acquire, develop and maintain,
as well as our applications and related features, to other portals,
including those available through the Internet. We believe that
telephone carriers and perhaps other customers, could use our content,
applications and features to provide high quality services that are
consistent across various portals and geographic areas. In so doing,
these customers, particularly the telephone carriers, could further
bind their subscribers to them as competition in their markets becomes
increasingly subscriber-based.
CUSTOMERS
Metro One provides enhanced directory assistance and information services to
several of the nation's leading wireless carriers in all or a portion of their
service areas. Our customers include Sprint PCS, AT&T Wireless Services, Nextel
Communications, Pacific Bell Wireless, Vodafone AirTouch PLC and ALLTEL
Communications. In addition, we have expanded into the landline
telecommunications market and currently provide our services to GST
Communications, a regional competitive local exchange carrier. Customers that
accounted for more than 10% of our revenues during any of the periods indicated
were as follows:
<TABLE>
<CAPTION>
Customer 1997 1998 1999
-------- ---- ---- ----
<S> <C> <C> <C>
Sprint PCS 17% 38% 40%
AT&T Wireless Services 7 17 30
Vodafone AirTouch 25 18 11
Pacific Bell Wireless 6 12 11
Ameritech Cellular 24 11 -
Bell Atlantic Mobile 16 1 -
</TABLE>
We offer our services to a carrier's subscribers under a brand name selected
by the carrier, such as "AT&T 00 Info," "AirTouch 411 Connect" or "Sprint PCS
Directory Assistance." The carrier establishes its own fee structure with its
subscribers. Subscribers typically pay the carriers fees ranging from $0.75
to $1.10 plus airtime charges for our services. Metro One charges carriers
directly and bears no subscriber collection risk. We currently charge our
carriers on a per call basis. To stimulate increased call volume and to
attract and expand customer commitments, we offer volume-pricing discounts to
some large carriers. Beginning in 1999, we have decreased the average price
per call as increasing call volumes from existing and new contracts have
triggered the volume-based pricing we put in place to attract business.
During the year ended December 31, 1999, our per call charges averaged
approximately $0.55.
5
<PAGE>
We currently have contracts with 13 carriers. The terms of these contracts
are generally similar, with variations in the geographic market to be served,
the services and features we are to provide the carriers' subscribers and the
term, which is generally up to five years. Several also require us to build
out call centers in specified locations. None of these contracts preclude us
from providing services to other carriers. The carriers agree to route some
or all of their directory assistance and/or alphanumeric messaging calls to
us.
CALL CENTER NETWORK
We operate 27 call centers located in strategic local markets throughout the
United States, and expect to add at least one additional new call center by
the end of 2000. Our call center network enables us to provide enhanced
directory assistance and information services nationwide. We are situated in
or near major metropolitan areas and therefore are located locally for more
than one-half of the U.S. population. We believe that the local nature of our
call centers and operators permits us to offer more accurate and valuable
service than would be available through a single or a few call centers
attempting to serve the entire U.S. market. We operate our call centers 24
hours a day, seven days a week, 365 days a year.
We continually upgrade our network and systems to allow greater utility,
speed and efficiency in processing calls. We are also expanding capacity to
store, manipulate and manage the additional data that we acquire. In
addition, our telephone switching systems allow scalability, including the
ability to join multiple switches together or configure switches so that they
can handle large volumes of calls in tandem. These systems are monitored from
our network operations center located at our corporate headquarters, which
provides 24 hour support for our call center network. Our systems are
designed to permit redundancy and avoid downtime from natural disasters or
other adverse events. For example, all of our call centers on the Eastern
Seaboard continued to operate during Hurricane Floyd in September 1999.
Because a carrier offers our services to its subscribers under its brand
name, we believe quality and reliability are important considerations in a
carrier's decision to use us. To ensure high quality and consistency, we
emphasize training, monitoring and customer support. We maintain a national
training force with training personnel in each call center. Our operators
undergo extensive training and testing on search techniques, etiquette and
local information, including landmarks, major thoroughfares and geography.
Our training personnel continually monitor, test and evaluate call center
performance. We also monitor our call centers for compliance with contract
performance standards and report this information to the carriers on a
regular basis. In addition to accessing our systems maintenance and support
personnel, carriers can obtain extensive customer usage information.
OUR SERVICES AND FEATURES
Metro One uses a customized array of hardware and software, along with
proprietary database search engines, to provide its enhanced directory
assistance and information services. We receive incoming calls by means of
assigned telephone numbers, which are "411," "555-1212" or "00" in almost all
cases. Our operators answer incoming calls and identify the service using the
carrier's brand name. Upon receiving information requests from callers, our
operators search the applicable database using one or more of our search
engines. The operator then connects the caller to a party or supplies the
caller with the requested information. We offer a variety of information,
including:
- - Directory listings information, which may be retrieved by methods that
include reverse and category searches;
- - Time, weather and traffic information;
- - Movie, restaurant and local event information;
- - TeleConcierge-TM- services, which currently consists of restaurant
reservations; and
- - Geographic directions.
Our enhanced directory assistance and information services also incorporate
connectivity features that make the telephone more useful and easier to use.
These connectivity features include:
- - Call completion - allows a caller to be directly connected with the number
requested without the need to redial;
- - StarBack-R- - allows the caller to return to a live operator simply by
pressing a key, such as the star [*]; key or otherwise issuing a command
at any time during a call;
- - AutoBack-R- - automatically returns the caller to a live operator or other
options upon a busy signal, "ring-no-answer" or other common situations
without pressing a single key;
6
<PAGE>
- - MessageBack-TM- - delivers a caller's message to a desired party and, when
configured with AutoBack, provides a convenient tool for ensuring
communication;
- - NumberBack-R- - sends the caller the called number simply by pressing the
number [#] key; and
- - Short Messaging Service - allows our operators to send customized
alphanumeric messages on behalf of a caller.
We are developing and testing new services that add new content and
connectivity features, such as MetroDex, which allows callers to use their
telephone or the Internet to access their personal or corporate contact
databases, and LocationPro, which provides location-based services, including
turn-by-turn driving instructions. Other features under development include
on-line research and verification utilities for use by businesses with a
direct private connection to us, and fulfillment-oriented services, such as
reservations and procurement capabilities for use by our carriers'
subscribers. Equipment at our corporate headquarters facilitate this
development and testing by simulating normal call center operations.
DATABASE SYSTEMS AND CONTENT
We believe the quality of our services is in large measure related to the
scope, quality and quantity of the information content that resides in our
database systems. The majority of the information or data that we acquire,
develop and maintain is telephone listings data. We obtain this listings data
from multiple sources, including the regional Bell operating companies,
independent telephone companies and other commercial sources, to ensure that
our data is of high quality and accuracy. This data is enhanced by our data
collection efforts and a principal database of local information is developed
for each call center or region.
Our proprietary operator interface software allows operators to efficiently
search and reverse search both their local databases and other national
databases. We use proprietary database management systems to maintain and
update our directory listings. We continually acquire additional content or
access to content that will, in many cases, build on this listings data to
make them more useful. Acquisitions are made from a variety of sources and
are supplemented with information relating to local events and amenities.
On December 23, 1999, we announced that we signed a multi-year agreement with
Network Solutions, Inc., the leading Registrar of Web addresses ending in
.com, .net and .org, for the use of its Registrar domain name database. Under
the terms of the agreement, Metro One will also license its Business Category
Thesaurus to Network Solutions for use in the dot com directory-TM-, the
Internet's definitive place to find an online business. During the year 2000,
Metro One intends to make Network Solutions' domain name registration data
available through its Enhanced Directory Assistance services. By dialing 411,
callers will be able to request domain names of online businesses throughout
the United States and the world, registered in .com, .net and .org.
On February 3, 2000, we announced that we signed an agreement with
MapQuest.com. Under the terms of the agreement, Metro One will license
MapQuest.com's technology for mapping and detailed turn-by-turn directions
for subscribers of Metro One's carrier customers. By providing a street
address or city and state information, callers can obtain the most direct
route from the point of origin to a destination using a variety of options
and formats.
MARKETING
Our marketing is conducted directly with the telecommunications carriers. The
marketing process involves a considerable amount of time and attention by our
senior management. Our senior management and all of our sales and technical
support personnel are based at our corporate headquarters in Beaverton,
Oregon. Call center managers also play a key role in maintaining and
developing carrier relationships. Some of our contracts provide for customer
promotion of the services we provide to their subscribers. In addition, we
occasionally assist our carrier customers in the promotion of these services.
We communicate on a regular basis with our existing carrier customers through
our quality assurance and customer service programs. We have developed
proprietary programs that allow us and our customers to monitor the quality
of our performance and the volume and duration of directory assistance and
information requests on a real-time basis. These programs also give us an
opportunity to learn more about our carriers' evolving needs.
TECHNOLOGY
Our ability to provide enhanced directory assistance and information services
is dependent to a great extent on our proprietary technology. Our proprietary
software applications enhance our call handling and delivery capabilities and
provide the basis for our connectivity features.
7
<PAGE>
We have developed search engines to access information from our databases. We
continue to upgrade our operator interface software, database management
systems and search engines to increase the access speed and the efficiency
and search capability of our operators.
Our call processing systems incorporate programmable switching equipment,
host computers, voice response units and database servers. Our advanced
technology is based on customized software running Sun Microsystems servers
and Excel switching equipment. One of the characteristics of our call
processing systems is the ability to take all calls from a carrier's switch
and have them run through our switch for the entire length of the call so
that we are able to provide a full range of our services to the caller.
We are also monitoring technological advances in the methods of delivery of
information and data and are working to insure that our systems are
compatible with, and we can take advantage of, these developments. As an
example, wireless application protocol (or WAP) allows telephone users with a
certain type of telephone to access the Internet. Opportunities that this may
present include using the content we have available to us in this new format.
We believe that by expanding reliance on the telephone as a source of
information, the application of this technology will also benefit our
enhanced directory and information services business.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, patent and trade secrets laws and
confidentiality procedures to protect our intellectual property rights. We
have seven U.S. patents issued, including one relating to our StarBack
technology and another associated with our turn-by-turn directions service
currently in development. We have approximately 18 applications pending for
additional U.S. patents. We also have U.S. registered trademarks for, among
others, "Metro One Telecommunications," "Metro One," "Enhanced Directory
Assistance," "StarBack," "AutoBack" and "NumberBack," and applications
pending for U.S. trademark registrations for, among others, "MetroDex,"
"TeleConcierge," "LocationPro" and "MessageBack."
COMPETITION
The directory assistance and information services markets are characterized
by rapidly changing market forces, technological advancements and increasing
competition from large carrier-affiliated companies and small, independent
companies. Our principal competitors include regional Bell operating
companies and other local providers, including GTE Corporation. These
carriers provide directory assistance or information services both in and
outside their own operating regions. Although we believe that none of these
competitors offers a form of directory assistance that incorporates all of
our features, they have substantially greater financial, technical and
marketing resources than we do and may be able to offer features similar to
ours in the future. We also face competition from independent companies
seeking to offer forms of enhanced directory assistance and, in some cases,
other information services.
We believe the principal competitive factors in the directory assistance
market are quality and range of features, technological innovation,
experience, responsiveness to customers and price. Historically, we have
sought to distinguish ourselves from our competitors based on the quality of
our services, the development of useful features, the breadth of the content
provided and our extensive national network of call centers.
GOVERNMENT REGULATION
While our business is not directly regulated, it is dependent upon
relationships with companies that are regulated by the Federal Communications
Commission and state public utility commissions. This regulation applies to
all communications common carriers, such as AT&T, the regional Bell operating
companies and other long distance and local exchange carriers.
EMPLOYEES
As of December 31, 1999, Metro One had approximately 2,900 employees,
approximately 15% of whom were employed on a part-time basis. Most of our
employees are operators, and the number of full-time and part-time operators
varies from time to time reflecting fluctuations in the volume of calls. None
of our employees are subject to a collective bargaining agreement. Our
management considers relations with our employees to be good.
We invest significant resources in the recruitment, training and retention of
qualified operators. Our organizational structure provides opportunities and
encourages talented individuals to take on roles of increasing
responsibility. We also invest considerable resources in personnel
motivation, including providing incentive plans for our operators and
management and corporate staff.
8
<PAGE>
ITEM 2. PROPERTIES.
In July 1999, we relocated our principal executive and administrative offices
in Beaverton, Oregon. We lease our new headquarters facilities, with
approximately 35,000 square feet of space. The lease term extends through
2009. We have subleased our former executive and administrative offices,
which have approximately 15,400 square feet of space and a remaining lease
term of three years.
