-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WCT1xyULCuf6YRn4z0npY7hwVSACGpO7tiVSJ/oDmGxk9DSo85xMZzYy/Fo/aHMF wUDB684wH/rkj6sxS2FZqw== 0000927016-97-000956.txt : 19970401 0000927016-97-000956.hdr.sgml : 19970401 ACCESSION NUMBER: 0000927016-97-000956 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0001012887 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 043026859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-28432 FILM NUMBER: 97569559 BUSINESS ADDRESS: STREET 1: ONE MCKINLEY SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174763570 MAIL ADDRESS: STREET 1: ONE MCKINLEY SQ CITY: BOSTON STATE: MA ZIP: 02109 10-K405 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 333-4128 BOSTON COMMUNICATIONS GROUP, INC. --------------------------------- (Exact Name of Registrant as Specified in its Charter) MASSACHUSETTS 04-3026859 - ------------- -------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 100 SYLVAN ROAD, WOBURN, MASSACHUSETTS 01801 - ----------------------------------------------------- -------------- (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (617) 692-7000 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- Indicate by check mark whether 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] The approximate aggregate value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price of such stock quoted on the Nasdaq National Market on March 3, 1997, was $60,446,609. The number of shares outstanding of the Registrant's common stock, $.01 par value per share, as of March 3, 1997 was 12,725,602. DOCUMENTS INCORPORATED BY REFERENCE The following document is incorporated by reference in the following part of this Form 10-K: information required by Part III (Items 10, 11, 12 and 13) of this Annual Report on Form 10-K is incorporated from the Proxy Statement relating to the 1997 Annual Meeting of Stockholders of the Company. -1- ITEM 1. BUSINESS BACKGROUND GENERAL Boston Communications Group provides high-quality innovative call processing services, prepaid network services, carrier support teleservices and prepaid and voice systems to wireless telephone carriers in the United States, Mexico and Canada. The Company's ROAMERplus/TM/ calling service provides carriers with the ability to generate revenues from subscribers who are not covered under traditional roaming agreements by arranging payment for roaming calls and paying carriers for the air time used. BCG is the leading provider of roaming services to the unregistered roaming market. The Company's carrier support teleservices allow wireless carriers to outsource all or a portion of their customer service activities, and are designed to help wireless carriers retain subscribers, reduce costs and manage growth. In early 1996, BCG introduced its prepaid wireless service, C2C/SM/. This service enables carrier subscribers to use their wireless phone as if they were a post-pay subscriber, thereby expanding service offerings to new and existing subscribers without the added billing costs and collection risk. The Company acquired Voice Systems Technology, Inc. (VST) in February, 1996. VST markets a voice processing platform with enhanced features for providing prepaid cellular, voice messaging and fax mail services to wireless and wireline carriers throughout North America. VST also manufactures prepaid systems which are sold directly to carriers and are used to support the Company's C2C Network. Wireless telephone service has been one of the fastest growing areas of the telecommunications industry over the last eleven years. The Cellular Telecommunications Industry Association (''CTIA'') estimates that the number of cellular subscribers in the United States increased from approximately 340,000 in December 1985 to approximately 44 million in December 1996. This represents an increase in market penetration from under 1% to over 17% of the United States population. The CTIA also estimates that aggregate annual service revenues from cellular subscribers grew from approximately $482.4 million in 1985 to approximately $23.6 billion in 1996. A number of factors have contributed to this growth, including the build-out of the cellular network infrastructure, the decreasing cost of cellular telephones, the increasing mobility of the United States population, technological improvements in the size and battery life of cellular telephones and greater acceptance of wireless telephone use. Significant growth in the wireless telephone market is expected to continue in the future, particularly given the emergence of new electromagnetic spectrum for ''personal communications services,'' a new form of wireless telephone service generally known as ''PCS''. In June 1996, the Company completed an initial public offering and sold 3,918,555 shares of its common stock which raised net proceeds of approximately $49.8 million. Approximately $16.3 million of the net proceeds were used to redeem all 11,871 outstanding shares of the Company's Redeemable Preferred Stock at a redemption price of $1,000 per share, plus $4.5 million of accrued dividends on such stock. Approximately $3.5 million of the proceeds were used to repay short-term borrowings under an Account Purchase Agreement and long-term borrowings under a Master Lease Agreement. Approximately $4.5 million of the net proceeds were used for capital expenditures in connection with the deployment of the C2C Network. In January 1996, the Company purchased 17.5% of Wireless Americas Corporation (WAC) and entered into a Distribution Agreement with WAC whereby the Company sells WAC the equipment needed to establish the C2C Network in Latin America and South America. In connection with the Distribution Agreement, BCG obtained a contract to provide prepaid service in several Mexican markets on behalf of Tel- Cel, Mexico's largest wireless carrier. In October 1996, the Company acquired an additional 62.5% of the stock of WAC for $916,500, bringing the Company's ownership to 80% of WAC's stock. As of February 28, 1997, the prepaid network has been deployed in several service regions in Mexico and has over 150,000 prepaid subscribers. BCG provides its services to wireless carriers and their subscribers in the United States, Canada and Mexico. The Company was organized as a Massachusetts corporation in August, 1988 and introduced its ROAMERplus calling service in 1991. The Company introduced its carrier support teleservices in 1993 and -2- its prepaid calling service in 1996. The Company's principal office is located at 100 Sylvan Road Woburn, Massachusetts 01801 and its telephone number is (617) 692-7000. DESCRIPTION OF BUSINESS SERVICES CALLING SERVICES The Company's ROAMERplus service is being used by approximately 95 cellular carriers that collectively hold licenses for over 1,100 markets in the United States, Canada and Mexico. BCG services 9 of the 10 largest cellular carriers, by population covered, in the United States. The Company's ROAMERplus service provides carriers with the ability to generate revenues from unregistered roamers in their service area. When an unregistered roamer places a call in the carrier's service area, the carrier's mobile switching center forwards the call, at the Company's expense, to the Company's proprietary digital call processing system. The roamer may complete the call by charging the call to a telephone calling card, a commercial credit card or as a collect call. A majority of all incoming traffic is initially handled by an automated call processing system, which prompts the caller for billing and calling information. The Company's specially trained service representatives handle all remaining calls as well as calls requiring additional operator assistance. In order to implement the Company's ROAMERplus service, a carrier need only make a minor software change in its mobile switching centers. BCG pays for transport of the call to its facilities and for completion of the call. Under its agreements with carriers, which typically have a term of one year, BCG pays the serving carrier for the air time that the roamer uses and charges the roamer for the call. The charge for the call appears directly on the caller's telephone bill (if the caller used a telephone calling card) or the caller's credit card bill, with BCG (typically, under the trade name ''Cellular Express'') as the vendor. ROAMERplus eliminates collection and fraud risk for the carrier because BCG takes responsibility for collection from the customer. The Company manages this collection and fraud risk by accessing available databases, including the Company's own proprietary database, and validating the caller's credit before completing the call. CARRIER SUPPORT TELESERVICES The Company designed and began providing carrier support teleservices in 1993 in response to the industry's need for 24-hour, 365 day customer service. The Company's teleservices program allows a carrier's subscriber to obtain information on rate plans, phone operations and service center locations, as well as instructions on roaming features and promotions. Subscribers also may make billing inquiries, initiate address and rate plan changes, and obtain other customer assistance. The Company's service centers can also assist carriers in billing and collections. Most of the carriers using BCG's teleservices use these services for off-hours and overflow subscriber support. However, the Company's services range from narrowly defined, short term projects to the provision of all of the carrier's customer service activities. The Company currently provides teleservices to 16 wireless customers under contracts generally with terms of one year. The Company provides teleservices from its service centers in Burlington and Woburn, Massachusetts. The Company designed these facilities to provide highly efficient, rapid customer response through the deployment of state-of-the-art switching technologies with client/server architecture and open, automatic call delivery platforms. Each customer service representative utilizes database interfaces, customized for each carrier, to facilitate subscriber inquiry response, technical problem resolution, program/feature clarification, on-line follow-up and performance reporting. These customized interfaces can be programmed to give the Company complete access to a particular carrier's subscriber databases. Administration of call center floor personnel is facilitated by the use of forecasting, scheduling and monitoring systems that allow -3- floor supervisors to observe numerous aspects of the call center's performance in a graphical format, including information on call duration, compliance with contract standards and operator performance. BCG has identified additional specific teleservice needs in the wireless industry and has developed services to meet those needs. These services allow the carriers to better manage the demands of hiring, training, managing and retaining a large number of customer service representatives for specialized service projects that often place significant increased demands on the capacity of customer service centers. For example, BCG provides teleservice support to carriers who are currently supporting prepaid subscribers on the C2C Network. BCG's wireless-trained representatives are available to effectively answer subscriber questions that are not handled by C2C's automated customer service application. Additional specialized teleservices include LAWBUST, the Cellular Telephone Industry Association's program developed by BCG and CTIA to reduce cellular fraud by assisting law enforcement officials through on-line access to the CTIA's proprietary database and other techniques. BCG also provides special support services to carriers including Personal Identification Number (PIN) assignments, phone number and NPA-NXX area code changes and third party verification services. BCG intends to continue to invest in its teleservices technology in order to provide additional service offerings such as outbound calling and telemarketing programs. PREPAID NETWORK SERVICES The Company completed the design of its C2C Network prepaid wireless service in late 1995 and began deploying the service in 1996. The C2C Network was designed in response to the carrier's need to increase revenues and retain existing subscribers by penetrating untapped market segments, which include lower usage subscribers or those who cannot or do not want to become subscribers under traditional monthly billing arrangements. Because of the relatively high cost of marketing and providing wireless service, carriers have generally only accepted subscribers that are able to meet certain credit standards. In addition, the costs of monthly billing arrangements reduce the profitability of servicing low- usage subscribers. Furthermore, traditional monthly billing arrangements are often not practical for individuals who want wireless service only temporarily or for cellular telephones with multiple users. Prepaid service provides carriers the opportunity to offer an alternative payment approach to potential subscribers. Accordingly, BCG's proprietary C2C software and switching technology was developed to enable carriers to cost effectively offer their services to new and existing subscribers on a prepaid basis. BCG's technology allows a prepaid subscriber's call to be automatically switched to the C2C Network where information regarding the status of that subscriber's prepaid account is maintained. The C2C Network completes the call and debits the account automatically without requiring the subscriber to enter a debit card number or other information. A subscriber may establish an account with a C2C wireless carrier by prepaying a specific dollar amount that is credited toward future service. Subsequently, each call that is initiated or received by the subscriber is routed to the C2C Network and rated in real time based on the telephone number called, carrier usage charges, taxes and appropriate surcharges. When the remaining balance is reduced to a minimal amount, the subscriber is able to replenish the account by purchasing additional prepaid service directly from the carrier or via commercial credit card using C2C's automated customer service application. As a result, a prepaid subscriber receives service substantially similar to a subscriber using traditional billing arrangements, including the ability to make outgoing and receive incoming calls, as well as to roam into other markets. C2C also enables carriers to offer additional services to existing subscribers such as international dialing without collection risk, gift giving and promotional programs. Carriers compensate BCG for network usage by contracting at a per minute rate for connection time between the carrier's mobile switching center and the C2C Network voice node. The C2C Network consists of a central computer database linked by a high speed, wide area frame relay network to geographically distributed proprietary call processing subsystems, called voice nodes. Each voice node is capable of serving more than one carrier and consists of a computer controlled telecommunications switch and an interactive voice response unit that provides high quality personalized voice prompts. These voice nodes are linked to the carriers' mobile switching centers via dedicated -4- telephone facilities. The distributed node architecture is designed to be modular and scaleable while remaining efficient and cost-effective. The centralized database enables prepaid users to make calls while roaming in other service areas where the C2C Network is in place. In addition, prepaid subscribers are able to use the Company's ROAMERplus service to make roaming calls in service areas where the C2C Network is not yet in place. As of December 31, 1996, the Company had deployed 21 C2C nodes in various markets across the United States and 15 markets were commercially available and in use by prepaid subscribers. Carriers are currently in the process of implementing BCG prepaid systems in an additional 220 U.S. markets which, when combined with the markets where prepaid service is now available, will cover over 50% of the U.S. population. The Company currently provides C2C to several carriers, including Bell Atlantic NYNEX Mobile Systems, Southwestern Bell Mobile Systems, SNET Cellular, LA Cellular, Airtouch, Bell South Mobility and Western Wireless' PCS Division, among others. The Company is continuing to install, at its expense, the voice nodes and data links that make up the C2C Network in order to support additional market areas under existing carrier contracts and commitments. As of February 28, 1997, the Company had activated over 200,000 prepaid subscribers with carriers who have deployed a BCG prepaid system in the United States and Mexico. SYSTEMS In February 1996, the Company acquired Voice Systems Technology, Inc. VST's VISIONPlatform is an enhanced voice processing system that provides the high speed, high reliability technology required by large-capacity voice processing network systems. Its major applications include prepaid calling, voice messaging, fax mail and other enhanced service applications. VST markets its VISIONPlatform to Original Equipment Manufacturers (OEM's) and wireless and wireline carriers throughout the United States, Canada and Latin America. VST's platform uses proprietary technology that is complimentary to the technology used in the Company's C2C Network. As a result, in 1996, VST began manufacturing the prepaid voice nodes that have been and continue to be deployed to support the Company's C2C Network. In order to support existing prepaid systems and sales efforts in Latin America, the Company recently established a Mexican subsidiary, BCG de Mexico, S.R.L. that is located in Mexico City. BCG de Mexico currently employs 4 personnel who are responsible for providing technical and service support to Tel-Cel. ENGINEERING, RESEARCH AND DEVELOPMENT The software for the C2C Network was developed by the Company's internal engineering and development staff along with technology from other vendors. The Company has developed proprietary software to enable its call processing platform to handle custom signaling interfaces to various types of wireless switches, specialized call rating requirements of prepaid wireless services, and interfaces to wireless administration and management information systems. The Company is developing a number of enhanced services that it intends to make available to prepaid and traditional subscribers through the C2C Network. These enhanced services will be designed to enable carriers to generate additional sources of revenue from subscribers in addition to providing carriers with more extensive internal reporting capabilities. The Company spent approximately $270,000, $839,000 and $3.2 million on engineering, research and development in 1994, 1995 and 1996, respectively. The Company expects to continue to devote substantial resources to its engineering, research and development activities in future years. -5- SALES AND MARKETING The Company's sales strategy is to establish and maintain long-term relationships with its customers. The Company employs a consultative sales process to understand and define customer needs and determine how those needs can be addressed by the Company's services. BCG seeks to build upon its existing customer relationships by integrating and cross-selling its different service offerings. The Company's sales cycle varies for different services and can be up to 12 months for the Company's teleservices and prepaid service. The Company's sales force currently consists of ten sales representatives supervised by two senior sales executives, including one who is devoted to VST voice and prepaid system sales. The Company's sales representatives have significant experience in the wireless industry, either as former employees of wireless carriers or in selling products and services to wireless carriers. The Company typically assigns each sales representative to a single group of wireless telephone carriers in order to support the development and maintenance of long-term customer relationships. The sales representatives are supported by product specific account and service managers who also typically have experience in the wireless industry and manage the accounts on a daily basis after the completion of the initial sale. The Company's direct sales strategy is complemented by a marketing program that includes participation in industry trade shows, advertising and highly targeted direct mail. Because the Company's customers are a readily identifiable group, the Company seeks to gain wide exposure through carefully selected events and activities specific to the wireless telephone industry. Most of the Company's direct sales and marketing activities are supported from its Woburn, Massachusetts facility, however, VST's sales efforts are supported by its Cherry Hill, New Jersey office and Latin American prepaid sales are supported from WAC's Coral Gables, Florida office. CUSTOMER BASE The Company provides its services to cellular carriers of varying size, expertise and capabilities. The Company currently provides one or more of its services to approximately 95 wireless carriers in the United States, Canada and Mexico, including nine of the 10 largest cellular carriers in the United States. Historically, a significant portion of the Company's revenues in any particular period has been attributable to a limited number of customers. Net revenues attributable to the Company's ten largest customers accounted for approximately 81.2%, 84.6% and 82.4% of the Company's total revenues in 1994, 1995 and 1996, respectively. Ameritech Cellular Services, Inc. (''Ameritech Cellular''), Bell Atlantic NYNEX Mobile ("BANMS"), SNET Mobility, Inc. (''SNET Mobility'') and Bell South Mobility, Inc. ("BSMI") accounted for approximately 15.0%, 13.9%, 11.9% and 9.2%, respectively, of the Company's total revenues in 1995 and for 14.8%, 12.3%, 8.1% and 11.4%, respectively, of total revenues in 1996. For the ten month period ending December 31, 1996, VST generated $4.7 million in prepaid and voice system revenues. Of this revenue, 65.1% represented prepaid system sales which were deployed in Mexico to support prepaid service in several Mexican markets on behalf of Tel-Cel, Mexico's largest wireless carrier. VST markets its voice systems to OEM's and wireless and wireline carriers in the United States, Canada and Mexico. COMPETITION The market for services to wireless carriers is highly competitive and subject to rapid change. A number of companies currently offer one or more of the services offered by the Company. In addition, many wireless carriers are providing or can provide, in-house, the services that the Company offers. Trends in the wireless telephone industry, including greater consolidation and technological or other developments that make it simpler or more cost-effective for wireless carriers to provide certain services themselves, could affect -6- demand for the Company's services and could make it more difficult for the Company to offer a cost-effective alternative to a wireless carrier's own capabilities. In addition, the Company anticipates continued growth in the wireless carrier services industry, and consequently, the entrance of new competitors in the future. BCG's principal competitor in the unregistered roaming market is National Telemanagement Corporation and in the prepaid network market, Brite Voice Systems, Open Development Corporation and GTE Telecommunications Services, Inc. In the carrier support teleservices market, BCG competes with a variety of companies that have inbound and outbound service centers. VST's principal competitors in the voice processing systems market include Boston Technology, Inc., Octel Communications Corp. and Centigram Communications Corp. The Company believes that the principal competitive factors in the wireless carrier services industry include the ability to identify and respond to customer needs, quality and breadth of service offerings, price and technical expertise. The Company's ability to compete also depends in part on a number of competitive factors outside its control, including the ability to hire and retain employees, the development by others of products and services that are competitive with the Company's products and services, the price at which others offer comparable products and services and the extent of its competitors' responsiveness to customer needs. There can be no assurance that the Company will be able to continue to compete successfully with its existing competitors or with new competitors. GOVERNMENT REGULATION The Federal Communications Commission (''FCC''), under the terms of the Communications Act of 1934, as amended, including the Telecommunications Act of 1996, regulates interstate communications and use of the radio spectrum, including entry, exit, rates and terms of operation. BCG presently neither operates any facilities utilizing the radio spectrum nor has any facilities- based services involving interstate communications. Consequently, it is not required to and does not hold any licenses or other authorizations issued by the FCC. However, the wireless carriers that constitute the Company's customers are regulated at both the federal and state levels. Such regulation may decrease the growth of the wireless telephone industry, affect the development of the PCS market, limit the number of potential customers for the Company's services or impede the Company's ability to offer competitive services to the wireless market or otherwise have a material adverse effect on the Company's business and results of operations. At the same time, the Telecommunications Act of 1996, a deregulatory measure, may cause changes in the industry, including entrance of new competitors and industry consolidation, which could in turn affect the Company's cost of doing business or otherwise have a material effect on the Company's business, financial condition and results of operations. The Telephone Operator Consumer Services Improvement Act of 1990 (''TOCSIA'') directed the FCC to require that operator services providers comply with a series of provisions and make available certain information in order to protect consumers from perceived abuses in the operator services industry. In addition, operator services providers must submit to the FCC an informational tariff detailing their charges for interstate communications services. BCG's calling services involve the provision of operator services for purposes of TOCSIA. BCG believes that it has taken appropriate steps to comply with the terms of TOCSIA and the applicable FCC regulations, including having filed an informational tariff with the FCC. EMPLOYEES As of December 31, 1996, the Company had a total of 707 full-time and part-time employees. Of these employees, 586 serve in call center and related functions, 70 serve in technology, engineering, development, installation and manufacturing, 24 serve in sales and marketing and 27 serve in general administration and management. None of the Company's employees is represented by a labor union. The Company believes that its employee relations are good. -7- ITEM 2. PROPERTIES The Company leases space at its five principal locations: Burlington and Woburn, Massachusetts, Cherry Hill, New Jersey, Tulsa, Oklahoma and Coral Gables, Florida. The Burlington and Woburn locations serve as call center operations facilities for teleservices and ROAMERplus services. The Woburn location also has separate facilities that house the Company's network operations center as well as the Company's executive headquarters, engineering, sales and finance personnel. The Company is in the process of leasing additional space in its Woburn location in order to accommodate the additional direct and indirect personnel required to support the growth and expansion of its teleservices and C2C businesses. The Tulsa facility is used for the manufacturing and assembly of VST systems. Related sales efforts are in Cherry Hill for U.S. and Canada sales and WACO's Coral Gables location for Latin American sales. The Company also has thirteen other leased facilities throughout the United States which are used to house the Company's voice nodes and certain equipment for the C2C Network. ITEM 3. LEGAL PROCEEDINGS The Company is not party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company, through solicitation of proxies or otherwise, during the last quarter of the year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages and positions are as follows:
Name Age Position ---- --- ---------------------------------------------- Paul J. Tobin............... 53 Chairman of the Board Brian E. Boyle.............. 48 Vice Chairman George K. Hertz............. 50 President and Chief Executive Officer, Director Frederick E. von Mering..... 43 Vice President, Finance and Administration, Director
Mr. Tobin has served as Chairman of the Board of Directors of the Company since February 1996 and served as the Company's President and Chief Executive Officer from 1990 until February 1996. Prior to joining the Company, Mr. Tobin served as President of Cellular One Boston/Worcester from July 1984 to January 1990 and as a Regional Marketing Manager for Satellite Business Systems, a joint venture of IBM, Comsat Corp. and Aetna Life & Casualty from April 1980 to June 1984. Mr. Tobin received his undergraduate degree in economics from Stonehill College and his M.B.A. in marketing and finance from Northeastern University. Mr. Tobin also serves as a member of the Board of Trustees at Stonehill College. Mr. Boyle has served as Vice Chairman of the Company since February 1996 and as Chairman, New Wireless Services of the Company from January 1994 to February 1996. From July 1990 to September 1993, Mr. Boyle served as Chief Executive Officer of Credit Technologies, Inc., a supplier of customer application software for the cellular telephone industry. Prior to 1990, Mr. Boyle founded and operated a number of ventures servicing the telecommunications industry, including APPEX Corp. (now EDS Personal Communications Division of EDS Corporation, a global telecommunications service company) and Leasecomm Corp., a micro-ticket leasing company. -8- Mr. Boyle earned his B.A. in mathematics from Amherst College and his B.S., M.S. and Ph.D. in electrical engineering and operations research from M.I.T. Mr. Boyle is also a Director of Saville Systems PLC, a provider of customized billing solutions to telecommunications providers, as well as of several private companies. Mr. Hertz has served as Chief Executive Officer and President of the Company since February 1996. From April 1988 to March 1996, Mr. Hertz served as President of Advanced MobileCom, a wholly-owned subsidiary of Fidelity Investment Corp., focusing on pursuing opportunities in the wireless communications industry. Mr. Hertz also served as President of PhaseOne Development Corporation, a communications and entertainment company, from 1984 to 1987 and in various capacities at Zip-Call, Inc., a paging company, from 1982 to 1983. Mr. Hertz received his B.A. and M.A. in political science and public administration from the University of Massachusetts. Mr. von Mering has served as the Company's Vice President, Finance and Administration since 1989. Prior to joining the Company, Mr. von Mering served as Regional Vice President and General Manager for the paging division of Metromedia, Inc., a communications company, from 1980 to 1986. From 1975 to 1979, Mr. von Mering was employed at Coopers & Lybrand LLP. Mr. von Mering earned his B.A. degree in accounting from Boston College and his M.B.A. from Babson College. Each officer serves at the discretion of the Board of Directors. There are no family relationships among any of the Directors and executive officers of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK Boston Communications Group, Inc.'s (BCGI) Common Stock is traded principally on the NASDAQ National Market. The following table reflects the range of high and low selling prices of BCGI's common stock for the periods indicated since the date on which the Common Stock commenced trading.
