<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION STATEMENT NO. 333-31839
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BOSTON COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MASSACHUSETTS 4812 04-302-26859
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
100 SYLVAN ROAD
WOBURN, MASSACHUSETTS 01801 (617) 692-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL J. TOBIN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BOSTON COMMUNICATIONS GROUP, INC.
100 SYLVAN ROAD
WOBURN, MASSACHUSETTS 01801
(617) 692-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK G. BORDEN, ESQ. R.W. SMITH, JR., ESQ.
THOMAS L. BARRETTE, JR., ESQ. HALE AND PIPER & MARBURY L.L.P. 36 SOUTH
DORR LLP 60 STATE STREET BOSTON, CHARLES STREET BALTIMORE, MARYLAND
MASSACHUSETTS 02109 TELEPHONE: (617) 21201 TELEPHONE: (410) 539-2530
526-6000 TELECOPY: (617) 526-5000 TELECOPY: (410) 576-1700
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date hereof.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), SHALL DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION,
DATED AUGUST 8, 1997
3,000,000 Shares
LOGO
Common Stock
--------
Of the 3,000,000 shares of Common Stock offered hereby, 2,775,000 shares are
being sold by Boston Communications Group, Inc. ("BCG" or the "Company") and
225,000 shares are being sold by the Selling Shareholders. See "Principal and
Selling Shareholders." The Company will not receive any proceeds from the sale
of shares by the Selling Shareholders. The Common Stock is quoted on the Nasdaq
National Market under the symbol "BCGI." On August 7, the last reported sale
price of the Company's Common Stock was $14.00 per share. See "Price Range of
Common Stock."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 HEREOF.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
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Total(3)................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting" for indemnification
arrangements with the Underwriters.
(2) Before deducting estimated expenses of $400,000, all of which will be
payable by the Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to 450,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to Selling Shareholders
will be $ , $ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
Alex. Brown & Sons
INCORPORATED
Donaldson, Lufkin & Jenrette
SECURITIES CORPORATION
Furman Selz
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[LOGO OF BOSTON COMMUNICATIONS GROUP, INC. APPEARS HERE]
PROVIDING INNOVATIVE SERVICES TO WIRELESS TELEPHONE CARRIERS.
[PICTURE OF MAP OF THE UNITED STATES INDICATING AREAS IN WHICH THE COMPANY'S
ROAMING SERVICES AND TELESERVICES ARE PROVIDED APPEARS HERE
LEGENDS TO THE MAP INCLUDE:
[COLOR] DENOTES: ROAMING SERVICES--SERVICE AREAS IN THE CONTINENTAL UNITED
STATES WHERE THE COMPANY PROVIDES ITS ROAMERPLUS(TM) SERVICE TO ONE OR BOTH OF
THE CELLULAR CARRIERS. THE COMPANY'S ROAMING SERVICE IS ALSO AVAILABLE IN
MEXICO CITY AND MAJOR MARKETS IN CANADA, ALASKA, HAWAII AND PUERTO RICO.
[COLOR] DENOTES: TELESERVICES--MARKETS FOR WHICH THE COMPANY PROVIDES CUSTOMER
SUPPORT SERVICES FOR WIRELESS CARRIERS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THIS OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS PARTICIPATING IN THIS
OFFERING MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. As used in this Prospectus, the terms
"BCG" and "the Company" refer to Boston Communications Group, Inc. and its
wholly-owned subsidiaries, Voice Systems Technology Inc. and Cellular Express,
Inc., unless the context otherwise requires.
THE COMPANY
Boston Communications Group, Inc. develops, markets and provides innovative
call processing and customer support teleservices and systems to wireless
telephone carriers. The Company's services and systems are designed to enable
wireless telephone carriers to focus internal resources on their core business
activities, while increasing revenues, improving service quality and reducing
costs. The Company's principal service offerings include its ROAMERplus roaming
service, its customer support teleservices and its prepaid wireless services.
The Company's ROAMERplus service provides carriers with the ability to cost-
effectively 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 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. The Company's prepaid wireless service, which
was introduced in early 1996 and offered in 72 U.S. markets as of June 30,
1997, enables wireless carriers to offer their services on a prepaid basis
using the Company's network of voice nodes (the "C/2/C Network"). The Company
has achieved significant growth in revenues over the past three years, with
revenues increasing from $18.3 million for the year ended December 31, 1994 to
$50.7 million for the year ended December 31, 1996.
Wireless telephone service has been one of the fastest growing segments of
the telecommunications industry over the last ten years. The Cellular
Telecommunications Industry Association estimates that the number of wireless
subscribers in the United States increased from approximately 340,000 in
December 1985 to approximately 44 million in December 1996. Significant growth
in the wireless telephone market is expected to continue in the future,
particularly given the emergence of personal communications service ("PCS") as
a new form of wireless telephone service. In addition, new revenue
opportunities, including the implementation of prepaid wireless services, are
expected to contribute to this growth. Industry sources have projected that the
number of prepaid wireless subscribers in the United States will grow to 9.4
million and that the total number of wireless subscribers will grow to 80
million by the end of the year 2000.
BCG's objective is to be a leader in providing high-quality, innovative call
processing and teleservices to wireless telephone carriers. A key element of
the Company's strategy is to identify and develop additional value-added
services that wireless telephone carriers either have not identified or have
found difficult or uneconomical to provide on their own. The Company seeks to
establish and maintain long-term relationships with its carrier customers in
order to understand evolving customer needs and continue to develop new service
offerings. The Company believes that the experience, relationships and
knowledge of its management team provide it with a competitive advantage in
addressing the needs of wireless telephone carriers.
The Company's ROAMERplus service was introduced in 1991 and by 1996 was being
used by approximately 80 cellular carriers that collectively hold licenses for
over 1,100 markets in the United
3
<PAGE>
States, Canada and Mexico, including nine of the 10 largest cellular carriers,
by number of subscribers, in the United States. Wireless carriers can offer
ROAMERplus service without significant additional investment in equipment,
technology or personnel. The Company introduced its teleservices in 1993 and
currently provides these services to 10 wireless carriers. The Company's
teleservices allow a carrier's subscribers to make billing inquiries, initiate
address and rate plan changes, obtain instructions on roaming features and
promotions and receive other customer assistance. The experience, economies of
scale and rapid response time that the Company brings to meeting its customers'
needs can make the Company's pricing for teleservices a strategic and economic
choice for wireless carriers.
The Company is in the process of expanding its C/2/C Network, which uses
proprietary software, to support delivery of its prepaid wireless services. The
Company believes that this prepaid wireless service is attractive to wireless
carriers seeking to cost-effectively penetrate untapped market segments, such
as subscribers who cannot or do not want to receive service under traditional
monthly billing arrangements. The Company is expanding its C/2/C Network to
support a number of existing and pending contracts with wireless carriers in
the United States, including a proposed agreement with AT&T to provide prepaid
service in all wireless markets serviced by AT&T.
The BCG Systems Division sells systems for prepaid wireless calling on a
turn-key basis primarily to international customers and also sells systems for
voice mail, fax mail and other enhanced services.
RECENT DEVELOPMENTS
From July 1, 1996 through mid-July 1997, the Company significantly expanded
both the coverage of and subscribers served by its C/2/C Network. In that time,
the Company entered into contracts to provide prepaid wireless services with
five wireless carriers, increasing the total population located in areas
serviceable under the Company's prepaid wireless contracts to over 108 million.
The Company also has announced a pending contract with AT&T to provide prepaid
wireless service in all markets serviced by AT&T, which would increase the
total population located in areas serviceable under the Company's prepaid
wireless contracts to over 176 million. The contract with AT&T has yet to be
finalized and there can therefore be no assurance that such contract will
ultimately be entered into. Over the same period, the Company expanded the
number of operational C/2/C Network voice nodes to 27, and the number of U.S.
subscribers using the C/2/C Network increased to approximately 137,000.
In the second quarter of 1997, the Company entered into a letter of intent to
form a joint venture with Front-End Services Corporation to distribute prepaid
calling cards on behalf of wireless carriers at over 75,000 retail locations
nationwide. In addition, BCG is commencing a cooperative arrangement with Radio
Shack to facilitate Radio Shack's sale of prepaid wireless services provided by
carriers utilizing the Company's C/2/C Network. Under this arrangement, Radio
Shack is able to sell prepaid wireless services at its retail locations without
issuing a prepaid card. Each of these arrangements is in the initial stages of
implementation and requires the cooperation and participation of the applicable
local wireless carrier.
Since June 1996, the Company has devoted significant effort to developing its
presence in the Latin American market. The Company sold a prepaid system for
over $5 million to Telcel, the largest wireless carrier in Mexico. In addition,
the Company sold another prepaid system for $1.4 million to Cellstar, a
reseller of wireless services in Venezuela.
In July 1997, the Company and AT&T signed a letter of intent pursuant to
which holders of AT&T calling cards will be entitled to use those cards to pay
for calls made through the Company's ROAMERplus service.
The Company was organized as a Massachusetts corporation in August 1988. The
Company's principal office is located at 100 Sylvan Road, Woburn, Massachusetts
01801, and its telephone number is (617) 692-7000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company....... 2,775,000 shares
Common Stock offered by the Selling Share-
holders.................................. 225,000 shares
Common Stock to be outstanding after the
offering................................. 15,644,362 shares(1)
Use of proceeds........................... For expansion of the C/2/C Network,
the purchase of the 20% minority
interest in Wireless America Corp.,
possible acquisitions and other
general corporate purposes,
including working capital
Nasdaq National Market symbol............. BCGI
</TABLE>
- --------
(1) Includes 10,000 shares of Common Stock issuable pursuant to options to be
exercised by a Selling Shareholder in connection with this offering.
Excludes 1,739,563 shares of Common Stock issuable upon the exercise of
options outstanding as of June 30, 1997 at a weighted average exercise
price per share equal to $5.94. See "Management--Executive Compensation--
Stock Plans."
This Prospectus contains certain forward-looking statements. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, statements such as "may," "will," "except," "believe,"
"anticipate," "estimate," or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a variety
of factors including those described in Risk Factors.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS
DATA:
Revenues:
Roaming services...... $ 6,275 $ 8,236 $16,004 $25,446 $32,234 $ 15,541 $ 15,060
Teleservices.......... -- 458 2,330 8,774 13,413 7,150 8,164
Prepaid wireless
services............. -- -- -- -- 312 69 2,303
System sales.......... -- -- -- -- 4,692 1,233 6,445
------- ------- ------- ------- ------- -------- --------
Total revenues...... 6,275 8,694 18,334 34,220 50,651 23,993 31,972
Operating income
(loss)................. 291 (269) 405 2,129 610 1,077 (120)
Income (loss) from
continuing
operations(1).......... 259 (332) 288 3,008 599 573 136
Income (loss) from
discontinued
operations............. (1,196) (92) 1,507 (165) -- -- --
Net income (loss)....... (937) (424) 1,795 2,843 599 573 136
Accretion of dividends
on redeemable preferred
stock.................. (1,030) (1,030) (1,016) (950) (451) (451) --
Net income (loss)
available to common
shareholders........... (1,967) (1,454) 779 1,893 148 122 136
Net income (loss)
available to common
shareholders per common
share(2):
Continuing
operations........... $ (0.26) $ (0.42) $ (0.08) $ 0.22 $ 0.01 $ 0.01 $ 0.01
Net income (loss)..... $ (0.65) $ (0.45) $ 0.09 $ 0.21 $ 0.01 $ 0.01 $ 0.01
Shares used in computing
net income (loss) per
share.................. 3,012 3,235 8,848 9,179 11,259 9,334 13,266
Supplemental net income
available to common
shareholders per common
share(3)............... $ 0.05
Shares used in computing
supplemental net income
per share.............. 12,427
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and short-term invest-
ments.................. $ 3,799 $ 40,083
Working capital......... 13,026 49,310
Total assets............ 54,382 90,666
Shareholders' equity.... 43,782 80,066
</TABLE>
- -------
(1) 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.
(2) See Note 2 of Notes to Consolidated Financial Statements.
(3) 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 the
Company's Common Stock of $14.00 per share were required to complete the
redemption of the Company's Redeemable Preferred Stock. Net income
available to common shareholders is increased by the dividends accreted in
1996 on the Redeemable Preferred Stock. See Note 2 of Notes to Consolidated
Financial Statements.
(4) Adjusted to give effect to the sale by the Company of 2,775,000 shares of
Common Stock offered hereby (at an assumed offering price of $14.00 per
share and after deducting underwriting discounts and commissions and
estimated offering expenses) and the application of the net proceeds
therefrom. Assumes the exercise of an option to purchase 10,000 shares of
Common Stock by a Selling Shareholder in connection with this offering.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
Reliance on Significant Customers. 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%, 82.4% and 77.3% of
the Company's total revenues in 1994, 1995, 1996 and the first six months of
1997, respectively. Ameritech Cellular, Bell Atlantic NYNEX Mobile and
BellSouth Mobility accounted for approximately 14.8%, 12.3% and 11.4%,
respectively, of total revenues in 1996. Bell Atlantic NYNEX Mobile, Telcel
and Ameritech accounted for approximately 12.7%, 12.2% and 10.8%,
respectively, of total revenues in the first six months of 1997. In addition,
Ameritech Cellular and SNET Telecommunications, Inc. accounted for
approximately 40.4% and 26.1%, respectively, of the Company's teleservices
revenues in 1996. Ameritech Cellular, LA Cellular, Bell Atlantic NYNEX Mobile
and SNET Telecommunications, Inc. accounted for approximately 29.9%, 18.4%,
18.3% and 14.5%, respectively, of the Company's teleservice revenues in the
first six months of 1997. Further, system sales to one customer accounted for
60.3% of the Company's system sales for the first six months of 1997. 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 through these customers, the amount of services being performed
pursuant to teleservices programs and the level of system sales. The Company
expects that revenues attributable to a relatively small number of customers
will continue to represent a significant percentage of its total revenues for
the foreseeable future. The terms of the Company's contracts with its
customers, including its significant customers, are generally for periods of
one to two years and, except for certain teleservices and prepaid wireless
services contracts, have no minimum payment obligations to the Company.