We also lease office facilities for our call center operations, which range
in size from 3,600 to 15,500 square feet. Currently, we have 29 leases for
call center and other remote facilities, with remaining terms up to five
years. We believe that expansion of our call center network may require us to
lease additional office facilities within the next year. From time to time,
we are required to move our call centers or lease additional space to meet
expanding volume from existing or new customers.
ITEM 3. LEGAL PROCEEDINGS.
In August 1999, we commenced an action against a competitor in the United
States District Court in Delaware claiming infringement of one of our patents
relating to our StarBack feature. The defendant has denied that it is
infringing the patent and has asserted that our patent is invalid.
The Company is not aware of any other 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, 1999 to a
vote of security holders.
9
<PAGE>
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(R) 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:
<TABLE>
<CAPTION>
1999 High Low
---- ------ ------
<S> <C> <C>
Quarter ended December 31, 1999 $19.25 $ 8.00
Quarter ended September 30, 1999 20.00 12.00
Quarter ended June 30, 1999 17.63 12.13
Quarter ended March 31, 1999 19.44 11.50
1998 High Low
---- ------ ------
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
</TABLE>
The approximate number of shareholders of record as of March 15, 2000 was
165. The Company believes it has approximately 4,220 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 in excess of 10% of the Company's tangible net worth.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operations data:
Revenues $77,831 $45,139 $26,090 $17,834 $13,074
Direct operating costs 46,494 23,107 13,017 8,334 7,157
General and administrative costs 28,711 18,334 11,702 7,615 5,999
Income (loss) from operations 2,626 3,698 1,371 1,885 (82)
Net income (loss) 1,906 3,603 1,432 1,166 (1,724)
Basic earnings (loss) per share .17 .33 .13 .13 (.31)
Diluted earnings (loss) per share .16 .32 .13 .12 (.31)
Cash flow from operations 3,326 6,546 3,293 2,912 (2,252)
Balance sheet data:
Cash and investments $ 9,964 $ 7,570 $ 8,554 $14,137 $ 1,149
Working capital 11,750 8,414 9,844 15,012 151
Total assets 65,475 36,311 29,125 24,529 8,716
Long-term obligations 18,940 719 1,416 1,168 1,466
Shareholders' equity 31,979 28,242 23,676 20,981 3,274
</TABLE>
10
<PAGE>
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 us and our 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. We undertake 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 our Common Stock. Our quarterly and annual operating results
have in the past and may in the future vary significantly depending on
factors such as changes in the telecommunications market, the addition or
expiration of Enhanced Directory Assistance(R) contracts, increased
competition, changes in pricing policies by us or our competitors, lengthy
sales cycles, lack of market acceptance or delays in the introduction of new
versions of our products or features, the timing of the initiation of
wireless services or their acceptance in new market areas by
telecommunications customers, the timing and expense of the expansion of our
national call center network, the general employment environment, general
economic conditions and the other factors discussed under the heading "Issues
and Uncertainties" in this Item 7.
OVERVIEW
We are a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide enhanced directory
assistance and information services to their subscribers.
Under our contracts, the carriers agree to route some or all of their
directory assistance and/or alphanumeric messaging calls to us. We are also
able to offer our services to multiple carriers within the same market. When
a carrier's subscribers dial a typical directory assistance number, such as
"411," "555-1212" or "00," the calls are answered by our operators
identifying the service by that carrier's brand name, such as "AT&T 00 Info,"
"AirTouch 411 Connect" or "Sprint PCS Directory Assistance."
Each carrier establishes its own directory assistance fee structure for its
subscribers. Wireless subscribers typically pay fees ranging from $0.75 to
$1.10 plus airtime charges for our services. We bear no subscriber collection
risk.
We charge our carriers directly on a per call basis, with prices varying in
some cases based on call volume. Our long-term strategy is based in part on
reducing the price we charge our customers. We expect that our average price
per call will decrease in 2000 as call volume increases. We believe this
reduced pricing better positions us to retain and expand service with
existing carrier customers, to attract new wireless and landline carriers,
and to achieve greater operating margins over time.
In 2000, we will continue our call center and network build out to prepare
for significant new call volume from Nextel Communications, AT&T Wireless
Services, ALLTEL Communications and other carriers. We will also continue to
opportunistically pursue additional significant new business. This build out
will substantially increase our local service coverage and our capacity to
process additional call volume.
Our rapid growth plan involves both capital expenditures and operating
expenses, as we build infrastructure and recruit and train qualified
personnel. To better serve our customers and strengthen our relationships, we
maintain the operating readiness of our call centers even when our carrier
customers experience unexpected delays in transitioning call volume to us.
Some of our carrier customers have recently experienced these types of delays
and may experience some additional delays in the future. These delays
increase our ongoing operating expenses with no corresponding increase in
revenues. The result under these conditions has been, and will likely
continue to be, near-term reported earnings that vary widely. However, we
intend to continue to pursue and prepare for significant additional call
volume in order to seek to achieve greater earnings over the long-term.
11
<PAGE>
RESULTS OF OPERATIONS
The following table shows selected items of our statements of operations data
expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct operating costs 59.7 51.2 49.9
General and administrative costs 36.9 40.6 44.9
----- ----- -----
Income from operations 3.4 8.2 5.2
Other income 0.1 0.6 1.6
Interest and loan fees (1.0) (0.6) (1.3)
----- ----- -----
Income before income taxes 2.5 8.2 5.5
Income tax expense 0.1 0.2 0.0
----- ----- -----
Net income 2.4 8.0 5.5
===== ===== =====
New call centers opened during year 6 2 4
Call centers in operation at year-end 24 18 16
</TABLE>
1999 COMPARED TO 1998
REVENUES. Revenues increased 72.4%, to $77.8 million from $45.1 million. Call
volume grew to approximately 141 million calls in 1999 from approximately 71
million calls in 1998. This increase was due primarily to increased call
volume under existing contracts and call volume from new contracts that
commenced service during the second half of 1998 and the third quarter of
1999.
DIRECT OPERATING COSTS. Direct operating costs consist of call center
personnel and data costs. These costs increased 101.2%, to $46.5 million from
$23.1 million. This increase was primarily due to servicing increased call
volumes and the cost of operating additional call centers in 1999. In
addition, during 1999 we elected to take on an increased amount of staffing
and infrastructure expenditures in preparation for additional scheduled call
volume, some of which did not arrive as anticipated. As a percentage of
revenues, direct operating costs increased to 59.7% from 51.2%, due primarily
to increased personnel and data costs associated with the start-up of new
call centers, the increase in staffing in anticipation of additional call
volume from existing customers and a reduction in average price per call.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
56.6%, to $28.7 million from $18.3 million. This increase resulted primarily
from the costs associated with the start-up of new call centers and the
investment in infrastructure necessary to support, and the increase in
depreciation expense associated with, additional call centers. As a
percentage of revenues, general and administrative costs decreased to 36.9%
from 40.6%. This decrease resulted primarily from efficiencies associated
with the expansion of our operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
64.9%, to $6.2 million from $3.8 million, due primarily to equipment
purchased for new call centers, for upgrades to existing call centers and
corporate operations.
OTHER INCOME. Other income for the year ended December 31, 1999 was $128,000
and consisted primarily of interest income of $192,000, offset by losses upon
the disposition of assets of $67,000. Other income for the year ended
December 31, 1998 was $289,000 and consisted primarily of interest income of
$365,000, offset by losses upon the disposition of assets of $73,000.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees increased
150.2%, to $773,000 from $309,000. This increase was attributable to an
increase in average debt outstanding during 1999.
INCOME TAX EXPENSE. Income tax expense for the year ended December 31, 1999
was $75,000, for an effective tax rate of approximately 3.8%. Income tax
expense for the year ended December 31, 1998 was $75,000, for an effective
tax rate of approximately 2.1%. These rates differ from the combined federal
and state statutory rate of approximately 38% due primarily to the use of net
operating loss carryforwards.
12
<PAGE>
1998 COMPARED TO 1997
REVENUES. Revenues increased 73.0%, to $45.1 million from $26.1 million. Call
volume increased to approximately 71 million calls from approximately 42
million calls. This increase was due primarily to increases in call volume
under existing contracts and additional call volume from new contracts,
offset by decreases in call volume due to the completion of contracts with
Ameritech Cellular, BellSouth and Bell Atlantic Mobile.
DIRECT OPERATING COSTS. Direct operating costs increased 77.5%, 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 our national network of call centers. This
increase was partially offset by higher call volumes and the associated
operating efficiencies due to improved personnel utilization.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
56.7%, 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.
DEPRECIATION AND AMORTIZATION. 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. Other income for 1998 was $289,000, and consisted of interest
income of $365,000, offset primarily by losses on the disposition of assets
of $73,000 related to equipment taken out of service during the year. Other
income for 1997 was $408,000, and consisted of interest income of $569,000,
offset primarily by expenses of $142,000 related to estimated litigation
settlement costs and losses on the disposition of assets taken out of service
during the year.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees declined 7.5%,
to $309,000 from $334,000. This decline was attributable to lower interest
rates. Monthly average debt outstanding increased to $1.7 million from $1.6
million.
INCOME TAX EXPENSE. Income tax expense for 1998 was $75,000, for an effective
tax rate of approximately 2.1%. Income tax expense for 1997 was $13,000, for
an effective tax rate of approximately 0.9%. These rates differ from the
combined federal and state statutory rate of approximately 39% due primarily
to the use of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and investments are recorded at cost that
approximates their fair market value. As of December 31, 1999, we had $10.0
million in cash and cash equivalents and investments compared to $7.6 million
at December 31, 1998, an increase of $2.4 million primarily from borrowings
under credit facilities, less cash used to fund capital expenditures incurred
as part of the expansion of our national call center network and capacity.
Net borrowings under credit facilities were $21.9 million for the year ended
December 31, 1999, and total capital expenditures were $24.4 million for the
same period. In addition to borrowings under credit facilities, we have
funded the expansion of our call center network with cash on hand, cash
provided by operating activities and proceeds from the exercise of options.
Working capital was $11.8 million at December 31, 1999, as compared with $8.4
million at December 31, 1998. Our current ratio was 1.8:1 at December 31,
1999, as compared with 2.1:1 at December 31, 1998.
In December 1999, we entered into a new secured term loan agreement with an
equipment financing lender. The loan agreement provided us with $20 million
of debt to repay outstanding indebtedness, fund the expansion of our call
center network and for other equipment needs. Borrowings under the agreement
are repayable over 48 months at a fixed interest rate of 9.29%. Prepayment of
outstanding borrowings is allowable at any time for a 1% fee. Substantially
all of our fixed assets have been pledged as collateral. Subsequent to
December 31, 1999, we increased the availability under this term loan
agreement to provide for an additional $15 million of borrowing capacity.
Also during December 1999, we entered into a new line of credit agreement
with a commercial bank that replaced prior agreements. The agreement consists
of a $10 million revolving line of credit that expires in December 2001.
Outstanding borrowings bear interest at the prime rate (8.5% at December 31,
1999) plus a fee of no greater than .75% based on the ratio of debt to cash
flow, and all receivables are
13
<PAGE>
pledged to the bank as collateral. The agreement contains minimum quick
ratio, debt to equity and profitability requirements, as well as other
restrictive covenants, and prohibits the payment of any dividends and other
distributions and redemptions of our stock exceeding 10% of our tangible net
worth. As of December 31, 1999, we did not have any outstanding borrowings
under this agreement.
During the third quarter of 1999, we entered into an equipment financing loan
agreement with an equipment financing lender. The loan agreement provides us
with borrowing capacity to fund the expansion of our call center network and
for other equipment needs. The agreement provides for fixed or floating rate
borrowings and all assets purchased pursuant to the agreement are pledged as
collateral. Borrowings under the agreement have a term of 48 months, and
prepayment of outstanding borrowings is allowable after 12 months from the
funding date. As of December 31, 1999, we had $4.2 million outstanding at
fixed rates ranging from 8.77% to 9.5%.
CASH FLOW FROM OPERATIONS. Net cash provided by operating activities was $3.3
million for the year ended December 31, 1999, resulting primarily from net
income, the effect of non-cash depreciation and amortization and increases in
accounts receivable and accounts payable. Net cash from operations for 1998
was $6.5 million, resulting primarily from net income and non-cash expense
items, such as depreciation and amortization. Net cash from operations was
$3.3 million for 1997, resulting primarily from net income and non-cash
expense items, such as depreciation and amortization.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities was
$23.3 million for the year ended December 31, 1999 and was related primarily
to capital expenditures for the purchase of equipment for new call centers,
the upgrade and expansion of existing call centers, investment in corporate
operations and our relocation to expanded corporate headquarters. Cash used
in investing activities was offset by proceeds from the sale of short-term
investments. Cash used in investing activities was $10.6 million for 1998 and
was related primarily to capital expenditures for new call centers and the
upgrade and expansion of existing call centers and purchase of investments.