1996 ------------------- HIGH LOW ------- ---------- Second Quarter $ 17 $ 14 Third Quarter 14 1/4 12 Fourth Quarter 16 1/8 4 3/8
HOLDERS At March 4, 1997, there were approximately 2,700 holders of Common Stock. DIVIDENDS No dividends were declared to holders of common stock in 1995 or 1996. The Company currently intends to retain all of its earnings to finance future growth and, accordingly, does not anticipate paying any cash dividends in the forseeable future. Future payment of dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors the Board of Directors may deem relevant. -9- ITEM 6. SELECTED FINANCIAL DATA The following tables should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this report.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1992 1993 1994 1995 1996 (1) --------- --------- --------- -------- --------- CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) DATA: Total revenues $ 6,275 $ 8,694 $ 18,334 $34,220 $ 50,651 Operating income (loss) 291 (269) 405 2,129 610 Income (loss) from continuing 259 (332) 288 3,008 599 operations(2) Income (loss) from discontinued (1,196) (92) 1,507 (165) -- operations Net income (loss) (937) (424) 1,795 2,843 599 Net income (loss) available to common shareholders (1,967) (1,454) 779 1,893 148 Net income (loss) per common share(3): (0.65) (0.45) 0.09 0.21 0.01 CONSOLIDATED BALANCE SHEET DATA: Cash and short-term investments 890 681 204 253 21,421 Working capital 372 695 1,098 2,082 26,480 Property and equipment 1,434 1,262 2,699 4,884 12,906 Total assets 6,107 6,889 8,867 13,614 51,959 Redeemable preferred stock 13,901 14,930 14,947 15,896 -- Shareholders' equity (deficit) $(9,916) $(11,370) $(10,591) $(8,698) $ 42,893 Dividends per common share -- -- -- -- --
(1) In February 1996, the Company acquired VST for Common Stock and cash with an aggregate value of approximately $2.5 million. (2) In 1995, the Company reversed the deferred tax asset valuation allowance, resulting in a tax benefit of $1.8 million. In addition, in 1994 and 1995, the Company realized benefits from net operating loss carryforwards of $382,000 and $840,000, respectively. See Note 6 of Notes to Consolidated Financial Statements. (3) See Note 2 of Notes to Consolidated Financial Statements ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The management's discussion and analysis of financial condition and results of operations have been included as Appendix A to the Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data have been included in Appendix B to the Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -10- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The sections entitled "Election of Directors" and "Reports Under Section 16(a) of the Exchange Act" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 22, 1997, set forth certain information with respect to the directors of the Company and reports filed by certain persons under Section 16(a) of the Exchange Act and are incorporated herein by reference. Certain information with respect to persons who are or may be deemed to be executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The sections entitled "Executive Compensation", "Employment Agreements with Named Executive Officers", "Stock Plans", "Report of the Compensation Committee", and "Stock Performance Graph" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 22, 1997, set forth certain information with respect to the compensation of management of the Company and are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 22, 1997, set forth certain information with respect to the ownership of the Company's Common Stock and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sections entitled "Executive Compensation", "Employment Agreements with Named Executive Officers," and "Certain Transactions" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 22, 1997, set forth certain information with respect to certain business relationships and transactions between the Company and its directors and officers and are incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS The following consolidated financial statements of Boston Communications Group, Inc. are included as Appendix A attached hereto: Consolidated Balance Sheets-December 31, 1996 and 1995. Consolidated Statements of Operations-Fiscal years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Stockholders' Equity-Fiscal years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows-Fiscal years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. -11- (2) FINANCIAL STATEMENT SCHEDULES Index to Consolidated Financial Statement Schedules For the three years 1996, 1995 and 1994: Schedule II - Valuation and Qualifying Accounts All other Schedules have been omitted because the required information is shown in the consolidated financial statements or notes thereto or they are not applicable. (3) The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as part of this Annual Report on Form 10-K. (B) REPORTS ON FORM 8-K On November 7, 1996 a Form 8-K was filed with respect to the acquisition by the Company of 62.5% of the outstanding capital stock of Wireless Americas Corp. (WAC), a Delaware corporation. As a result of this transaction the Company now owns 80% of the capital stock of WAC and has an option to purchase the remaining 20% of such capital stock. -12- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOSTON COMMUNICATIONS GROUP, INC. By: /s/ George K. Hertz ------------------------ GEORGE K. HERTZ PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ George K. Hertz President, Chief March 24, 1997 - -------------------------- Executive Officer George K. Hertz and Director /s/ Fritz von Mering Vice President, March 24, 1997 - -------------------------- Finance and Fritz von Mering Administration, Director (Principal Financial Officer) /s/ Karen A. Walker Controller (Principal March 24, 1997 - -------------------------- Accounting Officer) Karen A. Walker /s/ Paul J. Tobin Chairman of the March 24, 1997 - -------------------------- Board of Directors Paul J. Tobin SIGNATURE TITLE DATE --------- ----- ---- /s/ Brian E. Boyle Vice Chairman of the March 24, 1997 - -------------------------- Board of Directors Brian E. Boyle /s/ Jerrold D. Adams Director March 24, 1997 - -------------------------- Jerrold D. Adams /s/ Craig L. Burr Director March 24, 1997 - -------------------------- Craig L. Burr /s/ James L. McLean Director March 24, 1997 - -------------------------- James L. McLean /s/ Paul R. Gudonis Director March 24, 1997 - -------------------------- Paul R. Gudonis /s/ Gerald Segel Director March 24, 1997 - -------------------------- Gerald Segel Appendix A Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Boston Communications Group provides high-quality innovative call processing services, prepaid network services, carrier support teleservices and prepaid and voice systems to wireless telephone carriers in the United States, Canada and Mexico. The Company's ROAMERplus calling service provides carriers with the ability to generate revenues from subscribers who are not covered under traditional roaming agreements by arranging payment for roaming calls and paying carriers for the air time used. BCG is the leading provider of roaming services to the unregistered roaming market. The Company's carrier support teleservices allow wireless carriers to outsource all or a portion of their customer service activities, and are designed to help wireless carriers retain subscribers, reduce costs and manage growth. In early 1996, BCG introduced its prepaid wireless service, C2C This service enables subscribers to use their wireless phone as if they were a post-pay subscriber, thereby expanding service offerings to new and existing subscribers without the added billing costs and collection risk. The Company acquired Voice Systems Technology, Inc. (VST) in February, 1996. VST markets a voice processing platform with enhanced features for providing prepaid cellular, voice messaging and fax mail services to wireless and wireline carriers throughout North America. VST also manufactures prepaid systems which are sold directly to carriers and used to support the Company's C2C network. The Company has achieved significant growth in revenues over the past four years, with total revenues increasing from $8.7 million for the year ended December 31, 1993 to $50.7 million for the year ended December 31, 1996. Total revenues for 1996 represent a 48.2% increase over the $34.2 million in revenues generated in 1995. This growth resulted primarily from an increase in the number of the Company's carrier customers, new service offerings and an increase in demand for the Company's services due to the general growth in the cellular industry. 14.6%, or $5 million of the increase in 1996 over 1995 was a result of new revenues generated from prepaid network services and system sales. Operating income for 1996 was $610,000, a decrease as compared to 1995 operating income of $2.1 million. The reduction in earnings was principally due to significant upfront costs and investment in the C2C network. These costs include personnel and development costs associated with the implementation and deployment of the C2C network. Due to an increase in the number of commitments and contracts in place to deploy C2C in numerous additional markets throughout the United States and the need to support future development and enhancements, the Company expects that it will continue to incur additional capital and personnel costs to support the C2C network. These costs and other costs to support the C2C network will continue to be a significant percentage of revenue until the subscriber base and usage revenues grow sufficiently to more fully absorb operating costs. In June 1996, BCG completed an initial public offering and sold 3,918,555 shares of its common stock which raised net proceeds to the Company of approximately $49.8 million. Approximately $20.8 million of the net proceeds were used to redeem outstanding shares of the Company's Redeemable Preferred Stock and accrued dividends on such stock. $3.5 million of the proceeds were used to repay short-term and long-term borrowings and approximately $4.5 million of the net proceeds were used for capital expenditures in connection with the deployment of the C2C network. Results of Operations The following table sets forth, for the periods indicated, the percentage of total revenues represented by certain items in the Company's Consolidated Statements of Operations.
Percentage of Total Revenues Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------- Revenues: Calling service revenues 63.6% 74.4% 87.3% Teleservice revenues 26.5 25.6 12.7 Network service revenues 0.6 0.0 0.0 System revenues 9.3 0.0 0.0 - ------------------------------------------------------------------- Total revenues 100.0 100.0 100.0 - ------------------------------------------------------------------- Expenses: Cost of service revenues 72.3 76.3 77.5 Cost of system revenues 5.1 0.0 0.0 Engineering, research and development 6.4 2.5 1.5 Sales and marketing 5.8 5.7 6.9 Related party management fees 0.6 2.9 5.5 General and administrative 4.5 3.8 4.2 Depreciation and amortization 4.1 2.6 2.2 - ------------------------------------------------------------------- Total expenses 98.8 93.8 97.8 - ------------------------------------------------------------------- Operating income 1.2 6.2 2.2 Interest income (expense) 1.2 (0.4) (0.3) - ------------------------------------------------------------------- Income from continuing operations before income taxes 2.4 5.8 1.9 Provision (benefit) for income taxes 1.2 (3.0) 0.3 - ------------------------------------------------------------------- Income from continuing operations 1.2 8.8 1.6 Income (loss) from discontinued operations 0.0 (0.6) 8.2 - ------------------------------------------------------------------- Net income 1.2 8.2 9.8 Accretion of dividends on redeemable preferred stock 0.9 2.7 5.6 - ------------------------------------------------------------------- Net income available to common shareholders 0.3% 5.5% 4.2% - -------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Years Ended December 31, 1996 and 1995 Service and system revenues Total revenues increased 48.2% from $34.2 million in the year ended December 31, 1995 to $50.7 million in the year ended December 31, 1996. Calling services revenues increased 26.8% from $25.4 million in the year ended December 31, 1995 to $32.2 million in the year ended December 31, 1996, due primarily to increased revenues generated by higher call volumes from existing carrier customers. The increase in calling service revenues generated from existing carrier customers resulted from the general growth in the number of cellular subscribers, increased roaming by cellular subscribers and increased frequency in the suspension of inter-carrier roaming agreements between cellular carriers due to greater incidents of cellular fraud. Carrier support teleservice revenues increased 52.2% from $8.8 million in the year ended December 31, 1995 to $13.4 million in the year ended December 31, 1996. This increase was primarily attributable to new and additional services provided to existing customers and new carrier customers. Network service revenues in 1996 of $312,000 were generated in markets where C2C was commercially available. As of December 31, 1996, twenty-one C2C network switches were deployed in various markets throughout the United States. Of these switches, fifteen were fully operational and processing live transactions by the end of the year. System revenues of $4.7 million in 1996 consist principally of prepaid and voice systems sold by Voice Systems Technology, Inc. (VST) and Wireless Americas Corporation (WAC), both acquired by the Company in 1996. Cost of service revenues Cost of service revenues consist primarily of cellular network and landline transmission costs in addition to the personnel costs associated with operator assisted ROAMERplus calling service calls, carrier support teleservice calls and C2C operations. Cost of service revenues increased as a percentage of service revenues from 76.3% to 79.6% in the years ended December 31, 1995 and 1996, respectively. The increase in cost of service revenues as a percentage of service revenues was primarily due to the high initial operating costs as subscribers are added and usage is generated on the C2C network and, to a lesser extent, due to higher per minute cellular network charges for calling service revenues. The Company expects that cost of service revenues for C2C will continue to be a significant percentage of revenue until the subscriber base and usage revenues grow sufficiently to more fully absorb operating costs. Cost of system revenues Cost of system revenues represent the cost of prepaid and voice systems sold by VST and WAC. Cost of system revenues totaling $2.6 million represent costs associated with systems sold in 1996. Engineering, research and development expenses Engineering, research and development expenses include primarily the salaries and benefits for software development and engineering personnel associated with the development, implementation and maintenance of existing and new services. Engineering, research and development expenses increased 281.4% from $839,000 in the year ended December 31, 1995 to $3.2 million in the year ended December 31, 1996 and increased as a percentage of revenues from 2.5% to 6.3% in the years ended December 31, 1995 and 1996, respectively. This increase was principally due to costs associated with the Company's hiring of new personnel to support the development, implementation and deployment of the C2C network for its prepaid service, and to a lesser extent, additional personnel to support the expansion of its carrier support teleservices. The Company intends to continue to significantly increase its engineering, research and development expenditures to support future development and enhancements of its prepaid and other wireless services. Sales and marketing expenses Sales and marketing expenses include direct sales force salaries and commissions, travel and entertainment expenses, and the cost of trade shows, advertising and other promotional expenses. Sales and marketing expenses increased 52.6% from $1.9 million in the year ended December 31, 1995 to $2.9 million in the year ended December 31, 1996, and increased as a percentage of revenues from 5.7% to 5.8% in the years ended December 31, 1995 and 1996, respectively. The increase in sales and marketing expenses was due primarily to additional expenditures to support the more sales intensive prepaid service business and to support concentrated sales and marketing efforts related to carrier support teleservices. The Company expects to increase expenditures on sales and marketing in the future, particularly in connection with its prepaid service, and such expenditures are expected to vary as a percentage of revenues. Management fees Management fees of $1.0 million and $252,000 for the years ended December 31, 1995 and 1996, respectively, represent the costs associated with payroll and certain benefit costs of senior management personnel responsible for the operations of the Company payable under the terms of a Management Agreement with Boston Communications Capital Corporation. The Management Agreement was terminated on March 31, 1996. As a result of the termination, the entire payroll and related costs of these senior management personnel now are being directly incurred by the Company and are recorded as general and administrative expenses. General and administrative expenses General and administrative expenses include salaries and benefits and other expenses that provide administrative support to the Company. General and administrative expenses increased 76.9% from $1.3 million in the year ended December 31, 1995 to $2.3 million in the year ended December 31, 1996. Total general and administrative expenses increased as a percentage of revenues from 3.8% to 4.5% in the years ended December 31, 1995 and 1996, respectively. This increase was primarily attributable to an increased number of employees and related expenses to support the Company's growth and to the costs of senior management personnel that were classified as management fees through March 31, 1996. Depreciation and amortization expense Depreciation and amortization expense includes depreciation of telecommunications systems, furniture and equipment and leasehold improvements. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Goodwill related to the acquisition of VST and WAC is being amortized over eight years. Depreciation and amortization expense increased 136.2% from $889,000 in the year ended December 31, 1995 to $2.1 million in the year ended December 31, 1996. This increase was due primarily to amortization of goodwill from the Company's two acquisitions and depreciation of additional technical equipment and software to support the Company's calling services, carrier support teleservices and prepaid network services. In addition, the expansion of the Company's call centers and VST assembly facility resulted in increased depreciation of furniture and equipment and leasehold improvements. Depreciation and amortization expense are expected to increase in 1997 due to a full year of goodwill amortization from the VST and WAC acquisitions and increased depreciation of telecommunications systems associated with carrier support teleservices and the expansion of the C2C network. Interest income (expense) Interest expense was $151,000 in the year ended December 31, 1995 and interest income was $589,000 in the year ended December 31, 1996. Interest expense in 1995 resulted from interim period borrowings under the Company's Account Purchase Agreement which was terminated in 1996. Interest income was earned in 1996 from investments of the proceeds of the Company's initial public offering (IPO) and was partially offset by interest expense from the Account Purchase Agreement and capital leases. Provision for income taxes The income tax benefit of $1.0 million for the year ended December 31, 1995 was attributable to the Company's reversal of its valuation reserve. The income tax expense of $600,000 for the year ended December 31, 1996 yielded a 50% income tax rate. The income tax rate in 1996 was due primarily to the non-deductibility of goodwill from the VST and WAC acquisitions. The effective income tax rate is expected to continue to be greater than 40% in 1997 due to the continued impact of non-deductible goodwill. Income from continuing operations The Company recognized income from continuing operations of $2.1 million in the year ended December 31, 1995 and $610,000 in the year ended December 31, 1996. The decrease in income from continuing operations reflects the increased depreciation, telecommunication costs and personnel costs associated with the deployment of the C2C network and the expansion of the Company's facilities. This decrease in income from continuing operations in 1996 was partially offset by operating profit earned by VST from system sales. Income (loss) from discontinued operations The loss of $165,000 from discontinued operations in the year ended December 31, 1995 represents the loss from operations of $129,000 associated with the Company's cellular sales and service business and the loss on sale of that business of $36,000. Years Ended December 31, 1995 and 1994 Service revenues Total revenues increased 86.6% from $18.3 million in 1994 to $34.2 million in 1995. Calling services revenues increased 59.0% from $16.0 million in 1994 to $25.4 million in 1995, due primarily to increased revenues generated from existing carrier customers. The increase in revenues generated from existing carrier customers resulted from general growth in the number of cellular subscribers, increased roaming by cellular subscribers and increased frequency in the suspension of inter-carrier roaming agreements between cellular carriers due to increased fraud. Carrier support teleservice revenues increased 276.6% from $2.3 million in 1994 to $8.8 million in 1995. Of this increase, approximately $3.7 million was attributable to the addition of a new carrier customer, approximately $1.5 million was attributable to increased services provided to an existing customer and the balance was primarily attributable to increased services provided to other existing customers. Cost of service revenues Cost of service revenues increased 83.7% from $14.2 million in 1994 to $26.1 million in 1995, but decreased as a percentage of revenues from 77.5% in 1994 to 76.3% in 1995. The decrease in the cost of service revenues as a percentage of revenues was caused by the relative increase as a percentage of total revenues of carrier support teleservices, which generally have a lower cost of services as a percentage of revenues than calling services. This more than offset higher per minute cellular network charges, which are a significant part of calling services costs. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Engineering, research and development expenses Engineering, research and development expenses increased 211.3% from $270,000 in 1994 to $839,000 in 1995, and increased as a percentage of revenues from 1.5% in 1994 to 2.5% in 1995. This increase was due to the Company's hiring of new personnel to support the development of the C2C Network for its prepaid service, expansion of its carrier support teleservices and continued development of new calling services. Sales and marketing expenses Sales and marketing expenses increased 52.5% from $1.3 million in 1994 to $1.9 million in 1995, and decreased as a percentage of revenues from 6.9% in 1994 to 5.7% in 1995. The increase in sales and marketing expenses was due primarily to an additional $315,000 in payroll costs for existing and new sales personnel, an additional $70,000 in trade show expenditures and additional expenditures for other sales and marketing costs to support the more sales intensive carrier support teleservices business and to initiate marketing efforts relating to prepaid services. The decrease in sales and marketing expenses as a percentage of revenues was due to the overall increase in revenues, particularly increased revenues attributable to calling services for the Company's established customers. Management fees Management fees of $1.0 million in 1994 and 1995 represent the costs associated with payroll and certain benefit costs of senior management personnel responsible for the operations of the Company. General and administrative expenses General and administrative expenses increased 70.4% from $775,000 in 1994 to $1.3 million in 1995, due principally to an increased number of employees and related expenses to support the Company's growth. These expenses decreased as a percentage of revenues from 4.2% in 1994 to 3.8% in 1995. This decrease was attributable primarily to the significant growth of revenues, which the Company was able to achieve without a commensurate percentage increase in general and administrative expenses. Depreciation and amortization expense Depreciation and amortization expense increased 124.2% from $396,000 in 1994 to $889,000 in 1995. This increase was due primarily to depreciation of additional equipment and furniture acquired during the period to support the Company's carrier support teleservices business. Interest income (expense) Interest expense increased 135.5% from $64,000 in 1994 to $150,000 in 1995. Borrowings under the Company's Account Purchase Agreement during 1995 ranged from zero to $1.9 million and averaged approximately $1.1 million. Provision (benefit) for income taxes Income tax expense of $52,000 in 1994 and a benefit of $1.0 million in 1995 do not have a normal relationship to pretax income because of the benefit of federal net operating loss carryforwards and a reduction in deferred tax asset valuation reserves. In 1994 and 1995, the benefit from applying federal net operating loss carryforwards to taxable income was $382,000 and $840,000, respectively. As a result of having achieved a second year of profitability and expecting near term profitability, the Company determined that the valuation allowance recorded upon adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," was no longer necessary. Therefore, the Company reversed the valuation allowance in 1995, which resulted in a tax benefit of $1.8 million. At December 31, 1995, there were no additional unrecognized federal net operating loss carryforwards for financial reporting purposes, and the Company had $3.0 million of net operating loss carryforwards for federal income tax purposes that begin to expire in 2003. Income from continuing operations The Company generated income from continuing operations of $289,000 in 1994 and $3.0 million in 1995. This increase reflects higher revenues achieved in 1995 for all of the Company's services, the general decline in expenses as a percentage of revenues and the tax benefit from the reversal of the valuation allowance relating to the Company's net operating loss carryforwards. Income (loss) from discontinued operations Operating income from discontinued operations decreased from $104,000 in 1994 to a loss of $129,000 in 1995. The 1995 loss was due solely to the Company's cellular sales and service business whose operating results decreased from $262,000 of income in 1994 to $129,000 of losses in 1995 due to a significant decline in revenues ($9.5 million in 1994 compared to $1.0 million in 1995) partially offset by a significant reduction in operating expenses ($9.2 million in 1994 compared to $1.1 million in 1995). The loss from the sale of discontinued operations of $36,000 in 1995 was attributable to the sale of the cellular sales and service business in December 1995. The gain on disposal of $1.4 million in 1994 resulted from the Company's sale of its rural cellular telephone system. Selected Quarterly Operating Results The following table sets forth certain unaudited quarterly results of operations of the Company for the eight quarters in the two year period ended December 31, 1996, including such amounts expressed as a percentage of revenues. This quarterly information is unaudited, has been prepared on the same basis as the audited Consolidated Financial Statements and, in the option of the Company's management, reflects all necessary adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The quarterly operating results are not necessarily indicative of future results of operations.