Therefore, although the Company believes it has good relationships with its
customers, there can be no assurance that any of the Company's customers,
including its major customers, will continue to utilize the Company's services
in amounts similar to previous years or at all. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Customers."
Potential Fluctuations in Quarterly Performance. 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, variations in the level of system sales, 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 roaming services 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. See "Business--Industry Background." Teleservices revenues
may be influenced by the requirements of one or more of the Company's
significant teleservice customers, including engagement of the Company for
implementing or assisting in implementing special projects of limited
duration. Revenues from system sales may be influenced by the timing of
purchase decisions by the Company's customers and variations in the Company's
sales cycle caused by factors such as the size of the transaction, customer
purchasing patterns, the timing of new product and service introductions and
general economic conditions. Although the Company was profitable during 12 out
of the last 13 quarters, the Company was not profitable in any period prior to
that time, and the Company experienced a significant reduction in its
profitability in 1996 and an operating loss in the first six months of 1997,
due to expenses associated with the development of its C/2/C Network. The
Company expects to continue to incur significant expenses in connection with
the expansion of its C/2/C Network to implement services to meet contractual
obligations. In particular, the
7
<PAGE>
Company is expanding its C/2/C Network in anticipation of entering into a
proposed agreement with AT&T to provide prepaid service in all wireless
markets serviced by AT&T. If that agreement is not ultimately consummated,
costs incurred in connection with the expansion of the C/2/C Network could
have a significant negative effect on the Company's results of operations.
There can be no assurance that the Company's recent profitability will
continue in the future or that its levels of profitability will not vary
significantly among quarterly periods. Fluctuations in operating results may
result in volatility in the price of the Company's Common Stock.
Because a significant portion of the Company's operating expenses are
committed in advance based on anticipated revenue levels, the Company may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, unexpected revenue shortfalls can cause
significant variations in operating results from quarter to quarter and could
have a material adverse effect on the Company's results of operations. In
addition, the Company hired a significant number of employees in 1996 and the
first six months of 1997, and expects to continue hiring additional sales,
customer service, teleservice, management, software development and technical
support employees during 1997 as it continues to develop and expand its
operations, including the C/2/C Network. This significant increase in its
workforce may negatively impact the Company's operating margins in the future,
particularly if either the Company's expansion of its prepaid wireless service
or its sales of prepaid systems are not successful.
The Company recently began selling systems for prepaid wireless service in
addition to providing prepaid wireless service under ongoing network-based
contracts. Some of the Company's prepaid wireless service contracts also grant
the carrier the option to purchase the system being used under the contract.
Because the timing of system sales is difficult to predict, variations in
system sales could result in significant variations in revenues between
quarters. Further, a significant increase in system sales in the United
States, could decrease the Company's ability to generate recurring revenues
from its C/2/C Network. System sales to existing network customers would
decrease the Company's recurring revenues from its C/2/C Network and could
adversely affect the Company's business, financial condition and results of
operations.
The Company's largest source of revenue is currently its ROAMERplus service.
In providing that service, the Company processes calls made by unregistered
roamers and bears the collection risk, including chargebacks and other billing
adjustments. This arrangement requires the Company to estimate and reserve for
uncollectible ROAMERplus charges. The amount of these uncollectible charges
has historically averaged approximately 15% of gross ROAMERplus revenues on an
annual basis, but has varied in particular quarters. A significant change in
the Company's experience with respect to, or a failure by the Company to
properly estimate and reserve for, uncollectible ROAMERplus charges in any
period could have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Due to all of the foregoing factors, it is possible that in some future
quarter the Company's results of operations will be below prior results or the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
Dependence on Cellular Market; Uncertain Acceptance of Prepaid Wireless
Service and PCS. The Company historically has provided its services, including
roaming services and teleservices, almost exclusively to cellular carriers and
their subscribers. 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. Because the Company's ROAMERplus service is now
being used by a substantial number of the cellular carriers in the United
States, further growth in the Company's revenues from the ROAMERplus service
will need to be generated by general growth of the wireless roaming market, if
any, as opposed to the addition of new carrier customers. Demand for the
Company's ROAMERplus services has been, and may in the future be, adversely
affected by improved fraud programs under intercarrier roaming agreements and
the increase in the number of roaming calls subject to intercarrier roaming
agreements. Declines in demand for the Company's services or systems, whether
as a result of competition, technological change, general
8
<PAGE>
economic conditions or other factors, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's future operating results will depend in large part on the
emergence of the prepaid wireless and PCS markets, the acceptance and use by
wireless carriers of the Company's prepaid wireless service and systems and
the use of the Company's services and systems by PCS carriers. 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 could be materially and adversely
affected. See "Business--Industry Background" and "--Services."
Development and Operation of C/2/C Network and Prepaid Systems. The Company
is currently devoting significant resources to the expansion of its prepaid
wireless service and systems, including continued expansion of its C/2/C
Network. Further, the Company is in the process of installing, at its own
expense, the voice nodes and other infrastructure required to expand the C/2/C
Network to meet the requirements of existing and pending contracts. There can
be no assurance that the Company will successfully complete the expansion of
the C/2/C Network or its prepaid wireless service in a timely fashion, that
the market for the Company's prepaid wireless service will continue to
develop, that pending contracts will be implemented as expected, or that the
Company will be able to successfully operate the C/2/C Network. If the Company
is not successful in its expansion of the C/2/C Network, if the market for
prepaid wireless services develops more slowly than expected, if the existing
or pending contracts are not implemented as expected, or if the Company's
prepaid wireless service becomes subject to significant competitive pressures,
the Company's business, results of operations and financial condition will be
materially and adversely affected. In addition, the Company has only recently
begun selling prepaid wireless systems as well as offering prepaid wireless
services. The Company's experience in manufacturing, distributing, licensing
and selling advanced technological systems, particularly to international
customers, is limited. There can be no assurance that demand for the Company's
prepaid systems will develop, or that the Company will develop and manage a
distribution network for the sale of such systems successfully. See
"Business--Industry Background."
Rapid Industry Change. The Company's future success will depend on the
continued use of its existing services and systems, the acceptance of new
services in the wireless industry and the Company's ability to develop new
services and systems or adapt existing services and systems to keep pace with
changes in the wireless telephone industry. Technological changes or
developments in the wireless industry, such as improved switching
technologies, further industry consolidation or improved fraud prevention,
could make wireless roaming easier and less costly and thereby reduce or
eliminate demand for the Company's roaming service. Further, a rapid shift
away from the use of cellular in favor of other services could affect demand
for the Company's service offerings and could require the Company to develop
modified or alternative service offerings addressing the particular needs of
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 or systems in a timely manner, or at all. If the Company is unable,
due to resource, technological or other constraints, to adequately anticipate
or respond to changing market, customer or technological requirements, the
Company's business, financial condition and results of operations will be
materially adversely affected. There can be no assurance that products or
services developed by others will not render the Company's services non-
competitive or obsolete. See "Business--Industry Background" and "--
Competition."
Limited Operating History; Accumulated Deficit. The Company was founded in
1988 but did not introduce its ROAMERplus service until 1991, did not
introduce its teleservices until 1993 and introduced its prepaid wireless
service and systems in 1996. Accordingly, the Company has only a limited
operating history for the businesses that generated substantially all of its
revenues from continuing operations since January 1, 1994. The Company did not
become profitable until 1994, realized an operating loss in the first six
months of 1997 and, as of June 30, 1997, had an accumulated deficit of $9.5
million. There can be no assurance that the Company will be profitable on
either a quarterly or annual basis in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
9
<PAGE>
Ability to Manage Growth. 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. The Company's future operating
results will depend on the ability of its officers and key employees to manage
changing business conditions and to continue to improve its operational and
financial control and reporting systems. In addition, the Company's Chief
Executive Officer resigned for personal reasons in April 1997. Paul Tobin, the
Chairman of the Company, is serving as the acting President and Chief
Executive Officer of the Company while the Company seeks a new President and
chief executive. If the Company's management is unable to manage growth
effectively, its business, financial condition and results of operations could
be materially and adversely affected. See "Business--Employees" and
"Management."
The success of the Company's business depends in part upon the Company's
ability to attract, train and retain a sufficient number of qualified
personnel commensurate with the expanding needs of the Company. The Company's
teleservices business is labor-intensive and characterized by high personnel
turnover. An increase in the turnover rate among the Company's employees would
increase the Company's recruiting and training costs, and if the Company were
unable to recruit and retain a sufficient number of employees, it could be
forced to limit its growth or possibly curtail its operations. Although the
Company hired a significant number of employees in 1996 and the first six
months of 1997, there can be no assurance that the Company will be successful
in attracting, training and retaining the required number of employees to
support the Company's business in the future. See "Business--Services and
Employees."
Competition. The market for sales of services and systems to wireless
carriers is highly competitive and subject to rapid change. A number of
companies currently offer one or more of the services or systems 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 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.
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 and product offerings, price
and technical expertise. The Company believes that its 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.
Many of the Company's current and potential competitors have significantly
greater financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or may be able to devote greater
resources to the promotion and sale of their products and services. There can
be no assurance that the Company will be able to compete successfully with its
existing competitors or with new competitors. In addition, competition could
increase if new companies enter the market or if existing competitors expand
their service offerings. An increase in competition could result in price
reductions and loss of market share and could have a material adverse effect
on the Company's business, financial condition or results of operations.
To be competitive in the wireless carrier services industry the Company will
need to continue to invest in engineering, research and development and sales
and marketing. There can be no assurance that
10
<PAGE>
the Company will have sufficient resources to make such investments or that
the Company will be able to make the technological advances necessary to
remain competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties, including third parties with whom the
Company has a relationship, to increase the visibility and utility of their
products and services. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this
were to occur, the Company's business, financial condition and results of
operations would be materially adversely affected. See "Business--
Competition."
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company
relies primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. The Company limits access to, and distribution of, its
proprietary information, and has entered into confidentiality agreements with
certain of its employees, consultants, clients and potential clients. In
addition, the Company has recently instituted a policy requiring all senior
management and software development employees, consultants, clients and
potential clients to enter into confidentiality agreements in the future.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's technology without authorization, or to
develop similar technology independently. 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. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology. In
addition, the Company is expanding its operations, particularly system sales,
into markets outside of the United States. The laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the
United States.
Some of the software used to support the Company's roaming services and
prepaid wireless services and systems 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. See "Business--Proprietary
Rights."
Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that third parties
will not assert infringement claims against the Company in the future or that
any such claims will not require the Company to enter into license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims. Such royalty or license agreements, if required, may
not be available on terms acceptable to the Company or at all.
Risk of System Failure or Inadequacy. The Company's operations are dependent
upon 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. Nearly all of the Company's
computer and telecommunications equipment is located at its sites in
Massachusetts, including the switch and the back-up switch used to handle the
Company's ROAMERplus business. Although the Company has recently enhanced its
back-up for its systems, these measures will not eliminate the risk to the
Company's operations from a natural disaster or system failure. From time to
time, the Company has suffered failure of its systems, which has resulted in
delays in the delivery or a reduction in the quality of its services to some
customers. In addition, the growth of the Company's customer base or a
significant increase in call volume may strain the capacity of its computers
and telecommunications systems and lead to degradations in performance or
system failure. Any damage, failure or delay that causes interruptions in the
Company's
11
<PAGE>
operations could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company's property and business interruption insurance will be adequate to
compensate the Company for any losses that may occur in the event of a system
failure. See "Business--Services."
In addition to its own systems, the Company relies on certain equipment,
systems and services from third parties that are also subject to risks,
including risks of system failure. For example, in providing its unregistered
roaming service the Company depends on a single long distance carrier to
provide the long distance service that is required to transport a roamer's
call to the Company's facilities in Massachusetts. If the carrier was to fail
to provide such service due to a system failure or other reason, the Company
would be unable to service any unregistered roamers until the problem was
resolved or an alternative long distance carrier was in place. The Company
believes that it would incur significant expenses if it were required to
replace its long distance carrier on short notice. The Company is also
dependent on access to various credit information databases to support its
unregistered roaming business. If, for any reason, the Company was unable to
access that data, the Company would be required either to cease providing the
service until it reached a resolution of the problem or would be required to
provide services without being able to manage the associated collection risk.
Risks Associated with International Operations. The Company is expanding its
operations into markets outside the United States. In order to expand
international sales of services and systems in subsequent periods, the Company
must establish additional foreign operations and hire additional personnel.
This will require significant management attention and financial resources and
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will be able to maintain or increase international market demand for
the Company's services or systems. The Company's international sales are
primarily denominated in U.S. dollars. An increase in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets.
Currently, the Company does not employ currency hedging strategies to reduce
this risk. In addition, the Company's international business may be subject to
a variety of risks, including difficulties in collecting international
accounts receivable or obtaining U.S. export licenses, potentially longer
payment cycles, increased costs associated with maintaining international
marketing efforts, the introduction of non-tariff barriers and higher duty
rates and difficulties in enforcement of contractual obligations and
intellectual property rights. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition and results
of operations.
Risks Associated with Strategic Relationships and Acquisitions. The Company
continually evaluates opportunities to acquire additional products,
technologies or businesses. Acquisitions may result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities, and amortization expense related to intangible assets acquired,
any of which could materially adversely affect the Company's financial
condition and results of operations. In addition, acquired businesses may be
experiencing operating losses, which may adversely affect the Company's
earnings. Acquisitions involve a number of risks, including difficulties in
the assimilation of the acquired company's operations and products, diversion
of management's resources, uncertainties associated with operating in new
markets and working with new customers, and the potential loss of the acquired
company's key employees.
Dependence on Key Personnel. The Company's future success depends in large
part on the continued services of its key management, sales, engineering,
research and development and operational personnel and on its ability to
continue to attract, motivate and retain highly qualified employees in those
areas. Competition for such personnel is intense and there can be no assurance
that the Company will be successful in attracting, motivating and retaining
key personnel. The inability to hire and retain qualified personnel or the
loss of the services of key personnel could have a material adverse effect
upon the Company's current business and future business prospects. The Company
does not maintain any key man life insurance policies on any of its employees.
See "Business--Employees" and "Management."