Cash used in investing activities was $10.1 million for 1997 and was related
primarily to capital expenditures for new call centers and the upgrade and
expansion of existing call centers.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $23.5 million for the year ended December 31, 1999, resulting
from the borrowing of $31.8 million under credit facilities and the repayment
of $10.2 million of debt obligations, and the receipt of cash proceeds of
$1.8 million from the exercise of options. Net cash provided by financing
activities for 1998 was $1.6 million resulting primarily from $1.4 million in
borrowings against our line of credit and the receipt of cash proceeds of
$963,000 from the exercise of warrants and options to purchase common stock.
Net cash provided by financing activities for 1997 was $1.2 million resulting
primarily from the receipt of net cash proceeds of $993,000 from the exercise
of warrants and options to purchase common stock.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of our capital in the
near future are expected to be the development or acquisition of
technologies, features and content complementary to our business and to
expand our call center and network capacity to serve existing and potential
customers; the reduction of outstanding indebtedness; and for general
corporate purposes, including possible acquisitions and other corporate
development activities and working capital. Under the terms of certain
contracts, we are required to open additional call centers in major
metropolitan areas. We anticipate that our capital expenditures will be
approximately $14 million to $16 million in 2000, resulting primarily from
the projected expansion and planned improvements. We believe our existing
cash and cash equivalents, credit facilities and cash from operations will be
sufficient to fund our operations through the end of the year 2000.
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 "99" is recognized as "1999"). 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 concluded a program to identify, remediate, test and develop
contingency plans for the Year 2000 issue (the "Y2K Program"). Significant
issues were identified by April 1999. All phases were completed prior to
December 31, 1999. The Y2K Program included 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 was made of
the key internal systems, and the systems that were not already Year 2000
ready were modified, upgraded or replaced. The Company assessed its products,
and worked 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 future.
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 failure of a system at the Company or at an
14
<PAGE>
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.
EFFECT OF INFLATION
Inflation did not materially affect our business during the last several
years.
ISSUES AND UNCERTAINTIES
We do not provide forecasts of future financial performance. While management
is optimistic about our long-term prospects, the following issues and
uncertainties, among others, should be considered in evaluating our outlook.
OUR QUARTERLY AND ANNUAL OPERATING RESULTS FREQUENTLY VARY SIGNIFICANTLY IN
PART DUE TO FACTORS OUTSIDE OUR CONTROL.
In the future, as in the past, our quarterly and annual operating results may
vary significantly as a result of a number of factors. We cannot control many
of these factors, which include, among others:
- - Changes in the telecommunications market, including the addition or
withdrawal of carriers from the market, changes in technology and
increased competition from existing and new competitors;
- - The timing of the commencement of our services under new or existing
contracts with our carrier customers, which depend in part on the
customers' ability to adapt their networks to allow them to transfer calls
to us and bill for call completion;
- - The timing and expense of our call center network expansion, including
increased staffing and infrastructure expenses related to anticipated new
call volume;
- - The addition or expiration of contracts with carrier customers;
- - Changes in our or our competitors', customers' or suppliers' pricing
policies;
- - Lengthy sales cycles for new and extended contracts;
- - Lack of market acceptance or delays or increased development costs related
to the introduction of our services or features; and
- - General economic conditions.
For these reasons, you should not rely on period-to-period comparisons of our
financial results as an indication of any future results. Our future
operating results could fall below the expectations of securities industry
analysts or investors. Any such shortfall could result in a decline in the
market price of our common stock. Fluctuations in our operating results will
likely increase the volatility of our common stock price.
THE RAPIDLY CHANGING TELECOMMUNICATIONS MARKET COULD UNFAVORABLY AFFECT US.
The telecommunications market is subject to rapid change and uncertainty that
may result in competitive situations which could unfavorably affect us. These
changes and uncertainties are due to, among other factors:
- - Mergers, acquisitions and alliances among carriers and among our
competitors, which can result in fewer carriers in the marketplace, lost
carrier customers, increased negotiating leverage for newly affiliated
carriers and more effective competitors;
- - Changes in the regulatory environment, which may affect us directly, by
affecting our ability to access and update listings data at a reasonable
cost, or indirectly, by restricting our carrier customers' ability to
operate or provide a competitive service;
- - Increasing availability of alternative methods for delivery of directory
assistance and other information services, including the Internet; and
- - Evolving industry standards, including frequent technological changes and
new product introductions.
WE HAVE A LIMITED NUMBER OF CONTRACTS WITH A SMALL NUMBER OF CARRIER
CUSTOMERS. IF WE FAIL TO EXTEND OR REPLACE THESE CONTRACTS, OR IF THESE
CONTRACTS ARE TERMINATED PRIOR TO THEIR EXPIRATION, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.
A limited number of customers account for substantially all our revenues. For
example, our top five customers accounted for approximately 97% of our
revenues in 1998 and 1999. Of our two largest customers, Sprint PCS accounted
for approximately 38% of our revenues in 1998 and approximately 40% of our
revenues in 1999, and AT&T Wireless Services accounted for approximately 17%
of our revenues in
15
<PAGE>
1998 and approximately 30% of our revenues in 1999. The parent of Sprint PCS
has entered into an agreement to be merged into MCI WorldCom, Inc. Our
business would be adversely affected by the loss of either Sprint PCS or AT&T
Wireless Services and could be adversely affected by the loss of any other
significant customer.
Of our contracts with significant customers, two expire in 2000, one expires
in 2001 and the remainder, including Sprint PCS and AT&T Wireless Services,
expire in 2002 and beyond. Our contracts contain performance and other
standards and may be terminated prior to their scheduled expiration dates in
specified circumstances. In addition, Sprint PCS may, on payment of a
termination fee, accelerate the termination date of its contract to as early
as March 31, 2000, for any or no reason, by notifying us before March 31,
2000.
If we fail to extend or replace our contracts, or our contracts are
terminated prior to their expiration, our business could be adversely
affected. Although we seek to increase the number of our customers, and
maintain good relationships with our existing customers, a small number of
companies dominate the telecommunications market. This limits the potential
customer base and our expansion opportunities.
WE HAVE A LONG SALES CYCLE WHICH MAY CAUSE DELAYS THAT ADVERSELY AFFECT OUR
REVENUE GROWTH AND OPERATING RESULTS.
A customer's decision to contract for our directory assistance and
information services involves a significant commitment of technical and other
resources. As a result, we have a long sales cycle for both new and extended
contracts, particularly with larger customers. The selling process involves
demonstrating to the customer the value-added benefits of outsourcing their
directory assistance and using our services rather than those of our
competitors. Any delays due to lengthy sales cycles could significantly
affect our revenue growth and operating results.
OUR OPERATING RESULTS ARE SIGNIFICANTLY AFFECTED BY OUR ABILITY TO ACCURATELY
ESTIMATE THE AMOUNT AND TIMING OF CALL VOLUME. THE ACTUAL AMOUNT AND TIMING OF
CALL VOLUME IS OFTEN SUBJECT TO FACTORS OUTSIDE OF OUR CONTROL.
Our operating results are significantly affected by costs incurred for
staffing and expanding infrastructure. We incur significant staffing and
general and administrative costs in anticipation of call volume under our
customer contracts. If such call volume does not arrive as scheduled, in
the amount anticipated, or at all, our operating results can be adversely
affected. For example, during 1999 we expanded our call center operations in
anticipation of rolling out service in new markets for several customers.
However, due to several factors beyond our control, in some instances the
carriers were unable to deliver the anticipated volume of calls as scheduled.
This contributed to an increase in our operating expenses without a
corresponding increase in revenues from the anticipated call volume.
WE FACE SUBSTANTIAL COMPETITION FROM A NUMBER OF OTHER COMPANIES.
Many of our competitors in the directory assistance market, including the
regional Bell operating companies, have far greater resources and better name
recognition. The regional Bell operating companies and GTE Corporation also
have the advantageous position of being the local telephone carrier in their
area of operation. Some of these companies, including a former enhanced
directory assistance customer, Ameritech Cellular, are or may be developing
their own versions of expanded directory assistance services. We also face
competition from a number of other independent directory assistance
providers. If we are unable to compete successfully, it could have an adverse
effect on our business, financial condition and results of operations. Our
ability to compete successfully depends, in part, on our ability to
anticipate and appropriately respond to many factors, including the
introduction of new services and products by our competitors, changes in
subscriber preferences, changes in economic conditions and discount pricing
strategies by our competitors.
OUR INABILITY TO ACHIEVE DESIRED PRICING LEVELS COULD ADVERSELY AFFECT OUR
PROFITABILITY AND OPERATIONS.
We are subject to competitive pressures with respect to pricing, which could
adversely affect our profitability and operations. The prices that we can
charge our carrier customers are subject to the terms of our contracts, the
changing telecommunications market, the relative leverage of the negotiating
parties and the overall competitive landscape. We charge our carriers on a per
call basis, with prices varying in some cases based on call volume. Our
long-term strategy is based in part on reducing the price we charge our
customers. Generally, our pricing levels have declined and, in the future,
will likely continue to decline as call volumes increase. Substantially
reduced pricing without a corresponding increase in volume could adversely
affect our ability to operate profitably.
WE ARE DEPENDENT ON THE WIRELESS TELECOMMUNICATIONS INDUSTRY, AND A DECREASE IN
WIRELESS USAGE BY SUBSCRIBERS COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS OF
OPERATIONS.
Almost all of our business comes from providing enhanced directory assistance
and information services to our wireless customers' subscribers. A decrease
in wireless usage by subscribers could have an adverse effect on our results
of operations. Wireless usage by
16
<PAGE>
subscribers appears to be affected by a number of factors, including pricing,
safety concerns, reliability and availability of the wireless network,
government regulation and reliability and availability of alternative
technologies.
WE NEED TO EXPAND CALL VOLUME AND INCREASE EFFICIENCIES IN ORDER TO BE
SUCCESSFUL.
In order to successfully execute our business strategies, we need to increase
the volume of calls made to our call center network, while realizing the
benefits of operating leverage (that is, revenues growing at a faster rate
than operating expenses). We intend to increase call volume by seeking
additional customers, including landline carrier customers, as well as
seeking additional business from our existing customers, in the areas served
by our call center network. We have limited experience in the landline
market, which is dominated by the regional Bell operating companies and GTE
Corporation. If we are unable to expand our wireless business or attract
significant landline business, on a cost effective basis or at all, we may be
unable to increase profitability or sustain past growth rates.
IF WE ARE UNABLE TO ANTICIPATE CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS
AND TO DEVELOP NEW SERVICES AND FEATURES, WE MAY NOT SUCCEED.
Our success depends, in part, on our ability to anticipate changes in
technology and industry standards and to develop and introduce new services
and features that are accepted by the marketplace and cost effective for us
to provide as a part of our overall service offerings. The development of new
services and features can be very expensive. Further, given the rapid
technological changes, frequent introduction of new products, services and
features, and changing consumer demands that characterize our industry, it
can be difficult to correctly anticipate future changes in technology and
industry standards. If we fail to develop new services and features,
encounter difficulties that delay the introduction of such services and
features, or incorrectly anticipate future changes and develop services and
features that are not accepted by the marketplace or are not cost effective
for us to provide as a part of our overall service offerings, we may not
succeed at our business.
ALTERNATIVE METHODS FOR DELIVERY OF DIRECTORY ASSISTANCE AND INFORMATION
SERVICES COULD REDUCE THE DEMAND FOR OUR SERVICES.
Our business comes primarily from providing enhanced directory assistance and
information services to telephone users. However, information can be
transmitted in other ways, including more intelligent communications devices
and other technologies and protocols, and over the Internet. For example, as
the Internet continues to develop and becomes easier to use and access,
technologies may be developed that decrease or eliminate the demand for
telephone-based or voice-based directory or information services. Widespread
acceptance of existing and developing technologies and protocols, such as
voice recognition and wireless application protocol, could adversely affect
our business. Our call volume could decline dramatically if telephone users
change their usage habits and rely on the Internet or other alternatives as
their primary source for information.
SYSTEMS FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.
Our success also depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of our network,
our connections to third parties, our computer hardware or software or our
customers' or suppliers' computer hardware or software. Any such damage or
failure could disrupt the operations of our network and the provision of our
services and result in the loss of current and potential customers. In
addition, as call volume increases, we will need to expand and upgrade our
technology and network hardware and software in order to provide services.