Three months ended March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1995 1995 1995 1995 1996 1996 1996 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues: Calling service revenues $4,606 $6,579 $ 7,387 $ 6,874 $ 7,214 $ 8,327 $ 8,873 $ 7,820 Teleservice revenues 1,312 1,934 2,706 2,822 3,847 3,303 3,272 2,991 Network service revenues -- -- -- -- -- 69 42 201 System revenues -- -- -- -- 92 1,141 1,726 1,733 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 5,918 8,513 10,093 9,696 11,153 12,840 13,913 12,745 Expenses: Cost of service revenues 4,634 6,568 7,612 7,286 8,311 9,465 9,763 9,067 Cost of system revenues -- -- -- -- 37 553 1,076 910 Engineering, research and development 99 168 321 251 419 744 957 1,101 Sales and marketing 398 475 532 529 558 638 680 1,073 Related party management fees 252 252 252 252 252 -- -- -- General and administration 325 333 320 343 482 621 607 618 Depreciation and amortization 175 210 246 258 359 477 557 716 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 5,883 8,006 9,283 8,919 10,418 12,498 13,640 13,485 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 35 507 810 777 735 342 273 (740) Interest income (expense) (16) (35) (46) (53) (6) (75) 341 329 - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 19 472 764 724 729 267 614 (411) Provision (benefit) for income taxes 2 63 100 (1,195) 300 123 283 (106) - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations $ 17 $ 409 $ 664 $ 1,919 $ 429 $ 144 $ 331 $ (305) ==================================================================================================================================
As a Percentage of Total Revenues - ---------------------------------------------------------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1995 1995 1995 1995 1996 1996 1996 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues: Calling service revenues 77.8% 77.3% 73.2% 70.9% 64.7% 64.8% 63.8% 61.4% Teleservice revenues 22.2 22.7 26.8 29.1 34.5 25.7 23.5 23.5 Network service revenues -- -- -- -- -- 0.5 0.3 1.6 System revenues -- -- -- -- 0.8 9.0 12.4 13.5 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Expenses: Cost of service revenues 78.3 77.2 75.4 75.1 74.5 73.7 70.1 71.1 Cost of system revenues -- -- -- -- 0.3 4.3 7.7 7.1 Engineering, research and development 1.7 2.0 3.2 2.6 3.8 5.8 6.9 8.7 Sales and marketing 6.7 5.6 5.3 5.5 5.0 5.0 4.9 8.4 Related party management fees 4.3 2.9 2.5 2.6 2.3 -- -- -- General and administrative 5.4 3.9 3.2 3.5 4.3 4.8 4.4 4.9 Depreciation and amortization 3.0 2.5 2.4 2.7 3.2 3.7 4.0 5.6 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 99.4 94.1 92.0 92.0 93.4 97.3 98.0 105.8 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 0.6 5.9 8.0 8.0 6.6 2.7 2.0 (5.8) Interest income (expense) (0.3) (0.4) (0.5) (0.5) (0.1) (0.6) 2.4 2.6 - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 0.3 5.5 7.5 7.5 6.5 2.1 4.4 (3.2) Provision (benefit) for income taxes -- 0.7 1.0 (12.3) 2.7 1.0 2.0 (0.8) - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 0.3% 4.8% 6.5% 19.8% 3.8% 1.1% 2.4% (2.4)% - ----------------------------------------------------------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company has experienced fluctuations in its quarterly operating results and anticipates that such fluctuations will continue and could intensify. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing of the introduction or acceptance of new services offered by the Company or its competitors, changes in the mix of services provided by the Company, changes in regulations affecting the wireless industry, changes in the Company's operating expenses, personnel changes, and general economic conditions. In particular, the Company's calling service revenues are affected by the frequency and volume of use of the Company's services, which may be influenced by seasonal trends, as well as changes in demand during particular periods due to a higher or lower incidence of temporary suspension of inter-carrier roaming agreements in certain markets. Carrier support teleservice revenues may be influenced by the requirements of one of more of the Company's significant carrier support teleservice customers, including engagement of the Company for implementing or assisting in implementing special projects of limited duration. In this regard, the Company's carrier support teleservice revenues were favorably affected in the second and third quarters of 1995 by the Company's implementation of a special project for one of its major carrier customers. Because a significant portion of the Company's operating expenses are committed in advance, the Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, unexpected revenue shortfalls could cause significant variations in operating results from quarter to quarter and could have a material adverse effect on the Company's results of operations. As a result, the Company believes that period- to-period comparisons of its results of operations are not necessarily meaningful and shouldn't be relied upon as an indication of likely future performance. During 1996, the Company made significant investments in personnel and infrastructure to support the development and deployment of the C2C network. These strategic investments have adversely impacted earnings in the fourth quarter of 1996 and the Company expects that these strategic investments will continue to impact earnings in the short term. Liquidity and Capital Resources Net cash provided by operations was $2.0 million in 1995 and net cash used in operations was $1.4 million in 1996. In the year ended December 31, 1996, accounts receivable increased $3.2 million which was principally due to sales of VST systems and additional revenues generated from the Company's carrier support teleservices and calling services businesses. Inventory increased $1.1 million during the year ended December 31, 1996 due to the acquisition of VST. The Company's investing activities utilized $31.0 million of net cash during the year ended December 31, 1996. The proceeds of the IPO were invested in short-term investments until needed to finance the growth of the business. In addition, approximately $846,000, net of cash acquired, was paid to purchase VST and an 80% interest in WAC. The Company acquired the net assets of VST for Common Stock and cash with an aggregate value of $2.5 million. The 80% interest in WAC was acquired for $952,000 in cash. The Company expended $9.6 million to purchase and finance property and equipment to support the expansion and growth of its business. These purchases consisted of $6.7 million of telecommunications systems and systems in development primarily related to the Company's C2C network. Furniture and equipment and leasehold improvements of $2.9 million were added in 1996 to support the opening of the Company's new call center, to equip newly hired personnel and to support the expansion of the Company's assembly facility at VST. The Company anticipates capital expenditures over the next 12 months for additional equipment to support the Company's teleservices growth as well as the continuing development and deployment of the C2C network for its prepaid service as additional new switches are expected to be deployed throughout various United States markets in 1997. The Company's financing activities generated net cash of $31.6 million in 1996. Through the IPO, the Company raised proceeds of $49.8 million, a portion of which was utilized to repay $11.9 million of redeemable preferred stock and accreted dividends of $4.4 million. The proceeds were also used to finance equipment purchases in 1996 which primarily related to the C2C network, to repay the $2.0 million which was outstanding under the Account Purchase Agreement and to repay $1.5 million outstanding under capital leases. The Company believes that its short-term investments and funds anticipated to be generated from operations will be sufficient to finance the Company's operations for at least the next 18 months. Certain Factors That May Affect Future Results This Annual Report contains forward-looking statements that involve risks and uncertainties including statements regarding increased research and development expenditures, costs of deploying the C2C network and increased expenditures for sales and marketing. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, technological changes in the Company's industry, the ability of the Company to develop and successfully deploy its C2C network, the Company's ability to retain existing customers and attract new customers, increased competition and general economic factors. Historically, a significant portion of the Company's revenues in any particular period have been attributable to a limited number of customers. This concentration of customers can cause the Company's revenues and earnings to fluctuate from quarter to quarter, based on the volume of call traffic generated from these customers or the services being performed for the carrier support teleservice programs. A significant decrease in business from any of the Company's major customers, including a decrease in business due to factors outside of the Company's control, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company historically has provided all of its services to cellular carriers, including roaming services and carrier support services. Although the cellular market has experienced significant growth in recent years, there can be no assurance that such growth will continue at similar rates, or at all, or that cellular carriers will continue to use the Company's services. In addition, the prepaid wireless service and PCS markets are in their initial stages of development, and if these markets do not grow as expected or if the carriers in these markets do not use the Company's services, the Company's business, financial condition and results of operations would be materially and adversely affected. The Company's future success depends, in large part, on the continued use of its existing services, the acceptance of new services in the wireless industry, such as prepaid service, and the Company's ability to develop services that keep pace with changes in the wireless telephone industry. Further, a rapid shift away from the use of cellular in favor of other services, such as PCS, could affect demand for the Company's service offerings and could require the Company to develop modified or alternative service offerings to address the particular needs of the providers of such new services. There can be no assurance that the Company will be successful in developing or marketing its existing or future service offerings in a timely manner, or at all. The Company is currently devoting significant resources toward the development and deployment of its wireless prepaid service, including deployment of its C2C network. There can be no assurance that the Company will successfully complete the development and deployment of the C2C network or its prepaid service in a timely fashion, that the market for the Company's prepaid service will develop, or that the Company's C2C network will operate successfully. Recently, the Company has expanded its operations rapidly, which has created significant demands on the Company's administrative, operational, development and financial personnel and other resources. Additional expansion by the Company may further strain the Company's management, financial and other resources. There can be no assurance that the Company's systems, procedures, controls and existing space will be adequate to support expansion of the Company's operations. If the Company's management is unable to manage growth effectively, the quality of the Company's services, its ability to retain key personnel and its business, financial condition and results of operations could be materially and adversely affected. The market for services to wireless carriers is highly competitive and subject to rapid change. A number of companies currently offer one or more of the services offered by the Company. In addition, wireless carriers are providing or can provide, in-house, the services that the Company offers. In addition, the Company anticipates continued growth and competition in the wireless carrier services industry and consequently, the entrance of new competitors in the future. An increase in competition could result in price reductions and loss of market share. Any resulting reduction in gross margins could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's success and ability to compete is dependent in part upon its proprietary technology. If unauthorized copying or misuse of the Company's technology were to occur to any substantial degree, the Company's business, financial condition and results of operations could be materially adversely affected. In addition, some of the software used to support the Company's roaming services and prepaid services is licensed by the Company from single vendors, which are small corporations. There can be no assurance that these suppliers will continue to license this software to the Company or, if any supplier terminates its agreement with the Company, that the Company will be able to develop or otherwise procure software from another supplier on a timely basis and at commercially acceptable prices. The Company's operations are dependent on its ability to maintain its computer, switching and other telecommunications equipment and systems in effective working order and to protect its systems against damage from fire, natural disaster, power loss, telecommunications failure or similar events. Any damage, failure or delay that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, financial condition and results of operations. Appendix B Consolidated Balance Sheets (In thousands, except share and per share amounts)
December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 923 $ 253 Short-term investments 20,498 -- Accounts receivable, net of allowance for billing adjustments and doubtful accounts of $884 in 1995 and $1,242 in 1996 11,060 6,250 Inventory 1,189 -- Deferred income taxes 1,334 1,800 Prepaid expenses 495 194 - ------------------------------------------------------------------------------------------------------- Total current assets 35,499 8,497 Property and equipment: Telecommunication systems 9,169 4,312 Furniture and equipment 3,359 1,123 Leasehold improvements 903 225 Systems in development 2,658 734 - ------------------------------------------------------------------------------------------------------- 16,089 6,394 Less allowances for depreciation and amortization 3,183 1,510 - ------------------------------------------------------------------------------------------------------- 12,906 4,884 Goodwill, net 3,159 -- Other assets 395 232 - ------------------------------------------------------------------------------------------------------- Total assets $51,959 $13,613 - ------------------------------------------------------------------------------------------------------- Liabilities, Redeemable Preferred Stock and Shareholders' Equity Current liabilities: Accounts payable $ 1,371 $ 1,277 Accrued expenses 7,158 4,428 Income taxes payable 490 710 - ------------------------------------------------------------------------------------------------------- Total current liabilities 9,019 6,415 Minority interest 47 -- Redeemable Preferred Stock, non-voting, par value $100 per share, 13,000 shares authorized, 11,871 shares issued and outstanding in 1995 -- 15,896 Commitments and contingencies Shareholders' equity: Convertible Preferred Stock, $1.00 par value per share, 1,325 shares authorized, 850 shares issued and outstanding in 1995 -- 1 Preferred Stock, no par value, 2,000,000 shares authorized, 0 shares issued and outstanding in 1996 -- -- Common Stock, voting, par value $.01 per share, 35,000,000 shares authorized, 3,335,985 shares in 1995 and 12,725,749 shares in 1996 issued and outstanding 127 33 Additional paid-in capital 52,738 1,016 Treasury Stock (46,420 shares in 1996, at cost) (372) -- Accretion of dividends on Redeemable Preferred Stock -- (4,025) Accumulated deficit (9,600) (5,723) - ------------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) 42,893 (8,698) - ------------------------------------------------------------------------------------------------------- Total liabilities, redeemable preferred stock and shareholders' equity $51,959 $13,613 - -------------------------------------------------------------------------------------------------------
See accompanying notes. Consolidated Statements of Operations (In thousands, except share and per share amounts)
Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Revenues: Calling service revenues $32,234 $25,446 $16,004 Teleservice revenues 13,413 8,774 2,330 Network service revenues 312 -- -- System revenues 4,692 -- -- - ------------------------------------------------------------------------------------------------------------------------- 50,651 34,220 18,334 Expenses: Cost of service revenues 36,606 26,100 14,212 Cost of system revenues 2,576 -- -- Engineering, research and development 3,221 839 270 Sales and marketing 2,949 1,934 1,268 Related party management fees (see Note 9) 252 1,008 1,008 General and administrative 2,328 1,321 775 Depreciation and amortization 2,109 889 396 - ------------------------------------------------------------------------------------------------------------------------- 50,041 32,091 17,929 - ------------------------------------------------------------------------------------------------------------------------- Operating income 610 2,129 405 Interest income (expense) 589 (151) (64) - ------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 1,199 1,978 341 Provision (benefit) for income taxes 600 (1,030) 53 - ------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 599 3,008 288 Discontinued operations: Income (loss) from operations -- (129) 104 Gain (loss) on disposal -- (36) 1,403 - ------------------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations -- (165) 1,507 - ------------------------------------------------------------------------------------------------------------------------- Net income 599 2,843 1,795 Accretion of dividends on redeemable preferred stock (451) (950) (1,016) - ------------------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 148 $ 1,893 $ 779 - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) available to common shareholders per common share: Continuing operations $ 0.01 $ 0.22 $ (0.08) - ------------------------------------------------------------------------------------------------------------------------- Net income $ 0.01 $ 0.21 $ 0.09 - ------------------------------------------------------------------------------------------------------------------------- Shares used in computing net income per common share 11,259 9,179 8,848 - ------------------------------------------------------------------------------------------------------------------------- Supplemental net income available to common shareholders per common share $ 0.05 $ -- $ -- - ------------------------------------------------------------------------------------------------------------------------- Shares used in computing supplemental net income per common share 12,427 -- -- - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes. Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity (In thousands, except share amounts)
Shareholders' Equity -------------------------------------------------------------------------------------- Accretion of Divi- dends on Total Redeemable Convertible Addi- Redeem- Share- Preferred Stock Treasury Stock Preferred Stock Common Stock tional able Pre- Accu- holders' -------------------------------------------------------------------- Paid In ferred mulated Equity Shares Dollars Shares Dollars Shares Dollars Shares Dollars Capital Stock Deficit (Deficit) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1994 12,871 $ 14,930 -- $ -- 850 $ 1 2,630,432 $ 26 $ 1,023 $(2,059) $(10,361) $(11,370) Issuance of Common Stock -- -- -- -- -- -- 705,553 7 (7) -- -- -- Repurchase of Redeemable Preferred Stock (1,000) (1,000) -- -- -- -- -- -- -- -- -- -- Accretion of dividends on Redeemable Preferred Stock -- 1,016 -- -- -- -- -- -- -- (1,016) -- (1,016) Net income -- -- -- -- -- -- -- -- -- -- 1,795 1,795 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 11,871 14,946 -- -- 850 1 3,335,985 33 1,016 (3,075) (8,566) (10,591) Accretion of dividends on Redeemable Preferred Stock -- 950 -- -- -- -- -- -- -- (950) -- (950) Net income -- -- -- -- -- -- -- -- -- -- 2,843 2,843 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 11,871 15,896 -- -- 850 1 3,335,985 33 1,016 (4,025) (5,723) (8,698) Conversion of Convertible Preferred Stock -- -- -- -- (850) (1) 5,004,608 50 (49) -- -- -- Accretion of dividends on Redeemable Preferred Stock -- 451 -- -- -- -- -- -- -- (451) -- (451) Redemption of Redeemable Preferred Stock and Accreted Dividends (11,871) (16,347) -- -- -- -- -- -- -- 4,476 (4,476) -- Issuance of Common Stock -- -- -- -- -- -- 4,183,928 42 51,745 -- -- 51,787 Exercise of Common Stock options -- -- -- -- -- -- 201,228 2 26 -- -- 28 Treasury Stock Purchase -- -- 46,420 (372) -- -- -- -- -- -- -- (372) Net income -- -- -- -- -- -- -- -- -- -- 599 599 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 -- $ -- 46,420 $(372) -- $-- 12,725,749 $127 $52,738 $ -- $(9,600) $ 42,893 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes. Consolidated Statements of Cash Flows (In thousands)
Year Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- Operating activities Income from continuing operations $ 599 $ 3,008 $ 288 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,109 888 396 Deferred income taxes 466 (1,800) -- Changes in operating assets and liabilities, excluding effects of discontinued operations and business acquisitions: Accounts receivable (3,208) (2,655) (1,242) Inventory (1,128) -- -- Prepaid expenses and other assets (547) (51) (140) Accounts payable and accrued expenses 524 1,225 1,152 Income taxes payable (297) 679 31 - --------------------------------------------------------------------------------------------------------------- (1,482) 1,294 485 Income (loss) from discontinued operations -- (166) 1,506 Adjustments to reconcile income (loss) from discontinued operations: (Gain) loss on disposal of discontinued operations -- 37 (1,402) Cash flow related to results of operations until disposal date -- 803 (148) - --------------------------------------------------------------------------------------------------------------- -- 674 (44) - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operations (1,482) 1,968 441 Investing activities Acquisition of businesses, net of cash acquired (846) -- -- Purchases of short-term investments (26,937) -- -- Sales of short-term investments 6,439 -- -- Purchase of property and equipment (8,093) (2,993) (2,215) Net proceeds from sale of lines of business -- 1,074 7,545 - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (29,437) (1,919) 5,330 Financing activities Proceeds from exercise of stock options 28 -- -- Proceeds from issuance of stock 49,787 -- -- Repurchase of redeemable preferred stock (16,347) -- (1,000) Purchase of treasury stock (372) -- -- Repayment of long-term debt and capital leases (1,507) -- (5,248) - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 31,589 -- (6,248) - --------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 670 49 (477) - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 253 204 681 - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 923 $ 253 $ 204 - ---------------------------------------------------------------------------------------------------------------
See accompanying notes. Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION The Company Boston Communications Group, Inc. (the Company) develops, markets and provides specialized calling services, carrier support teleservices and prepaid network services to the wireless telephone industry. The Company also manufactures prepaid and voice system equipment. 2. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company earns revenues by providing carrier support teleservices, processing prepaid cellular calls and processing cellular calls for individuals who have roamed outside of their service area. Revenue is recognized when the service is provided and is recorded net of estimated chargebacks and other billing adjustments. The Company recognizes revenue from the sale of systems at the time the systems are shipped. Principles of Consolidation The financial statements include 100% of the accounts and operations of the Company and all of its majority-owned subsidiaries. Minority interest represents the minority owner's proportionate share of the equity in the 80%-owned subsidiary. All intercompany accounts and transactions have been eliminated. Investments The Company accounts for its marketable securities under the Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Instruments in Debt and Equity Securities." The Company has classified all of its securities as available-for-sale, and are thus reported at fair market value. Interest on all securities is reported as interest income. Investments with maturities between three and twelve months are considered short-term investments. The Company's short-term investments consist of debt securities such as corporate notes and marketable direct obligations of the United States Treasury. The following is a summary of available-for-sale securities as of December 31, 1996 (in thousands): - ----------------------------------------- Corporate notes $ 3,965 U.S. Treasury bills 16,533 - ----------------------------------------- Total short-term investments $20,498 =========================================