12
<PAGE>
Government Regulation and Legal Uncertainties. While most of the Company's
operations are not directly regulated, the wireless carriers that constitute
the Company's customers are heavily 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 systems, impede the
Company's ability to offer competitive services or systems to the wireless
telephone market or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations. At the same time,
recently enacted legislation deregulating the telecommunications industry may
cause changes in the industry, including entrance of new competitors and
industry consolidation, which could in turn subject the Company to increased
pricing pressures, decrease the demand for the Company's services, increase
the Company's cost of doing business or otherwise have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."
Possible Volatility of Stock Price. The trading in the Company's Common
Stock has been and may continue to be subject to wide fluctuations in response
to the announcement of operating results that differ from expectations,
changes in such expectations, quarter-to-quarter variations in operating
results, announcements of technological innovations or new products and
services by the Company or its competitors and market conditions for stocks of
telecommunications services companies in general.
In addition, in recent years the stock market in general, and the shares of
certain telecommunications- related companies in particular, have experienced
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Price Range of Common Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of the Company's
Common Stock in the public market following this offering could adversely
affect the prevailing market price of the Common Stock. Immediately after
completion of the offering, the Company will have 15,644,362 shares of Common
Stock outstanding, of which 7,428,350 (assuming no exercise of the
Underwriters' over-allotment option) will be eligible for sale without
restriction by persons who are not affiliates of the Company. Following this
offering, 8,216,012 outstanding shares of Common Stock will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), and under certain circumstances may
be sold without registration pursuant to Rule 144. Approximately 5,233,466 of
these shares will be eligible for sale in the public market pursuant to Rule
144(k) immediately after this offering. The holders of approximately 2,693,705
shares of Common Stock have agreed not to publicly offer, sell or otherwise
dispose of such shares for 90 days after the date of this Prospectus, without
the prior consent of Alex. Brown & Sons Incorporated.
Antitakeover Effect of Charter Provisions, By-Laws and Massachusetts
Law. The Company's Amended and Restated Articles of Organization and
Massachusetts law contain provisions that could discourage a proxy contest or
make more difficult the acquisition of a substantial block of the Company's
Common Stock. The Company's Amended and Restated By-laws and Massachusetts law
provide for a classified Board of Directors, and the Restated Articles of
Organization provide that members of the Board of Directors may be removed
only for cause upon the affirmative vote of holders of at least two-thirds of
the shares of capital stock of the Company entitled to vote. In addition, the
Company's Board of Directors is authorized to issue shares of Common Stock and
Preferred Stock without shareholder approval. Any such issuance could dilute
and adversely affect various rights of the holders of Common Stock and could
be used to discourage an unsolicited attempt to acquire control of the
Company. These provisions, and other provisions of the Restated Articles of
Organization, may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management of the Company, including
transactions in which shareholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may
limit the ability of shareholders to approve transactions that they may deem
to be in their best interests.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to BCG from the sale of shares of Common Stock offered by
the Company hereby are estimated to be approximately $36.2 million, ($39.2
million if the Underwriters' over-allotment option is exercised in full) at an
assumed offering price per share of $14.00 after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company will not receive any of the net proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."
The Company anticipates that up to $15 million of the net proceeds will be
used over the next 18 months for capital and other expenditures in connection
with the expansion of the C/2/C Network. The timing and amount of the
expenditures for expansion of the C/2/C Network is dependent upon the timing
and extent of the roll-out of prepaid wireless services by the Company's
customers, including the roll-out under the Company's pending contract with
AT&T.
In addition, the Company intends to use $1.3 million of the net proceeds to
purchase the remaining 20% interest in Wireless America Corp. that it does not
currently own. See "Business--Litigation."
The Company expects to use the balance of the net proceeds from this
offering for general corporate purposes, including working capital. A portion
of the net proceeds may also be used for the acquisition of businesses,
products and technologies that are complementary to those of the Company. The
Company currently has no plans, commitments or negotiations with respect to
any such transactions. Pending such uses, the Company intends to invest the
net proceeds from this offering in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support
its growth strategy and does not anticipate paying cash dividends in the
foreseeable 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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "BCGI" since June 18, 1996. Prior to June 18, 1996, the
Common Stock was not publicly traded. The following table sets forth for the
periods indicated, the high and low sales price of the Common Stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- ----
<S> <C> <C>
1996
Second Quarter (June 18, 1996 to June 30, 1996)............. $16 1/2 $14
Third Quarter............................................... $18 1/4 $12
Fourth Quarter.............................................. $16 1/8 $ 4 3/8
1997
First Quarter............................................... $ 7 1/8 $ 3 7/8
Second Quarter.............................................. $15 1/16 $ 4 1/8
Third Quarter (July 1, 1997 to August 7, 1997).............. $17 1/4 $12 1/4
</TABLE>
On August 7, 1997, the last reported sale price of the Company's Common
Stock was $14.00 per share. On August 7, 1997, the Company had approximately
85 holders of record.
14
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997 and the capitalization as adjusted to reflect the sale by the
Company of 2,775,000 shares of Common Stock offered hereby (at an assumed
public offering price of $14.00 per share), after deducting underwriting
discounts and commissions and estimated offering expenses and application of
the net proceeds therefrom. This table should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto and
other financial information included in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
AS
ACTUAL ADJUSTED(1)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares
authorized, no shares issued and outstanding (actual
and as adjusted)....................................... $ -- $ --
Common Stock, $.01 par value, 35,000,000 shares
authorized; 12,905,782 shares issued (actual),
15,690,782 shares issued
(as adjusted).......................................... 129 157
Additional paid-in capital.............................. 53,489 89,745
Treasury Stock (46,420 shares, at cost)................. (372) (372)
Accumulated deficit..................................... (9,464) (9,464)
------- -------
Total shareholders' equity............................ 43,782 80,066
------- -------
Total capitalization.................................. $43,782 $80,066
======= =======
</TABLE>
- --------
(1) Assumes the exercise of an option to purchase 10,000 shares of Common
Stock by a Selling Shareholder in connection with this offering and the
receipt by the Company of the proceeds therefrom. Excludes 1,739,563
shares of Common Stock issuable upon the exercise of options outstanding
as of June 30, 1997 at a weighted average exercise price per share equal
to $5.94.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of operations for the years ended December
31, 1994, 1995 and 1996 and with respect to the Company's consolidated balance
sheets as of December 31, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus and have been audited by Ernst & Young LLP,
independent auditors. The selected consolidated financial data set forth below
with respect to the Company's consolidated statements of operations for the
years ended December 31, 1992 and 1993 and with respect to the Company's
consolidated balance sheets as of December 31, 1992, 1993 and 1994 have been
derived from the Company's audited Consolidated Financial Statements and Notes
thereto, which are not included herein. The selected consolidated financial
data as of June 30, 1997 and for the six months ended June 30, 1996 and 1997
have been derived from the unaudited consolidated financial statements of the
Company. The unaudited consolidated financial statements have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information set forth
therein. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of future operating results. The consolidated
selected financial data set forth below is qualified in its entirety by and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues:
Roaming services ...... $ 6,275 $ 8,236 $ 16,004 $25,446 $32,234 $15,541 $15,060
Teleservices........... -- 458 2,330 8,774 13,413 7,150 8,164
Prepaid wireless
services.............. -- -- -- -- 312 69 2,303
System sales........... -- -- -- -- 4,692 1,233 6,445
------- -------- -------- ------- ------- ------- -------
Total revenues....... 6,275 8,694 18,334 34,220 50,651 23,993 31,972
Operating expenses:
Cost of service
revenues.............. 4,252 6,638 14,212 26,100 36,606 17,775 20,301
Cost of system
revenues.............. -- -- -- -- 2,576 590 3,735
Engineering, research
and development....... 96 152 270 839 3,221 1,163 2,197
Sales and marketing.... 290 504 1,268 1,934 2,949 1,196 2,293
Management fees........ -- 840 1,008 1,008 252 252 --
General and
administrative........ 1,231 585 775 1,321 2,328 1,103 1,473
Depreciation and
amortization.......... 115 244 396 889 2,109 837 2,093
------- -------- -------- ------- ------- ------- -------
Total operating
expenses............ 5,984 8,963 17,929 32,091 50,041 22,916 32,092
------- -------- -------- ------- ------- ------- -------
Operating income
(loss)................. 291 (269) 405 2,129 610 1,077 (120)
Interest income
(expense).............. (30) (41) (64) (151) 589 (81) 397
------- -------- -------- ------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes.... 261 (310) 341 1,978 1,199 996 277
Provision (benefit) for
income taxes........... 2 22 53 (1,030) 600 423 141
------- -------- -------- ------- ------- ------- -------
Income (loss) from
continuing
operations(1).......... 259 (332) 288 3,008 599 573 136
Discontinued operations:
Income (loss) from
operations............ (1,116) 232 104 (129) -- -- --
Gain (loss) on
disposal.............. (80) (324) 1,403 (36) -- -- --
------- -------- -------- ------- ------- ------- -------
Income (loss) from
discontinued
operations............. (1,196) (92) 1,507 (165) -- -- --
------- -------- -------- ------- ------- ------- -------
Net income (loss)....... (937) (424) 1,795 2,843 599 573 136
------- -------- -------- ------- ------- ------- -------
Accretion of dividends
on redeemable preferred
stock.................. (1,030) (1,030) (1,016) (950) (451) (451) --
------- -------- -------- ------- ------- ------- -------
Net income (loss)
available to common
shareholders........... $(1,967) $ (1,454) $ 779 $ 1,893 $ 148 $ 122 $ 136
======= ======== ======== ======= ======= ======= =======
Net income (loss)
available to common
shareholders per common
share(2):
Continuing opera-
tions................. $ (0.26) $ (0.42) $ (0.08) $ 0.22 $ 0.01 $ 0.01 $ 0.01
======= ======== ======== ======= ======= ======= =======
Net income (loss)...... $ (0.65) $ (0.45) $ 0.09 $ 0.21 $ 0.01 $ 0.01 $ 0.01
======= ======== ======== ======= ======= ======= =======
Shares used in computing
net income (loss) per
share.................. 3,012 3,235 8,848 9,179 11,259 9,334 13,266
Supplemental net income
available to common
shareholders per common
share(2)............... $ 0.05
=======
Shares used in computing
supplemental net income
per share.............. 12,427
=======
<CAPTION>
DECEMBER 31,
---------------------------------------------
JUNE, 30
1992 1993 1994 1995 1996 1997
------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and short-term
investments............ $ 890 $ 681 $ 204 $ 253 $21,241 $ 3,799
Working capital......... 372 695 1,098 2,082 26,433 13,026
Total assets............ 6,107 6,889 8,867 13,613 51,959 54,382
Redeemable preferred
stock.................. 13,901 14,930 14,947 15,896 -- --
Shareholders' equity
(deficit).............. (9,916) (11,370) (10,591) (8,698) 42,893 43,782
</TABLE>
- -------
(1) 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.
(2) 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 the
Company's Common Stock of $14.00 per share were required to complete the
redemption of the Company's Redeemable Preferred Stock. Net income
available to common shareholders is increased by the dividends accreted in
1996 on the Redeemable Preferred Stock. See Note 2 of Notes to
Consolidated Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
OVERVIEW
Boston Communication Group, Inc. develops, markets and provides innovative
call processing and customer support teleservices and systems to wireless
telephone carriers. The Company's services and systems are designed to enable
wireless telephone carriers to focus internal resources on their core business
activities, while increasing revenues, improving service quality and reducing
costs. The Company's principal service offerings include its ROAMERplus
roaming services, its teleservices and its prepaid wireless services. The
Company's ROAMERplus service provides carriers with the ability to cost-
effectively 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 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. The Company's prepaid wireless services enable
wireless carriers to offer their services on a prepaid basis using the C/2/C
Network.
The Company introduced its ROAMERplus service in 1991 and introduced its
teleservices in 1993. BCG introduced its prepaid wireless service in early
1996 and began selling prepaid wireless systems, primarily to wireless
carriers outside the United States, in mid-1996. The Company primarily charges
for its services on a per minute or per call basis, or a combination thereof.
The Company receives payment for its ROAMERplus service from wireless
subscribers using the service and receives payment for teleservices and
prepaid wireless services from the applicable carrier. Service revenues are
recognized at the time the service is provided and are recorded net of
estimated chargebacks and other billing adjustments. The Company recognizes
revenue from the sale of systems at the time systems are shipped.
The Company's ROAMERplus service is now being used by a substantial number
of the wireless carriers in the United States. Accordingly, further growth in
the Company's revenues from the ROAMERplus service will need to be generated
by general growth of the wireless roaming market, if any, as opposed to the
addition of new carrier customers. Recently, growth in the roaming market has
slowed significantly because, the Company believes, many of the new wireless
subscribers are lower-use, non-business consumers who are less likely to roam.
In addition, there has been a decrease in the frequency of the suspension of
intercarrier roaming agreements due to improved fraud controls implemented by
carriers. The Company does not expect, therefore, that its roaming services
revenues will continue to grow at historic rates and there can be no assurance
that those revenues will grow at all in the future.
The Company began offering its prepaid wireless services on a commercial
basis in the second quarter of 1996. Since initial implementation of the
network, the Company has entered into contracts to provide prepaid wireless
services for ten wireless carriers, increasing the total population covered by
Company prepaid wireless contracts to over 108 million. The implementation of
this network resulted in significant up front costs during 1996 and the first
six months of 1997. These costs include personnel and development costs
associated with the implementation and deployment of the C/2/C Network. Due to
an increase in the number of commitments and contracts in place to deploy the
C/2/C Network 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
18
<PAGE>
to support the C/2/C Network. As a percentage of total revenues, these costs
and other costs to support the C/2/C Network will continue to be significant
until the subscriber base and usage revenues grow sufficiently to more fully
absorb operating costs.
In February 1996, the Company acquired Voice Systems Technology Inc. ("VST")
for stock and cash with an aggregate value of approximately $2.5 million. VST
has developed a voice processing platform with enhanced features for providing
prepaid cellular and enhanced services to cellular subscribers, which is now
in commercial use. VST's platform uses proprietary technology that is
complementary to the technology used in the Company's C/2/C Network. The
Company accounted for the acquisition as a purchase and recorded approximately
$2.5 million of goodwill in connection with the transaction, which will be
amortized over a period of eight years.