Capacity limits on our technology and network hardware and software may make
it difficult for us to expand and upgrade our systems in a timely and
economical manner.
IF WE ARE UNABLE TO OBTAIN OR ADEQUATELY UPDATE DIRECTORY OR INFORMATION CONTENT
AT AN ECONOMICAL COST, WE MAY BE UNABLE TO PROVIDE CURRENT LEVELS OF SERVICE OR
IMPROVE OUR SERVICE.
Our operations depend on our access to the names, telephone numbers and other
information that we supply directly to callers or we use in providing our
services. The availability, cost, quality and usefulness of such data varies
widely across geographic regions. If we are unable to obtain or update
directory or information content at an economical cost, we may be unable to
provide current levels of service, improve our enhanced directory assistance
service or provide new services and features. Ultimately, the satisfaction of
our carrier customers, and our ability to renew and extend our current
customer contracts and enter into new customer contracts, depends on the
quality of services we provide to the carrier's subscribers. The quality of
our services is directly related to the quality of our listings data and
other information content.
AS WE RELY ON A LIMITED NUMBER OF SUPPLIERS, AN ABRUPT LOSS OF ANY KEY SUPPLIER
COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS OR DELAY OUR DEVELOPMENT EFFORTS.
17
<PAGE>
We rely on some key suppliers to provide us with programming and engineering
services and to license us their technology. An abrupt loss of any current
key supplier could cause a disruption in our operations or a delay in our
development efforts, including our planned expansion of our call center
network, and could adversely affect our business operations.
IF WE ARE UNABLE TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED SENIOR
MANAGEMENT, TECHNICAL PERSONNEL AND CALL CENTER OPERATORS, OR OUR CALL CENTER
STAFF IS UNIONIZED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.
Our success depends to a significant extent on the efforts and abilities of
our senior management, technical personnel and call center operators. The
loss of the services of our senior management and technical personnel could
have a material adverse effect on our business and our ability to meet our
strategic objectives. We also depend on the continued service of our call
center operators, who we hire from the available labor pool. As we continue
to expand our call center network, the ability to attract and retain
qualified senior management, technical personnel, operators and other skilled
employees is extremely important to the operation of our business. If we are
unable to attract and retain qualified individuals, or we are required to pay
significantly higher wages and other benefits to such individuals, or if our
call center staff is unionized, it could adversely affect our business
operations. We find it more difficult to recruit and retain qualified
individuals during periods of low unemployment. We may be subject to
increasing pressure to offer higher wages and other benefits. In our call
center hiring, we may also feel the effects of the telecommunications
industry in general, which has widespread union membership among its
operators and other workers.
IF WE ARE UNABLE TO USE AND PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE
UNABLE TO PROVIDE SOME OF OUR ENHANCED DIRECTORY ASSISTANCE AND INFORMATION
SERVICES OR PROFITABLY OPERATE OUR BUSINESS.
We regard aspects of our enhanced directory assistance and information
services and their features and processes to be proprietary. If we are unable
to use and protect our intellectual property, we may be unable to provide
some of our enhanced directory assistance and information services or
profitably operate our business. To a limited extent, we rely on a
combination of trade secret, patent and other intellectual property law,
nondisclosure agreements and other protective measures to protect our
intellectual property. However, these measures may be difficult and costly to
meaningfully enforce. In addition, attempts to enforce our intellectual
property rights may bring into question the validity of these rights.
Litigation with respect to patents or other intellectual property rights can
result in substantial costs and diversion of management and other resources.
FUTURE ACQUISITIONS MAY STRAIN OUR OPERATIONS.
We intend to evaluate, and in the future may pursue, acquisition
opportunities that are consistent with our business strategy. If we fail to
adequately address the financial and operational risks associated with such
acquisitions, future acquisitions may adversely harm our business.
These risks can include, among other things:
- - Difficulties in assimilating the operations, technology, information
systems and personnel of the acquired company, including the inability to
maintain uniform standards, controls and policies, and the loss of key
employees of the acquired company;
- - Diversion of management's attention from other business concerns;
- - Impairment of relationships with licensors, customers and suppliers;
- - Difficulties in entering into markets in which we have no direct prior
experience;
- - Use of cash resources, potentially dilutive issuances of equity securities
and incurrence of additional debt and contingent liabilities; and
- - Significant write-offs and amortization expenses related to goodwill and
other intangible assets.
IF WE EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, WE WILL ENCOUNTER RISKS
WHICH COULD ADVERSELY AFFECT US.
We currently operate only in the United States; however, an element of our
business strategy is to continue to explore international business
opportunities. If we expand into one or more international markets, we will
encounter significant risks and uncertainties. These risks and uncertainties
include increased operational difficulties arising from, among other things:
- - Our ability to attract sufficient business or locate a suitable partner or
joint venture candidate to enable us to overcome logistical and economic
barriers to entry;
18
<PAGE>
- - Our ability and cost to gather sufficient information content and listings
data, properly modify our features and services to meet applicable
standards, and hire and train personnel;
- - Fluctuations in foreign currency exchange rates; and
- - Political, regulatory and economic developments and cultural differences.
REGULATIONS AFFECTING OUR CUSTOMERS AND SUPPLIERS AND FUTURE REGULATIONS TO
WHICH WE MAY BE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.
Although we are not directly subject to telecommunications industry
regulation, the business of our customers and certain suppliers is subject to
regulation that indirectly affects our business. We cannot predict when, or
upon what terms and conditions, further regulation or deregulation might
occur or the effect of regulation or deregulation on our business.
RESTRICTIONS AND COVENANTS IN OUR LOAN AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM IN THE
FUTURE.
Our loan agreements contain a number of significant limitations that will
restrict our ability to, among other things, conduct our business and borrow
additional money, pay dividends or make other distributions to our
shareholders, make investments, create liens on or sell our assets, enter
into transaction with affiliates, and engage in mergers or consolidations.
These restrictions may limit our ability to obtain future financing, fund
needed capital expenditures or withstand a future downturn in our business or
the economy. If we violate the restrictions of our loan agreements, our
lenders may require us to repay our outstanding indebtedness immediately,
which may significantly impair our business.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
We may require more capital in the future to fund our operations, finance
investments in equipment and infrastructure needed to maintain and expand our
call center and network capabilities, enhance and expand the range of
services and features we offer, and respond to competitive pressures and
potential opportunities, such as investments, acquisitions and international
expansion. We cannot be certain that additional financing will be available
on terms favorable to us or at all. The terms of available financing may
place limits on our financial and operating flexibility. If adequate funds
are not available on acceptable terms, we may be forced to reduce our
operations or abandon expansion opportunities. Moreover, even if we are able
to continue our operations, the failure to obtain additional financing could
reduce our competitiveness as our competitors may provide better maintained
networks or offer an expanded range of services.
OUR STOCK PRICE IS VOLATILE.
The market price of our stock has experienced and is likely to experience
significant fluctuations in response to a number of factors. These factors
include, among others:
- - Announcements of extensions, expirations or changes in our contracts and
the opening of new call centers to support such activity;
- - Announcements relating to material events concerning our customers;
- - Actual or anticipated variations in our results of operations;
- - Changes in financial estimates by securities analysts;
- - Obsolescence of technologies that we or our customers use;
- - Introductions of new technologies; and
- - General market conditions.
From January 1, 1999 through December 31, 1999, our stock price fluctuated
from $8.00 per share to $20.00 per share and has on several days fluctuated
more than 10%. Similar market fluctuations have affected the market prices of
equity securities of many telecommunications companies and other public
companies generally. These trading prices and valuations may change
significantly. In addition, broad market factors affecting telecommunications
or technology stocks may adversely affect the market price of our common
stock. Our stock price may also be adversely affected by general economic,
political and market conditions, including interest rate changes and
recession.
OUR RESULTS OF OPERATIONS COULD BE IMPACTED BY A SIGNIFICANT INCREASE IN THE
RATE OF INFLATION
19
<PAGE>
Inflation has not historically had a material affect on our business.
Operating expenses such as salaries, employee benefits and occupancy costs
are, however, subject to normal inflationary pressures which could adversely
affect our operating results.
OREGON LAW AND PROVISIONS OF OUR CHARTER COULD MAKE THE ACQUISITION OF OUR
COMPANY MORE DIFFICULT.
We are authorized to issue up to 10,000,000 shares of preferred stock, and
the board of directors has the authority to fix the preferences, limitations
and relative rights of those shares without any vote or action by the
shareholders. The potential issuance of preferred stock may delay or prevent
a change in control of our company, may discourage bids for the common stock
at a premium over the market price and may adversely affect the market price
of, and the voting and other rights of the holders of, our common stock. In
addition, provisions under Oregon law limit the ability of parties who
acquire a significant amount of voting stock to exercise control over our
company. These provisions may have the effect of lengthening the time
required for a person to acquire control of our company through a proxy
contest or the election of a majority of the board of directors and may deter
efforts to obtain control of our company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Substantially all of our liquid investments are invested in money market
instruments, and therefore the fair market value of these investments is
affected by changes in market interest rates. However, substantially all of
our liquid investments mature within six months. As a result, we believe the
market risk arising from our holdings of financial instruments is minimal. In
addition, we are exposed to interest rate risk primarily through our use of
short-term and long-term borrowings to finance operations. A hypothetical 1%
fluctuation in interest rates would not have a material adverse effect on our
financial position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 through F-14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference to the Proxy
Statement for our 2000 Annual Meeting under the caption of "Management."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the Proxy
Statement for our 2000 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 Proxy
Statement for our 2000 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 Proxy
Statement for our 2000 Annual Meeting under the caption of "Certain
Transactions."
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) EXHIBITS
--------
3.1 Third Restated Articles of Incorporation of Metro One
Telecommunications, Inc. (6)
3.2 Amended and Restated Bylaws of Metro One Telecommunications, Inc. (1)
10.1 Form of Enhanced Directory Assistance Agreement (9)
10.2 1994 Stock Incentive Plan (3)
10.5 1995 Employment Agreement with Timothy A. Timmins (8)
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 (5)(12)
10.8 Amendment to 1994 Stock Incentive Plan (4)
10.11 Lease Agreement between and among Murray Scholls, LLC, Gramor
Development Northwest, Inc. and the Company (5)
10.12 Amendment #1 to Specific Agreement between Sprint Spectrum L.P. and the
Company dated December 9, 1998 (5)(12)
10.14 Agreement for Enhanced Directory Assistance Services between Metro One
and AT&T Wireless Services, Inc. dated May 2, 1997 (9)
10.15 Loan Agreement with General Electric Capital Corporation dated
September 10, 1999 (9)
10.16 Loan and Security Agreement between Silicon Valley Bank and the Company
dated December 15, 1999
10.17 Loan Agreement with General Electric Capital Corporation dated December
29, 1999
10.18 Amendment to 1995 Employment Agreement with Timothy A. Timmins
23.1 Consent of Deloitte & Touche LLP, independent certified public
accountants
27.1 Financial Data Schedule
- ----------------------
(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.
22
<PAGE>
(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-K dated March 31, 1999, Commission No. 0-27024.
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated March 31, 1998, Commission No. 0-27024.
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated March 31, 1997, Commission No. 0-27024.
(8) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB dated August 20, 1996, Commission No. 0-27024.
(9) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q dated October 22, 1999, Commission No. 0-27024.
(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q dated May 14, 1999, Commission No. 0-27024.
(11) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-QSB dated August 14, 1998, Commission No. 0-27024.
(12) Certain portions of Exhibits 10.7, 10.12 and 10.14 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
During the quarter ended December 31, 1999, the Company filed the following
current reports on Form 8-K under Item 5, Other Events:
Date of Report Topics
-------------- ------
November 15, 1999 Metro One Telecommunications Comments
on Earnings Estimates
November 17, 1999 Metro One Telecommunications Postpones
Public Offering of Common Stock
23
<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, 2000
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, 2000
- ------------------------- Officer and Director
Timothy A. Timmins
/s/ William D. Rutherford Chairman of the Board of Directors March 30, 2000
- -------------------------
William D. Rutherford
/s/ A. Jean de Grandpre Director March 30, 2000
- -------------------------
A. Jean de Grandpre
/s/ James M. Usdan Director March 30, 2000
- -------------------------
James M. Usdan
</TABLE>
24
<PAGE>
INDEPENDENT AUDITORS REPORT
- --------------------------------------------------------------------------------
To The Board of Directors and Shareholders of
Metro One Telecommunications, Inc.
Beaverton, Oregon
We have audited the accompanying balance sheets of Metro One
Telecommunications, Inc. as of December 31, 1999 and 1998 and the related
statements of operations, shareholders' equity, and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 1999 and 1998 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 4, 2000
The accompanying notes are an integral part of these statements.