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of Credit Risk The Company's roaming customers are individuals who place cellular calls from service areas which are not covered by traditional roaming agreements. These calls are forwarded by cellular carriers to the Company for processing. Each transaction is small in size and the Company minimizes credit risk by validating appropriate billing information. Carrier support teleservices are provided to cellular carriers located throughout the country. Prepaid network services include the Company's prepaid wireless service which provides carriers, throughout the United States, with an alternative billing facility for their cellular customers. Accounts are not activated until payment is received by the carrier. The Company sells its voice systems in North America and its prepaid systems in Latin America and Europe. The Company has roaming, carrier support and network service agreements with, and sells its systems to numerous carriers, 10 of which accounted for 81.2%, 84.6% and 82.4% of the Company's total revenues for the years ended December 31, 1994, 1995 and 1996, respectively. The following table summarizes sales in excess of 10% of total revenues, as a percentage of total revenues, to major customers:
Year Ended December 31, 1996 1995 1994 - -------------------------------------------------- Ameritech Cellular 14.8% 15.0% 16.0% Bell Atlantic NYNEX Mobile 12.3 13.9 11.7 SNET Mobility -- 11.9 -- AT&T Wireless -- -- 15.6 Bell South Mobility 11.4 -- --
Inventory Inventory, which consists of computer hardware and electronic components, is recorded at the lower of cost (first-in, first-out method) or market. Inventory is categorized as follows at December 31, 1996 (in thousands): - -------------------------- Raw materials $ 984 Work in process 129 Finished goods 76 - -------------------------- $1,189 ==========================
Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 7 years. Systems in development represent the cost of purchased hardware and software to be used in switching equipment not yet placed into service and will be depreciated over 5 years. In accordance with Financial Accounting Standards Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of," the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that the carrying amount of an asset cannot be fully recovered, an impairment loss is recognized. Goodwill Goodwill represents the excess of cost of acquired businesses over the fair market value of all net assets acquired. Goodwill is being amortized on a straight-line basis over an eight year period. Accumulated amortization totaled $296,000 as of December 31, 1996. Engineering, Research and Development Costs associated with engineering, research and development are expensed as incurred. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," as this alternative requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, since the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required. Net Income (Loss) Per Share Net income (loss) per share is computed using the weighted average number of common and dilutive common shares outstanding during each period. Common and common equivalent shares issued during the twelve month period prior to the initial filing date of the public offering have been included in the calculation as if they were outstanding for all periods presented using the treasury stock method. Supplemental Net Income Per Share Supplemental net income per share is based on the weighted average number of shares used in the calculation of net income per share increased by the number of shares which at the initial public offering price of $14.00 were required to complete the redemption of the Redeemable Preferred shares. Net income available to common shareholders is increased by the dividends accreted in 1996 on the Redeemable Preferred Stock. Notes to Consolidated Financial Statements (continued) 3. DISCONTINUED OPERATIONS On March 31, 1995, the Company sold the net assets of its cellular sales and service subsidiary for $573,000. On October 24, 1994, the Company sold the net assets of its rural cellular phone system subsidiary for $8,000,000, including a note receivable for $500,000 which was paid in 1995. In connection with this sale, the Company repaid $5,000,000 of promissory notes and vendor obligations. On March 15, 1994, the Company sold the net assets of its air-to-ground system subsidiary for $150,000. Interest expense of $492,000 in 1994 has been allocated to the discontinued operations of the rural cellular phone system subsidiary as the borrowings were specifically associated with that business. Income taxes associated with the discontinued operations are not material. The revenues of the discontinued operations are summarized below:
1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Cellular sales and service $ 1,001 $ 9,455 Rural cellular phone system -- 717 - ----------------------------------------------------------------------------------------------------------------------------------- $ 1,001 $10,172 ===================================================================================================================================
The operating income (loss) of the discontinued operations is summarized below:
1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Cellular sales and service $ (129) $ 262 Rural cellular phone system -- (158) - ----------------------------------------------------------------------------------------------------------------------------------- $ (129) $ 104 ===================================================================================================================================
The gain (loss) on the disposal of the discontinuations is summarized below:
1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Cellular sales and service $ (36) -- Rural cellular phone system -- $ 1,403 - ----------------------------------------------------------------------------------------------------------------------------------- $ (36) $ 1,403 ===================================================================================================================================
Income taxes associated with the gain (loss) on the disposal of the discontinued operations are not material. 4. ACQUISITIONS In February 1996, the Company acquired the net assets of Voice Systems Technology Inc. (VST), a company which develops and markets prepaid and voice processing systems, for approximately $2.5 million ($500,000 cash and 265,373 shares of common stock). VST had revenues and net income for the 11 months ended February 29, 1996 of $2.1 million and $9,000, respectively. The acquisition has been accounted for under the purchase method of accounting and the results of operations have been included in the Company's results of operations from the date of acquisition. The allocation of the purchase price is based on the fair market value of assets and liabilities acquired and the excess over those amounts is accounted for as goodwill. The allocation of the purchase price is as follows (in thousands): - ----------------------------------------------- Property and equipment $ 106 Accounts receivable, net 51 Other current assets 68 Accounts payable and accrued expenses (312) Other current liabilities (59) Goodwill 2,683 - ----------------------------------------------- $2,537 ===============================================
On January 31, 1996, the Company acquired 17.5% of the stock in Wireless Americas Corporation (WAC) for $35,000. WAC markets and sells prepaid equipment in Latin America. On October 23, 1996, the Company acquired an additional 62.5% of the stock of WAC for $916,500. The purchase has been reflected in the Company's consolidated balance sheet. Results of WAC's operations from the date of acquisition through December 31, 1996 have been included in the Company's consolidated results. The following unaudited pro forma information has been prepared assuming that these acquisitions had taken place at the beginning of the respective period. The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchase, amortization of goodwill resulting from the purchase, elimination of the effect of transactions between the Company and WAC and income taxes. There is no impact to 1995 from the WAC transaction as WAC operations began in 1996. The unaudited pro forma financial information is not necessarily indicative of the results of operations as if the transactions had been effected on the assumed dates (in thousands, except per share data):
December 31, 1996 1995 - -------------------------------------------------------------------------------- (unaudited) Net revenues $51,873 $ 36,288 - ------------------------------------------------------------------------------- Net income available to common stockholders $ 1 $ 1,558 - ------------------------------------------------------------------------------- Net income per common share $ 0.00 $ 0.17 ===============================================================================
5. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
December 31, 1996 1995 - ----------------------------------------------------------------------------------- Billing adjustments and chargebacks $ 1,240 $ 1,136 Cellular airtime 2,447 1,077 Payroll 931 391 Deferred revenue 264 325 Telecommunication costs 442 305 Billing services 296 282 Other 1,538 912 - ----------------------------------------------------------------------------------- $ 7,158 $ 4,428 ===================================================================================
6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31, 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 356 $ 1,189 Book over tax amortization and depreciation expense 279 390 Allowance for doubtful accounts, billing adjustments and chargebacks 801 775 Minimum tax credit carryforwards 128 49 Accrued vacation and warranty 154 -- Other 142 -- - ---------------------------------------------------------------------------------------------------------------- 1,860 2,403 Valuation allowance for deferred tax assets -- (162) - ---------------------------------------------------------------------------------------------------------------- Total deferred tax assets 1,860 2,241 Deferred tax liabilities: Tax over book amortization (366) (281) Amortization of legal costs (160) (160) - ---------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities (526) (441) - ---------------------------------------------------------------------------------------------------------------- Net deferred tax assets $ 1,334 $ 1,800 ================================================================================================================
The provision (benefit) for income taxes consists of the following (in thousands):
Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Current: Federal $ 51 $ 110 $18 State 83 660 35 - ------------------------------------------------------------------------------------------------------------------------ 134 770 53 Deferred: Federal 423 (1,530) State 43 (270) - ------------------------------------------------------------------------------------------------------------------------ 466 (1,800) - ------------------------------------------------------------------------------------------------------------------------ Income tax provision (benefit) $600 $(1,030) $53 ========================================================================================================================
Notes to Consolidated Financial Statements (continued) At January 1, 1995, primarily as a result of the net operating losses, the Company was in a net deferred tax asset position. The full amount of the deferred tax asset was offset by a valuation allowance due to uncertainties associated with the realization of the deferred tax benefit. Based on the Company's ability to generate taxable income and its projections for 1997 and 1998, the Company has reduced the remaining valuation allowance to state the net deferred tax asset at its net realizable value. The Company utilized $1.2 million in 1994, $2.6 million in 1995 and $2.0 million in 1996 of federal net operating loss carryforwards to offset taxable income. The valuation allowance decreased $3.1 million during 1995 due primarily to the utilization of net operating loss carryforwards and to the reversal of a significant portion of the valuation allowance. The valuation allowance decreased by $286,000 and $162,000 in 1994 and 1996, respectively. At December 31, 1996, the Company has approximately $1.0 million of net operating loss carryforwards for federal income tax return purposes available for use in future years that expire beginning in 2003. A reconciliation of the statutory rate to the effective rate is as follows:
Year Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------- Federal provision at statutory rate 34% 34% 34% State income provision, net of federal benefit 6 6 6 Permanent differences 12 1 2 Change in valuation allowance -- (65) -- Benefit of net operating loss (2) (28) (27) - ---------------------------------------------------------------------------------- 50% (52)% 15% ==================================================================================
Income taxes paid were $36,000 in 1994, $68,000 in 1995, and $352,000 in 1996. 7. Capital Stock Common Stock On April 26, 1996, the Company authorized 35,000,000 shares of a new class of common stock and effected a recapitalization of the Company (the "1996 Recapitalization"). All outstanding shares of the Company's class A, B, C and D common stock were exchanged for an aggregate of 3,335,985 shares of Common Stock. In addition, the terms and conditions of the Company's three classes of convertible preferred stock were modified, without changing the total number of shares of Common Stock into which the preferred stock can be converted. The convertible preferred shares were converted to 5,004,608 shares of Common Stock upon the closing of the initial public offering. Initial Public Offering In 1996, the Company sold in its initial public offering (IPO) 3,918,555 shares of its common stock yielding net proceeds of $49.8 million. The proceeds were used to redeem preferred stock and to repay an existing line of credit and capital leases. Upon the closing of the IPO, the Company redeemed all 11,871 outstanding shares of redeemable preferred stock at a redemption price of $1,000 per share. In addition, the Company paid approximately $4.5 million in accreted dividends on the redeemable preferred stock. Preferred Stock The Board of Directors are authorized, subject to certain limitations prescribed by law, without further shareholder approval, to issue from time to time up to an aggregate of 2,000,000 shares of Preferred Stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change of control of the Company. The Company has no present plans to issue any shares of Preferred Stock. Stock Option Plan The Company's 1996 Stock Option Plan (the 1996 Plan) was adopted by the Board of Directors and approved by the holders of the Company in 1996. The 1996 Plan provides for the grant of stock options to employees, officers and directors, consultants and advisors to, the Company and its subsidiaries. Under the 1996 Plan, the Company may grant options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock options"), or options not intended to qualify as incentive Stock options ("non-statutory options"). Incentive stock options may only be granted to employees of the Company. A total of 1,264,792 shares of Common Stock may be issued upon the exercise of options granted under the 1996 Plan. The maximum number of shares with respect to which options may be granted to any employee under the 1996 Plan shall not exceed 200,000 shares of Common Stock during any calendar year. The 1996 Plan replaces the 1994 Stock Option Plan which granted 355,738 options and was terminated in 1996. All options granted have 10 year terms and generally vest and become exercisable over four or five years. In 1996, the Company granted non-qualified options to purchase 653,278 and 93,551 at exercise prices of $5.75 and $10.00, respectively, which were deemed fair market value as determined by the Company. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1995 and 1996, respectively: risk-free interest rates of 7.1% and 5.9%, respectively, no dividend yield, the volatility factor of the expected market price of the Company's common stock was 0.5 and a weighted-average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except for per share information):
December 31, 1996 1995 - ------------------------------------------------------------------------------------ Pro forma net income (loss) $(1,086) $1,893 - ------------------------------------------------------------------------------------ Pro forma net income (loss) per share $ (0.10) $ 0.21 - ------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued) Stock option information is as follows:
1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price - -------------------------------------------------------------------------------------------------------------------------------- Outstanding--beginning of year 355,758 $ 0.14 324,629 $0.14 -- -- Granted 1,548,329 9.76 31,129 0.14 324,629 $0.14 Exercised (201,228) 0.14 -- -- -- -- Cancelled (36,500) 13.61 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Outstanding--end of year 1,666,359 -- 355,758 0.14 324,629 0.14 ================================================================================================================================
The following table summarizes the stock options outstanding and exercisable as of December 31, 1996:
- ----------------------------------------------------------------------- Options Options Exercise Exercisable Outstanding Price - ----------------------------------------------------------------------- 14,454 154,530 $ 0.14 653,278 653,278 5.75 2,500 108,500 8.25 -- 93,551 10.00 -- 15,000 12.25 12,933 641,500 14.00 - ----------------------------------------------------------------------- 683,165 1,666,359 =======================================================================
There were 181,219 options exercisable at December 31, 1995 at a weighted- average exercise price of $0.14. The weighted-average fair value of options granted during 1995 and 1996 was $0.07 and $4.69, respectively. The weighted- average contractual life of options outstanding at December 31, 1995 and 1996 was 9.0 years and 9.2 years, respectively. Employee Stock Purchase Plan The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and approved by the shareholders of the Company in April 1996. The Purchase Plan authorizes the issuance of up to a total of 225,000 shares of Common Stock to participating employees. Certain employees of the Company who have been employed by the Company for a minimum of twelve months, including directors of the Company who are employees, are eligible to participate in the Purchase Plan. On the first day of a designated payroll deduction period (the "Offering Period"), the Company will grant to each eligible employee who has elected to participate in the Purchase Plan an option to purchase shares of Common Stock as follows: the employee may authorize an amount (up to a maximum of 10% of such employee's regular pay) to be deducted by the Company from such pay during the Offering Period. On the last day of the Offering Period, the employee is deemed to have exercised the option, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the Purchase Plan, the option price is an amount equal to 90% of the fair market value per share of the Common Stock on either the first day or the last day of the Offering Period, whichever is lower. In no event may an employee purchase in any one Offering Period a number of shares which has an aggregate market value (determined on the last day of the Offering Period) in excess of $25,000. The Compensation Committee may, in its discretion, choose an Offering Period of 12 months or less for each of the Offerings and choose a different Offering Period for each Offering. 8. COMMITMENTS The Company has noncancelable operating lease commitments for office space. Rent expense approximated $399,000 in 1994, $443,000 in 1995 and $881,000 in 1996. Future minimum rental commitments, which include office space leased as of December 1996, are as follows (in thousands): - --------------------------------------- Year ending December 31, 1997 $ 875 1998 844 1999 765 2000 496 2001 83 - --------------------------------------- $3,063 =======================================
The Company entered into capital leases of $1.5 million in 1996 which were fully repaid in 1996. 9. RELATED-PARTY TRANSACTIONS Pursuant to a management agreement, the Company paid annual fees in the amount of $1,008,000 in 1994 and 1995 and $252,000 in 1996 to a management company affiliated with certain shareholders of the Company. These amounts represent the payroll and certain benefit costs of six senior management personnel responsible for the operations of the Company. The management agreement was terminated in March, 1996 and the employees of the management company became employees of the Company. The management fees previously incurred by the Company under the management agreement closely approximate the actual payroll and related benefits currently being directly incurred by the Company, and the Company believes that these amounts are reasonable and comparable to those that would have been incurred with an unrelated third party. Additionally, the Company leased office space from another company affiliated with certain shareholders of the Company under a leasing arrangement which was terminated in August 1996. The Company recorded rent expense of $28,000 in 1994, $68,000 in 1995 and $40,000 in 1996 in connection with this lease. Another company, affiliated with certain shareholders of the Company, received $462,000 in connection with the repurchase of redeemable preferred stock of the affiliated company's investment and its accreted dividends. Report of Ernst & Young LLP, Independent Auditors Board of Directors and Shareholders Boston Communications Group, Inc. We have audited the accompanying consolidated balance sheets of Boston Communications Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, redeemable preferred stock and shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also include the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Communications Group, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Boston, Massachusetts February 11, 1997 SCHEDULE II BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - ------------------------------------- ------------ ------------------------- --------------- ------------- ADDITIONS ------------------------ CHARGED TO ---------- BALANCE AT CHARGED TO OTHER ------------ ---------- ----- BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT ------------ ---------- ---------- ---------- ------------ DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD - ----------- ------------ ---------- -------- ------------ ------------- Year ended December 31, 1996: Reserves and allowances deducted from asset accounts: Allowance for billing adjustments and uncollectible accounts $883,692 $30,000 $895,961(1) $567,356(2) $1,242,297 Year ended December 31, 1995: Reserves and allowances deducted from asset accounts: Allowance for billing adjustments and uncollectible accounts 545,637 -- 642,421(1) 304,366(2) 883,692 Year ended December 31, 1994: Reserves and allowances deducted from asset accounts: Allowance for billing adjustments and uncollectible accounts 343,602 -- 449,508(1) 247,473(2) 545,637
(1) Billing adjustments recorded as a reduction of revenue. (2) Settlement of billing adjustments. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ------ ----------- ---- *3.1 Restated Articles of Organization of the Company, as amended. *3.3 Amended and Restated By-Laws of the Company. *10.1 1994 Stock Option Plan. *10.2 1996 Stock Option Plan. *10.3 1996 Employee Stock Purchase Plan. 10.3.1 Amendment Number 1, dated August 30, 1996, to 1996 Employee Stock Purchase Plan *10.4 Employment Letter Agreement dated February 6, 1996 between the Company and George K. Hertz. *10.5 Billing and Related Services Agreement dated April 19, 1995 between the Company and OAN Services, Inc. ("OAN"). *10.7 Software license Agreement dated March 30, 1995 between the Company and Innovative Telecom Corporation ("ITC"). *10.8 Service Bureau Agreement dated April 7, 1995 between the Company and ITC. *10.9 BCG-ITC Strategic Partnership Agreement Addendum Dated March 31, 1996 between the Company and ITC. *10.10 License Agreement dated April 23, 1996 between the Company and MicroDimensions, Inc. *10.11 Gateway Service Agreement dated June 5, 1995 between the Company and SNET Diversified Group, Inc.