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. As of June 30, 1997, $3.5 million
of the proceeds were used to repay short-term and long-term borrowings and
approximately $14.8 million of the net proceeds were used for capital
expenditures in connection with the deployment of the C/2/C Network.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship of certain statement of operations items to total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Roaming services.................... 87.3% 74.4% 63.6% 64.8% 47.1%
Teleservices........................ 12.7 25.6 26.5 29.8 25.5
Prepaid wireless services........... -- -- 0.6 0.3 7.2
System sales........................ -- -- 9.3 5.1 20.2
------- ------- ------- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of service revenues............ 77.5 76.3 72.3 74.1 63.5
Cost of system revenues............. -- -- 5.1 2.5 11.7
Engineering, research and
development........................ 1.5 2.5 6.4 4.8 6.9
Sales and marketing................. 6.9 5.7 5.8 5.0 7.2
Management fees..................... 5.5 2.9 0.5 1.0 --
General and administrative.......... 4.2 3.8 4.6 4.6 4.6
Depreciation and amortization....... 2.2 2.6 4.1 3.5 6.5
------- ------- ------- ----- -----
Total operating expenses........... 97.8 93.8 98.8 95.5 100.4
------- ------- ------- ----- -----
Operating income (loss).............. 2.2 6.2 1.2 4.5 (0.4)
Interest income (expense)............ (0.3) (0.4) 1.2 (0.3) 1.2
------- ------- ------- ----- -----
Income from continuing operations
before income taxes................. 1.9 5.8 2.4 4.2 0.8
Provision (benefit) for income
taxes............................... 0.3 (3.0) 1.2 1.8 0.4
------- ------- ------- ----- -----
Income from continuing operations.... 1.6% 8.8% 1.2% 2.4% 0.4%
======= ======= ======= ===== =====
</TABLE>
19
<PAGE>
Comparison of six months ended June 30, 1996 and June 30, 1997
Service and System Revenues
Total revenues increased 33.3% from $24.0 million in the six months ended
June 30, 1996 to $32.0 million in the six months ended June 30, 1997. Roaming
service revenues decreased 3.1% or $481,000 from the six months ended June 30,
1996 to the same period ended June 30, 1997. The decrease in roaming service
revenues resulted from declining trends in industry-wide cellular roaming and
the decrease in the frequency of the suspension of intercarrier roaming
agreements due to improved fraud controls implemented by carriers. Teleservice
revenues increased 13.9% or $1.0 million for the six month period ended June
30, 1997 compared to the same period in the prior year. The increase resulted
primarily from additional service programs provided to new carrier customers,
the expansion of services provided to existing customers and the addition of
teleservice programs for users of the Company's prepaid wireless services.
Revenues generated from prepaid wireless services for the six months ended June
30, 1997 increased substantially from $69,000 in the six months ended June 30,
1996 to $2.3 million in the six months ended June 30, 1997. This increase was
due to the increase in the number of markets where C/2/C prepaid services were
commercially available and increased usage in these markets. As of June 30,
1997, thirty-three C/2/C Network switches were deployed in various markets
throughout the United States. Of these switches, twenty-seven were fully
operational and processing live transactions by the end of the second quarter.
System sales increased 433.3% or $5.2 million from the six month period ended
June 30, 1996 to the same period ended June 30, 1997. The increase resulted
primarily from the sale of systems in Mexico and South America.
Cost of Service Revenues
Cost of service revenues consists primarily of cellular network and landline
costs to support both roaming and prepaid wireless services in addition to the
direct labor and benefits associated with operator assisted roaming service
calls and teleservice calls. Cost of service revenues increased from 78.1% of
service revenues for the six months ended June 30, 1996 to 79.5% of service
revenues for the six months ended June 30, 1997. 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 C/2/C Network.
Cost of System Revenues
Cost of system revenues represents the cost of prepaid and voice systems
sold. Cost of system revenues increased from 47.9% of system revenues for the
six months ended June 30, 1996 to 58.0% of system revenues for the six months
ended June 30, 1997. The increase in cost of system revenues as a percentage
of system revenues for the six month period ended June 30, 1997 reflects the
lower margins generated from the sale of systems in the first quarter of 1997
to continue the expansion of a prepaid wireless system in Mexico and, to a
lesser extent, the full six months of operations of the systems division.
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
$1.0 million or 88.9% from the six months ended June 30, 1996 to the six
months ended June 30, 1997. The increase was principally due to the costs
associated with the Company's hiring of new personnel to support the
development, implementation and deployment of the C/2/C Network and, to a
lesser extent, additional personnel to support the expansion of teleservices.
Engineering, research and development expenses are expected to increase in
1997 as additional personnel are added to support the growth of the
C/2/C Network.
Sales and Marketing Expenses
Sales and marketing expenses include direct sales force salaries and
commissions, travel expenses, and the cost of trade shows, advertising and
other promotional expenses. Sales and marketing expenses
20
<PAGE>
increased $1.1 million or 91.7% from the six months ended June 30, 1996 to the
six months ended June 30, 1997. The increase in sales and marketing expenses
was due to additional salaries, benefits and other expenditures to support the
more sales-intensive prepaid wireless service business and concentrated sales
and marketing efforts related to teleservices. In addition, the acquisitions
of Voice Systems Technology Inc. (VST) and Wireless Americas Corp. (WAC) in
1996 resulted in the Company incurring increased expenditures to support
system sales globally.
General and Administrative Expenses
General and administrative expenses include salaries, benefits and other
expenses that provide administrative support to the Company. For the six
months ended June 30, 1997 general and administrative expenses increased
$118,000 or 8.7% from the same period in the prior year. The increase resulted
principally from the addition of staff to support the growth of the Company's
operations and to a lesser extent, the costs associated with being a publicly
traded company.
Depreciation and Amortization Expenses
Depreciation and amortization expense include depreciation of
telecommunications systems, furniture and equipment, leasehold improvements
and goodwill. 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 acquisitions of VST and WAC is being
amortized over eight years. Depreciation and amortization expenses increased
$1.3 million or 162.5% during the six month period ended June 30, 1997
compared to the same period in the prior year. The increases were due
primarily to amortization of goodwill from the Company's two acquisitions and
depreciation of additional telecommunications equipment and software to
support the Company's roaming services, teleservices and prepaid wireless
services. In addition, the expansion of the Company's call centers and system
assembly facility resulted in increased depreciation of furniture and
equipment and leasehold improvements. Depreciation and amortization expenses
are expected to continue to increase due to a full year of goodwill
amortization from the VST and WAC acquisitions and increased depreciation of
telecommunications systems associated with teleservices and the expansion of
the C/2/C Network.
Interest Income (Expense), Net
Interest income (expense), net increased $478,000 for the six month period
ended June 30, 1997 as compared to the same period in the prior year. The
increase resulted primarily from interest earned on the short term investments
from the net proceeds of the Company's initial public offering in June 1996.
Provision for Income Taxes
The Company's effective income tax rate for the six month period ended June
30, 1997 reflects an increase from the prior year due to the non-deductibility
of goodwill amortization from the acquisitions of VST and WAC. The effective
income tax rate is expected to continue to be greater than 40% for the
remainder of 1997 due to the impact of non-deductible goodwill.
Comparison of Years Ended December 31, 1996 and December 31, 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. Roaming 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 roaming services
revenues generated from existing carrier customers resulted from the general
growth in the number of wireless subscribers, increased roaming by wireless
subscribers and increased frequency in the suspension of inter-carrier roaming
agreements
21
<PAGE>
between wireless carriers due to greater incidents of cellular fraud.
Teleservices revenues increased 52.3% 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. Prepaid wireless service
revenues in 1996 of $312,000 were generated in markets where C/2/C was
commercially available. As of December 31, 1996, twenty-one C/2/C Network
nodes were deployed in various markets throughout the United States. Of these
nodes, fifteen were fully operational and processing live transactions by the
end of the year. System sales revenues of $4.7 million in 1996 consist
principally of prepaid and voice systems sold by VST and WAC, both acquired by
the Company in 1996.
Cost of Service Revenues. Cost of service revenues increased as a percentage
of service revenues from 76.3% in 1995 to 79.7% in 1996. 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 C/2/C Network and, to a lesser extent, due to higher per
minute network charges for roaming service revenues. The Company expects that
cost of service revenues for C/2/C 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 totaling $2.6 million
represent costs associated with systems sold in 1996.
Engineering, Research and Development Expenses. 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% in 1995 to 6.4% in 1996. 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 C/2/C Network
for its prepaid wireless services, and to a lesser extent, additional
personnel to support the expansion of its 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 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% in 1995 to 5.8% in 1996. The increase in sales and marketing expenses was
due primarily to additional expenditures to support the more sales intensive
prepaid wireless services business and to support concentrated sales and
marketing efforts related to 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 primarily
recorded as general and administrative expenses.
General and Administrative Expenses. 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% in 1995 to 4.6% in
1996. 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.
22
<PAGE>
Depreciation and Amortization Expense. Depreciation and amortization
expenses 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 roaming services, teleservices and prepaid wireless 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.
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 $3.0 million in the year ended December 31, 1995 and
$599,000 in the year ended December 31, 1996. Income from continuing
operations in 1995 included a $1.8 million tax benefit resulting from the
reversal of a tax valuation allowance in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." In
addition, the decrease in income from continuing operations reflects the
increased depreciation, telecommunication costs and personnel costs associated
with the deployment of the C/2/C Network, amortization of goodwill associated
with the acquisition of VST 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.
Comparison of Years Ended December 31, 1995 and December 31, 1994
Service Revenues. Total revenues increased 86.9% from $18.3 million in 1994
to $34.2 million in 1995. Roaming services revenues increased 58.8% 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. Teleservice revenues increased
282.6% 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 83.8% 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 teleservices, which generally
have a lower cost of services as
23
<PAGE>
a percentage of revenues than roaming services. This more than offset higher
per minute network charges, which are a significant part of roaming services
costs.
Engineering, Research and Development Expenses. Engineering, research and
development expenses increased 210.7% 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 C/2/C Network for its prepaid wireless service,
expansion of its teleservices and continued development of new services.
Sales and Marketing Expenses. Sales and marketing expenses increased 46.2%
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 teleservices business and
to initiate marketing efforts relating to prepaid wireless 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 roaming 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 67.7% 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
expenses increased 124.5% 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 teleservices
business.
Interest Income (Expense). Interest expense increased 135.9% from $64,000 in
1994 to $151,000 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 $53,000 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 $288,000 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.
24
<PAGE>
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 March 1995. The gain on disposal of $1.4 million in 1994 resulted
from the Company's sale of its rural cellular telephone system.
25
<PAGE>
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
June 30, 1997, 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 opinion 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Roaming services....... $7,387 $6,874 $7,214 $8,327 $8,873 $7,820 $7,012 $8,048
Teleservices .......... 2,706 2,822 3,847 3,303 3,272 2,991 3,789 4,375
Prepaid wireless
services.............. -- -- -- 69 42 201 790 1,513
System sales........... -- -- 92 1,141 1,726 1,733 4,028 2,417
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 10,093 9,696 11,153 12,840 13,913 12,745 15,619 16,353
Operating expenses:
Cost of service
revenues.............. 7,612 7,286 8,311 9,465 9,763 9,067 9,419 10,882
Cost of system
revenues.............. -- -- 37 553 1,076 910 2,640 1,095
Engineering, research
and development....... 321 251 419 744 957 1,101 1,029 1,168
Sales and marketing.... 532 529 558 638 680 1,073 1,063 1,230
Management fees........ 252 252 252 -- -- -- -- --
General and
administrative........ 320 343 482 621 607 618 649 824
Depreciation and
amortization.......... 246 258 359 477 557 716 890 1,203
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 9,283 8,919 10,418 12,498 13,640 13,485 15,690 16,402
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. 810 777 735 342 273 (740) (71) (49)
Interest income
(expense).............. (46) (53) (6) (75) 341 329 262 135
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before income taxes.... 764 724 729 267 614 (411) 191 86
Provision (benefit) for
income taxes........... 100 (1,195) 300 123 283 (106) 98 43
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations.. $ 664 $1,919 $ 429 $ 144 $ 331 $ (305) $ 93 $ 43
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Roaming services....... 73.2% 70.9% 64.7% 64.9% 63.8% 61.4% 44.9% 49.2%
Teleservices........... 26.8 29.1 34.5 25.7 23.5 23.5 24.3 26.8
Prepaid wireless
services.............. -- -- -- 0.5 0.3 1.6 5.0 9.2
System sales........... -- -- 0.8 8.9 12.4 13.5 25.8 14.8
------ ------ ------ ------ ------ ------ ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of service
revenues.............. 75.4 75.1 74.5 73.7 70.1 71.1 60.3 66.6
Cost of system
revenues.............. -- -- 0.3 4.3 7.7 7.1 16.9 6.7
Engineering, research
and development....... 3.2 2.6 3.8 5.8 6.9 8.7 6.6 7.1
Sales and marketing.... 5.3 5.5 5.0 5.0 4.9 8.4 6.8 7.5
Management fees........ 2.5 2.6 2.3 -- -- -- -- --
General and
administrative........ 3.2 3.5 4.3 4.8 4.4 4.9 4.2 5.0
Depreciation and
amortization.......... 2.4 2.7 3.2 3.7 4.0 5.6 5.7 7.4
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............. 92.0 92.0 93.4 97.3 98.0 105.8 100.5 100.3
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. 8.0 8.0 6.6 2.7 2.0 (5.8) (0.5) (0.3)
Interest income
(expense).............. (0.5) (0.5) (0.1) (0.6) 2.4 2.6 1.7 0.8
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before income taxes.... 7.5 7.5 6.5 2.1 4.4 (3.2) 1.2 0.5
Provision (benefit) for
income taxes........... 1.0 (12.3) 2.7 1.0 2.0 (0.8) 0.6 0.2
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations.. 6.5% 19.8% 3.8% 1.1% 2.4% (2.4)% 0.6% 0.3%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE>
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 and products offered by the Company or its competitors, changes
in the mix of services and products provided by the Company, variations in the
level of system sales, 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 roaming services 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.