F-1
<PAGE>
<TABLE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Revenues $ 77,831 $ 45,139 $ 26,090
-------- --------- ---------
Costs and expenses:
Direct operating 46,494 23,107 13,017
General and administrative 28,711 18,334 11,702
-------- --------- ---------
75,205 41,441 24,719
-------- --------- ---------
Income from operations 2,626 3,698 1,371
Other income 128 289 408
Interest and loan fees (773) (309) (334)
-------- --------- ---------
Income before income taxes 1,981 3,678 1,445
Income tax expense 75 75 13
-------- --------- ---------
Net income $ 1,906 $ 3,603 $ 1,432
======== ========= =========
Income per common share
Basic $ .17 $ .33 $ .13
Diluted $ .16 $ .32 $ .13
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS (In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,564 $ 6,063
Short-term investments 400 1,507
Accounts receivable, net of allowance 15,357 7,428
Prepaid costs and other current assets 985 766
------------------ -----------------
Total current assets 26,306 15,764
Furniture, fixtures and equipment, net 38,225 19,982
Other assets 944 565
------------------ -----------------
$ 65,475 $ 36,311
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,909 $ 1,501
Accrued liabilities 2,390 1,992
Accrued payroll and related costs 3,839 1,852
Line of credit payable - 1,400
Current portion of capital lease obligations 159 365
Current portion of long-term debt 5,259 240
------------------ -----------------
Total current liabilities 14,556 7,350
Capital lease obligations 17 103
Long-term debt 18,923 616
------------------ -----------------
33,496 8,069
------------------ -----------------
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, 11,414 and 11,188 shares,
respectively, issued and outstanding 40,308 38,477
Accumulated deficit (8,329) (10,235)
------------------ ------------------
Shareholders' equity 31,979 28,242
------------------ -----------------
$ 65,475 $ 36,311
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------
COMMON STOCK
------------------------------------- (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 10,693 $ 36,251 $ (15,270) $ 20,981
Stock options/warrants exercised, net 183 993 - 993
Stock issued for legal settlement 50 270 - 270
Net income - - 1,432 1,432
----------------- ------------------ ------------------ -----------------
Balances at December 31, 1997 10,926 37,514 (13,838) 23,676
Stock options/warrants exercised, net 262 963 - 963
Net income - - 3,603 3,603
----------------- ------------------ ------------------ -----------------
Balances at December 31, 1998 11,188 38,477 (10,235) 28,242
Stock options/warrants exercised, net 226 1,831 - 1,831
Net income - - 1,906 1,906
----------------- ------------------ ------------------ -----------------
Balances at December 31, 1999 11,414 $ 40,308 $ (8,329) $ 31,979
================= ================== ================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,906 $ 3,603 $ 1,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,225 3,774 2,263
Loss on disposal of fixed assets 67 73 81
Deferred income taxes (8) (42) (12)
Changes in certain assets and liabilities:
Accounts receivable (7,929) (2,799) (1,906)
Prepaid expenses and other assets (728) (91) (238)
Accounts payable, accrued liabilities and payroll costs 3,793 2,028 1,673
------------------ ------------------ -----------------
Net cash provided by operating activities 3,326 6,546 3,293
------------------ ------------------ -----------------
Cash flows from investing activities:
Capital expenditures (24,397) (9,085) (10,096)
Purchase of short-term investments (400) (1,507) -
Maturity of short-term investments 1,507 - -
------------------ ------------------ -----------------
Net cash used in investing activities (23,290) (10,592) (10,096)
------------------ ------------------ -----------------
Cash flows from financing activities:
Net proceeds from (repayment of) line of credit (1,400) 1,400 -
Proceeds from issuance of debt 31,800 - 946
Repayment of debt (8,474) (90) -
Repayment of capital lease obligations (292) (718) (719)
Proceeds from issuance of common stock and exercise
of warrants and stock options 1,831 963 993
------------------ ------------------ -----------------
Net cash provided by financing activities 23,465 1,555 1,220
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents 3,501 (2,491) (5,583)
Cash and cash equivalents, beginning of year 6,063 8,554 14,137
------------------ ------------------ -----------------
Cash and cash equivalents, end of year $ 9,564 $ 6,063 $ 8,554
================== ================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. We provide enhanced directory assistance services to
telecommunications carriers and their customers. Revenues are derived
principally through fees charged to telecommunications carriers. We operate
call centers located in many metropolitan areas throughout the United States.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash deposits in
banks and highly liquid investments with maturity dates of three months or
less at the date of acquisition.
SHORT-TERM INVESTMENTS. Short-term investments include highly liquid
investments such as money market instruments with original maturity dates of
three months to one year. We classify our investments as "held-to-maturity"
and accordingly record these investments at cost, which approximates fair
value.
REVENUE RECOGNITION. Under existing contracts with telecommunications
carriers, we record revenue for the number of calls processed. Revenue is
recognized as services are provided.
MAJOR CUSTOMERS. In each of the years ended December 31, 1999, 1998 and 1997,
twelve customers accounted for substantially all revenue reported and the
accounts receivable. Our four largest customers accounted for approximately
40%, 30%, 11% and 11%, respectively, of revenue in 1999. Our five largest
customers accounted for approximately 38%, 18%, 17%, 12% and 11%,
respectively, of revenue in 1998. Our four largest customers accounted for
approximately 25%, 24%, 17% and 16%, respectively, of revenue in 1997. We
have not historically incurred significant losses related to our accounts
receivable. However, a $10,000 allowance for uncollectible accounts has been
provided as of December 31, 1999.
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 $1,184,000 and $1,323,000 at December 31, 1999 and 1998,
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.
EARNINGS PER SHARE. Basic earnings per share was calculated based on the
weighted average number of common shares outstanding during each period.
Diluted earnings per share was calculated based on these same shares plus
dilutive potential shares issuable upon assumed exercise of outstanding stock
options based on the treasury stock method.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that effect reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the fiscal year. Actual results could differ from those
estimates.
F-6
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES. We are party to various legal actions and
administrative proceedings arising in the ordinary course of business. We
believe the disposition of these matters will not have a material adverse
effect on our financial position, results of operations, or cash flows.
RECLASSIFICATION. Certain balances in the 1997 and 1998 financial statements
have been reclassified to conform with 1999 presentations. Such
reclassifications had no effect on results of operations or accumulated
deficit.
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment by major classification are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
(In thousands) 1999 1998
------------------ -----------------
<S> <C> <C>
Equipment $ 41,578 $ 22,824
Furniture and fixtures 6,610 3,536
Leasehold improvements 3,729 1,634
------------------ -----------------
51,917 27,994
Accumulated depreciation and amortization (13,692) (8,012)
------------------ -----------------
$ 38,225 $ 19,982
================== =================
</TABLE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
(In thousands) 1999 1998
------------------ -----------------
<S> <C> <C>
Secured Term Loan $ 20,000 $ -
Secured Equipment Financing Loans 4,182 -
Secured Term Loan - 856
Current portion (5,259) (240)
------------------ -----------------
Long-term debt $ 18,923 $ 616
================== =================
</TABLE>
LOAN AGREEMENTS. In December 1999, we entered into a new secured term loan
agreement with an equipment financing lender. The loan agreement provided us
with $20 million of debt to repay outstanding indebtedness, fund the
expansion of our call center network and for other equipment needs.
Borrowings under the agreement are repayable over 48 months at a fixed
interest rate of 9.29%. Prepayment of outstanding borrowings is allowable at
any time for a 1% fee. Substantially all of our fixed assets have been
pledged as collateral. The interest rate on this loan approximates current
market rates; thus, the recorded value of this loan is considered to be at
fair value.
Also during December 1999, we entered into a new line of credit agreement
with a commercial bank that replaced prior agreements. The agreement consists
of a $10 million revolving line of credit that expires in December 2001.
Outstanding borrowings bear interest at the prime rate (8.5% at December 31,
1999) plus a fee of no greater than .75% based on the ratio of debt to cash
flow, and all receivables are
F-7
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
pledged to the bank as collateral. The agreement contains minimum quick
ratio, debt to equity and profitability requirements, as well as other
restrictive covenants, and prohibits the payment of any dividends and other
distributions and redemptions of our stock exceeding 10% of our tangible net
worth. As of December 31, 1999, we did not have any outstanding borrowings
under this agreement.
In September 1999, we entered into a new equipment financing loan agreement
with an equipment financing lender. The loan agreement provides us with
borrowing capacity to fund the expansion of our call center network and for
other equipment needs. The agreement provides for fixed or floating rate
options and all assets purchased pursuant to the agreement are pledged as
collateral. Borrowings under the agreement have a term of 48 months, and
prepayment of outstanding borrowings is allowable 12 months after the funding
date. As of December 31, 1999, we had $4.2 million in borrowings against this
facility, bearing interest at fixed rates ranging from 8.77% to 9.50%. These
interest rates approximate current market rates; thus, the recorded value of
this loan is considered to be at fair value.
At December 31, 1998, we had in place a $6 million Secured Operating Line of
Credit with a commercial bank. Under the terms of the agreement, outstanding
borrowings bore interest at prime rate plus 0.25 percent and all of our
assets were pledged as collateral. The agreement contained minimum net worth
and working capital requirements as well as certain other restrictive
covenants, as defined by the agreement, and prohibited the payment of cash
dividends. At December 31, 1998, we had $1.4 million in borrowings against
this line of credit. In addition, we had a credit facility under which we
could borrow up to $2 million to finance purchases of capital equipment.
Borrowings bore interest at the prime rate plus 0.50 percent and were secured
by the purchased equipment. At December 31, 1998, we had no borrowings
against this credit facility.
In 1997, we entered into a $1 million Secured Term Loan agreement with a
commercial bank. Under the terms of the agreement, outstanding borrowings
bore interest at prime rate plus 0.5 percent. The terms of the loan called
for an 18-month interest only accumulation period through August 1998
followed by 42 monthly payments of approximately $27,000 for principal and
interest. The agreement contained minimum net worth and working capital
requirements as well as certain other restrictive covenants and prohibited
the payment of cash dividends. We had $856,000 in borrowings against this
credit facility at December 31, 1998. This loan bore an interest rate that
approximated current market rates; thus, the recorded value of this loan was
considered to be at fair value.
Aggregate long-term debt payments will be $5.3 million in 2000, $5.8 million
in 2001, $6.3 million in 2002, and $6.8 million in 2003.
4. LEASE OBLIGATIONS
We lease operating facilities and equipment under operating leases with
unexpired terms of one to ten years. Rental expense for operating leases was
approximately $3,497,000, $2,091,000 and $1,388,000 for 1999, 1998 and 1997,
respectively.
F-8
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Minimum annual rentals for the five years subsequent to 1999 and in the
aggregate thereafter are as follows:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDING
DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------------ ------------------ ------------------
<S> <C> <C>
2000 176 4,338
2001 17 3,921
2002 - 3,579
2003 - 3,103
2004 - 1,994
Thereafter - 3,108
------------------ ------------------
Total minimum lease payments 193 $ 20,043
==================
Less interest portion at rates
of 16.7% to 20.7% (17)
------------------
Present value of net minimum
lease payments, capital leases
Portion due within one year (159)
------------------
Long-term portion $ 17
==================
</TABLE>
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. We have authorized 10,000,000 shares of preferred stock for
issuance. Our board of directors has the power to issue one or more series of
preferred shares and the authority to fix and determine the rights and
preferences of such shares. No preferred shares were issued or outstanding as
of December 31, 1999.
COMMON STOCK OPTIONS AND WARRANTS. We have a Stock Incentive Plan (the
"Plan"), approved by the shareholders, which provides for the award of
incentive stock options to key employees and the award of non-qualified stock
options, stock sales and grants to employees, outside directors, independent
contractors and consultants. As of December 31, 1999, 2,300,000 shares of
common stock were reserved for issuance under the Plan. It is intended that
the Plan will be used principally to attract and retain key employees.
The option price per share of an incentive stock option may not be less than
the fair market value of a share of common stock as of the date such option
is granted. The option price per share of a non-qualified stock option may be
at any price established by the board of directors or a committee thereof
established for purposes of administering the plan. Options become
exercisable at the times and subject to the conditions prescribed by the
board of directors. Generally, options vest over a period of four years and
the term of each option may not exceed ten years. Payment for shares
purchased pursuant to options may be made in cash or, subject to approval by
the board of directors, by delivery of shares of common stock having a market
value equal to the exercise price of the options.
In 1999, our stockholders approved the Metro One Telecommunications, Inc.