10.12 Frontier Service Agreement dated June 6, 1996 between the Company and Frontier Communications of the West, Inc. *10.15 Commercial Lease dated January 24, 1996 between the Company and Cummings Properties Management, Inc. 10.15.1 Commercial Lease dated February 26, 1996 between the Company and Cummings Property Management, Inc. (Amendment No. 1). 10.15.2 Amendment No. 2, dated August 8, 1996, to the commercial lease between the Company and Cummings Property Management, Inc. 10.15.3 Amendment No. 3, dated February 5, 1997, to the commercial lease between the Company and Cummings Property Management, Inc. *10.16 Lease dated November 30, 1994, as amended, between the Company and Teachers Realty Corporation. *10.17 Commercial/Industrial Lease dated September 27, 1995 between the Voice Systems Technology Inc. ("VST") and Schleuter Properties. *10.18 Lease dated November 30, 1995, as amended, between VST and Society Hill Office Park LTD. *10.21 Distribution Agreement dated January 31, 1996 between the Company and Wireless Americas Corp. ("WAC") *10.22 Agreement dated April 22, 1996 between the Company and MDTelecom, Inc. ("MDT"). 10.23 Memorandum of Understanding dated January 1, 1997 between the Company and Milcon Communications (Hong Kong) Ltd. *10.24 Subscription and Sale Agreement dated April 23, 1996 between the Company and MDT. *10.25 Source Code Release Agreement dated April 23, 1996 between the Company and MDT. *10.26 End-User Purchase and License Agreement between the Company and Teloquent Communications Corporation. 10.27 Software License and Services Agreement dated October 30, 1996 between the Company and Oracle Corporation. 10.28 Software License and Services Agreement dated September 24, 1996 between the Company and Oracle Corporation. **10.29 Amended and Restated Option Agreement, dated October 23, 1996, among the Company, WAC and Robert B. Sproul.
11 Statement re: Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP, Independent Auditors. 27 Financial Data Schedule.
- ---------- *Incorporated by reference to the Company's Registration Statement on Form S-1 filed June 17, 1996 (File No. 333-4128) **Incorporated by reference to the Company's Current Report on Form 8-K filed November 7, 1996. EX-10.3.1 2 AMEND. #1 TO 1996 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.3.1 BOSTON COMMUNICATIONS GROUP, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN AMENDMENT NO. 1 AUGUST 30, 1996 This Amendment is made to the 1996 Employee Stock Purchase Plan (the "Plan"), which was approved by the Board of Directors of Boston Communications Group, Inc. (the "Company") on April 25, 1996, and by its stockholders on April 26, 1996. Section 2(b) of the Plan is amended to read as follows: "(b) they have been employed by the Company or a Designated Subsidiary for at least 12 months prior to enrolling in the Plan; and" Except as herein provided, all other terms and conditions of the Plan remain unchanged and in full force and effect. This Amendment No. 1 to the Plan was adopted by the Board of Directors of the Company on the 29th day of August, 1996. ATTEST: /s/ Alan J. Bouffard ___________________________ Alan J. Bouffard, Clerk EX-10.12 3 FRONTIER SERVICE AGREEMENT EXHIBIT 10.12 TABLE OF CONTENTS SECTION - ------- 1. SERVICES; PURCHASER REPRESENTATION 2. TERM OF THE AGREEMENT 3. BILLING AND PAYMENT 4. BILLING DISPUTES 5. TERMINATION OF ACTION 6. LIMITATION OF ACTION 7. TAXES AND ASSESSMENTS 8. AMENDMENT 9. WARRANTIES AND LIMITATION OF LIABILITY 10. INDEMNIFICATION 11. REPRESENTATION 12. FORCE MAJEURE 13. WAIVERS 14. ASSIGNMENT 15. CONFIDENTIALITY 16. INTEGRATION 17. CONSTRUCTION 18. GOVERNING LAW 19. NOTICES 20. COUNTERPARTS 21. COMPLIANCE WITH LAWS 22. THIRD PARTIES 23. SURVIVAL OF PROVISIONS 24. UNENFORCEABLE PROVISIONS EXHIBITS - -------- A. ANCILLARY FEE SCHEDULE "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." SERVICE AGREEMENT TERMS AND CONDITIONS This Service Agreement ("Agreement") is entered into between the provider of service, Frontier Communications of the West, Inc. on behalf of itself and its affiliates ("Frontier"), a California corporation located at 135 East Ortega Street, Santa Barbara, CA 93101 and Boston Communications Group, Inc. ("Purchaser"), a Massachusetts corporation with its principal place of business located at One McKinley Square, 3rd Floor, Boston, MA 02109 (hereinafter, Frontier and Purchaser may be referred to in the aggregate as "Parties", and each singularly as a "Party".) PURPOSE Purchaser desires to purchase network transport and other telecommunication services from Frontier for Purchaser's use and resale to business customers. The Parties agree as follow: 1. SERVICES; PURCHASER REPRESENTATIONS: ------------------------------------ (a) Frontier shall, in accordance with the rates, terms and conditions set forth herein, provide services to Purchaser, as those services are defined herein or identified on exhibits, schedules or other attachments appended hereto and made a part of this Agreement from time-to-time in accordance with the terms hereof (collectively, "Services"). (b) Purchaser agrees to provide Frontier with at least 30 days prior written notice of Service requirements that may exceed anticipated or normal course of Service requirements utilized by Purchaser. Provision of Services is contingent on availability of facilities and resources of Frontier. (c) Purchaser shall provide Frontier with a forecast covering a good faith estimate based on historical information (if available) of the monthly traffic volume and geographic distribution for the ordered Services. The estimate will be for the 3 calendar month period following the desired activation date. The forecast is to be in the format supplied or approved by Frontier. Frontier reserves the right to request updated forecasts. Forecasts do not constitute a binding commitment on the part of Purchaser. (d) Orders for Services will be transmitted and processed in accordance with reasonable procedures provided to Purchaser from time to time by Frontier. (f) Purchaser is solely responsible for all billing, collection and customer service activities for its customers. Purchaser acknowledges and affirms that Purchaser's financial obligations to Frontier regarding Services provided by Frontier to Purchaser under this Agreement must be satisfied in full, as hereinafter provided, whether or not Purchaser has billed or collected from its customers. 2 (g) Purchaser represents and warrants that prior to obtaining the Services in any jurisdiction it will be qualified to do business in such jurisdiction and will maintain good standing in such jurisdiction during the term of this Agreement. Purchaser further represents and warrants that prior to obtaining the Services in any jurisdiction it will be certified by the proper regulatory agencies to provide the Services purchased hereunder to End-Users in such jurisdiction. 2. TERM OF THE AGREEMENT: --------------------- (a) INITIAL TERM: This Agreement is effective and the Parties' obligations commence on May 1, 1996 ("Effective Date") and continues in effect for a period of 1 year ("Initial Term") from the date of execution by Frontier. (b) AUTOMATIC RENEWAL: This Agreement renews automatically for consecutive 90 day periods at the expiration of the Initial Term, unless canceled in accordance with the terms hereof. (c) CANCELLATION: If either Party desires to terminate this Agreement upon expiration of the Initial Term or any 90 day extension, such Party shall give the other Party written notice of its intent to cancel at least 90 days prior to expiration of the then current term. 3. BILLING AND PAYMENT: Purchaser shall pay Frontier for the Services at the ------------------- rates and charges set out in the attached Service schedules and such other exhibits or attachments as may be attached hereto and made a part hereof from time to time. If Purchaser is required to pay a set-up fee, pre-payment or other assurance of payment is received. (a) The initial pre-payment shall be $25,000. Thereafter, Purchaser shall pay, as a deposit, an additional amount equal to 5% of the amount invoiced in the previous month until such time as the total deposit is equal to 150% of the amount invoiced or until August 31, 1996 when Purchaser shall provide a lump sum payment to bring the total deposit to an amount equal to the 150%. With Frontier's consent, Purchaser may submit some other from of security or assurance of payment satisfactory to Frontier in lieu of a cash payment for the initial pre-payment. (b) Frontier invoices Purchaser on or about the eighth Business Day after the close of each Billing Cycle for the Services and for any other sums due Frontier ("Invoice"). Each Invoice details: (1) the amount due Frontier, or the credit due Purchaser, after a reconciliation between the actual charges for the Services for the prior Billing Cycle and any pre-payment for the prior Billing Cycle, and (ii) any other sums due Frontier. In addition to the amounts for the under (i) and (ii) above, the Invoice will provide for a pre- payment equal to 150% of the actual charges for the Services for the prior Billing Cycle (exclusive of any non-recurring charges). If Purchaser has submitted a letter of credit that has an expiration date greater than 3 45 days after the Invoice date, or a cash deposit or other assurance of payment, the prepayment will be reduced by the amount of the security (but to not less than zero). (c) Each Invoice shall be paid by Purchaser via wire transfer of immediately available U.S. funds to an account designated by Frontier so that the payment is received by Frontier no later than 30 calendar days from the date of such Invoice (the "Due Date"). Any Invoice not paid by the Due Date shall bear late payment fees at the rate of 1-1/2% per month (or such lower amount as maybe required by law) until paid. (e) If Purchaser is delinquent in payment of an Invoice or Frontier does not have security from Purchaser equal to Purchaser's prior month usage charges, Frontier may demand and receive additional security of its choice from Purchaser, which demand and choice shall be reasonable under the circumstances. (f) FRAUDULENT USAGE: Frontier is not responsible for, and Purchaser shall defend and indemnify Frontier against, any fraudulent use of Service. Any claims of fraud shall not constitute valid justification for dispute of an Invoice. Purchaser is solely responsible for all Services usage, allegedly fraudulent or otherwise, and for all additional charges as may be associated with such usage. Frontier will monitor End-User call activity for fraudulent use using the same procedures Frontier uses for its own customers, except Frontier will contact Purchaser, but will not directly contact an End-User, with respect to suspected fraudulent use. (g) Purchaser agrees to pay to Frontier any and all local exchange carrier- assessed and governmentally imposed charges levied upon Frontier as a result of Services provided to Purchaser, including but not limited to: (i) assessment by regulatory, including but not limited to, the Federal Communications Commission (FCC) and state Public Utility/Service Commissions; (ii) applicable charges set out in the Schedule of Ancillary Fees attached hereto as Exhibit A and made a part hereof. (h) Frontier may revise the rates and monthly recurring and other charges in this Agreement (and any exhibit, attachment or schedule) at any time upon 30 days advance written notice to Purchaser. If the effective rates for the Services are increased pursuant to this paragraph, then Purchaser may upon 30 days written notice cancel the Service subject to the rate increase (Purchaser understands that it may not be able to separately cancel domestic and international Service if only one is subject to a rate increase). In order to be effective, Purchaser's notice of cancellation must be received by Frontier within 30 days after Purchaser's receipt of Frontier's notice of the rate increase. Cancellation of a Service under this paragraph includes cancellation of any monthly minimum usage charge associated with the canceled Service that accrues after the date of cancellation. If the cancellation notice is not received by Frontier within the 30 day period, Purchaser will have irrevocably waived its 4 right to cancel the affected Service for that particular rate increase. If Purchaser does not timely provide notice of cancellation, or if any Purchaser traffic for a canceled Service remains on Frontier's network after the effective date of cancellation, Purchaser shall pay the increased rates for the affected Service and such traffic. (i) Purchaser agrees that any make up to minimum charges, shortfall charges and surcharges for which it is liable under this Agreement are based on agreed upon minimum commitments on its part and corresponding rate concessions on Frontier's part, and are not penalties or consequential or other damages under Section 9.(b). Frontier may charge Purchaser, and Purchaser agrees to pay, reasonable attorneys' fees and all reasonable costs incurred by Frontier in the collection of any unpaid amounts due from Purchaser, whether or not suit is instituted. (j) Billing Cycle is the Frontier billing cycle to which Purchaser's account hereunder is assigned by Frontier (a full billing cycle equals approximately 30 days of Services usage). Business Day is Monday through Friday, 8:30 am to 5:30 pm Detroit, MI local time, excluding nationally recognized holidays. Unless otherwise stated, "days" refers to calendar days. 4. BILLING DISPUTES: The Parties agree that time is of essence for payment of ---------------- all Invoices. Purchaser has the affirmative obligation of providing written notice and supporting documentation for any good-faith dispute with an Invoice ("Dispute") within 60 Business Days after Purchaser's receipt. If Purchaser does not report a Dispute within the 60 Business Day period, Purchaser shall have irrevocably waived its dispute rights for that Invoice absent fraud or gross negligence on Frontier's part. Purchaser shall pay disputed amounts, subject to resolution of the Dispute. Frontier will use reasonable efforts to resolve timely Disputes within 30 Business Days after its receipt of the Dispute notice. If a Dispute is not resolved within the 30 Business Day period, then at Purchaser's request the Dispute will be referred to an executive officer of Frontier. If the Dispute is not resolved within 10 Business Days after the referral, then either Party may commence an action in accordance with Section 18, provided that the prevailing Party in such action shall be entitled to payment of its reasonable attorney fees and reasonable costs by the other Party. The Parties agree to exercise all reasonable efforts to resolve Disputes within the time frames established herein. 5. TERMINATION RIGHTS: ------------------ (a) REGULATORY CHANGES: If the FCC, an state PUC or a court of competent jurisdiction issues a rule, regulation, law or order which has the effect of canceling, changing, or superseding any material term or provision of this Agreement (collectively, "Regulatory Requirement"), then this Agreement shall be deemed modified in such a way as the Parties mutually agree is consistent with the form, intent and purpose of this Agreement and is necessary to comply with such Regulatory Requirement. Should the Parties not be able to agree on modifications necessary to comply with a Regulatory Requirement that materially affects the rights of either Party within 30 days after the Regulatory Requirement is effective, then upon written notice either Party may, to the 5 extent practicable, terminate that portion of this Agreement impacted by the Regulatory Requirement. (b) Without affecting any amounts due it, Frontier may terminate this Agreement upon (i) Purchaser's insolvency, dissolution or cessation of business operations, or (ii) Purchaser's failure to pay any delinquent Invoice, or to maintain any other assurance of payment provided to Frontier by Purchaser, within 2 Business Days following Purchser's receipt of written notice from Frontier. (c) In the event of a breach of any material term or condition of this Agreement by a Party (other than a payment breach covered under (b) above), the other Party may terminate this Agreement upon 30 days written notice, unless the breaching Party cures the breach during the 30 day period. A breach that cannot be reasonably cured within a 30 day period may be addressed by a waiver of this section signed by the Parties. (d) Upon any breach by Purchaser not cured after expiration of all applicable notice, grace and cure periods, Frontier may at its sole option do any or all of the following: (i) cease accepting or processing orders for Service an suspend Service; (ii) cease any and all electronically and manually generated information and reports; (including any CDR not paid for by Purchaser); (iii) draw on any letter of credit, security deposit or other assurance of payment provided by Purchaser; (iv) enforce any security interest granted by Purchaser to Frontier hereunder; (v) terminate this Agreement and the Services without liability to Frontier; (vi) collect from Purchaser for future Services that would have been provided, but for Purchaser's breach, including but not limited to monthly minimums; and (vii) pursue such other remedy or relief as may be appropriate. 6. LIMITATION OF ACTION: -------------------- Purchaser shall not seek legal or equitable remedies, including without limitation, injunctive relief, that would require Frontier to continue providing Service to Purchaser while any delinquent amounts due Frontier remain unpaid. 7. TAXES AND ASSESSMENTS: --------------------- Purchaser is responsible for the collection and remittance of all governmental assessments, surcharges and fees pertaining to its resale of the Services (other than 6 franchise and similar taxes as well as taxes on Frontier's net income) (collectively, "Taxes"). Purchaser shall provide Frontier with valid and properly executed certificate(s) of exemption for the Taxes, as applicable. 8. AMENDMENT: --------- Except as may be otherwise provided herein, this Agreement may not be amended or modified, in whole or in part, except by the Parties in writing. 9. WARRANTIES AND LIMITATION OF LIABILITY: -------------------------------------- (a) Service will be provided by Frontier in accordance with the applicable technical standards established for call transport by the telecommunications industry. Frontier shall provide Service in a quality and diligent manner consistent with service Frontier provides to its other customers via a digital fiber optic network with SS7 signalling at a P.01 grade of service. FRONTIER MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO TRANSMISSION, EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FUNCTION. (b) In no event shall either Party be liable to the other Party for incidental and consequential damages, loss of goodwill, anticipated profit, or other claims for indirect damages in any manner related to this Agreement or the Services. (c) Purchaser's sole and exclusive remedy in the case of a breach of the Agreement by Frontier shall be a refund of the purchase price paid for those Services not provided in accordance with the terms of this Agreement. (d) It is the express intent of the Parties that Purchaser be solely responsible for all claims of its customers relating to the Services. Consequently, Purchaser agrees that it is solely responsible for any credits or adjustments that may be issued or required to be issued to its customers. 10. INDEMNIFICATION: --------------- Purchaser shall defend and indemnify Frontier and its directors, officers, employees, representatives and agents from any and all claims (including any claims of regulatory agencies), Taxes, penalties, interest, expenses, damages, lawsuits or other liabilities (including without limitation, reasonable attorney fees and court costs) relating to or arising out of (i) the operation of Purchaser's business; and (ii) Purchaser's breach of this Agreement. 7 11. REPRESENTATION: -------------- The Parties acknowledge and agree that the relationship between them is solely that of independent contractors, and nothing in this Agreement is to be construed to constitute the Parties as employer/employee, partners, franchise/franchisee, or otherwise as participants in a joint or common undertaking. Neither Party, nor their respective employees, agents or representatives, has any right, power or authority to act or create any obligation, express or implied, on behalf of the other Party. 12. FORCE MAJEURE: ------------- Other than with respect to failure make payments due hereunder, neither party shall be liable under this Agreement for delays, failures to perform, damages, losses or destruction, or malfunction of any equipment, or any consequence thereof, caused or occasioned by, or due to fire, earthquake, flood, water, the elements, labor disputes or shortages, utility curtailments, power failures, explosions, civil disturbances, governmental actions, shortages of equipment or supplies, unavailability of transportation, acts or omissions of third parties, or any other cause beyond their reasonable control. 13. WAIVERS: ------- Failure of either Party to enforce or insist upon compliance with the provisions of this Agreement, or waive compliance with any provisions of this Agreement in any instance, shall not be construed as a general waiver or relinquishment of any provision or right of this Agreement. 14. ASSIGNMENT: ---------- Neither Party may assign or transfer its rights or obligations under this Agreement without the other Party's written consent, which consent may not be unreasonably withheld, except that Frontier may assign this Agreement to its parent, successor in interest, or an affiliate or subsidiary without Purchaser's consent. Any assignment or transfer without the required consent is void. 15. CONFIDENTIALITY: --------------- (a) Each Party agrees that all information furnished to and identified by the other Party as being confidential or proprietary information or trade secrets (collectively referred to as "Proprietary Information"), is and continuously remains, the sole and exclusive property of the Party furnishing the same (the Party furnishing the Proprietary Information hereinafter referred to as the "Disclosing Party" and the other Party hereinafter referred to as the "Receiving Party"). Each Party shall treat the Proprietary Information and the contents of this Agreement in a confidential manner and, except to the extent necessary in connection with the performance of its obligations under this 8 Agreement, neither Party may directly or indirectly disclose the same to any third party without the written consent of the Disclosing Party. (i) The Proprietary Information is to be used by the Receiving Party only for the purposes contemplated in this Agreement and the Receiving Party may not disclose the same to anyone other than its employees on a need to know basis and who agree to be bound by the terms of this Section. The Proprietary Information may not be retained by the Receiving Party and all originals and any copies or summaries shall be returned to the Disclosing Party upon written request. (b) The confidentiality of obligations of this Section do not apply to any portion of the Proprietary Information which: (i) is or becomes public knowledge through no fault of the Receiving Party; (ii) is in the lawful possession of Receiving Party prior to disclosure to it by the Disclosing Party (as confirmed by the Receiving Party's records); (iii) is disclosed to the Receiving Party without restriction on disclosure by a person who has the lawful right to disclose the information; or (iv) is disclosed pursuant to the lawful requirements or formal request of a governmental agency. If the Receiving Party is requested or legally compelled by a governmental agency to disclose any of the Proprietary Information of the Disclosing Party, the Receiving Party agrees on behalf of itself and its representatives that it will provide the Disclosing Party with prompt written notice of such requests so that the Disclosing Party as the opportunity to pursue its legal and equitable remedies regarding potential disclosure. (c) Each Party acknowledges that its breach or threatened breach of this Section may cause the Disclosing Party irreparable harm which would not be adequately compensated by monetary damages. Accordingly, in the event of any such breach or threatened breach, the Receiving Party agrees that equitable relief, including temporary restraining orders or preliminary or permanent injunctions, is an available remedy in addition to any legal remedies to which the Disclosing Party may be entitled. (d) Neither Party may use the name, logo, trade name, service marks, trade marks, or printed materials of the other Party, in any promotional or advertising material, statement, document, press release or broadcast without the prior written consent of the other Party, which consent may be granted or withheld at the other Party's sole discretion. (e) The Parties acknowledge the existence of a highly competitive telecommunications marketplace and understand and agree that either Party may offer to provide services to 9 customers of the other Party in accordance with such rates and terms as a Party and a customer may agree upon, provided however, a Party may not use Proprietary Information of the other Party in soliciting customers for services. Provided further, neither Party may, in any marketing activities to existing customers of the other Party, use the fact that Frontier is the Purchaser's underlying carrier as an inducement for such customers to switch their services. 