Teleservices revenues may be influenced by the requirements of one or more of
the Company's significant teleservice customers, including engagement of the
Company for implementing or assisting in implementing special projects of
limited duration. Revenues from system sales may be influenced by the timing
of purchase decisions by the Company's customers and variations in the
Company's sales cycle caused by factors such as the size of the transaction,
customer purchasing patterns, the timing of new product and service
introductions and general economic conditions. Also, the significant expenses
associated with the deployment and expansion of the C/2/C Network have had and
will continue to have, a negative effect on quarterly net income.
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 should not be relied upon as an indication of likely future
performance. See "Risk Factors--Potential Fluctuations in Quarterly
Performance."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded operations to date primarily through sales of
securities and cash flow from operations. In June 1996, the Company completed
its initial public offering of its Common Stock and received aggregate
proceeds therefrom of $49.8 million. As of June 30, 1997, the Company had
cash, cash equivalents and short-term investments of $3.8 million.
Net cash used in operating activities for the six months ended June 30, 1997
was $2.0 million and resulted from an increase of accounts receivable and
inventory partially offset by an increase in accounts payable and accrued
expenses. Accounts receivable increased due to the sale of systems to Latin
and South America. Inventory increased to support the increasing sales of
systems. Accounts payable and accrued expenses increased as a result of
increases in capital expenditures and costs associated with the overall growth
of the Company.
Net cash provided by investing activities was $1.2 million for the six
months ended June 30, 1997 which consisted primarily of $17.5 million from
sales of short-term investments, offset by capital expenditures of $16.3
million for the purchase of telecommunications equipment to support the
Company's C/2/C Network and the expansion of the teleservices business.
In July 1997, the Company entered into a Master Equipment Lease Agreement to
finance $5.5 million of telecommunications equipment to expand and enhance its
teleservices and prepaid wireless service
27
<PAGE>
businesses. The lease is a line of credit payable on demand bearing interest
at LIBOR plus one percent. Once the equipment has been fully financed the
lease will be converted into a three-year lease payable in equal monthly
installments at an interest rate of approximately 8.5% per annum.
The Company believes that the proceeds from this offering, together with
existing cash balances and funds anticipated to be generated from operations,
will be sufficient to finance the Company's operations and the expansion of
the C/2/C Network for at least the next 18 months.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Standard No. 128, "Earnings Per Share" which
simplifies the calculation of earnings per share (EPS) and creates a standard
of comparability to the recently issued International Accounting Standard No.
33, "Earnings Per Share." Since early application is not permitted, the
Company will adopt this standard in the fourth quarter of 1997. Its adoption
does not have a material effect on the Company's financial position or results
of operations in the first quarter of 1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997. The Company believes that the
adoption of these new accounting standards will not have a material impact on
the Company's consolidated financial statements.
28
<PAGE>
BUSINESS
Boston Communications Group, Inc. develops, markets and provides innovative
call processing services, teleservices, prepaid wireless services and prepaid
systems to wireless telephone carriers. The Company's services and systems are
designed to enable wireless telephone carriers to focus internal resources on
their core business activities, while increasing revenues, improving service
quality and reducing costs. The Company's principal service offerings include
its ROAMERplus roaming service, its teleservices and its prepaid wireless
services. The Company's ROAMERplus service provides carriers with the ability
to cost-effectively 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
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. The Company's prepaid wireless
service, which was introduced in early 1996 and offered in 72 markets as of
June 30, 1997, enables wireless carriers to offer their services on a prepaid
basis.
INDUSTRY BACKGROUND
Wireless telephone service has been one of the fastest growing areas of the
telecommunications industry over the last ten years. The Cellular
Telecommunications Industry Association ("CTIA") estimates that the number of
wireless 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 16% of the United
States population. The CTIA also estimates that gross revenues from wireless
subscribers grew from approximately $482 million for the year ended December
1985 to approximately $26.4 billion for the year ended December 1996. A number
of factors have contributed to this growth, including build-out of the
wireless network infrastructure, the decreasing cost of wireless telephones,
the increasing mobility of the United States population, the technological
improvement in the size and battery life of wireless telephones and generally
greater acceptance of wireless telephone use. Significant growth in the
wireless market is expected to continue in the future, particularly given the
emergence of "personal communications services" ("PCS") as a new form of
wireless service. Industry sources forecast that the number of cellular and
PCS subscribers will grow to 80 million by the end of the year 2000,
representing a market penetration of approximately 30% of the United States
population, and estimate that the aggregate service revenues from cellular
subscribers alone will be over $35 billion.
While the number of subscribers and the aggregate service revenues from
wireless subscribers have grown rapidly, the average revenue per subscriber
per year has been declining. This decline in average revenue per subscriber is
due to the increased number of lower-usage subscribers using wireless
services. PCS is expected to increase downward pressure on pricing and
therefore further decrease per subscriber revenues, while increasing the
marketing costs and subscriber churn rate of wireless carriers. These and
other factors have caused most of the major wireless carriers to seek ways to
increase revenues, attract and retain subscribers and contain costs.
An important source of revenues for wireless carriers comes from subscribers
that use their telephones outside of their home service area (generally known
as "roamers"). Calls made by roamers are estimated by the CTIA to have
generated over $2.7 billion in revenues in 1996, or an estimated 10.5% of the
aggregate service revenues from cellular subscribers. The primary method for
capturing these roaming revenues has been through inter-carrier roaming
agreements between wireless carriers. Under these agreements, the "home"
carrier bills its subscribers on behalf of the "serving" carrier in whose
territory the subscriber is roaming. While inter-carrier roaming agreements
are common, there are markets between which the level of roaming is such that
it does not make economic sense for the carriers to have and maintain such
agreements. This is typically the case in geographically distant markets and
in smaller markets where call traffic does not justify roaming agreements. In
addition, the high cost of fraud
29
<PAGE>
associated with roaming, estimated at over $640 million in 1996, has caused
some carriers to terminate roaming agreements with carriers in high risk
jurisdictions, either permanently or while fraud protection procedures are
implemented. As a result, a portion of the potential roaming revenues are not
captured under the traditional inter-carrier roaming agreements. While the
roaming market is significant, the growth of this market has slowed
significantly in recent years, which, the Company believes, is the result of
new wireless subscribers being lower-use, non-business consumers who are less
likely to roam.
An important factor in subscriber satisfaction and retention is a carrier's
ability to respond promptly to subscriber inquiries regarding billing matters,
rate plans, service problems and other issues. Many carriers are also
increasingly under competitive pressures to provide 24 hour a day, seven day a
week customer service. However, the demands of hiring, training, managing and
retaining a large number of customer service representatives make it difficult
to provide high quality 24 hour service on a cost-effective basis.
Furthermore, specialized service projects such as the roll-out of new
services, often place significant increased demands on the capacity of
customer service centers. Wireless carriers increasingly are considering
outsourcing all or a portion of their customer service function in order to
focus internal resources on their core business activities.
In addition to exploring alternatives to increase revenues from existing
subscribers, wireless carriers are developing strategies to penetrate untapped
market segments, which include cash users and credit challenged subscribers.
Prepaid service provides carriers the opportunity to offer an alternative
payment approach to potential subscribers. Industry sources have projected
that the number of prepaid subscribers in the United States will grow to 9.4
million by the end of the year 2000. Factors contributing to this growth are
the ability to reach new customers, reduced credit and fraud risk and lower
operating and acquisition costs, as compared to traditional subscribers.
However, wireless carriers face technological and other challenges in
providing prepaid wireless service, including challenges related to monitoring
usage, inbound and outbound calling and roaming on a real-time basis, which
technologies require significant amounts of time and resources to develop.
Accordingly, wireless carriers are seeking ways to address these challenges,
including outsourcing the provision of prepaid wireless service.
The market for wireless telecommunications services internationally is
experiencing growth trends and business issues similar to the U.S. domestic
market. For example, industry sources project that the number of wireless
subscribers in Latin America will increase from approximately 6.5 million as
of December 1996 to approximately 22.5 million by the end of the year 2000.
This increase in subscribers represents a corresponding increase in market
penetration within Latin America from under 2% in 1996 to over 4% by the end
of the year 2000. Antiquated and overloaded public switched telephone networks
in developing markets are encouraging governments in such countries to auction
licenses for the provision of wireless telephone services. Many of these
licenses are being acquired by the large, U.S. based wireless carriers. These
markets, many of which have substantially lower income per capita than the
United States, may have even greater needs for prepaid wireless services than
the United States.
THE BOSTON COMMUNICATIONS GROUP SOLUTION
BCG draws on the extensive experience of its management team in the wireless
telephone industry and on its established customer relationships with leading
wireless telephone carriers to identify industry challenges and to design
services to meet the needs of its carrier customers. BCG's ROAMERplus service
enables wireless carriers to cost-effectively generate revenues from
subscribers roaming in a carrier's service area who are not covered under
traditional roaming agreements. These unregistered roamers attempting to place
calls in the serving carrier's territory are automatically switched to BCG,
which arranges payment for the calls, completes the calls and pays the serving
carrier based on the length of the call. Wireless carriers can offer
ROAMERplus service without significant additional investment in equipment,
technology or personnel.
BCG also helps wireless carriers retain subscribers, reduce costs and manage
growth by providing a full range of high quality teleservices through its call
centers. The experience, economies of scale and
30
<PAGE>
rapid response time that the Company brings to meeting the customers' needs
often make the Company's per-minute fee for support services a strategic and
economic choice for wireless carriers. The Company's call centers operate 24
hours a day, seven days a week. The Company believes that its ability to
provide high quality teleservices also may be attractive to emerging PCS
providers seeking to quickly establish and service a subscriber base.
In early 1996, the Company introduced its prepaid wireless service and its
prepaid wireless systems, which enable wireless carriers to sell prepaid debit
cards for use with their subscribers' wireless telephones. The Company's
proprietary software and technology enable BCG to administer calls made,
monitor prepaid balances and, if necessary, interact with the customer through
a BCG call center. The Company's prepaid wireless services enable prepaid
subscribers to receive service substantially similar to subscribers using
traditional billing arrangements, including the ability to make outgoing and
receive incoming calls, as well as to roam into other markets.
STRATEGY
The Company's objective is to be a leader in providing high-quality roaming
services, teleservices, prepaid wireless services and prepaid systems to
wireless telephone carriers. The Company's strategy includes the following key
elements:
Focus on the Wireless Carrier Services Industry
BCG is focused on developing, marketing and providing call processing
services, teleservices and prepaid services and systems to wireless carriers.
The Company believes that wireless telephone service will continue to be one
of the fastest growing segments of the telecommunications industry and that
wireless carriers will be under increasing competitive pressure. As a result,
the Company believes there will be significant opportunities to provide
wireless carriers with services that enable them to focus internal resources
on their core business activities while increasing revenues, improving service
quality and reducing costs. BCG believes that the experience, relationships
and knowledge of its management team provide it with a competitive advantage
in addressing the needs of wireless carriers.
Identify and Develop Additional Value-Added Services
BCG seeks to create innovative value-added services that wireless telephone
carriers either have not identified or have found difficult or uneconomical to
provide on their own. The Company is particularly focused on developing and
providing services that create incremental revenue and profits for wireless
carriers, such as its ROAMERplus service and prepaid wireless service. In
addition, the Company is considering developing a number of enhanced services
that it intends to offer through its C/2/C Network. The Company believes that
such services will be increasingly attractive to wireless telephone carriers
seeking innovative ways to respond to a highly competitive and evolving
industry.
Develop and Maintain Long-Term Customer Relationships
BCG establishes and maintains long-term relationships with its customers to
enable the Company to understand customer needs and continue to develop new
service offerings to meet those needs. The Company regularly solicits feedback
from its wireless telephone carrier customers regarding the challenges they
face in order to identify potential new service offerings. The Company seeks
to build upon its existing customer relationships and distribution channels by
integrating and cross selling its different service offerings. The Company
believes that its focus on building long-term customer relationships is an
important factor in developing customer loyalty and expanding existing
customer relationships over time.
Provide Services on a Recurring Revenue Basis
BCG focuses on offering services that generate recurring revenues for the
Company and its wireless telephone carrier customers. The Company believes
that by providing services on an ongoing basis it
31
<PAGE>
aligns its interests with those of its carrier customers and maximizes the
potential benefit to those customers. The Company primarily provides its
roaming services, teleservices and prepaid wireless services, on a per minute
or per call basis or a combination thereof. This pricing methodology
facilitates a sales strategy that minimizes the up-front cost and focuses on
the revenue enhancement potential for the carrier customer.
Offer Premium Quality Services
BCG believes that providing high quality service is critical to its ability
to continue to successfully attract and retain customers. The Company's
teleservices are designed to be indistinguishable from the services provided
by the cellular carrier's own customer support personnel. The Company provides
extensive in-house classroom and on the job training programs for its
personnel, including carrier-specific training programs designed in
conjunction with the applicable carrier.
Expand into International Wireless Telephone Markets
BCG believes that there are significant opportunities to leverage its
experience in the wireless marketplace in North America in new international
wireless telephone markets. The Company believes that its reputation and
experience with the largest U.S. wireless carriers will help in marketing its
services and selling its prepaid systems internationally. The Company intends
to seek strategic relationships in international markets to assist it in
setting up sales, distribution and network operations in those markets.
SERVICES
Roaming Services
The Company introduced its unregistered roaming service, ROAMERplus, in
1991. By the end of 1996, approximately 80 cellular carriers that collectively
hold licenses for over 1,100 markets in the United States, Canada and Mexico,
including nine of the 10 largest cellular carriers, by population covered, in
the United States, were using this service. 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 a call using ROAMERplus typically includes
a per call service fee ranging from $1.25 to $1.95, depending on the level of
operator assistance, and a flat rate of $1.95 per minute. 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. The
Company's experience has been that approximately 15% of the charges for
completed ROAMERplus calls are uncollectible.