1999 Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to
attract and retain qualified employees essential to our success, and to
provide such persons with an incentive to perform in our best interests. As
of December 31, 1999, 150,000 shares of common stock were reserved for
issuance under the ESSP.
We have elected to continue to account for stock options according to
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost has been recognized for the
Plan in the financial statements. If compensation cost on stock options
granted in 1999, 1998 and 1997 under this plan had been determined based on
the fair value of the options granted as of the grant date in a method
consistent with that described in Statement of Financial Accounting Standards
("SFAS") No. 123,
F-3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
"Accounting for Stock-Based Compensation," our net income and earnings per
share would have been changed to the pro forma amounts indicated below for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands, except
per share amounts) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $1,906 $3,603 $1,432
Diluted earnings per share, as reported 0.16 0.32 0.13
Net income, pro forma 1,014 3,311 1,048
Diluted earnings per share, pro forma 0.08 0.29 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 1999, 1998 and 1997, respectively: dividend yield of 0 for all
years; risk-free interest rates of 5.9, 4.5 and 5.7 percent; expected
volatility of 73.6, 66.6 and 55.3 percent; and expected life of 4.0 for all
years.
A summary of the status of our stock option plan as of December 31, 1999,
1998 and 1997 and changes during the years ending on those dates is
presented below.
<TABLE>
<CAPTION>
(In thousands, except 1999 1998 1997
-------------------------- --------------------------- --------------------------
per share amounts) 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 1,765 $ 8.88 1,454 $ 8.58 1,291 $ 8.55
Granted 55 15.76 407 10.07 262 8.57
Exercised (227) 8.08 (62) 8.07 (71) 8.05
Forfeited (50) 11.17 (34) 11.82 (28) 8.40
------------- ----------- -------------- ----------- ------------- -----------
Outstanding at
end of year 1,543 $ 9.17 1,765 $ 8.88 1,454 $ 8.58
============= =========== ============== =========== ============= ===========
Options exercisable at year-end 1,212 1,244 1,183
Weighted-average fair value of
options granted during the year $ 8.11 $ 4.37 $ 3.15
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
(In thousands, except -------------------------------------------------------- -------------------------------------
per share amounts) 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 - 8.05 814 5.64 $ 8.05 814 $ 8.05
$ 8.50 - 18.00 729 8.35 $ 10.42 398 $ 10.71
- ------------------ --------------- ---- ------------- --------------- -------------
$ 8.05 - 18.00 1,543 6.92 $ 9.17 1,212 $ 8.93
================== =============== ==== ============= =============== =============
</TABLE>
F-10
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1997, there were outstanding warrants to purchase 114,000
shares of common stock. The warrants were fully exercisable at a price of
$2.31 per share, and were exercised on various dates through February 1998.
At December 31, 1997, there was an outstanding option to purchase 86,000
shares of common stock. This option was granted prior to the adoption of the
Plan, was fully exercisable at a price of $2.31 per share, and was exercised
in September 1998.
6. RELATED PARTIES
We have entered into various capital lease arrangements for furniture,
fixtures and equipment with a company owned by a shareholder
(non-officer/director) of the company. These leases bear interest at rates
ranging from 16.7% to 20.7% and expire in 2001. Minimum capital lease
obligations to this related party totaled $193,000, $533,000 and $740,000 at
December 31, 1999, 1998 and 1997, respectively.
7. OTHER INCOME
Included in other income are certain items that do not relate directly to
current ongoing business activity. Included in this classification for the
year ended December 31, 1999 are loss on asset dispositions of $67,000; and
interest income of $192,000. For the year ended December 31, 1998, other
income consisted primarily of loss on asset dispositions of $73,000; and
interest income of $365,000. For the year ended December 31, 1997, other
income consisted primarily of estimated litigation settlement expenses of
$61,000; loss on asset dispositions of $81,000; and interest income of
$569,000.
8. INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Current:
Federal $ 8 $ 42 $ 12
State 75 75 13
------------------ ------------------ -----------------
83 117 25
------------------ ------------------ -----------------
Deferred:
Federal (8) (42) (12)
State - - -
------------------ ------------------ -----------------
(8) (42) (12)
------------------ ------------------ -----------------
Total tax expense $ 75 $ 75 $ 13
================== ================== =================
</TABLE>
F-11
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, the significant components of deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
(In thousands) 1999 1998
------------------ -----------------
<S> <C> <C>
Deferred tax liability:
Tax depreciation in excess of book $ 2,707 $ 1,487
------------------ -----------------
Deferred tax asset:
Net operating loss carryforwards $ 5,983 $ 5,102
Expenses not currently deductible 396 176
Tax credit carryforwards 127 113
------------------ -----------------
Gross deferred tax assets 6,506 5,391
Valuation allowance (3,894) (3,817)
------------------ -----------------
Deferred tax assets 2,612 1,574
------------------ -----------------
Net deferred tax asset $ 95 $ 87
================== =================
</TABLE>
During 1999 and 1998, we reduced our deferred tax valuation allowance to
reflect deferred tax assets used to reduce current year income taxes. Our
quarterly and annual operating results have in the past and may in the future
vary significantly depending on factors such as changes in the
telecommunications market, the addition or expiration of contracts, increased
competition, changes in pricing policies by us or our competitors, lengthy
sales cycles, lack of market acceptance or delays in the introduction of new
versions of our product or features, the timing of the initiation of wireless
services or their acceptance in new market areas by telecommunications
customers, the timing and expense of the expansion of our national call
center network, the general employment environment, general economic
conditions and the other factors. Given the variability in operating results,
we will continue to review the valuation allowance on a quarterly basis and
make adjustments as appropriate.
At December 31, 1999, we had approximately $15.4 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,
---------------------------------------------------------
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.9% 3.9% 2.6%
Valuation allowance (36.8)% (36.7)% (39.5)%
Other 2.8% (0.1)% 2.8%
------------------ ------------------ -----------------
Effective tax rate 3.9% 2.1% 0.9%
================== ================== =================
</TABLE>
F-12
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," requires dual presentation of basic and diluted earnings per share
("EPS"). Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. There were no adjustments to net income for the
calculation of both basic and diluted earnings per shares for all periods.
The calculation of weighted-average outstanding shares is as follows:
<TABLE>
<CAPTION>
AVERAGE SHARES
---------------------------------------------------------------
(In thousands) 1999 1998 1997
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Weighted average common shares
outstanding (used in computing Basic EPS) 11,391 11,063 10,820
Common stock equivalents 597 211 141
-------------------- ------------------- -------------------
Weighted average common shares
outstanding (used in computing Diluted EPS) 11,988 11,274 10,961
==================== =================== ===================
</TABLE>
10. BENEFIT PLANS
We have a deferred compensation savings plan for the benefit of our eligible
employees. The plan permits certain voluntary employee contributions to be
excluded from the employees' current taxable income under the provisions of
Internal Revenue Code Section 401(k). Upon reaching the age of twenty-one,
each employee becomes eligible to participate in the savings plan six months
following the initial date of employment. The employee must also complete at
least 500 hours of service in any twelve-month period. Under the plan, we can
make discretionary contributions to the plan as approved by the board of
directors.
Participants' interest in company contributions to the plan vest over a
four-year period. We made contributions of approximately $55,000, $35,000 and
$25,000 during 1999, 1998 and 1997, respectively.
11. STATEMENT OF CASH FLOWS
Supplemental disclosure of Cash Flow information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
(In thousands) 1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash paid for interest expense $ 718 $ 297 $ 318
Cash paid for income taxes 78 95 51
Stock issued in settlement of litigation - - 270
</TABLE>
F-13
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands except QUARTER ENDED
--------------------------------------------------------------------
per share amounts) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1999
Revenues $ 14,175 $ 17,469 $ 20,469 $ 25,718
Direct operating expense 7,836 10,509 12,136 16,013
General and administrative expense 5,653 6,768 7,374 8,916
Income from operations 686 192 959 789
Net income 682 105 677 442
Basic earnings per share .06 .01 .06 .04
Diluted earnings per share .06 .01 .06 .04
1998
Revenues $ 9,045 $ 10,922 $ 11,313 $ 13,859
Direct operating expense 4,793 5,525 5,786 7,003
General and administrative expense 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-14
<PAGE>
SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT
METRO ONE TELECOMMUNICATIONS, INC.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS......................................................................4
2 LOAN AND TERMS OF PAYMENT.......................................................................4
2.1 Credit Extensions...............................................................................4
2.2 Overadvances....................................................................................4
2.3 Interest Rate, Payments.........................................................................5
2.4 Fees............................................................................................5
3 CONDITIONS OF LOANS.............................................................................5
3.1 Conditions Precedent to Initial Credit Extension................................................5
3.2 Conditions Precedent to all Credit Extensions...................................................5
4 CREATION OF SECURITY INTEREST...................................................................6
4.1 Grant of Security Interest......................................................................6
5 REPRESENTATIONS AND WARRANTIES..................................................................6
5.1 Due Organization and Authorization..............................................................6
5.2 Collateral......................................................................................6
5.3 Litigation......................................................................................6
5.4 No Material Adverse Change in Financial Statements..............................................6
5.5 Solvency........................................................................................6
5.6 Regulatory Compliance...........................................................................7
5.7 Subsidiaries....................................................................................7
5.8 Full Disclosure.................................................................................7
6 AFFIRMATIVE COVENANTS...........................................................................7
6.1 Government Compliance...........................................................................7
6.2 Financial Statements, Reports, Certificates.....................................................7
6.3 Taxes...........................................................................................8
6.4 Insurance.......................................................................................8
6.5 Primary Accounts................................................................................8
6.6 Financial Covenants.............................................................................8
6.7 Further Assurances..............................................................................9
7 NEGATIVE COVENANTS..............................................................................9
7.1 Dispositions....................................................................................9
7.2 Changes in Business, Ownership, Management or Business Locations................................9
7.3 Mergers or Acquisitions.........................................................................9
7.4 Indebtedness....................................................................................9
7.5 Encumbrance.....................................................................................9
7.6 Distributions; Investments......................................................................9
7.7 Transactions with Affiliates...................................................................10
7.8 Subordinated Debt..............................................................................10
7.9 Compliance.....................................................................................10
8 EVENTS OF DEFAULT..............................................................................10
8.1 Payment Default................................................................................10
8.2 Covenant Default...............................................................................10
8.3 Material Adverse Change........................................................................10
8.4 Attachment.....................................................................................10
8.5 Insolvency.....................................................................................11
8.6 Other Agreements...............................................................................11
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
8.7 Judgments......................................................................................11
8.8 Misrepresentations.............................................................................11
9 BANK'S RIGHTS AND REMEDIES.....................................................................11
9.1 Rights and Remedies............................................................................11
9.2 Power of Attorney..............................................................................12
9.3 Accounts Collection............................................................................12
9.4 Bank Expenses..................................................................................12
9.5 Bank's Liability for Collateral................................................................12
9.6 Remedies Cumulative............................................................................12
9.7 Demand Waiver..................................................................................12
10 NOTICES........................................................................................13
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER....................................................13
12 GENERAL PROVISIONS.............................................................................13
12.1 Successors and Assigns.........................................................................13
12.2 Indemnification................................................................................13
12.3 Time of Essence................................................................................13
12.4 Severability of Provision......................................................................13
12.5 Amendments in Writing, Integration.............................................................13
12.6 Counterparts...................................................................................14
12.7 Survival.......................................................................................14
12.8 Confidentiality................................................................................14
12.9 Effect of Amendment and Restatement............................................................14
12.10Attorneys'Fees, Costs and Expenses.............................................................14
13 DEFINITIONS....................................................................................14
13.1 Definitions....................................................................................14
</TABLE>
3
<PAGE>
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated
December 15, 1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003
Tasman Drive, Santa Clara, California 95054 with a loan production office
located at 11000 SW Stratus, Ste. 170, Beaverton, Oregon 97008-7113 and METRO
ONE TELECOMMUNICATIONS, INC. ("Borrower"), whose address is 11200 Murray Scholls
Place, Beaverton, Oregon 97007.
RECITALS
A. Bank and Borrower are parties to that certain Loan and Security
Agreements dated April 23, 1999, as amended (collectively, the "Original
Agreement").
B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital and equipment line loan and to
amend and restate in its entirety without novation the Original Agreement in
accordance with the provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.2 OVERADVANCES.
If Borrower's Obligations under (a) Section 2.1.1 exceed the lesser of
either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.