16. INTEGRATION: ----------- This Agreement and all Exhibits, Schedules and other Attachments hereto, represent the entire agreement between the Parties with respect to the subject matter hereof and supersede and merge all prior agreements, promises, understandings, statements, representations, warranties, indemnities and inducements to the making of this Agreement relied upon by either Party, whether written or oral. 17. CONSTRUCTION: ------------ The language used in this Agreement is deemed the language chosen by the Parties to express their mutual intent. No rule of strict construction shall be applied against either Party. 18. GOVERNING LAW: ------------- This Agreement shall, in all respects, be governed by and enforced in accordance with the laws of the State of New York, excluding its choice of law provisions. For valuable consideration, both Parties acknowledge and agree that any action to enforce or interpret the terms of this Agreement shall be instituted and maintained only in the Federal Court for the Western District of New York, or if jurisdiction is not available in the Federal Court, then a state court located in Rochester, New York. Purchaser hereby consents to the jurisdiction and venue of such courts and waives any right to object to such jurisdiction and venue. 19. NOTICES: ------- All notices, including but not limited to, demands, requests and other communications required or permitted hereunder (not including Invoices) shall be in writing and shall be deemed to be delivered when actually received, whether upon personal delivery or if sent by common carrier. All notices given by mail shall be sent by first class mail prepaid or certified, return receipt requested, duly addressed and with proper postage, to the following address, or such other address as each of the Parties hereto may notify the other: Frontier Communications Boston Communications Group ATTN: VP Carrier Sales ATTN: Alan J. Bouffard ------------------------------- 30300 Telegraph Road One McKinley Sq. ------------------------------- Bingham Farms, MI 48025-4510 Boston, MA 02109 ------------------------------- Facsimile #810-258-6278 Facsimile#:(617)476-3766 ------------------------------- 10 20. COUNTERPARTS: ------------ This Agreement may be executed in several counterparts, each of which shall constitute an original, but all of which shall constitute one and the same instrument. 21. COMPLIANCE WITH LAWS: -------------------- During the term of this Agreement, the Parties shall comply with all local, state and federal laws and regulations applicable to this Agreement and to their respective businesses. Further, Purchaser shall obtain, file and maintain any tariffs, permits certifications, authorizations, licenses or similar documentation as may be required by the FCC, a state Public Utility or Service Commission, or any other governmental body or agency having jurisdiction over its business. Upon request, Purchaser will supply Frontier with copies of such tariffs, permits, certifications, authorizations, licenses and similar documentation. 22. THIRD PARTIES: ------------- The provisions of this Agreement and the rights and obligations created hereunder are intended for the sole benefit of Frontier and Purchaser, and do not create any right, claim or benefit on the part of any person not a Party to this Agreement, including Purchaser's customers. 23. SURVIVAL OF PROVISIONS: ---------------------- Any obligations of the Parties relating to monies owed, as well as those provisions relating to confidentiality, assurances of payment, limitations on liability and actions and indemnification, survive termination of this Agreement. 24. UNENFORCEABLE PROVISIONS: ------------------------ The illegality or unenforceability of any provision of this Agreement does not affect the legality or enforceability of any other provision or portion. If any provision or portion of this Agreement is deemed illegal or unenforceable for any reason, there shall be deemed to be made such minimum change in such provision or portion as is necessary to make it valid and enforceable as so modified. 11 By its signature below, each Party acknowledges and agrees that sufficient allowance has been made for review of this Agreement by respective counsel and that each Party has been advised as to its legal rights, duties and obligations under this Agreement. FRONTIER COMMUNICATIONS OF THE BOSTON COMMUNICATIONS WEST, INC. GROUP By: /s/ James E. Ottinger By:/s/ Robert T. Sullivan --------------------------- ----------------------------- Title: VP Carrier Sales Title: Vice President ------------------------ -------------------------- Printed Name: James E. Ottinger Printed Name: Robert T. Sullivan ---------------- ------------------- Date: 7/9/96 Date: 6/19/96 ------------------------ ---------------------------
SCHEDULE OF INITIAL SERVICES SELECTED BY PURCHASER -------------------------------------------------- Services Purchaser's Initials Selecting Service Domestic/International Termination ---------- 800 Switched ---------- 800 Dedicated ---------- Calling Card ---------- International Toll Free Origination ----------
12
EXHIBIT A Schedule of Ancillary Fees -------------------------- Electronic Exchange (Account Management and CDR Transfer System) -- Setup -- Refund at Monthly billed usage of -- Monthly service charge -- Call Detail Record Stand (stand alone, no EE) -- Monthly per billing cycle, first tape -- Additional tapes -- Programming charges to change CDR format, per hour -- Branded 700 Test Number -- Setup -- Monthly service charge -- Rejected Order resolution with LECs -- Negotiation of Disputed PIC charges -- Accounting Codes (MRC) -- Non-validated, per account with codes -- Validated, per account with codes -- NECA and Lifeline charges: Monthly pass through of NECA -- charges per ANI PICed to Frontier CIC (current charge) -- 800 SMS database administration (monthly pass through) -- Per active 800 number with Frontier as RespOrg -- 800 RespOrg (Frontier assessed service charges) -- 800 Directory Assistance listing, MRC per number -- Install charge, per number -- 800 P.I.N. -- Set up charge, per PIN program -- Set up charge to be refunded with monthly PIN usage -- Dedicated Services -- "B" city Monthly Recurring Charges, per DS-1 -- Channel Bank/CSU/Cards: -- Non-Recurring Charge -- Monthly Recurring Charge -- Stand Alone CSU: Non Recurring Charge -- Monthly Recurring Charge --
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 13 Dedicated 800 Applications Charges ANI/DNS Deliver Monthly Recurring Charge: $ -- Non Recurring Charge: $ -- Stand Alone DNIS Monthly Recurring Charge: $ -- Non Recurring Charge: $ -- 5/9/96 "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 14 DEDICATED DOMESTIC AND INTERNATIONAL SERVICES SCHEDULES 1. The rates and discount credits described in this Schedule and any attachments hereto are in lieu of any standard volume discounts and any promotional rates or discounts that may from time to time be offered by Frontier for the Services. Domestic means the 48 contiguous United States. Any discount credits are applied against Purchaser's monthly interstate usage charges. Unless otherwise stated, domestic calls are measured in 6 second increments after a 6 second minimum and international calls in 6 second increments after a 30 second minimum. 2. Dedicated Termination Service: A. For domestic outbound traffic originating from Purchaser's switch, Purchaser shall pay the applicable rates set out in the attached pricing schedules and Frontier POP list. B. Purchaser shall be responsible for a minimum of 100,000 minutes in the aggregate of domestic and international Dedicated Services' usage each month for each DS-1 circuit connected to a Frontier POP. If such minimum usage is not attained in any month, Frontier may add a make up to minimum charge to the Invoice for that month in an amount equal to the shortfall minutes times $-- per minute. C. Purchaser shall be responsible, at its sole expense, for all ordering of, and charges for, dedicated facilities and equipment required to maintain access, interconnection and interface with Frontier equipment and the Frontier network. D. Commencing with Purchaser's first Invoice, Purchaser is liable for a monthly minimum usage charge for dedicated services of $100,000 (the "Dedicated Minimum"). If Purchaser's net charges (after any discounts or credits) for dedicated service usage is less than the Dedicated Minimum in any month, Purchaser shall pay the shortfall. If this Agreement is terminated prior to the time the Dedicated Minimum becomes effective (other than termination by Purchaser for an uncured breach by Frontier), Purchaser shall pay an amount equal to the difference between: (i) the actual charges to Purchaser for dedicated service usage for the period up to the date of termination, and (ii) the amount of charges for such usage calculated at the applicable Frontier standard resale rates in effect at the time the dedicated service was provided. E. In any given month, a minimum of 85% of Purchaser's traffic must terminate into Regional Bell Operating Company (RBOC) or GTE serviced areas. If Purchaser falls below the minimum in any month, Frontier may apply a $-- per minute surcharge to all of Purchaser's traffic terminating to non-RBOC/GTE serviced areas. 3. Directory Assistance Transport: Purchaser shall be liable for a monthly minimum usage charge of $0.0. Purchaser shall pay the per call rates and receive the volume discounts applicable to the above minimum charge as set out in the attached pricing schedule. Purchaser shall pay any shortfall in the monthly minimum for each month in which above minimum is not met. "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 15 4. International Termination Service: A. For international outbound traffic originating from Purchaser's switch, Purchaser shall pay the applicable rates set out in the attached pricing schedules and Frontier POP list. B. Commencing with Purchaser's fifth Invoice, Purchaser is liable for a monthly minimum usage charge for international termination of $0.0 (the "International Minimum"). If Purchaser's net charges (after any discounts or credits) for international termination usage are less than the International Minimum in any month, Purchaser shall pay the shortfall. If this Agreement is terminated prior to the time the International Minimum becomes effective (other than termination by Purchaser for an uncured breach by Frontier), Purchaser shall pay an amount equal to the difference between: (i) the actual charges to Purchaser for international termination usage for the period up to the date of termination, and (ii) the amount of charges for such usage calculated at the applicable Frontier standard tariffed rates in effect at the time the international termination service was provided. 16 SWITCHED TERMINATION SERVICES The rates and discount credits for the Domestic Switched Terminating Services set forth in this Schedule and any attachments are in lieu of any standard volume discounts and any promotional rates or discounts that may be offered from time to time for the Domestic Switched Terminating Services. Domestic means the 48 contiguous United States. Two different terminating services are provided by Frontier, dedicated and switchless services. Dedicated services consists of switched outbound long distance traffic delivered to a Frontier Point of Presence via dedicated facilities and terminated over the Frontier network. Switchless services consist of outbound long distance traffic generated by Purchaser or Purchaser's customers that both originate and terminate on the Frontier network. --- Frontier will invoice Purchaser for Domestic termination according to the following volume-base schedule: Dedicated Services:
1. Domestic Monthly Rate/ Invoice Minute Billing Increment - ------- ------ ------------------ -- -- 6 seconds/6 second minimum -- -- 6 seconds/6 second minimum -- -- 6 seconds/6 second minimum 2. Offshore: (Alaska, Hawaii, Puerto Rico, US Virgin Islands) -- 6 seconds/6 second minimum 3. Canadian -- 6 seconds/6 second minimum 4. Directory Assistance -- Per call Switchless Services: -- 1. Domestic -- 6 seconds/6 second minimum 2. Offshore (Alaska, Hawaii, Puerto Rico, US Virgin Islands) -- 6 seconds/6 second minimum 3. Canadian -- 6 seconds/6 second minimum 4. Directory Assistance -- Per call
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 17 INBOUND 800 SERVICES 800 Number Requirements 1. In order to protect the integrity of its network, Frontier may, without liability, temporarily block any 800 Number having usage surges. Frontier agrees to use reasonable efforts to promptly notify Purchaser after blockage has occurred. 2. If usage of an 800 Number impacts Frontier in such a manner that the unbillable (non-completed) calls for such 800 Number in any month are greater than 5% of the billable (completed) calls for such 800 Number in that month, Frontier may charge Purchaser a non-discountable $0.50 charge for each unbillable call in that month. 3. At Purchaser's written request and to the extent available to Frontier, Canadian origination is available for Frontier 800 Numbers only. 4. At Purchaser's written request and to the extent available to Frontier, 800 Directory Assistance is available for Frontier 800 Numbers only at the charge set out in Exhibit B. Due to the fact that 800 Directory Assistance is provided through an arrangement with a third party, the provision of 800 Directory Assistance by Frontier is subject to the policies and procedures promulgated from time to time by such third party. Purchaser understands that any Frontier 800 Number listed with 800 Directory Assistance is not published in any written directory, but is only available on a call-in basis. Purchaser shall inform End-Users in writing of this fact prior to or at the time of Purchaser's sale of 800 Directory Assistance. 5. The transfer of 800 Numbers of Inbound Services traffic to another carrier is subject to the Guidelines and the Frontier policies and procedures for 800/888 number/traffic transfers in effect at the time of the requested transfer. 6. If an 800 Number is blocked at Purchaser's request, then for the period the 800 Number is being blocked Frontier will, at Purchaser's written request and expense, re-translate the 800 Number to Purchaser's customer service telephone number. The rates and discount credits for the Inbound 800 Services set forth in this Schedule and any attachments are in lieu of any standard volume discounts and any promotional rates or discounts that may be offered from time to time for the Inbound 800 Services. Domestic means the 48 contiguous United States. Rates for Inbound Services: Two different originating services are provided by Frontier, dedicated and switchless services. Dedicated services consist of switched inbound long distance traffic originated over the Frontier network and delivered to Purchaser via dedicated facilities. Switchless services consist of inbound 800 traffic generated by Purchaser or Puchaser's customers that both originate and terminate --- on the Frontier network. Frontier will invoice Purchaser for Domestic termination according to the following volume-based schedule: 18 Dedicated Services: 1. Domestic
Monthly Rate/ Invoice Minute Billing Increment - ------- ------ ----------------- -- -- 6 seconds/6 second minimum -- -- 6 seconds/6 second minimum -- -- 6 seconds/6 second minimum 2. Offshore:(Alaska, Hawaii, Puerto Rico, US Virgin Islands) -- 6 seconds/6 second minimum 3. Canadian: -- 6 seconds/30 second minimum Switchless Services: 1. Domestic -- 6 seconds/6 second minimum 2. Offshore (Alaska, Hawaii, Puerto Rico, US Virgin Islands) -- 6 seconds/6 second minimum 3. Canadian -- 6 seconds/6 second minimum "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS."
19 INTERNATIONAL TOLL-FREE SERVICES The rates and discount credits for the Inbound Services set forth in this Schedule and any attachments are in lieu of any standard volume discounts and any promotional rates or discounts that may be offered from time to time for the Inbound Services. Domestic means the 48 contiguous United States. Unless otherwise stated, international toll-free inbound calls are measured in full minute increments and measured from timing point 6 to timing point 7. 1. Frontier, upon written request from Purchaser and to the extent available to Frontier, will coordinate with international service providers or directly with foreign PTT's for the provisioning of international toll free services. Provisioning times cannot be guaranteed due to the inconsistencies of service levels within the foreign country, 2. Frontier cannot guarantee the service quality due to the oftentimes great differences in telecommunications facilities at the local phone companies and international gateways located in the foreign countries. Most line quality should be considered voice grade only and should not be depended upon for fax and/or data traffic. 3. Once the number is in service, Frontier cannot guarantee its continued service nor the quality of service due to the changing regulations and restrictions in the foreign country. 4. Frontier will, as Purchaser's service provider, research any difficulties that Purchaser or its customers may have with the service. Purchaser has an obligation to provide Frontier with timely information on the troubled call (time of call, originating number, type of phone, terminating number, etc.). 5. Due to the fact that international toll free services are most times provided through an arrangement with a third party, the provision of international toll-free services is subject to the policies and procedures promulgated from time to time by such third party. Mexico International Toll-Free Rates (per minute charge): Peak Offpeak ---- ------- Dedicated -- -- Switchless -- -- "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 20 CALLING CARD SERVICES 1. The rate and discount credits for the Calling Card Services set forth in this Schedule and any attachments are in lieu of any standard volume discounts and any promotional rates or discounts that may be offered from time to time for the Calling Card Services. Domestic means the 48 contiguous United States. Unless otherwise stated, calls are measured in full minute increments. 2. For domestic and international traffic, Purchaser shall pay the rates set out below and in the attached pricing schedule. Rate per minute Domestic United States -- International See Attached "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 21 EX-10.15.1 4 COMMERCIAL LEASE EXHIBIT 10.15.1 CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM COMMERCIAL LEASE In consideration of the covenants herein contained, Cummings Properties Management, Inc., hereinafter called LESSOR, does hereby lease to Radio Telephone Systems, Inc. (a MA corp.), One McKinley Square, Boston, MA - --------------------------------------------------------------------------- 02109 hereinafter called LESSEE, the following described premises, hereinafter - ----- called the leased premises: approximately 8,913 square feet at 100 Sylvan Road, --------------------------------------------------- Woburn, MA 01801 Suite 400 TO HAVE AND HOLD the leased premises for a term of - -------------------------- five (5) years commencing at noon on March 1, 1996 and ending at noon on - -------------- ------------- February 38, 2001 unless sooner terminated as herein provided. LESSOR and LESSEE - ----------------- now covenant and agree that the following terms and conditions shall govern this lease during the term hereof and for such further time as LESSEE shall hold the leased premises. 1. RENT. LESSEE shall pay to LESSOR base rent at the rate of one hundred six --------------- thousand five hundred ten (106,510.00) U.S. dollars per year, drawn on a U.S. - -------------------------------------- bank, payable in advance in monthly installments of $8,875.83 on the first day --------- in each calendar month in advance, the first monthly payment to be made upon LESSEE's execution of this lease, including payment in advance of appropriate fractions of a monthly payment for any portion of a month at the commencement or end of said lease term. All payments shall be made to LESSOR or agent at 200 West Cummings Park, Woburn, Massachusetts 01001, or at such other place as LESSOR shall from time to time in writing designate. If the "Cost of Living" has increased as shown by the Consumer Price Index (Boston Massachusetts, all Items, all urban consumers), U.S. Bureau of Labor Statistics, the amount of base rent due during each calendar year of this lease and any extensions thereof shall be annually adjusted in proportion to any increase in the Index. All such adjustment shall take place with the rent due on January 1 of each year during the lease term. The base month from which to determine the amount of each increase in the Index shall be January 1996, which figure shall be compared with -- the figure for November 1996, and each November thereafter to determine the -- percentage increase (if any) in the base rent to be paid during the following calendar year. In the event that the Consumer Price Index as presently computed is discontinued as a measure of "Cost of Living" changes, any adjustment shall then be made on the basis of a comparable index than in general use. 2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the amount of seventeen thousand (17,000.00) dollars upon the execution of this ------------------------------ lease by LESSEE, which shall be held as security for LESSEE's performance as herein provided and refunded to LESSEE without interest at the end of this lease subject to LESSEE's satisfactory compliance with the conditions hereof. LESSEE may not apply the security deposit to payment of the last month's rent, in the event of any default or breach of this lease by LESSEE, LESSOR shall immediately apply the security deposit first to any unamortized improvements completed for LESSEE's occupancy, then to offset any outstanding invoice or other payment due to LESSOR, with the balance applied to outstanding rent. If all or any portion of the security deposit is applied to cure a default or breach during the term of the lease. LESSEE shall be responsible for restoring said deposit forthwith and failure to do so shall be considered a substantial default under the lease. LESSEE's failure to remit the full security deposit or any portion thereof when due shall also constitute a substantial lease default. 3. USE OF PREMISES. LESSEE shall use the leased premises only for the purpose of executive and administrative offices. ------------------------------------ 4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a proportional share (based on square footage leased by LESSEE as compared with the total leaseable square footage of the building of which the leased premises are a part) of any increase in the real estate taxes levied against the land and building of which the leased premises are a part, whether such increase is caused by an increase in the tax rate, or the assessment on the property, or a change in the method of determining real estate taxes. LESSEE shall make payment within thirty days (30) of written notice from LESSOR that such increased taxes are payable, and any additional rent shall be prorated should the lease terminate before the end of any tax year. In the event that said building was not assessed as a complete building as of the aforementioned date, then the base assessment shall be as of the first date when the building is assessed as a complete structure. 5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard specifications to heat the leased premises in season and to cool all office areas between May 1 and November 1. LESSEE shall pay all charges for heat and electricity used on the leased premises.* LESSEE shall pay LESSOR for all water and sewer use as determined by a separate water meter serving the leased premises, and LESSEE shall pay LESSOR a proportionate share of any other fees and charges relating in any way to water or sewer use at the building. No plumbing, construction or electrical work of any type shall be done without LESSOR's prior written approval and the appropriate municipal permit. 6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation, activity or work shall be conducted in the leased premises or use made thereof which may be unlawful, improper, noisy, offensive, or contrary to any applicable statute, regulation, ordinance or bylaw. LESSEE shall keep all employees working in the leased premises covered with Worker's Compensation Insurance and shall obtain any licenses and permits necessary for LESSEE's occupancy. LESSEE shall be responsible for causing the leased premises and any alterations by LESSEE which are allowed hereunder to be in full compliance with any applicable statute, regulation, ordinance or bylaw. 7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the leased premises, or of the property of which they are a part, be substantially damaged by fire or other casualty, or be taken by eminent domain, LESSOR may elect to terminate this lease. When such fire, casualty, or taking renders the leased premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, and LESSEE may elect to terminate this lease if: (a) LESSOR fails to give written notice within thirty (30) days of intention to restore the leased premises, or (b) LESSOR fails to restore the leased premises to a condition substantially suitable for their intended use within ninety (90) days of said fire, casualty or taking. LESSOR reserves all rights for damages or injury to the leased premises for the taking by eminent domain, except for the damage to LESSEE's property or equipment. 5. *as determined by separate meters serving the leased premises. 