The ROAMERplus network consists of a centralized computer-based
telecommunications switching system that utilizes proprietary software
developed by the Company. This system interfaces with the
32
<PAGE>
public switched telephone network and a network of access circuits originating
from mobile switching centers throughout the United States, Canada and Mexico.
The ROAMERplus network also includes an automated voice response system, as
well as systems that provide monitoring, fraud control and sophisticated call
and usage reporting. In order to bill unregistered roamers using telephone
calling cards, BCG uses a central clearinghouse which, through agreements with
local exchange carriers, enables BCG's charges to appear on the roamer's
telephone bill. This clearinghouse collects payment from the local exchange
carrier and transmits the payment to BCG. The Company uses a similar procedure
to bill roamer's who use commercial credit cards.
In July 1997 the Company and AT&T signed a letter of intent pursuant to
which holders of AT&T calling cards will be entitled to use those cards to pay
for calls made through the Company's ROAMERplus service. Because many
subscribers are more familiar with their calling card numbers than their
credit card numbers, the Company believes that this arrangement will make it
more convenient for subscribers to use the Company's ROAMERplus service.
Teleservices
The Company designed and began providing teleservices in 1993 in response to
the industry's need for 24-hour customer service. The Company's teleservices
program allows a carrier's subscribers to get 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, such as assigning personal
identification numbers ("PINs") to the carrier's subscribers in order to
reduce fraud (marketed by the Company as its REVENUEguard program), to the
provision of all of the carrier's customer service activities. BCG primarily
bills carriers who use its teleservices on a per call or per minute basis,
subject in most cases to the Company meeting certain qualitative and
quantitative performance standards.
The Company currently provides teleservices to 10 wireless carriers under
teleservices contracts generally with terms of one year. In addition, wireless
carriers that have contracted for the Company's prepaid wireless services have
typically engaged the Company to provide teleservices for the carrier's
prepaid subscribers.
The Company has identified additional specific subscriber service needs in
the wireless industry and has developed services to meet those needs. For
example, the Company's ROAMERcare service assists subscribers when they have
questions about roaming. Rather than incurring the costs of assigning
personnel to answer these calls, wireless carriers can retain BCG, which
installs a system to route inquires about roaming directly to BCG's
facilities, where specially trained personnel assist the caller. At the
request of the CTIA, the Company developed its LAWBUST program through which
the Company's service representatives assist law enforcement officials in
reducing wireless fraud through on- line access to the CTIA's proprietary
database and other techniques.
The Company provides its teleservices from its call 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 floor supervisors to observe numerous aspects of the call
center's
33
<PAGE>
performance in a graphical format, including information on call duration,
compliance with contract standards and operator performance. As of July 1,
1997, the Company employed over 450 full- and part- time representatives to
provide teleservices on a 24 hour a day, seven day a week basis.
The Company offers extensive in-house classroom and on-the-job training
programs for its teleservices personnel, including instruction on a full
breadth of call handling techniques and service quality. In addition, carrier-
specific training allows the teleservices staff to disseminate information on
a particular carrier's services, as well as to update and edit information in
the carrier's databases.
Prepaid Wireless Services
The Company introduced its C/2/C Network-based prepaid wireless service
offering in early 1996 and was offering the service in 72 U.S. markets as of
June 30, 1997. The C/2/C Network permits a wireless carrier to automatically
switch a prepaid subscriber's call to the C/2/C Network where information
regarding the status of that subscriber's prepaid account is maintained. A
subscriber establishes an account with the wireless carrier by prepaying a
specific dollar amount to be credited toward future service. Subsequently,
each call that is initiated or received by the subscriber will be routed to
the C/2/C 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 will be able to
replenish the account by purchasing additional prepaid service from the
carrier using cash or credit card. The C/2/C Network can complete the call and
debit the account automatically without requiring the subscriber to enter a
debit card number or other information. 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 through the Company's
ROAMERplus service.
Carriers generally compensate BCG for network usage by contracting at a per
minute rate for connection time between the carrier's mobile switching center
and the C/2/C Network voice node. The Company's existing contracts to provide
prepaid wireless services through the C/2/C Network are generally for two or
three years (subject to termination by the carrier on 180 days' notice) and
provide for the carriers to pay the Company based on the number of minutes
used by the carriers' prepaid subscribers. In addition, some of these
contracts permit the carrier to terminate services and acquire the system
which the Company is using to provide services to them.
The C/2/C 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 telephone facilities. The
distributed node architecture is designed to be modular and scalable while
remaining efficient and cost-effective. The centralized database enables
prepaid users to make calls while roaming in other service areas where the
C/2/C Network is in place. From July 1, 1996 through mid-July 1997, the
Company expanded the number of operational C/2/C voice nodes to 27. The
Company has deployed 6 additional C/2/C voice nodes that are expected to be
operational by the end of 1997 and intends to deploy an additional 15 C/2/C
voice nodes through the end of 1997.
The Company believes that its prepaid service is attractive to wireless
carriers seeking to cost- effectively penetrate untapped market segments, such
as subscribers who cannot or do not want to receive service under traditional
monthly billing arrangements. The Company is expanding its C/2/C Network to
support a number of existing and pending contracts recently entered into by
the Company with wireless carriers in the United States, including a proposed
agreement with AT&T to provide prepaid service in all wireless markets
serviced by AT&T. There can be no assurance that the proposed agreement with
AT&T will ultimately be consummated and, if not, costs incurred in connection
with the expansion of the C/2/C Network could have a significant negative
effect on the Company's results of operations.
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<PAGE>
SYSTEM SALES
The BCG Systems Division sells systems for prepaid wireless calling on a
turn-key basis primarily to international customers and also sells systems for
voice mail, fax mail and other enhanced services. Since establishing the
division, the Company has made significant prepaid system sales in Mexico and
Venezuela. While these sales will not result in the per minute revenues which
the Company's prepaid service contracts generate, under one of the contracts,
the Company provides on-going system management services for a monthly fee. To
support its systems and on-going sales effort in Mexico, the Company recently
established a Mexican subsidiary, BCG de Mexico, S.R.L.
ENGINEERING, RESEARCH AND DEVELOPMENT
BCG believes that its future success will depend in large part on its
ability to enhance existing services and develop new services in response to
changing market, customer or technological requirements of the wireless
telephone industry. An important factor in the future success of the Company's
recently introduced prepaid wireless service will be the Company's ability to
provide, at competitive prices, more functionality and features than those
typically available in other competitive offerings. The software for the C/2/C
Network was developed by the Company's internal engineering and development
staff based in part on technology licensed from Innovative Telecom Corp.
("ITC"). ITC provides call processing platforms for the wireline and
traditional long distance debit card market. The Company has developed
proprietary software to enable the C/2/C 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. See "--Proprietary
Rights."
The Company spent approximately $270,000, $839,000, $3.2 million and $2.2
million on engineering, research and development in 1994, 1995, 1996 and the
first six months of 1997, respectively. As of June 30, 1997, BCG had 90
employees engaged in engineering, research and development activities.
SALES, MARKETING AND DISTRIBUTION
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 teleservice, prepaid wireless service
and system sales. A sale typically requires involvement of the Company's sales
personnel as well as its management and technical personnel.
The Company's sales force currently consists of ten sales representatives
supervised by three senior sales executives. The Company is in the process of
recruiting additional senior sales and marketing personnel. The Company's
sales representatives generally 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 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 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.
The Company has formed a joint venture with Front-End Services Corporation
to distribute prepaid cards on behalf of wireless carriers at over 75,000
retail locations nationwide. In addition, BCG is commencing a cooperative
arrangement with Radio Shack to facilitate Radio Shack's sale of prepaid
wireless services provided by carriers utilizing the Company's C/2/C Network.
Under this arrangement,
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<PAGE>
Radio Shack is able to sell prepaid wireless services at its retail locations
without issuing a prepaid card. Each of these arrangements requires the
cooperation and participation of the applicable local wireless carrier.
Since June 1996, the Company has devoted significant effort to developing
its presence in the Latin American market. The Company has sold a prepaid
system for over $5 million to Telcel, the largest wireless carrier in Mexico.
In addition, the Company sold another prepaid system for $1.4 million to
Cellstar for a reseller of wireless services in Venezuela.
CUSTOMERS
The Company provides its services to wireless carriers of varying size,
expertise and capabilities. As of June 30, 1997 the Company provided one or
more of its services to approximately 88 wireless carriers in the United
States, Canada and Mexico, including nine of the 10 largest cellular carriers
in the United States.
Net revenues attributable to the Company's 10 largest customers accounted
for approximately 81.2%, 84.6%, 82.4% and 77.3% of the Company's total
revenues in 1994, 1995, 1996 and the first six months of 1997, respectively.
Ameritech Cellular, Bell Atlantic NYNEX Mobile and BellSouth Mobility
accounted for approximately 14.8%, 12.3% and 11.4%, respectively, of total
revenues in 1996. Bell Atlantic NYNEX Mobile, Telcel and Ameritech accounted
for approximately 12.7%, 12.2% and 10.8%, respectively, of total revenues in
the first six months of 1997. In addition, Ameritech Cellular and SNET
Telecommunications, Inc. accounted for approximately 40.4% and 26.1%,
respectively, of the Company's teleservices revenues in 1996. Ameritech
Cellular, LA Cellular, Bell Atlantic NYNEX Mobile and SNET Telecommunications,
Inc. accounted for approximately 29.9%, 18.4%, 18.3% and 14.5%, respectively,
of the Company's teleservice revenues in the first six months of 1997.
The Company's major customers for ROAMERplus include Airtouch
Communications, Ameritech Cellular Systems, Inc., AT&T Wireless, Bell Atlantic
NYNEX Mobile, BellSouth Mobility, Centennial Cellular, LA Cellular,
Southwestern Bell Mobile, SNET Telecommunications, Inc. and 360(degrees)
Communications, and for teleservices include Ameritech Cellular, Bell Atlantic
NYNEX Mobile, BellSouth Mobility, LA Cellular, Nextel and SNET
Telecommunications, Inc.
The Company's major customers for its prepaid wireless service include AT&T
Wireless, Bell Atlantic NYNEX Mobile, Southwestern Bell Mobile, BellSouth
Mobility, AirTouch, Frontier Cellular, SNET Telecommunications, Inc., Western
Wireless and LA Cellular.
COMPETITION
The market for sales of services and systems 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 which make it simpler or
more cost-effective for wireless carriers to provide certain services
themselves, could affect 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.
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 believes that its 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
36
<PAGE>
services, the price at which others offer comparable products and services and
the extent of its competitors' responsiveness to customer needs.
Many of the Company's current and potential competitors have significantly
greater financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or may be able to devote greater
resources to the promotion and sale of their products and services. There can
be no assurance that the Company will be able to compete successfully with its
existing competitors or with new competitors. In addition, competition could
increase if new companies enter the market or if existing competitors expand
their service offerings. An increase in competition could result in price
reductions and loss of market share and could have a material adverse effect
on the Company's business, financial condition or results of operations.
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 heavily 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, which in large measure deregulated the
telecommunications industry, 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
adverse 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
teleservices 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.
PROPRIETARY RIGHTS
The Company does not hold any patents and relies upon a combination of
copyright, trademark and trade secret laws to establish and maintain its
proprietary rights to its products. The Company believes that its success
depends on the knowledge, ability and experience of its employees, and that
legal protections for its services are less significant factors than the
quality, timeliness and cost of services provided. Access to proprietary
information is limited to those employees with a need to know.
The Company has entered into a license agreement with ITC that provides BCG
a world-wide non- exclusive license to use certain software products and
documentation commencing March 30, 1995. The Company has the right to modify
and enhance the software, and any software modifications relating to the
wireless industry remain the property of BCG. The parties have certain cross-
license rights for any enhancements made during the first three years of the
license. ITC may only terminate the agreement upon a failure of performance by
or bankruptcy of BCG. The Company has granted to ITC the right to use
37
<PAGE>
the C/2/C service mark in promotions to wireline customers for a period of
three years. The parties also have agreed to work with each other to jointly
develop distribution opportunities and to permit co- location of equipment and
telecommunication's facilities at each other's sites.
The Company licenses certain software for its ROAMERplus service under a
non-exclusive, non-transferable fully paid-up license, including the source
code, from MDTelecom Inc. Under this license, BCG is restricted from
sublicensing the source code, BCG is not permitted to sell or otherwise
transfer the source code without MDTelecom's consent and BCG is not permitted
to use the source code after a merger, unless BCG is the surviving entity,
without MDTelecom's consent.
Cellular Express, Boston Communications Group and C/2/C are registered
trademarks, and REVENUEguard, ROAMalert, ROAMERcare and ROAMERplus are
trademarks of Boston Communications Group, Inc.
EMPLOYEES
As of June 30, 1997, the Company had a total of 921 full-time and part-time
employees. Of these employees, 28 serve in sales and marketing, 731 serve in
call center and related functions, 90 serve in technical support and
technology development, 32 in product and account management and 40 serve in
administration and management. None of the Company's employees is represented
by a labor union. The Company believes that its employee relations are good.
BACKLOG
As of June 30, 1996 and June 30, 1997, the Company's backlog of firm orders
for its systems was negligible and $270,000, respectively. The Company
includes in backlog only those orders for which it has received completed
purchase orders and for which delivery has been specified within 12 months.
Most orders are subject to cancellation by the customer. Because of the
possibility of customer changes in delivery schedules, cancellation of orders
and potential delays in product shipments, the Company's backlog as of any
particular date may not be representative of actual sales for any succeeding
period.
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 service 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 Tulsa facility is used for the
manufacturing and assembly of systems. Related sales efforts are in Cherry
Hill for U.S. and Canadian sales and Coral Gables for Latin American sales. As
of June 30, 1997, the Company also had 23 other leased facilities throughout
the United States which are used to house the Company's voice nodes and
certain equipment for the C/2/C Network.
LITIGATION
In April 1997, Robert Sproul filed suit against the Company and its 80%
subsidiary, Wireless America Corp. ("WAC") in the Circuit Court for Dade
County, Florida. Mr. Sproul owns the remaining 20% of WAC. The suit relates to
WAC's termination of Mr. Sproul's employment as the President of WAC in March
1997, pursuant to an employment contract that was to expire in 1998, and
relates to certain rights which Mr. Sproul may have to require the Company to
purchase his 20% interest in WAC. Mr. Sproul claimed the purchase price for
his 20% interest was in excess of $2.8 million. The Company and Mr. Sproul
have agreed in principle to settle all of the claims asserted by Mr. Sproul.