4
<PAGE>
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate above the Prime Rate as follows:
<TABLE>
<S> <C>
DEBT/CASH FLOW RATE
2.00 and higher .50%
1.00 - 1.99 .25%
under 1.00 Prime Rate
</TABLE>
After an Event of Default, Obligations accrue interest at 5 percent
above the rate effective immediately before the Event of Default. The interest
rate increases or decreases when the Prime Rate changes. Interest is computed on
a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is
payable on the 15th of each month. Bank may debit any of Borrower's deposit
accounts including Account Number [Account Number] for principal and interest
payments or any amounts Borrower owes Bank. Bank will notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not
a Business Day, the payment is due the next Business Day and additional fees
or interest accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee
of $20,000 due on the Closing Date;
(b) An unused Facility Fee based on Borrower's Debt to Cash
Flow, paid quarterly in arrears on the unused portion of the Committed
Revolving Line as follows:
DEBT/CASH FLOW RATE
2.00 and higher .75%
1.00 - 1.99 .65%
under 1.00 .50%
(c) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires; and
Borrower shall pay in full any outstanding principal and interest under
the existing term loans.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
5
<PAGE>
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Advance and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations
and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 LITIGATION.
Except as may otherwise be disclosed to Bank, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could cause a Material
Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
6
<PAGE>
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) within 5 days of filing, copies
of all statements, reports and notices made available to Borrower's security
holders or to any holders of Subordinated Debt and all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission; (ii) a prompt
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of $250,000 or more; (iii) budgets, sales projections, operating plans or other
financial information Bank requests.
(b) At such time as Advances become subject to the Borrowing Base and
within 30 days after the last day of each month, Borrower will deliver to Bank a
Borrowing Base Certificate signed by a
7
<PAGE>
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable and accounts payable.
(c) Borrower will deliver to Bank a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit D, together with its 10Q and 10K
reports.
(d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every year and will
be performed after Closing Date and the cost of such audit shall not exceed
$1,500, unless an Event of Default has occurred and is continuing.
6.3 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.4 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
Statutory notice regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance may, but need not, also protect
your interest. If the collateral becomes damaged, the coverage we purchase may
not pay any claim you make or any claim made against you. You may later cancel
this coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.
This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.
6.5 PRIMARY ACCOUNTS.
Borrower will maintain its primary operating accounts with Bank.
6.6 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each quarter:
(i) QUICK RATIO. Quick Ratio. A ratio of Quick Assets to
Current Liabilities minus Deferred Maintenance Revenue plus any outstanding
Advances which may be considered long term debt under GAAP of at least 1.00 to
1.00.
(ii) DEBT/TANGIBLE NET WORTH RATIO. A ratio of Total
Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt
of not more than 1.50 to 1.00.
8
<PAGE>
(iii) PROFITABILITY. Borrower will have a minimum net profit
of $1 for each quarter, except that Borrower may incur one quarterly loss for
the quarter ending December 31, 1999 or March 31, 2000 (but not in both periods)
provided such loss is due to extraordinary expenses associates with the
postponement of Borrower's secondary equity offering.
6.7 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory and equipment in
the ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS
LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than businesses equivalent to or substantially similar to the business
currently engaged in by Borrower or have a material change in its ownership of
greater than 35%. Borrower will not, without at least 30 days prior written
notice, relocate its chief executive office or add any new offices or business
locations.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) a Subsidiary is merged into another
Subsidiary, (ii) a Subsidiary into Borrower or (ii) an merger related to a stock
transaction, provided Borrower has (a) received prior written consent of Bank,
which such consent may be granted or withheld by Bank's sole discretion and (b)
Borrower has provided to Bank a Compliance Certificate with covenant analysis
prior to such transaction indicating that an Event of Default has not occurred
and is continuing and Borrower is in compliance with all financial covenants.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Except as provided in Section 7.3,
9
<PAGE>
pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock exceeding 10% of the Borrower's Tangible Net Worth.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations when due;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
10
<PAGE>
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $250,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $250,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
11
<PAGE>
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.4, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
12
<PAGE>
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
Oregon law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Washington County, Oregon.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S
13
<PAGE>
RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All advances or loans outstanding
under the Original Agreement are and shall continue to be outstanding under this
Agreement. All security interests granted under the Original Agreement are
hereby confirmed and ratified and shall continue to secure all Obligations under
this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that
14
<PAGE>
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" shall mean 80% of Eligible Accounts as determined by
Bank from Borrower's most recent Borrowing Base Certificate at such times as the
Quick Ratio exceeds 2.00 to 1.00.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CAPITALIZED PRODUCT DEVELOPMENT COSTS" are all costs associated with
the development of Borrower's product, including, but not limited to software,
that are not recorded as an expense and have been classified as an asset
account.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Oregon Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"COMMITTED REVOLVING LINE" is an Advance of up to $10,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance or any other extension of credit by
Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEBT TO CASH FLOW" is, all indebtedness under this Agreement and any
other Permitted Indebtedness divided by net income plus interest expense and no
- -cash items such as depreciation and amortization for the preceding 4-quarter
period.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contract and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
BUT Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
15
<PAGE>
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing except
for those certain Accounts from Wireless affiliates of AT& T, Nextel,
Sprint and Airtouch, for which the percentage may be 40% ;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality except
for Accounts of the United States if the payee has assigned its payment
rights to Bank and the assignment has been acknowledged under the
Assignment of Claims Act of 1940 (31 U.S.C. 3727);
(g) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, bill and hold, or other terms if account debtor's payment may
be conditional;
(h) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(i) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(j) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
16
<PAGE>
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing
within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from
either Standard & Poor's Corporation or Moody's Investors Service,
Inc., and (iii) Bank's certificates of deposit issued maturing no more
than 1 year after issue; and
(c) Investments which do not exceed 10% of Tangible Net Worth.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
17
<PAGE>
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Senior Vice President, Operations
and Senior Vice President-Corporate Development, Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is December 15, 2001.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Metro One Telecommunications, Inc.
By: Stebbins B. Chandor Jr.
--------------------------
Title: SVP & CFO
-----------------------
By: R. Tod Hutchinson
--------------------------
Title: VP, Finance
-----------------------
18
<PAGE>
BANK:
SILICON VALLEY BANK
By: /s/ Bruce E. Helberg
--------------------------
Title: Vice President
-----------------------
19
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
-------------
FAX#: (408) 496-2426 TIME:
-------------
<S> <C> <C>
FROM: METRO ONE TELECOMMUNICATIONS, INC
-----------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
---------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-------------------------
PHONE NUMBER:
---------------------------------
FROM ACCOUNT # TO ACCOUNT #
-------------------------------- -----------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
--------------------
PRINCIPAL PAYMENT (ONLY) $
--------------------
INTEREST PAYMENT (ONLY) $
--------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------
OTHER INSTRUCTIONS:
</TABLE>
All Borrower's representations and warranties in the Second Amended and Restated
Loan and Security Agreement are true, correct and complete in all material
respects on the date of the telephone request for and Advance confirmed by this
Borrowing Certificate; but those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of that date
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me
- ---------------------------- --------------------
Authorized Requester Phone #
- ---------------------------- --------------------
Received By (Bank) Phone #
----------------------------------------------
Authorized Signature (Bank)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Metro One Telecommunications, Inc. Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $10,000,000, subject to the Borrowing Base at such times as Borrower's Quick Ratio
falls blow 2.00 to 1.00
ACCOUNTS RECEIVABLE
<S> <C>
1. Accounts Receivable Book
Value as of
$
-----------------------
2. Additions (please explain on reverse)
$
-------------
3. TOTAL ACCOUNTS RECEIVABLE
$
-------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due
$
-------------
5. Balance of 50% over 90 day accounts
$
-------------
6. Credit balances over 90 days
$
-------------
7. Concentration Limits* $
-----------
8. Foreign Accounts $
-------------
9. Governmental Accounts $
-----------
10. Promotion or Demo Accounts
$
-------------
11. Intercompany/Employee Accounts
$
-------------
12. Other (please explain on reverse)
$
-------------
13. TOTAL ACCOUNTS RECEIVABLE
DEDUCTIONS $
-----------
14. Eligible Accounts (#3 minus #13)
$
-------------
15. LOAN VALUE OF ACCOUNTS (80% of #14)
$
------------- -------------
* 40% for Wireless affiliates of AT& T, Nextel, Sprint and Airtouch
BALANCES
16. Maximum Loan Amount $
----------
17. Total Funds Available [Lesser of #16 or #15]
$
------------
18. Present balance owing on Line of Credit
$
-------------
19. Outstanding under Sublimits ( none )
$
-------------
20. RESERVE POSITION (#177
minus #18 and #19) $
------------
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT,
AND THAT THE INFORMATION IN THIS BORROWING BASE CERTIFICATE COMPLIES WITH THE
REPRESENTATIONS AND WARRANTIES IN THE SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
<PAGE>
COMMENTS:
Metro One Telecommunications, Inc.
By:
----------------------------
Authorized Signer
2
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: METRO ONE TELECOMMUNICATIONS, INC.
The undersigned authorized officer of Metro One Telecommunications,
Inc. ("Borrower") certifies that under the terms and conditions of the Second
Amended and Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO
UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C> <C>
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings* Monthly w/in 30 days Yes No
Borrowing Base Certificate* Monthly w/in 30 days Yes No
Compliance Certificate Together with 10Q & 10K Yes No
* At such time as Advances become subject to the Borrowing Base.
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Quarterly Basis:
Minimum Quick Ratio (Adjusted) 1.00:1.00 _____:1.00 Yes No
Maximum Debt/Tangible Net Worth 1.50:1.00 _____:1.00 Yes No
Profitability: $1/Quarterly $_________ Yes No one
quarterly loss allowed in 12/31/99 or 3/31/99 (but
not both quarters), provided loss is due to extra
ordinary expenses associated with the postponement
of Borrower's secondary equity offering
</TABLE>
1
<PAGE>
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:
-----------------------
Sincerely, AUTHORIZED SIGNER
Date:
------------------------------
Metro One Telecommunications, Inc.
Verified:
--------------------------
AUTHORIZED SIGNER
- ----------------------------------
SIGNATURE
- ---------------------------------- Date:
TITLE ------------------------------
- ----------------------------------
DATE
Compliance Status: Yes No
2
<PAGE>
PROMISSORY NOTE
---------------
December 28, 1999
(Date)
11200 Murray Scholls Place, Beaverton, Washington Co., OR 97008
(Street Address of Maker) (Town) (County) (State) (Zip Code)
FOR VALUE RECEIVED, Metro One Telecommunications, Inc. ("Maker") promises,
jointly and severally if more than one, to pay to the order of General
Electric Capital Corporation or any subsequent holder hereof (each, a
"Payee") at its office located at 4 North Park Drive, Suite 500, Hunt Valley,
Maryland 21030 or at such other place as Payee may designate, the principal
sum of Twenty million dollars ($20,000,000.00), with interest thereon, from
the date hereof through and including the dates of payment, at a fixed
interest rate of Nine and 29/100 percent (9.29%) per annum, to be paid in
lawful money of the United States, in forty-seven (47) consecutive monthly
installments of principal and interest of Five hundred thousand and four
hundred fifty-nine and 44/100 Dollars ($500,459.44) each (each, a "Periodic
Installment") and a final installment in the amount of $500,459.44. The first
Periodic Installment shall be due and payable on January 28, 2000, and the
following Periodic Installments and the final installment shall be due and
payable on the same day of each succeeding month (each, a "Payment Date").
Such installments have been calculated on the basis of 360 day year of twelve
30-day months. Each payment may, at the option of the Payee, be calculated
and applied on an assumption that such payment would be made on its due date.
Payments shall be paid by wire transfer of immediately available funds to
Bankers Trust, New York, New York 10006, Account No. [Account Number], ABA No.
021-001-033, or to such other account as holder may request.
The acceptance by Payee of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of
Payee's right to receive payment in full at such time or at any prior
subsequent time.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof.
This Note is secured by Collateral Schedule No. G-1 to Master Security
Agreement dated September 10, 1999 ("Security Agreement")
This is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days
after its due date, the Maker agrees to pay, in addition to the amount of
each such installment or other sum, a late payment charge of five percent
(5%) of the amount of said installment or other sum, but not exceeding any
lawful maximum. In the event that (i) Maker fails to make payment of any
amount due hereunder within ten (10) days after the same becomes due and
payable; or (ii) Maker is in default under, or fails to perform under any
term or condition contained in any Security Agreement following any
applicable notice and/or cure period, then the entire principal sum remaining
unpaid, together with all accrued interest thereon and any other sum payable
under this Note or any Security Agreement, at the election of Payee, shall
immediately become due and payable, with interest thereon at the lesser of
500 basis points over the fixed interest rate payable hereunder or the
highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).