27. GENERAL (a) The invalidity or unenforceability of any provision of this lease shall not affect or render invalid or unenforceable any other provision hereof. (b) The obligations of this lease shall run with the land, and this lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that LESSOR and OWNER shall be liable only for obligations occurring while lessor, owner, or master lessee of the premises. (c) Any action or proceeding arising out of the subject matter of this lease shall be brought by LESSEE within one year after the cause of action has occurred and only in a court of the Commonwealth of Massachusetts. (d) If LESSOR is acting under or as agent for any trust or corporation, the obligations of LESSOR shall be binding upon the trust or corporation, but not upon any trustee, officer, director, shareholder, or beneficiary of the trust or corporation individually. (e) If LESSOR is not the owner (OWNER) of the leased premises, LESSOR represents that said OWNER has agreed to be bound by the terms of this lease unless LESSEE is in default hereto. (f) This lease is made and delivered in the Commonwealth of Massachusetts, and shall be interpreted, construed, and enforced in accordance with the laws thereof. (g) This lease was the result of negotiations between parties of equal bargaining strength, and when executed by both parties shall constitute the entire agreement between sold parties. No other oral or written representation shall have any effect hereon, and this agreement may not be altered, extended or amended except by written agreement attached hereto or as otherwise provided herein. (h) Notwithstanding any other statements herein, LESSOR makes no warranty, express or implied, -------------------------------------------- concerning the suitability of the leased premises for LESSEE's intended use. (i) LESSEE agrees that if LESSOR does not deliver possession of the leased premises as herein provided for any reason, LESSOR shall not be liable for any damages to LESSEE for such failure, but LESSOR agrees to use reasonable efforts to deliver possession to LESSEE at the earliest possible date, and a proportionate abatement of rent for such time as LESSEE may be deprived of possession said leased premises shall be LESSEE's sole remedy. (j) Neither the submission of this lease form, nor the prospective acceptance of the security deposit and/or rent shall constitute a reservation of or option for the leased premises, or any offer to lease, it being expressly understood and agreed that this lease shall not bind either party in any manner whatsoever until it has been executed by both parties. (k) LESSEE shall not be entitled to exercise any option contained herein if LESSEE is in default of any forms or conditions hereof. (l) The headings in this lease are for convenience only and shall not be considered part of the terms hereof. (m) No endorsement by LESSEE on any check shall bind LESSOR in any way. 28. SECURITY AGREEMENT. LESSEE hereby grants LESSOR a continuing security interest in all existing or hereafter acquired property of LESSEE which is in the leased premises to secure the payment of rent, the cost of leasehold improvements, and the performance of any other obligations of LESSEE under this lease. Default in the payment or performance of any of LESSEE's obligations hereunder is a default under this Security Agreement, and shall entitle LESSOR to immediately exercise all of the rights and remedies of a Secured Party under the Uniform Commerical Code. LESSEE also agrees to execute a UCC-1 Financing Statement and any other financing agreement required by LESSOR in connection with this security interest. 29. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or of any breach of any covenant, condition or duty of LESSEE shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. If LESSEE is several persons, several corporations or a partnership, LESSEE's obligations are joint or partnership and also several. Unless repugnant to the context, "LESSOR" and "LESSEE" mean the person or persons, natural or corporate, named above as LESSOR and as LESSEE respectively, and their respective heirs, executors, administrators, successors and assigns. 31. ADDITIONAL PROVISIONS. (Continued on attached rider if necessary._ - See Attached Rider- IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common seals and intend to be legally bound hereby this 29th day of February 1996. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. LESSEE: RADIO TELEPHONE SYSTEMS, INC. By: /s/ James McKeown By: /s/ Robert J. Sullivan -------------------------------- ------------------------------ GUARANTY IN CONSIDERATION of the making of the above lease by Cummings Properties Management, Inc. with Radio Telephone Systems, Inc. --------------------------------------------------------- - ------------------------------------------------------------------------------- at the request of the undersigned and in reliance of this guaranty, the undersigned (GUARANTOR) hereby personally guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of all terms, conditions, covenants and agreements of the lease, any amendments (hereto and any extensions or assignments thereof, and the undersigned promises to pay all expenses, including reasonable attorney's fees, incurred by LESSOR in enforcing all obligations of LESSEE under the lease or incurred by LESSOR in enforcing this guaranty. LESSOR's consent to any assignments, subleases, amendments and extensions by LESSEE or to any compromise or release of LESSEE's liability hereunder, with or without notice to the undersigned, or LESSOR's failure to notify the undersigned of any default and/or reinstallment of the lease by LESSEE, shall not relieve the undersigned from liability as GUARANTOR. IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set his/her/its hand and common seal intending to be legally bound hereby this ____ day of _______ 19__. X _______________________________ STANDARD FORM RIDER TO LEASE The following additional provisions are incorporated into and made a part of the attached lease. A. * With reference to Section 15 hereinabove, LESSEE shall include LESSOR and OWNER on LESSEE's comprehensive general liability policy as additional insureds using standard endorsement 150 Form CO 20 26 11 85 or another form approved in advance by LESSOR. B. LESSOR at LESSEE's expense of $6,500.00 to be paid by LESSEE upon execution of this lease, shall construct standard open office space in the approximately 5,000 square foot area marked "Space A" on the mutually agreed upon plan attached hereto before or about the time LESSEE takes possession of the leased premises. C. In addition, LESSOR at LESSOR's expense shall construct standard office space within the established area marked "Space B" within sixty (60) days of a mutually agreed upon plan for said Space B with equivalent or less office partitioning as shown on the attached preliminary plan. Said space shall be air conditioned for normal office use, carpeted and completed with painted drywall partitions, acoustical tile ceilings, recessed lighting, chrome pendent fire protection sprinklers, and 110V convenience electrical wall outlets at regular intervals. Notwithstanding the delayed completion date of "Space D." LESSEE's obligation to pay rent hereunder for the entire leased premises shall commence as of March 1, 1996 or upon substantial completion of the modifications described in Paragraph B above for "Space A," whichever is later. D. * Notwithstanding monthly rent as provided in Section 1 herein, LESSEE may deduct $4,892.53 per month from each monthly rental payment due from March 1, 1996 through May 30, 1996 (only) provided LESSOR resolves each such monthly payment on or before the first day of the month for which that rent is due and LESSEE is not otherwise in default of the lease or in arrears of any rent or invoice payment. Time is of the essence. E. * LESSEE shall have access to the leased premises seven (7) days per week, twenty-four (24) hours per day. LESSEE acknowledges and agrees that LESSOR has no responsibility for providing any security services for the leased premises, and LESSEE assumes any and all risks arising out of this unlimited access provision. F. * The maximum, cumulative "Cost of Living" interest during the initial term of the lease (only) shall not exceed an average of five percent (5%) per calendar year. G. * In the event this lease is terminated and LESSEE pays LESSOR accelerated rent in accordance with the provisions of Section 19 herein, LESSOR agrees to make reasonable efforts to re-let the leased premises and otherwise mitigate its damages resulting from such termination. LESSOR shall credit LESSEE for any rents actually received by LESSOR over the balance of the lease term minus any costs incurred by LESSOR in re-letting the premises. LESSOR's failure to re-let the leased premises despite LESSOR's reasonable efforts shall not limit LESSEE's liability hereunder. H. * LESSEE shall have the right to assign this lease or sublet the leased premises to an affiliated corporation, namely a corporation in which LESSEE owns at least fifty percent interest, which owns at least a fifty percent interest in LESSEE, with which LESSEE merges or which is formed as a result of a merger or consolidation involving LESSEE, without further consent from LESSOR, provided LESSEE so notifies LESSOR in writing to that effect on a timely basis. The provisions of Section 10 shall govern said assignment in all other respects. I. * Provided LESSEE is not then in default of this lease or in arrears of any rent or invoice payment, LESSEE shall have the right to extend this lease, including all terms, conditions, extensions, etc., for one additional period of five (5) years ("the extended lease term") by serving LESSOR with written notice of its desire to so extend the lease. The time for serving such written notice shall be not more than twelve (12) months or less than six (6) months prior to the expiration of the initial lease term. Time is of the essence. J. The base rent during the extended lease term shall be the lesser of the following: (1) the adjusted have rent provided in Section 1, plus all "Cost of Living" adjustments through January 1, 2001 in accordance with Section 1; or (2) LESSOR's published annual rental rate for similar office space as of January 1, 2001 times the number of square feet leased. The base month from which to determine the amount of each "Cost of Living" adjustment during the extended lease term shall be changed to January 2001, the "comparison" month shall be changed to November 2001, and the first adjustment during the extended lease term shall take place with the rent due on January 1, 2002. Section 1 shall continue to apply in all other respects during the extended lease term. K. Consistent with LESSOR's usual efforts to accommodate the growth and expansion of existing tenants, prior to initial leasing to others, LESSOR shall endeavor to keep LESSEE informed of the status of interest by others in the presently vacant space which is continuous to and on the same floor as the leased premises. It is specifically understood, however, that said space is available on a "first come, first served" basis and that LESSOR's failure to inform or notify LESSEE prior to leasing said space or any portion thereof to others shall not in any way constitute a default or breach of LESSOR's obligations under this lease and shall not impose any liability on LESSOR. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ James McKeown --------------------------------------- President Date: February 29, 1996 ------------------------------------- LESSEE: RADIO TELEPHONE SYSTEMS, INC. By: /s/ Robert J. Sullivan --------------------------------------- EX-10.15.2 5 COMMERCIAL LEASE AMENDMENT NO. 2 EXHIBIT 10.15.2 CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM 796483-DAC-A AMENDMENT TO LEASE #2 In connection with a lease currently in effect between the parties at 100 Sylvan Road, Suite 100 Woburn, Massachusetts, executed on January 24, 1996 and terminating February 28, 2001 and in consideration of the mutual benefits to be derived herefrom, Cummings Properties Management, Inc., LESSOR, and Radio Telephone Systems, Inc., LESSEE, hereby agree to amend said lease as follows: 1. The size of the leased premises is hereby increased by approximately 862 square feet (including- 4% common area), from approximately 29,780 square feet to a new total of approximately 30,642 square feet, of which 862 square feet shall include 4% common area , with the addition of 100 Sylvan Road, Suite 575 for inactive storage. 2. LESSOR, at an expense incorporated entirely into the base rent and at no further cost to LESSEE, shall in Suite 575 (only) reseal the exposed concrete floor, repair and repaint all drywall partitions, replace light bulbs as needed, install LESSOR's building standard heating equipment and chrome pendant fire protection sprinklers, and change all lock cylinders before or about the time LESSEE takes possession of *The Security Deposit is hereby increased by $2,000.00 from $59,000.00 to a new total of $61,000.00. LESSEE shall pay said increase upon LESSEE's execution of this amendment. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $10,000 annually, from a total of $355,871.00 to a new annual total of $366,171.00 or $30,514.25 per month. Annual base rent for purposes of computing any future escalations thereon shall be $366,171.00. This amendment shall be effective August 1, 1996 and shall continue through the balance of the lease and any extensions therefo unless further modified by written amendments. In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 8/th/ day of August, 1996. LESSOR: LESSEE: CUMMINGS PROPERTIES MANAGEMENT, INC. RADIO TELEPIIONE SYSTEMS, INC By: s/James McKeown By: s/Robert S. Sullivan -------------------- ---------------------- President Robert Sullivan EX-10.15.3 6 COMMERCIAL LEASE AMENDMENT NO. 3 EXHIBIT 10.15.3 CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM 796483-DAC-A AMENDMENT TO LEASE# 3 In connection with a lease currently in effect between the parties at 100 Sylvan Road, Suite 100 Woburn, Massachusetts, executed on January 24, 1996 and terminating February 28, 2001 and in consideration of the mutual benefits to be derived herefrom, Cummings Properties Management, Inc., LESSOR, and Boston Communications Group, Inc. f/k/a Radio Telephone Systems, Inc., LESSEE, hereby agree to amend said lease as follows: 1. The size of the leased premises is hereby increased to a new total of approximately 35,389 square feet (including 3.25% common area), with the addition of 100 Sylvan Road, Suite 550 and a portion of the west annex shown on the attached plan. 2. *The Security Deposit is hereby increased by $9,000.00 from $61,000.00 to a new total of $70,000.00. LESSEE shall pay said increase upon LESSEE's execution of this amendment. 3. LESSOR, at an expense incorporated entirely into the base rent and at no further cost to LESSEE, shall in Suite 550 (only) construct LESSOR's standard office space according to a mutually agreed upon plan attached hereto before or about March 1, 1997. Nothwithstanding the completion date for said construction, the increased rent provided below will commence as of February 1, 1997. 4. *LESSOR or LESSEE hereby waive any and all rights to a jury trial in any summary process or 5. LESSEE hereby warrants and represents that it has changed its name to Boston Communications Group, Inc. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $53,747.52 annually, from a total of $375,325.28 to a new annual total of $429,072.80 or $35,756.07 per month. Annual base rent for purposes of computing any future escalations thereon shall be $418,607.60. This amendment shall be effective February 1, 1997 and shall continue through the balance of the lease and any extensions therefo unless further modified by written amendments. In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 5/th/ day of February, 1997. LESSOR: LESSEE: CUMMINGS PROPERTIES MANAGEMENT, INC. RADIO TELEPIIONE SYSTEMS, INC By: s/W.S. Cummings By: s/Robert S. Sullivan -------------------- ---------------------- President Robert Sullivan EX-10.23 7 MEMORANDUM OF UNDERSTANDING EXHIBIT 10.23 MEMORANDUM OF UNDERSTANDING Between ------- MILCON INTERNATIONAL, INC. And --- BOSTON COMMUNICATIONS GROUP, INC. January 1, 1997 --------------- MEMORANDUM OF UNDERSTANDING --------------------------- This Memorandum is made the 1st day of January, 1997. BETWEEN: - -------- MILCON INTERNATIONAL, INC. , a company duly incorporated in the State of Florida and having representative offices at 5th Floor Glass Tower Building, 115 C. Palanca Street, Legaspi Village, Makati, Metro Manila, Phillipines (hereinafter referred to as "Milcon"). AND: - ---- BOSTON COMMUNICATIONS GROUP, INC. a company duly incorporated in Massachusetts and having offices at 100 Sylvan Road, Woburn, MA 01801 (hereinafter referred to as "BCG"). (hereinafter collectively referred to as the "Parties") 1. Business of BCG. BCG is engaged in the business of providing Prepaid Calling --------------- Services, Fixed Wire technology and hardware, Call Center systems and services, Fraud protection and Roaming systems and services to telecommunications companies in North America and Latin America. 2. Business of Milcon. Milcon is engaged in the business of project ------------------ development, investment, trading, and consulting activities in Asia. 3. Intent to Collaborate. Milcon and BCG intend to collaborate in providing --------------------- Prepaid Calling Services and Fixed Wire technology and hardware, Call Center systems and services, Fraud Protection and Roaming systems and any other services in the Phillipines which may be developed by BCG and its subsidiaries. 4. Proposed Joint Venture. Following the discussions between the Parties ---------------------- hereto, the Parties are desirous of pursuing the development of a business venture through the medium of a joint venture between the two Parties to provide Prepaid calling services and Fixed Wire technology and hardware, Call Center systems and services, Fraud protection, Roaming systems, and services to telecommunications companies in areas covered by this Agreement and other mutually agreed upon countries. It is anticipated that the joint venture company would be an entity incorporated in Hong Kong (assuming no unfavorable tax or other consequences to either party) and owned equally by the Parties. This joint venture will own and appoint a local operating company which will be controlled by the joint venture company. The joint venture company will be appointed as the BCG International distributor for the areas under the agreement. 5. Preliminary Terms. With the objective of jointly pursuing the business ----------------- opportunities envisioned in this Memorandum and pending the formalization and execution of a formal joint venture agreement, the Parties hereto have agreed that, as a first step, it would be desirable to enter into this Memorandum of Understanding to outline some basic terms and conditions to regulate their relationship inter-se. 1 6. Opportunities. The following Opportunities (hereinafter referred to as the ------------- "Opportunities") have been presented to the Parties: a. Prepaid Services for Cellular and Fixed Wire Networks Operators in the Phillipines, and, b. Call Center systems and services, Fraud protection and Roaming services for Cellular Systems Operators in the Phillipines. Both Parties recognize that there exist other opportunities in the above countries as areas of cooperation between the Parties for mutual benefit. It is agreed that if both Parties agree on and define in writing these areas, as addendums to this agreement, the conditions of this agreement shall then apply to those areas. 7. Pursuit of Opportunities. The Parties have agreed to pursue these ------------------------ Opportunities jointly, and to collaborate in the manner hereinafter set forth. 8. Roles of the Parties. -------------------- BCG shall participate in business development efforts, provide the --- necessary marketing materials and expertise, business development expertise, project development effort, participate in presentations to carriers, and conduct project feasibility studies with local market information and required assistance provided by Milcon, relative to the Opportunities based on previous efforts of a similar nature as those currently underway in Mexico and Latin America for timely and efficient execution of projects. In addition, when appropriate and agreed to by its Board of Directors, BCG or its subsidiary will also: . Provide appropriately configured hardware, software and installation assistance at its Standard International Partner Cost . Provide training for local technical management . Provide interconnection expertise to enable local subscribers with compatible phones to roam in the US using C2C prepaid technology . Provide 50% of investment capital, directly or indirectly through third party US investors . Provide direction by representation on the Board of Directors of the joint venture company Milcon shall provide a local market presence and management, leveraging ------- current or developing new carrier relationships to achieve the objectives set forth herein, conducting project and business development activity, participating in and conducting marketing presentations to carriers, participating in the preparation of project feasibility studies relative to the Opportunities. In addition, when appropriate and agreed to by its Board of Directors, Milcon will also: . Provide local technical management staffing . Provide 50% of investment capital, and if necessary, access to third party investors . Provide direction by representation on the Board of Directors of the joint venture company 2 9. Intercompany Transactions. The Parties agree to adopt and develop an ------------------------- Intercompany Systems Purchase and Warranty Policy with the joint venture company as the distributor for which the terms of sale and corresponding details shall be agreed upon in the joint venture agreement between the two parties. A Distribution Agreement will be entered into between BCG and the joint venture company. It is agreed that any profits from the sale of services by BCG to the joint venture company will be shared by the Parties pro rata in accordance with their percentage ownership in the joint venture company. Within 90 days after the end of each calendar year BCG will submit to Milcon a statement, in a form mutually satisfactory to the Parties, showing the calculation of profits, including the allocation of overheads together with payment of the amount due to Milcon. Milcon may, at is own option, require an audit of this statement. Any expenses of such audit shall be paid by the joint venture company. The amount due to Milcon may be paid by BCG, at Milcon's option, either a. in cash, or b. in options to purchase shares of BCG stock at the fair market value of the shares at date of grant, exercisable for a 5 year period, the number of which shares shall be equal to the amount payable to Milcon divided by the closing price of the shares on the last day of the calendar year. It is not anticipated that Milcon will be selling a significant amount of goods or services to the joint venture company; but if it does, a corresponding sharing arrangement will be in effect with respect to such sales; provided however that if Milcon is not a publicly held company, any such payment will be in cash, and not in stock options. 10. Performance and Scope. The Parties shall investigate and evaluate the --------------------- financial feasibility of the Opportunities by jointly developing a model to forecast subscribers and minutes of traffic; with a view towards determining an estimate of required equipment, telecommunications, and other resources required for the formation of the joint venture to invest inand develop the Opportunities. Following preliminary feasibility and business development activities to the satisfaction of both Parties and their respective board of directors, terms and conditions which do not violate the operating requirements set forth by the local regulatory authorities will be negotiated in good faith by both Parties for timely and efficient execution of agreed upon projects. Nothing in this Memorandum however obliges Milcon or BCG to invest in or commit itself in any way to pursue the Opportunities unless mutually agreed on in writing after further evaluation and determination of the feasibility of the Opportunities, with a rate of return on investment mutually acceptable to the Parties. 11. Addendums to Current Geographic Scope. ------------------------------------- The Parties are desirous of pursuing opportunities in the Asia Region including: Malaysia Myannmar Pakistan Indonesia Brunei Singapore China Hong Kong Thailand Laos If opportunities similar to the Opportunities described in the previous sections of this Memorandum of Understanding present themselves to the Parties in the areas listed in this Section 11, the terms 3 and conditions of this Memorandum shall apply, provided an addendum to this agreement is mutually agreed upon in writing by the Parties. 12. Costs and Expenses. Except as otherwise specified herein, the Parties will ------------------ each meet their own expenses as incurred in the course of carrying out their respective responsibilities. Any vendor, consultant or third party expenses paid for by the proposed joint venture company will be mutually agreed upon in writing prior to acceptance of services and shared equally (50/50) by the Parties. 