The terms of the agreement in principle require the Company to buy Mr.
Sproul's 20% interest in WAC for a purchase price of $1.3
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<PAGE>
million. The parties will also exchange full mutual releases and expect to
negotiate and execute other customary documents associated with the settlement
of litigation. The settlement of the suit is conditioned on the approval of
the Board of Directors of the Company and completion of definitive
documentation. There can be no assurance that the proposed settlement will be
finalized in accordance with the proposed terms.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul J. Tobin........... 54 Chairman of the Board, President and Chief Executive Officer
Brian E. Boyle.......... 49 Vice Chairman of the Board
Frederick E. von
Mering................. 44 Vice President, Finance and Administration, Director
Jerrold D. Adams(1)(2).. 57 Director
Craig L. Burr(1)........ 52 Director
Paul R. Gudonis(1)(2)... 43 Director
Gerald Segel............ 76 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Tobin has served as President and Chief Executive Officer of the Company
since April 1997, as Chairman of the Board of Directors of the Company since
February 1996 and 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 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., (now Lightbridge, Inc.) a
supplier of customer application software for the wireless telephone industry.
Prior to 1990, Mr. Boyle founded and operated a number of companies 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. Mr.
Boyle is also a Director of Saville Systems PLC, as well as of several private
companies.
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. Adams has served as a Director of the Company since April 1996. Mr.
Adams has been President and Chief Executive Officer of AirNet Communications
Corporation since 1997. Mr. Adams served as President and Chief Operating
Officer of Iridium, Inc., an international consortium developing a worldwide
communications system for portable hand-held telephones, from 1991 to 1997.
Prior to that, Mr. Adams served as Director of PCN Operations in Europe of
Motorola from 1990 to 1991, Senior Vice President of McCaw Cellular, a
national non-wireline cellular company, from 1988 to 1990 and General Manager
of Metro One, a New York non-wireline cellular carrier, from 1986 to 1988.
Mr. Burr has served as a Director of the Company since April 1993. Mr. Burr
has been a Managing General Partner of Burr, Egan, Deleage & Co., a venture
capital firm, since 1979. Mr. Burr is a Director of several privately-held
companies affiliated with Burr, Egan, Deleage & Co.
Mr. Gudonis has served as a Director of the Company since April 1996. Mr.
Gudonis has been President and General Manager of BBN Planet, an internet
service provider, since November 1994. Mr. Gudonis is also a Corporate Vice
President of BBN Corporation, the parent corporation of BBN Planet.
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<PAGE>
Mr. Gudonis previously served from 1991 to November 1994 as General Manager of
the Communications Industry Group International division of EDS Corporation,
and as Senior Vice President and General Manager of APPEX Corp. from January
1989 until it was acquired by EDS Corporation in October 1990.
Mr. Segel has served as a Director of the Company since October 1996. Prior
to his retirement in May 1990, Mr. Segel was Chairman of Tucker Anthony
Incorporated from January 1987 to May 1990. From 1983 to January 1987 he
served as President of Tucker Anthony Incorporated. Mr. Segel is also a
director of Litchfield Financial Inc., Hologic, Inc. and Vivid Technologies,
Inc.
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.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of June 30, 1997 and as
adjusted to reflect the sale of the shares of Common Stock offered hereby by
(i) each person or entity known to the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors and
executive officers, (iii) all directors and executive officers as a group and
(iv) each of the other Selling Shareholders.
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING(1) OFFERED OFFERING(1)
----------------------- ------- -----------------
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------- ------------ ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND 5%
SHAREHOLDERS
Paul J. Tobin (2)........... 824,331 6.4% 55,000 769,331 4.9%
c/o Boston Communications
Group, Inc.
100 Sylvan Road
Woburn, MA 01801
Frederick E. von Mering(3).. 593,464 4.6% 50,000 543,464 3.5%
c/o Boston Communications
Group, Inc.
100 Sylvan Road
Woburn, MA 01801
Brian E. Boyle(4)........... 393,425 3.1% 50,000 343,425 2.2%
c/o Boston Communications
Group, Inc.
100 Sylvan Road
Woburn, MA 01801
Jerrold D. Adams (5)........ 5,000 * 0 5,000 *
Craig L. Burr(6)............ 169,306 1.3% 0 169,306 1.1.%
Paul R. Gudonis(7).......... 5,000 * 0 5,000 *
Gerald Segel................ 6,500 * 0 6,500 *
All directors and executive
officers as a group
(7 persons)(8).............. 1,997,026 15.3% 155,000 1,842,026 11.7%
OTHER SELLING SHAREHOLDERS
Denise Archer-Allen(9)...... 216,128 1.7% 18,000 198,128 1.3%
Paul Senn(10)............... 55,256 * 10,000 44,256 *
Robert J. Sullivan(11)...... 602,535 4.7% 25,000 577,535 3.7%
Karen Walker(12)............ 29,082 * 10,000 19,082 *
Beverly Watts(13)........... 19,678 * 7,000 12,678 *
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes 12,859,362 shares of Common Stock outstanding as of June
30, 1997 and shares of Common Stock issuable pursuant to options held by
the respective person or group that are exercisable within 60 days after
June 30, 1997 ("Presently Exercisable Options") as set forth below. The
number of shares of Common Stock deemed outstanding after this offering
includes an additional 2,775,000 shares of Common Stock that are being
offered for sale by the Company in this offering, plus 10,000 shares of
Common Stock to be issued to a Selling Shareholder upon the exercise of an
option in connection with this offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission that deem shares to be beneficially owned by any person who has
or shares voting or investment power with respect to such shares.
Presently Exercisable Options are deemed to be outstanding and to be
beneficially owned by the person or group holding such options for the
purpose of computing the percentage ownership of such person or group, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
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<PAGE>
(2) Includes 424,331 shares held by Paul J. Tobin 1988 Trust and 400,000
shares held by the Margaret M. Tobin 1988 Trust. Mr. Tobin is the trustee
of the Paul J. Tobin 1988 Trust. Margaret M. Tobin, the spouse of Paul J.
Tobin, is trustee of the Margaret M. Tobin 1988 Trust.
(3) Includes 100,000 shares owned by Mr. von Mering's wife and an aggregate of
8,000 shares held in accounts for the benefit of Mr. von Mering's
children. Includes 130,654 shares issuable upon the exercise of Presently
Exercisable Options.
(4) Comprised of 359,750 shares owned by Sand Drift, Ltd. of which Mr. Boyle
is a limited partner, 18,675 shares owned by the Brian E. Boyle
Educational Trust II, a trust for the benefit of Mr. Boyle's children. Mr.
Boyle disclaims beneficial ownership of such shares, except to the extent
of his direct pecuniary interest therein. Also includes 25,000 shares
issuable upon the exercise of Presently Exercisable Options.
(5) Includes 3,000 shares issuable upon the exercise of Presently Exercisable
Options.
(6) Includes 55,549 shares owned by Craig L. Burr 1981 Children's Trust, a
trust for the benefit of Mr. Burr's children; 55,549 shares owned by
William P. Egan 1981 Children's Trust, a trust of which Mr. Burr is a
trustee; and 2,659 shares owned by Golden Coins N.V. Mr. Burr is a
principal of Burr, Egan, Deleage & Co., which is an advisor to Golden
Coins N.V. Mr. Burr disclaims beneficial ownership of all of the foregoing
shares, except to the extent of his direct pecuniary interest therein.
(7) Includes 3,000 shares issuable upon the exercise of Presently Exercisable
Options.
(8) Includes an aggregate of 161,654 shares issuable upon the exercise of
Presently Exercisable Options.
(9) Includes 3,000 shares issuable upon the exercise of Presently Exercisable
Options.
(10) Includes 25,000 shares issuable upon the exercise of Presently
Exercisable Options, 10,000 of which Mr. Senn will be exercising in
connection with this offering.
(11) Includes 325,000 shares owned in trust.
(12) Includes 2,400 shares issuable upon the exercise of Presently Exercisable
Options.
(13) Includes 8,558 shares issuable upon the exercise of Presently Exercisable
Options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company, as of June 30, 1997, consisted
of 35,000,000 shares of Common Stock, $.01 par value per share, of which
12,859,362 shares were outstanding and held of record by 95 shareholders, and
2,000,000 shares of Preferred Stock, none of which were outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and any amounts payable to holders of Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of any series of Preferred Stock which the Company may
designate and issue in the future. Upon the closing of this offering, there
will be no shares of Preferred Stock outstanding.
PREFERRED STOCK
The Board of Directors is 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 of 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.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Furman Selz LLC, have severally agreed to purchase from the
Company and the Selling Shareholders the following respective numbers of
shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated......................................
Donaldson, Lufkin & Jenrette Securities Corporation..................
Furman Selz LLC......................................................
---------
Total.............................................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the public offering price
and other selling terms may be changed by the Representatives of the
Underwriters.
The Company and certain Selling Shareholders have granted the Underwriters
an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to 225,000 and 225,000 additional shares of Common
Stock, respectively, at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the above table bears to 3,000,000, and the Company and such
Selling Shareholders will be obligated, pursuant to the option, to sell such
shares to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments, if any, made in connection with the sale of the Common
Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 3,000,000 shares of
Common Stock are being offered.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying
bids on the Nasdaq National Market limited by the bid prices of independent
market makers and making purchases limited by such prices and effected in
response to order flow. Net
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<PAGE>
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a
short position created in connection with this offering. The Underwriters are
not required to engage in these activities and may end these activities at any
time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors and executive officers and certain of
its securityholders, who in the aggregate will hold, following this offering,
2,693,705 shares of Common Stock and options to purchase 352,667 shares of
Common Stock, have agreed that they will not directly or indirectly, without
the prior written consent of Alex. Brown & Sons Incorporated, offer, sell,
offer to sell, contract to sell, or otherwise dispose of any shares of Common
Stock for a period of 90 days after the date of this Prospectus, except that
the Company may issue, and grant options to purchase, shares of Common Stock
under its current stock option and purchase plans and other currently
outstanding options. In addition, the Company may issue shares of Common Stock
in connection with any acquisition of another company if the terms of such
issuance provide that such Common Stock shall not be resold prior to the
expiration of the 90-day period referenced in the preceding sentence.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr LLP, Boston,
Massachusetts, and for the Underwriters by Piper & Marbury L.L.P., Baltimore,
Maryland.
EXPERTS
The consolidated financial statements (including the schedule incorporated
by reference) of Boston Communications Group, Inc. and its subsidiaries at
December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing and incorporated by reference
elsewhere herein and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such material filed by the Company can be inspected and copied at the public
reference facilities
46
<PAGE>
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center,
Suite 1300, New York, New York 10048; and copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. If available,
such material may also be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). The
Company's Common Stock is listed on the Nasdaq National Market and reports,
proxy and information statements and other information concerning the Company
can be inspected at the offices of the National Association of Securities
Dealers, Inc., Market Listing Section, 1801 K Street, N.W., 8th Floor,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all of the information
set forth in such Registration Statement, certain parts of which are omitted
in accordance with the rules and regulations of the Commission. Reference is
made to such Registration Statement and to the exhibits relating thereto for
further information with respect to the Company and the Common Stock offered
hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such
document so filed for a more complete description of the matter involved. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference.
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1997 and June 30, 1997; and
(c) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A and any amendments or reports filed for
the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offering of Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of any such document. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified by or superseded for purposes of this Prospectus to the extent
that a statement contained herein or therein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein or therein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
A copy of any document or part thereof incorporated by reference in the
registration statement of which this Prospectus constitutes a part (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that the registration statement incorporates) shall be provided without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon written or oral request made to the Company at
100 Sylvan Road, Woburn, Massachusetts 01801, Attention: General Counsel and
Clerk, (617) 692-7000.
47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets at December 31, 1995, 1996 and June 30, 1997
(unaudited)............................................................. F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995, 1996 and the six months ended June 30, 1996 and 1997
(unaudited)............................................................. F-4
Consolidated Statements of Redeemable Preferred Stock and Shareholders'
Equity for the years ended December 31, 1994, 1995, 1996 and the six
months ended June 30, 1997 (unaudited).................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995, 1996 and the six months ended June 30, 1996 and 1997
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF 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. These financial statements 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.