The Maker may prepay all or part of its indebtedness hereunder upon payment
of an additional sum as a premium equal to the following percentages of the
remaining related principal balance for the indicated period:
Prior to the second annual anniversary date of this Note: one percent (1%)
Prior to the third annual anniversary date of this Note: one percent (1%)
Prior to the fourth annual anniversary date of this Note: one percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder or
under any Security Agreement
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note
or any Security Agreement require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under this Note
or any Security Agreement, or if all of the principal balance shall be
prepaid, so that under any of such circumstances the amount of interest,
contracted for, charged or received under the Note or any Security Agreement
on the principal balance shall exceed the maximum amount of interest
permitted by applicable law, then in such event (a) the provisions of this
paragraph shall govern and control, (b) neither Maker nor any other person
or entity now or hereafter liable for the payment hereof shall be obligated
to pay the amount of such interest to the extent that it is in excess of the
maximum amount of interest permitted by applicable law, (c) any such excess
which may have been collected shall be either applied as a credit against the
then unpaid principal balance or refunded to Maker, at the option of the
Payee, and (d) the effective rate of interest shall be automatically reduced
to the maximum lawful contract rate allowed under applicable law as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate
of interest contracted for, charged or received under this Note or any
Security Agreement which are made for the purpose of determining whether such
rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and
spreading in equal parts during the
<PAGE>
period of the full stated term of the indebtedness evidenced hereby, all
interest at any time contracted for, charged or received from Maker or
otherwise by Payee in connection with such indebtedness; provided however,
that if any applicable state law is amended or the law of the United States of
America preempts any applicable state law, so that it becomes lawful for the
Payee to receive a greater interest per annum rate than is presently allowed,
the Maker agrees that, on the effective date of such amendment or preemption,
as the case may be, the lawful maximum hereunder shall be increased to the
maximum interest per annum rate allowed by the amended state law or the law
of the United States of America.
The Maker and all sureties, endorsers guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of, security or any party primarily or secondary
liable on this Note or any Security Agreement or any term and provision of
either, which may be made, granted or consented to by Payee, and agree that
suit may be brought and maintained against any one or more of them, at the
election of Payee without joinder of any other as a party thereto, and that
Payee shall not be required first to foreclose, proceed against, or exhaust
any security hereof in order to enforce payment of this Note. The Maker and
each Obligor hereby waives presentment, demand for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, and all notices
in connection herewith, as well as filing of suit (if permitted by law) and
diligence in collecting this Note or enforcing any of the security hereof,
and agrees to pay (if permitted by law) all reasonable expenses incurred in
collection, including Payee's actual attorneys' fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED
BETWEEN MAKER AND PAYEE. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court
(including, without limitation, contract claims, tort claims, breach of duty
claims and all other common law and statutory claims). THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. In the event of litigation, this Note may be filed as a written
consent to a trial by the court.
This Note and any Security Agreement constitute the entire agreement of the
Maker and the Payee with respect to the subject matter hereof and supersedes
all prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and
for the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict
with any statute, law or applicable rule shall be deemed omitted, modified or
altered to conform thereto.
<TABLE>
<S> <C>
METRO ONE TELECOMMUNICATIONS, INC
By: /s/ R. Tod Hutchinson (L.S.)
- ----------------------------------- ----------------------------
(Witness) Signature
R. Tod Hutchinson VP, Finance
- ----------------------------------- -------------------------------
(Print Name) Print name (and title, if applicable)
- ----------------------------------- 93-0995165
(Address) Federal Tax ID Number
</TABLE>
<PAGE>
COLLATERAL SCHEDULE NO. G-1
THIS COLLATERAL SCHEDULE NO. G-1 incorporates that certain Master
Security Agreement dated as of September 10, 1999 between General Electrical
Capital Corporation as Secured Party and Metro One Telecommunications, Inc. as
Debtor. Debtor hereby gives, grants and assigns to Secured Party a first
priority security interest in and against property listed below, and in and
against any and all additions, attachments, accessories and accessions
thereto, any and all substitutions, replacements or exchanges therefor, and
any and all insurance and/or other proceeds thereof (collectively, the
"Collateral"). The foregoing security interest is given to secure the payment
and performance of any and all debts, obligations and liabilities of any
kind, nature or description whatsoever (whether primary, secondary, direct,
contingent, sole, joint or several, or otherwise, and whether due or to
become due) of Debtor to Secured Party, now existing or hereafter arising,
including without limitation that certain Promissory Note dated December 28,
1999 in the original principal amount of $20,000,000.00 (the "Note") and any
renewals, extensions and modifications of the Note and such other debts,
obligations and liabilities.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description Year/Model Serial Location
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All Equipment and Telecommunications
Equipments; including but not limited
to the equipment as more specifically
described on the Attachment attached
hereto and incorporated herein by
reference, and in and against any and
all additions, attachments,
accessories and accessions thereto,
any and all substitutions,
replacements or exchanges therefor,
and any and all insurance and/or
other proceeds
- -------------------------------------------------------------------------------------------------
</TABLE>
Debtor agrees that its obligations under the Notes to make payments to
Secured party in the amounts set forth in the Note are absolute and
unconditional and it will not assert against Secured Party, any defense,
claim, setoff, recoupment, abatement or other right, existing or future,
which Debtor may have against Secured Party or any other person or entity.
Debtor acknowledges that it has been advised that General Electric Capital
Corporation is acting (a) under the Agreement to the extent relating to this
Collateral Schedule and the Collateral, (b) hereunder and (c) with respect to
the Collateral, for itself and as agent for certain third parties (each being
herein referred to as a "PARTICIPANT" and, collectively, as the
"PARTICIPANTS"); that the interest of Secured Party in this Collateral
Schedule, related instruments and documents and/or the Collateral may be
conveyed to, in whole or in part, and may be used as security for financing
obtained from, one or more third parties without the consent of Debtor (the
"SYNDICATION"). Debtor agrees reasonably to cooperate with Secured Party in
connection with the Syndication, including the execution and delivery of such
other documents, instruments, notices, opinions, certificates and
acknowledgements as reasonably may be required by Secured Party or such
Participant.
SECURED PARTY: DEBTOR:
General Electric Capital Corporation Metro One Telecommunications, Inc.
/s/ R. Tod Hutchinson
By: By : /s/ Stebbins B. Chandor Jr.
--------------------------------- ------------------------------
Title: Title: VP, FINANCE SVP/CFO
------------------------------ -----------------------------
Date: December 28, 1999 Date: December 28, 1999
<PAGE>
CERTIFICATE OF DELIVERY/INSTALLATION
Undersigned hereby certify that all equipment and property covered by a
Security Agreement or Chattel Mortgage dated September 10, 1999 and Note dated
December 29, 1999 between General Electric Capital Corporation ("SECURED
PARTY") and undersigned has been delivered to undersigned and found
satisfactory, and that any and all installation has been satisfactorily
completed. In order to induce Secured Party to advance the loan evidenced by
such Note, undersigned hereby waive any defense, counterclaim or offset
thereunder as against Secured Party.
METRO ONE TELECOMMUNICATIONS, INC.
/s/ R. Tod Hutchinson
By : /s/ Stebbins B. Chandor Jr.
---------------------------------
Title: VP, FINANCE SVP/CFO
--------------------------------
Date: 12/23/99 12/25/99
--------------------------------
<PAGE>
AMENDMENT TO
EMPLOYMENT AGREEMENT DATED AUGUST 1, 1995
BETWEEN
METRO ONE TELECOMMUNICATIONS, INC.
AND
TIMOTHY A. TIMMINS
This amendment (the "Amendment") to the Employment Agreement dated
August 1, 1995 between Metro One Telecommunications, Inc., an Oregon
Corporation (the "Company"), and Timothy A. Timmins ("Timmins") (the
"Agreement") is dated and entered into as of January 1, 2000.
RECITALS
A. The parties wish to extend and amend the employment contract
between them (the "Agreement") for a period to run until December 2002.
B. The other desired effects of the amendment are to (i) increase
Timmins' Base Salary to $200,000 annually; (ii) limit the amount of the bonus
to be paid to Timmins to 150% of Base Salary in any year following a year in
which the total net income is less than that of the previous year; (iii)
remove any bonus limit existing under the Agreement in all future years,
leaving that outlined in the previous clause B(ii) as the only future bonus
limitation; and (iv) grant Timmins an option to purchase 50,000 shares of
common stock in the Company, as presently instituted, at $15.688 per share,
effective as of the conclusion of the meeting of its Board of Directors on
November 5, 1999.
AMENDMENTS TO THE AGREEMENT
NOW, THEREFORE, The parties agree to amend the Agreement as follows:
SECTION 3 SHALL READ:
1 - AMENDMENT TO EMPLOYMENT AGREEMENT - TIMMINS
<PAGE>
3. TERM. Unless otherwise terminated as provided in Section 5 of this
Agreement, Timmins' term of employment under this agreement shall be for a
period beginning August 1, 1995 and ending on December 31, 2002.
SECTION 4 SHALL BE AMENDED TO INCLUDE PARAGRAPH 4.1d:
4.1d BASE SALARY. Effective January 1, 2000, Timmins' Base Salary
shall be $200,000 annually before all customary withholding of income and
employment taxes, with no additional adjustment for Paragraphs 4.1a, 4.1b or
4.1c.
A SENTENCE SHALL BE ADDED TO THE END OF PARAGRAPH 4.2 AS FOLLOWS:
Effective for the calendar year 2000 and each year thereafter, the
Company shall instead pay to Timmins a bonus determined in accordance with
the schedules attached as Exhibit 4.2 - Amended.
EXHIBIT 4.2 SHALL BE AMENDED AS FOLLOWS:
Exhibit 4.2 shall be amended by changing the title to "Exhibit 4.2 -
Amended."
The language in Section B of Exhibit 4.2 that reads "Up to total bonus of
100% of base salary" shall be modified to read "Up to total bonus of 150% of
base salary in any year following a year in which the Company's total net
income is less than that of the previous year. The shall be no cap (limit to
the bonus) in any year in which the Company's total net income exceeds that
of the previous year."
SECTION 4 SHALL BE AMENDED TO INCLUDE A PARAGRAPH 4.3a:
4.3a STOCK OPTION RELATED TO THE 2000 AMENDMENT. The Company will
cause Timmins to be granted a stock option to purchase 50,000 shares of
common stock of the Company, as presently instituted, at $15.688 per share,
effective as of the conclusion of the meeting of its Board of Directors on
November 5, 1999. For purposes of the Agreement and acceleration, Termination
2 - AMENDMENT TO EMPLOYMENT AGREEMENT - TIMMINS
<PAGE>
etc., this stock option shall be treated identically to the Stock Option of
Paragraphs 4.3.
SECTION 10, "NOTICE," SHALL BE MODIFIED TO SUBSTITUTE MR. WILLIAM D.
RUTHERFORD FOR MR. A. JEAN DE GRADPRE:
<TABLE>
<S> <C>
If to the Company: Metro One Telecommunications, Inc.
c/o Mr. William D. Rutherford
Chairman of the Board of Directors
6978 SW Foxfield Court
Portland, Oregon 97225
</TABLE>
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement, as hereby amended, on the date set forth above.
<TABLE>
<S> <C>
METRO ONE TELECOMMUNICATIONS,
INC.
By: /s/ William B. Rutherford March 6, 2000
-------------------------- -------------
William B. Rutherford Date
Chairman of the Board
Of Directors
/s/ Timothy A. Timmins March 6, 2000
---------------------- -------------
Timothy A. Timmins Date
</TABLE>
3 - AMENDMENT TO EMPLOYMENT AGREEMENT - TIMMINS
<PAGE>
[Letterhead]
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 4,
2000, appearing in this Annual Report on Form 10-K of Metro One
Telecommunications, Inc. for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Portland, Oregon
February 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,964
<SECURITIES> 0
<RECEIVABLES> 15,357
<ALLOWANCES> 10
<INVENTORY> 0
<CURRENT-ASSETS> 26,306
<PP&E> 51,997
<DEPRECIATION> 13,692
<TOTAL-ASSETS> 65,475
<CURRENT-LIABILITIES> 14,556
<BONDS> 18,940
0
0
<COMMON> 40,308
<OTHER-SE> (8,329)
<TOTAL-LIABILITY-AND-EQUITY> 65,475
<SALES> 0
<TOTAL-REVENUES> 77,831
<CGS> 0
<TOTAL-COSTS> 75,205
<OTHER-EXPENSES> (128)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 773
<INCOME-PRETAX> 1,981
<INCOME-TAX> 75
<INCOME-CONTINUING> 1,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,906
<EPS-BASIC> .17
<EPS-DILUTED> .16
</TABLE>