13. Breach. If one party commits a material breach of the joint venture ------ agreement and does not cure the breach within 30 days after written notice from the other party, then the non-breaching party may purchase the interest of the breaching party for 90% of the appraised value of such interest at a time specified by the purchasing party within 90 days thereafter. 14. Bankruptcy. If a party makes an assignment for the benefit of creditors or ---------- if a receiver is appointed for any of its property, or if any proceedings are commenced by or against a party under any bankruptcy or insolvency law now or hereafter in force, then such party shall have committed a material breach of the joint venture agreement, and the other party shall have the immediate right to purchase the interest of the breaching party for 90% of the appraised value of such interest at any time thereafter. 15. Appraised Value. The appraised value is determined by the following --------------- process: Each party has 30 days to name an appraiser. (If either party fails to name its appraiser within this time, an independent appraiser shall be named in his place by the other party.) These two appraisers jointly choose a third appraiser. Each appraiser determines a value. The average of the two closest values is the appraised value. 16. Deadlock. The joint venture shall be governed by a board of 5 directors. -------- Two directors shall be chosen by each party. The fifth director shall be chosen jointly by the parties at the time of execution of the joint venture agreement. If at any subsequent time the parties are unable to agree on the choice of a fifth director and such condition continues for a period of 60 days, then either party may invoke the buy-sell provisions. (See paragraph 17 below). 17. Buy-Sell. At any time after (i) deadlock, as described in paragraph 16 -------- above, or (ii) January 1, 2000, either party (the "offeror") may propose to purchase the interest of the other party, by written notice given 90 days prior to the date of the proposed purchase (the "closing date"). Such notice shall name a price at which the party is willing to purchase. The other party (the "responding party") shall, within 7 days after receipt of the offer (14 days if the responding party is a publicly held company) either (i) accept the offer, or (ii) elect not to sell but to make a counter-offer to purchase the interest of the offeror. Such counter-offer shall be given in writing to the offeror and shall be at a price not less than 105% of the original offer. The offeror shall then have the same right, as the responding party, to accept or to make a further counter-offer (at a price not less than 105% of the previous counter-offer). This process continues until an offer is accepted. Failure to respond within the prescribed time period is deemed to be an acceptance. The purchase shall take place on the closing date. 18. Transfer of Interests. Neither party shall transfer its interest to any --------------------- party prior to two years of project operation. Neither party shall transfer its interest to a third party without first giving written notice to the other party, granting the other party 30 days to offer to purchase the interest. If no offer is made, then the selling party may sell its interest to a third party within 90 days thereafter upon any terms it deems appropriate. If an offer is made but not accepted, then the selling party may sell its interest to 4 a third party within 90 days thereafter upon terms not more favorable to the buyer than those offered by the other party to the joint venture. 19. Co-Sale Rights. Neither party shall transfer its interest to a third party -------------- without first giving 30 days written notice to the other party, granting the other party the right to participate, on a pro rata basis, in the sale to --- ---- the third party, upon the same terms and conditions. 20. Payment of Purchase Price. Unless otherwise agreed to by the selling party, ------------------------- any payment for the purchase by one venturer of the other venturer's interest shall be made in US dollars, and at the option of the purchaser, either (i) in cash or cash equivalent form, payable in full at the closing, (ii) if the purchaser is a publicly held company, in shares of stock of the purchaser, the number of such shares to be determined by dividing the total purchase price by the average of the closing price on the ten business days prior to the third day before the date of closing of the purchase, or (iii) ten percent (10%) in cash or cash equivalent at the closing, and the balance in a promissory note, payable in eight equal quarterly installments, with interest at a rate equal to four percent (4%) plus the prime rate as established from time to time by Citibank, secured by the seller's interest being purchased. Such note may be prepaid at any time without premium or penalty. 21. Mutual Covenants. For the duration of this Memorandum, the Parties shall ---------------- work exclusively with each other, and no other party shall be invited to participate in the Opportunities without agreement of all the Parties. Each party shall also keep the other informed regarding activities and upcoming opportunities developed or presented to them in the areas covered by this agreement in a timely fashion so as to avoid potential conflicts and provide each other a first option to evaluate and participate in the opportunity within a specified time frame. 22. Duration. This memorandum shall be valid from the date hereof until July --------- 31, 1997 or until superseded by an agreement in writing. Should a joint venture agreement be reached by the parties prior to this date, this agreement will automatically be rendered void. 23. Governing Law This Memorandum shall be governed and construed in accordance ------------- with the laws of The Commonwealth of Massachusetts, U.S.A. and all disputes shall be settled by arbitration before The International Chamber of Commerce in Geneva, Switzerland. 24. Confidentiality. Each party shall treat as confidential all Confidential --------------- information of the other party and shall not disclose it to any third party or use it for any purpose other than in relation to the execution of this Memorandum of Understanding. The parties will execute a separate Non- Disclosure Agreement with respect to such information. 25. Prior Memorandum. This Memorandum of Understanding supersedes the prior ---------------- Memorandum of Understanding, dated April, 1996, between the parties. 5 Signed for and on Behalf of BOSTON COMMUNICATIONS GROUP, INC BY: /s/ Brian E. Boyle ______________________________ BRIAN E. BOYLE VICE CHAIRMAN Signed for and on Behalf of MILCON INTERNATIONAL, INC. BY: /s/ Safdar Quraeshi ______________________________ SAFDAR QURAESHI DIRECTOR 6 EX-10.27 8 SOFTWARE LICENSE AND SERVICES AGREEMENT EXHIBIT 10.27 ORACLE NETWORK LICENSE ORDER FORM CUSTOMER NAME: Boston Communications Group Inc. CONTRACT ADMINISTRATOR: Paul Senn PHONE: 617.476.3603 FAX: 617.692.6200 CUSTOMER LOCATION: 100 Sylvan Road, Woburn, MA 01801 TECHNICAL CONTACT: John Cooper PHONE: FAX: ORACLE CONTRACT INFORMATION AGREEMENT: Software License and Services Agreement AGREEMENT NAME: **SLSA Attached** This Network License Order Form ("Order Form") is placed in accordance with the Agreement specified above ("Agreement"), unless otherwise specified. Customer hereby orders the Program licenses described herein for use in the United States, unless otherwise specified. A. DESIGNATED SYSTEMS/PROGRAMS 1. DESIGNATED SYSTEM(S): MAKE/MODEL: MS CSI: OPERATING SYSTEM: Windows NT MEDIA TYPE CD 2. USER PROGRAMS:
DESCRIPTION QUANTITY LICENSE TYPE TYPE OF LIST PRICE % NET FEE LIST % SUPPORT USE DISCOUNT SUPPORT DISCOUNT FEE PRICE Oracle7 1 Full Use 2 -- -- -- -- -- -- Concurrent Oracle7 1 Deployment 20 -- -- -- -- -- -- Concurrent Oracle Workgroup Server 1 App-Specific 2 Computer -- -- -- -- -- -- ~Developer/2000 1 Full Use 2 Named -- -- -- -- -- -- ~Programmer/2000 1 Full Use 2 Named -- -- -- -- -- -- ~Designer/2000 1 Full Use 2 Named -- -- -- -- -- -- ~Discoverer/2000 1 Full Use 20 Named -- -- -- -- -- -- -------- --------- -------- ------- -------- -------- SUBTOTAL -- -- -- -- -- --
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." 3. ORDER SUMMARY TOTAL LICENSE FEES: -- SERVER TECHNICAL SUPPORT TYPE: Silver INITIAL YEAR ANNUAL TECHNICAL SUPPORT FEE: -- # of TRAINING UNITS(@ $380/each): -- TRAINING UNITS: -- TOTAL FEES DUE AS OF THE EFFECTIVE DATE: -- "CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." ORACLE B. GENERAL TERMS 1. Definitions. ----------- a. License Type . "Full Use Programs": unaltered versions of the Programs with all functions intact. . "Deployment Programs": may be used only to execute existing applications or reports. They may not be used to build or modify reports or applications. Deployment Programs are to be generated by Customer from Full Use Programs. . "Application Specific Deployment Programs" are limited to use solely for the purpose of running the Customer Application designated below, and may not be used to create or alter tables or reports except as necessary for operating the Customer Application. Customer Application is defined as: Transactions Originating from Telecommunications Switch. Application Specific Deployment Programs are to be generated by Customer from Full Use programs. b. User/Device Type . "Named User or Developer": is defined as an individual who is authorized by Customer to use the Oracle Programs, regardless of whether the individual is actively using Programs at any given time. . "Concurrent Devices/Concurrent Access": the maximum number of input devices accessing the Programs at any given point in time. If multiplexing software or hardware (e.g. a TP monitor) is used, this number must be measured at the multiplexing front-end. c. Network . "Network any number of computers of the Designated Systems listed in this document which are directly or indirectly connected by connectivity Programs. d. Other . "Per Computer": licensed for use on a single specified computer. . "Client": a computer which (1) is used by only one person at a time, and (2) executes Oracle software in local memory or stores the software on a local storage device. . Program: Full Use licenses of Programs marked with the symbol "-" also include an unlimited number of deployment licenses for the Programs as specified in the Documentation, 2. Technical Support. Customer shall designate one Customer employee (plus ----------------- twice as many as designated Customer employees as backups) who shall serve as the sole liaison between Customer and Oracle as Customer's on-site Technical Support Contact. Customer shall notify Oracle whenever the designated Technical Contact responsibilities are transferred to another employee. Technical Support is effective upon shipment (or upon Order Form Effective Date for products not requiring shipment). Support fees are due and payable annually in advance. Technical Support for the second year and thereafter will be based on Oracle's then current support pncing. For any Technical Support Updates to the Programs provided under this Order Form, Oracle shall ship to the Customer Location specified above one Technical Support Update copy for each operating system. Customer shall be responsible for copying and installing the Updates on the Designated Systems in the Network for which the Programs are licensed. Thereafter, Customer may obtain annual Technical Support services from Oracle under Oracle's Technical Support fees and policies in effect when such services are ordered. 3. Miscellaneous. Oracle shall deliver to the Customer Location, for use in the ------------- U.S., one (1) copy of the software media ("Master Copy") and one (1) set of Documentation (cd-rom or bound, whichever is generally available) for each licensed Program currently available in production release as of the Effective Date below for use on the Network. Customer shall have the right to make up to one copy of the Program(s), including Documentation, for each licensed Named User/Concurrent Device of the Programs and the customer shall be responsible for installation of the software. The License Fees specified above shall be due and payable net 30 days from the invoice date, and shall be noncancellable and the sum paid nonrefundable. Customer agrees to pay applicable sales/use tax, media, and shipping charges. The following shipping terms shall apply: FOB Destination, Prepaid and Add. Oracle may refer to Customer as a customer in sales presentations, marketing vehicles and activities. 4. Additional Designated System, Until 2 years from the Effective Date, Customer ---------------------------- shall have the option to add 4 additional Designated System(s) ("Additional Designated System(s)") to this Order Form at no charge, provided: (i) the Programs licensed herein are available in production release status on the Additional Designated System at the time Customer elects to add the Additional Designated System; and (ii) Customer has continuously maintained Technical Support for such Programs. Oracle shall ship to the Customer Location a single master copy of the Programs licensed herein for the Additional Designated System added. These Programs may only be copied and installed in accordance with the terms of the Order Form; Oracle has no @er shipment obligation other than as specified above. Customer acknowledges that the Programs licensed herein for use on the Additional Designated System may not be currently available. Customer agrees that it has not relied on the availability of such Programs licensed herein in executing this Order Form and that the availability of such Programs licensed herein will not affect Customer's payment obligations hereunder. Oracle is under no obligation to make available any Programs or Program/Designated System combinations. The following shipping terms shall apply: FOB Destination, Prepaid and Add. 5.Additional Named Users/Concurrent Devices. For 2 years from the Effective ----------------------------------------- Date and provided Customer has continuously maintained Technical Support, Customer may increase the number of Named Users/Concurrent Devices accessing the Programs on the Network ("Additional Named Users/Concurrent Devices") by paying Oracle an additional fee per Named User/Concurrent Device for the applicable Programs, as specified below:
License Fee per Program TM of User/Device License Type Additional Named User/Concurrent Device - ----------------------- ----------------- ------------ --------------------------------------- Oracle7 Server Concurrent Full Use -- Oracle7 Server Concurrent Deployment -- Workgroup Server Computer App-Specific -- Developer/2000 Named Full Use -- Programmer/2000 Named Full Use -- Designer/2000 Named Full Use -- Discoverer/2000 Named Full Use --
Each order for Additional Users must be at least $10,000 in net license fees; applicable sales, tax will be added to the fee. All applicable fees shall be due and payable on the date that Customer notifies Oracle in writing of its exercise of this option; Oracle has no shipment obligation. Upon election, this payment obligation is noncancelable, and the sum paid is nonrefundable. At the time of election, Customer may obtain Technical Support services from Oracle for Additional Named Users/Concurrent Devices ordered pursuant to this option at Oracle's applicable Technical Support fees and policies in effect when such services are ordered. 6. Additional Programs. For a period of 2 years from the Effective Date, ------------------- Customer may add the Programs listed below to the Network provided that such Programs are available in production release and are listed on Oracle's U.S. Price List for installation on the Designated Systems as of the Effective Date. The license fee for such Programs shall be at the price specified below. Customer may acquire Technical Support from Oracle for such Programs under Oracle's Technical Support fees and policies in effect when an order is placed.
License fee Prograrn License Type User/Device Type Per License Type -------- ------------ ---------------- ---------------- Oracle7 Server Computer App-Specific --
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. HEAVY BLACK LINES DENOTE SUCH OMISSIONS." Customer and Oracle agree that the terms and pricing of this Order Form shall not be disclosed without the prior written consent of the other party. This quote is valid through October 25, 1996 and shall become binding upon execution by Customer and acceptance by Oracle. BOSTON COMMUNICATIONS GROUP, INC ORACLE CORPORATION Signature: /s/ George Hertz Signature: /s/ Maia Burke -------------------- --------------------- Name: George K. Hertz Name: Maia Burke -------------------- --------------------- Title: President & CEO Title: Manager, Sales Support -------------------- --------------------- Effective Date: October 30, 1996 Quote Number: q2-4/degoroff/azeilman:Ol-oct-96 SHIIPMENT SUMMARY:
CSI PROGRAMS DESIGNATED SYSTEMS MEDIA TYPE NUMBER Oracle7 Server Windows NT CD Oracle Workgroup Server Windows NT CD Developer/2000 Windows NT CD Programmer/2000 Windows NT CD Designer/2000 Windows NT CD Discoverer/2000 Windows NT CD
EX-10.28 9 SOFTWARE LICENSE & SERVICE AGREEMENT ================================================================================ ORACLE CONTRACT INFORMATION [ ] GLOBAL LICENSE TERMS DISTRIBUTED WITH PROGRAMS. DESIGNATED SYSTEM Make/Model: Pentium-PC COMPATABLE Media Type: CD STANDARD Operating System: WINDOWS CSI Number:
Qty Shipped Level Programs Type of Use List Each Disc. Extended Net - -------------------------------------------------------------------------------------------- 1 Full Use Networking Bundle 1 Named User .00 .00 ------------ Sub Total: .00 Initial 1 Year Technical Support .00 .00
DESIGNATED SYSTEM Make/Model: Pentium-PC COMPATABLE Media Type: CD STANDARD Operating System: WINDOWS 95 CSI Number:
Qty Shipped Level Programs Type of Use List Each Disc. Extended Net - -------------------------------------------------------------------------------------------- 1 Full Use Networking Bundle 1 Named User .00 .00 ------------ Sub Total: .00 Initial 1 Year Technical Support .00 .00
- ------------------------------ | CSI # (s) ORDER # (S) | | 1184639 5270823 | | 1184640 5270824 | | 1184641 | | 1184642 | - ------------------------------ "Confidential material omitted and filed separately with the Securities and Exchange Commission. Heavy black lines denotes such omissions." ORDER FORM [LOGO OF ORACLE APPEARS HERE] Quote #: 97831 Page : 2 of 3 Customer BOSTON COMMUNICATION GROUP DESIGNATED SYSTEM Make/Model: PENTIUM-PC COMPATIBLE Media Type: CD STANDARD Operating System: WINDOWS NT CS Number:
Qty Shipped Level Programs Type of Use List Each Disc. Extended Net -------------------------------------------------------------------------------------------------------------------- 1 Full Use Oracle Server 42 Concur Dev -- 25% -- 1 Full Use Oracle Server 8 Concur Dev -- 10% -- 1 Full Use Professional Developer/2000 5 Developer -- 10% -- ---------------- Sub Total: -- Initial 1 Year Silver Annual Technical Support -- 18.4% --
DESIGNATED SYSTEM Make/Model: PENTIUM-PC COMPATIBLE Media Type: CD STANDARD Operating System: WINDOWS NT CS Number:
Qty Shipped Level Programs Type of Use List Each Disc. Extended Net -------------------------------------------------------------------------------------------------------------------- 1 Full Use Networking Bundle 1 Named User .00 .00 1 Full Use Networking Bundle 1 Named User .00 .00 ---------------- Sub Total: .00 Initial 1 Year Silver Annual Technical Support .00 .00 Total License Fees Due: -- Total Technical Support Fee Due: -- Total Additional Fees Due: ================ Total Fees Due: -- USD
NAMED USER A "Named User" or "Developer" is defined as an individual authorized by the Customer to use the Programs, regardless of whether the individual is actively using the Programs at any given time. CONCURRENT DEVICE The number of "Concurrent Devices" is defined as the maximum number of input devices accessing the programs at any given point in time. If multiplexing software or hardware (e.g. a TP Monitor) is used, this number must be measured at the multiplexing front end. The number of Concurrent Devices licensed for the database option products must equal the number of Concurrent Devices licensed for the Oracle7 Server. Rdb7 Server or the Oracle CODASYL DBMS on each computer. FULL USE PROGRAMS "Full Use Programs" are defined as unaltered versions of the Programs with all functions intact. TECHNICAL SUPPORT Annual Technical Support services ordered by Customer will be provided under Oracle's Technical Support policees and pricing in effect on the date Technical Support is ordered and shall be effective upon shipment (or upon Order Form Effective Date for products not requiring shipment); first year Technical Support is quoted above, if ordered. Fees for Technical Support are due and payable annually in advance. "Confidential material omitted and filed separately with the Securities and Exchange Commission. Heavy black lines denote such omissions." ORACLE(R) ORDER FORM Quote #: 87631 Page: 3 of 3 Customer BOSTON COMMUNICATION GROUP MISCELLANEOUS As specified on this Order Form, Oracle shall deliver to the Customer Location, for use in the United States, the number of copies specified above of the software media and Documentation (cdrom or bound, whichever is generally available) ("Master Copy") for each Program currently available in production release as of the Effective Data for use on the Designated Systems. Customer shall have the right to make up to one copy of the Program(s). Including documentation, for each licensed Named User/Concurrent Device of the Program(s) and Customer shall be responsible for installation of the software. The license fees specified above shall be due and payable not 30 days from the invoice date, and shall be noncancelable and the sum paid nonrefundable. Customer agrees to pay applicable sales/use tax, media and shipping charges. The following shipping terms shall apply: FOB Destination, Prepaid and Add. Thank you for your interest in Oracle. If you have any questions pieces contact Sean Lawrence, your Oracle Sales Representative, at 415 833 4078. Customer and Oracle agree that the terms and pricing of this Order Form shall not be disclosed without prior written consent of the other party. This quote is valid through August 26, 1998 and shall become binding upon execution by Customer and acceptance by Oracle. - -------------------------------------------------------------------------------- BOSTON COMMUNICATION GROUP ORACLE CORPORATION Signature: /s/ Peter Zuyus, Sr. Signature: /s/ Charles Adams -------------------------------- ---------------------- Name: /s/ Peter Zuyus, Sr. Name: Charles Adams ------------------------------------ --------------------------- Title: VP Title: DMD Sales Support ------------------------------------ -------------------------- Date: 9/23/96 ------------------------------------- - -------------------------------------------------------------------------------- EX-11 10 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------- 1994 1995 1996 -------------------------- NET INCOME PER COMMON SHARE - PRIMARY Net income $ 779 $1,893 $ 148 ========================== Average common shares outstanding 3,218 3,336 8,352 Dilutive options 213 232 Other (1) 5,630 5,630 2,669 -------------------------- Weighted average common shares outstanding 8,848 9,179 11,253 ========================== Net income per common share $ 0.09 $ 0.21 $ 0.01 ========================== NET INCOME PER COMMON SHARE - FULL DILUTION Net income $ 779 $1,893 $ 148 ========================== Average common shares outstanding 3,218 3,336 8,352 Dilutive options 213 238 Other (1) 5,630 5,630 2,669 -------------------------- Weighted average common shares outstanding 8,848 9,179 11,259 ========================== Net income per common share $ 0.09 $ 0.21 $ 0.01 ==========================
(1)Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, Common Stock and stock options issued during the twelve-month period preceding the date of the initial filing of the registration statement with an exercise price below the initial public offering price of $14.00 per share have been included in the calculation of common equivalent shares, using the Treasury stock method, as if they were outstanding for all periods presented. EX-21 11 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
Names under which State of Incorporation doing business ---------------------- ----------------- 1. Voice Systems Technology, Inc. Delaware Boston Communications Group 2. Cellular Express, Inc. Massachusetts Boston Communications Group 3. Wireless Americas Corp. Delaware Boston Communications Group 4. PCS Roaming, Inc. Massachusetts Boston Communications Group 5. Boston Communications Group Massachusetts Boston Communications Group Securities Corp.
EX-23 12 CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-11139) pertaining to the Boston Communications Group, Inc. 1996 Stock Option Plan, (Form S-8 No. 333-11191) pertaining to the Boston Communications Group, Inc. Non-Qualified Stock Options Pursuant to Written Option Agreements and (Form S-8 No. 333-11195) pertaining to the Boston Communications Group, Inc. 1996 Employee Stock Purchase Plan of our report dated February 11, 1997, with respect to the consolidated financial statements and schedule of Boston Communications Group, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. Ernst & Young LLP Boston, Massachusetts March 27, 1997 EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 923 20,498 11,060 1,242 1,189 35,499 16,089 3,183 51,959 9,019 0 0 0 127 42,766 51,959 50,651 50,651 39,182 50,041 0 0 (589) 1,199 600 599 0 0 0 148 .01 .01
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