Effective as of January 7, 2008, Metro One Telecommunications, Inc. (the “Company”) entered into an Agency Sales Agreement dated as of January 7, 2008, with Gryphone Telcom Consultants, LLC (“Gryphone”), as supplemented and modified by that certain Amendment No. 1 to the Gryphone Telecom Agency Sales Agreement, also dated as of January 7, 2008 (collectively, the “Contract”), pursuant to which the Company agreed to act as a sales agent for telecommunications services and products that Gryphone represents in its capacity as master agent pursuant to contracts Gryphone has entered into with certain carriers or telecommunications service providers. The Contract provides that either party may terminate the Contract by providing written notice to the other party at least thirty (30) days prior to the expiration of the then-applicable one year term of the Contract.

In connection with its decision to exit the contact services business (See Item 2.05 below), the Company intends to either negotiate a termination of the Contract or to provide notice to Gryphone of the Company’s decision not to renew the Contract beyond January 7, 2009.

 

As part of a strategic business review, the Company decided to exit its contact services business. The determination to exit the contact services business was made by the Board of Directors on November 21, 2008, with the actual timing and manner of exit to be determined by the chief executive officer. The Company’s strategic review determined that the current economic environment did not provide the potential to deliver an acceptable long-term return on investment through continuation of the business. The chief executive officer decided to cease business operations in contact services on November 24, 2008 and terminated affected employees at that time.

The Company reduced its work force by 46 employees in connection with the closure of the contact services business, with a contemporaneous head count reduction of seven employees in corporate and its data services business. The Company now has 14 employees. The Company anticipates that costs to be incurred in connection with the closure of the contact services business will approximate $450,000, which includes approximately $100,000 of employee severance and related benefits for employees in its contact services business, and approximately $50,000 related to employee severance and related benefits for employees in corporate and the Company’s data business, and approximately $300,000 with respect to remaining lease obligations. The Company does not expect to incur any other material costs in connection with the closure of the contact services business. The Company anticipates that expenditures associated with severance will occur primarily in the fourth quarter of 2008, and that expenditures associated with contract termination, if any, and lease related costs will be paid during such quarter and in later periods.

The above estimated costs and charges may vary materially based on various factors, including the timing and success of the Company’s customers’ migration to other providers, the resale market for furniture, fixtures and equipment, and changes in management’s assumptions and projections.