Ernst & Young LLP
Boston, Massachusetts
February 11, 1997,
except for Note 10, as to which
the date is July 22, 1997
F-2
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 253 $ 923 $ 837
Short-term investments......................... -- 20,498 2,962
Accounts receivable, net of allowance for
billing adjustments and doubtful accounts of
$884 in 1995, $1,242 in 1996 and $1,279 in
1997.......................................... 6,250 11,060 15,059
Inventory...................................... -- 1,189 2,434
Deferred income taxes.......................... 1,800 1,334 1,334
Prepaid expenses............................... 194 495 1,000
------- ------- -------
Total current assets......................... 8,497 35,499 23,626
Property and equipment:
Telecommunication systems...................... 4,312 9,169 16,441
Furniture and equipment........................ 1,123 3,359 7,263
Leasehold improvements......................... 225 903 1,310
Systems in development......................... 734 2,658 7,402
------- ------- -------
6,394 16,089 32,416
Less allowances for depreciation and
amortization.................................... 1,510 3,183 5,035
------- ------- -------
4,884 12,906 27,381
Goodwill, net.................................... -- 3,159 2,943
Other assets..................................... 232 395 432
------- ------- -------
Total assets................................. $13,613 $51,959 $54,382
======= ======= =======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,277 $ 1,371 $ 3,294
Accrued expenses............................... 4,428 7,205 6,753
Income taxes payable........................... 710 490 553
------- ------- -------
Total current liabilities.................... 6,415 9,066 10,600
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, $0.01 par value, 2,000,000
shares authorized, 0 shares issued and
outstanding................................... -- -- --
Common Stock, voting, par value $.01 per share,
35,000,000 shares authorized, 3,335,985 shares
in 1995, 12,725,749 shares in 1996 and
12,905,782 shares in 1997 issued.............. 33 127 129
Additional paid-in capital..................... 1,016 52,738 53,489
Treasury Stock (46,420 shares in 1996 and 1997,
at cost)...................................... -- (372) (372)
Accretion of dividends on Redeemable Preferred
Stock......................................... (4,025) -- --
Accumulated deficit............................ (5,723) (9,600) (9,464)
------- ------- -------
Total shareholders' equity (deficit)......... (8,698) 42,893 43,782
------- ------- -------
Total liabilities, redeemable preferred stock
and shareholders' equity.................... $13,613 $51,959 $54,382
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Roaming services............. $16,004 $25,446 $32,234 $ 15,541 $ 15,060
Teleservices................. 2,330 8,774 13,413 7,150 8,164
Prepaid wireless services.... -- -- 312 69 2,303
System sales................. -- -- 4,692 1,233 6,445
------- ------- ------- -------- --------
18,334 34,220 50,651 23,993 31,972
Operating expenses:
Cost of service revenues..... 14,212 26,100 36,606 17,775 20,301
Cost of system revenues...... -- -- 2,576 590 3,735
Engineering, research and
development................. 270 839 3,221 1,163 2,197
Sales and marketing.......... 1,268 1,934 2,949 1,196 2,293
Related party management fees
(see Note 9)................ 1,008 1,008 252 252 --
General and administrative... 775 1,321 2,328 1,103 1,473
Depreciation and
amortization................ 396 889 2,109 837 2,093
------- ------- ------- -------- --------
17,929 32,091 50,041 22,916 32,092
------- ------- ------- -------- --------
Operating income (loss)........ 405 2,129 610 1,077 (120)
Interest income (expense)...... (64) (151) 589 (81) 397
------- ------- ------- -------- --------
Income from continuing
operations before
income taxes.................. 341 1,978 1,199 996 277
Provision (benefit) for income
taxes......................... 53 (1,030) 600 423 141
------- ------- ------- -------- --------
Income from continuing
operations.................... 288 3,008 599 573 136
Discontinued operations:
Income (loss) from
operations.................. 104 (129) -- -- --
Gain (loss) on disposal...... 1,403 (36) -- -- --
------- ------- ------- -------- --------
Income (loss) from discontinued
operations.................... 1,507 (165) -- -- --
------- ------- ------- -------- --------
Net income..................... 1,795 2,843 599 573 136
Accretion of dividends on
redeemable preferred stock.... (1,016) (950) (451) (451) --
------- ------- ------- -------- --------
Net income available to common
shareholders.................. $ 779 $ 1,893 $ 148 $ 122 $ 136
======= ======= ======= ======== ========
Net income (loss) available to
common shareholders per common
share:
Continuing operations........ $ (0.08) $ 0.22 $ 0.01 $ 0.01 $ 0.01
======= ======= ======= ======== ========
Net income................... $ 0.09 $ 0.21 $ 0.01 $ 0.01 $ 0.01
======= ======= ======= ======== ========
Shares used in computing net
income (loss) per
common share.................. 8,848 9,179 11,259 9,334 13,266
======= ======= ======= ======== ========
Supplemental net income
available to common
shareholders per common
share......................... $ 0.05
=======
Shares used in computing
supplemental net income per
common share.................. 12,427
=======
</TABLE>
See accompanying notes.
F-4
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------------
ACCRETION
OF DIVI-
CONVERTIBLE DENDS ON TOTAL
REDEEMABLE PREFERRED ADDI- REDEEM- SHARE-
PREFERRED STOCK STOCK COMMON STOCK TIONAL TREASURY STOCK ABLE ACCU- HOLDERS'
---------------- -------------- ------------------ PAID-IN -------------- PREFERRED MULATED EQUITY
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS CAPITAL SHARES DOLLARS STOCK DEFICIT (DEFICIT)
------- ------- ------ ------- ---------- ------- ------- ------ ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.. -- -- -- -- 12,725,749 127 52,738 46,420 (372) -- (9,600) 42,893
Issuance of
Common Stock
under stock
option and
stock purchase
plans.......... -- -- -- -- 180,033 2 751 -- -- -- -- 753
Net income...... -- -- -- -- -- -- -- -- -- -- 136 136
------- ------- ---- ---- ---------- ---- ------- ------ ----- ------- -------- --------
Balance at June
30, 1997
(unaudited)..... -- $ -- -- $-- 12,905,782 $129 $53,489 46,420 $(372) $ -- $ (9,464) $ 43,782
======= ======= ==== ==== ========== ==== ======= ====== ===== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing
operations................... $ 288 $ 3,008 $ 599 $ 573 $ 136
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............... 396 888 2,109 838 2,092
Deferred income taxes....... -- (1,800) 466 525 --
Changes in operating assets
and liabilities,
excluding effects of
discontinued operations and
business acquisitions:
Accounts receivable......... (1,242) (2,655) (3,208) (4,252) (3,999)
Inventory................... -- -- (1,128) -- (1,245)
Prepaid expenses and other
assets..................... (140) (51) (547) (830) (566)
Accounts payable and accrued
expenses................... 1,152 1,225 524 1,595 1,471
Income taxes payable........ 31 679 (297) (400) 63
------- ------- -------- -------- --------
485 1,294 (1,482) (1,951) (2,048)
Income (loss) from
discontinued operations...... 1,506 (166) -- -- --
Adjustments to reconcile
income (loss) from
discontinued operations:
(Gain) loss on disposal of
discontinued operations.... (1,402) 37 -- -- --
Cash flow related to results
of operations until
disposal date.............. (148) 803 -- -- --
------- ------- -------- -------- --------
(44) 674 -- -- --
------- ------- -------- -------- --------
Net cash provided by (used
in) operations............. 441 1,968 (1,482) (1,951) (2,048)
INVESTING ACTIVITIES
Acquisition of businesses, net
of cash acquired............. -- -- (846) (497) --
Purchases of short-term
investments.................. -- -- (26,937) (110) --
Sales of short-term
investments.................. -- -- 6,439 -- 17,536
Purchase of property and
equipment.................... (2,215) (2,993) (8,093) (2,942) (16,327)
Net proceeds from sale of
lines of business............ 7,545 1,074 -- -- --
------- ------- -------- -------- --------
Net cash provided by (used in)
investing activities......... 5,330 (1,919) (29,437) (3,549) 1,209
FINANCING ACTIVITIES
Proceeds from exercise of
stock options................ -- -- 28 21 753
Proceeds from issuance of
stock........................ -- -- 49,787 44,490 --
Repurchase of redeemable
preferred stock.............. (1,000) -- (16,347) (16,347) --
Purchase of treasury stock.... -- -- (372) -- --
Proceeds from notes payable... -- -- -- -- --
Payment of long-term debt and
capital leases............... (5,248) -- (1,507) (70) --
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities......... (6,248) -- 31,589 28,094 753
------- ------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents......... (477) 49 670 22,594 (86)
Cash and cash equivalents at
beginning of year............ 681 204 253 253 923
------- ------- -------- -------- --------
Cash and cash equivalents at
end of year.................. $ 204 $ 253 $ 923 $ 22,847 $ 837
======= ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Company
Boston Communications Group, Inc. (the "Company") develops, markets and
provides specialized roaming services, teleservices and prepaid wireless
services to the wireless telephone industry. The Company also manufactures and
assembles prepaid and voice system equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company earns revenues by providing teleservices, processing prepaid
wireless calls and processing wireless 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 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Corporate notes.............................. $ 3,965 $ --
U.S. Treasury bills.......................... 16,533 2,962
------- ------
Total short-term investments............... $20,498 $2,962
======= ======
</TABLE>
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 wireless calls
from service areas which are not covered by traditional roaming agreements.
These calls are forwarded by wireless carriers to the
F-7
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company for processing. Each transaction is small in size and the Company
minimizes credit risk by validating appropriate billing information.
Teleservices are provided to wireless carriers located throughout the country.
Prepaid wireless services include the Company's prepaid wireless service which
provides carriers, throughout the United States, with an alternative billing
facility for their wireless 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, teleservice and prepaid wireless 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Ameritech Cellular................................ 16.0% 15.0% 14.8%
Bell Atlantic NYNEX Mobile........................ 11.7 13.9 12.3
SNET Telecommunications, Inc...................... -- 11.9 --
AT&T Wireless..................................... 15.6 -- --
BellSouth Mobility................................ -- -- 11.4
</TABLE>
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 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Purchased parts.............................. $ 984 $1,468
Work in process.............................. 129 699
Finished goods............................... 76 267
------ ------
$1,189 $2,434
====== ======
</TABLE>
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 and $512,000 as of June 30, 1997.
Engineering, Research and Development
Costs associated with engineering, research and development are expensed as
incurred.
F-8
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 initial public offering have been included in the
calculation as if they were outstanding for all periods presented prior to the
initial public offering 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.
Unaudited Interim Consolidated Financial Statements
The consolidated balance sheet as of June 30, 1997 and the consolidated
statements of operations, redeemable preferred stock and shareholders' equity
for the six months ended June 30, 1997 and 1996 are unaudited and in the
opinion of management, include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the Company's consolidated
financial position, consolidated results of operations and cash flows.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standard (SFAS) No. 128, "Earnings Per Share" which
simplifies the calculation of earnings per share (EPS) and creates a standard
of comparability to the recently issued International Accounting Standard No.
33, "Earnings Per Share." Since early application is not permitted, the
Company will adopt this standard in the fourth quarter of 1997. Its adoption
does not have a material effect on the Company's financial position or results
of operations in the first quarter of 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997. The Company believes that the
adoption of these new accounting standards will not have a material impact on
the Company's consolidated financial statements.
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.
F-9
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Cellular sales and service................................... $ 9,455 $1,001
Rural cellular phone system.................................. 717 --
------- ------
$10,172 $1,001
======= ======
</TABLE>
The operating income (loss) of the discontinued operations is summarized
below (in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Cellular sales and service.................................... $ 262 $(129)
Rural cellular phone system................................... (158) --
----- -----
$ 104 $(129)
===== =====
</TABLE>
The gain (loss) on the disposal of the discontinuations is summarized below
(in thousands):
<TABLE>
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
Cellular sales and service..................................... -- $(36)
Rural cellular phone system.................................... $1,403 --
------ ----
$1,403 $(36)
====== ====
</TABLE>
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):
<TABLE>
<S> <C>
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
======
</TABLE>
F-10
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 March 31, 1997, 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):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................ $36,288 $51,873
------- -------
Net income available to common stockholders................. $ 1,558 $ 1
------- -------
Net income per common share................................. $ 0.17 $ 0.00
======= =======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Billing adjustments and chargebacks................ $1,136 $1,240 $1,143
Cellular airtime................................... 1,077 2,447 1,502
Payroll............................................ 391 931 1,029
Deferred revenue................................... 325 264 196
Telecommunication costs............................ 305 442 523
Billing services................................... 282 296 304
Warranty........................................... -- 159 465
Uninvoiced receipts................................ -- 219 446
Other.............................................. 912 1,207 1,145
------ ------ ------
$4,428 $7,205 $6,753
====== ====== ======
</TABLE>
F-11
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $1,189 $ 356
Book over tax amortization and depreciation expense...... 390 279
Allowance for doubtful accounts, billing adjustments and
chargebacks............................................. 775 801
Minimum tax credit carryforwards......................... 49 128
Accrued vacation and warranty............................ -- 154
Other.................................................... -- 142
------ ------
2,403 1,860
Valuation allowance for deferred tax assets.............. (162) --
------ ------
Total deferred tax assets.................................. 2,241 1,860
Deferred tax liabilities:
Tax over book amortization............................... (281) (366)
Amortization of legal costs.............................. (160) (160)
------ ------
Total deferred tax liabilities............................. (441) (526)
------ ------
Net deferred tax assets.................................... $1,800 $1,334
====== ======
</TABLE>
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------- JUNE 30,
1994 1995 1996 1997
------- ---------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................ $ 18 $ 110 $ 51 $111
State.............................. 35 660 83 30
------ ---------- ------- ----
53 770 134 141
Deferred:
Federal............................ -- (1,530) 423 --
State.............................. -- (270) 43 --
------ ---------- ------- ----
-- (1,800) 466 --
------ ---------- ------- ----
Income tax provision (benefit)....... $ 53 $ (1,030) $ 600 $141
====== ========== ======= ====
</TABLE>
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.
F-12
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal provision at
statutory rate.............. 34% 34% 34% 34% 34%
State income provision net of
federal benefit............. 6 6 6 6 6
Permanent differences........ 2 1 12 3 11
Change in valuation
allowance................... -- (65) -- -- --
Benefit of net operating
loss........................ (27) (28) (2) -- --
------- ------- ------- ----- -----
15% (52)% 50% 43% 51%
======= ======= ======= ===== =====
</TABLE>
Income taxes paid were $36,000 in 1994, $68,000 in 1995 and $352,000 in
1996, and $322,000 and $13,000 for the six months ended June 30, 1996 and
1997.
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.
F-13
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
355,758 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.
F-14
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ -------
<S> <C> <C>
Pro forma net income (loss)................................. $1,893 $(1,086)
Pro forma net income (loss) per share....................... $ 0.21 $ (0.10)
</TABLE>
Stock option information is as follows:
<TABLE>
<CAPTION>
1994 1995 1996 JUNE 30, 1997
---------------- ---------------- ------------------- -------------------
(UNAUDITED)
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding--
beginning of period.... -- 324,629 $0.14 355,758 $ 0.14 1,666,359 $8.86
Granted................. 324,629 $0.14 31,129 0.14 1,548,329 9.76 984,000 5.15
Exercised............... -- -- -- -- (201,228) 0.14 (177,316) 4.23
Cancelled............... -- -- -- -- (36,500) 13.61 (733,480) 11.94
------- ----- ------- ----- --------- ------ --------- -----
Outstanding--
end of period.......... 324,629 $0.14 355,758 $0.14 1,666,359 $ 8.86 1,739,563 $5.94
======= ===== ======= ===== ========= ====== ========= =====
Options available for
grant.................. 499,792 175,792
========= =========
</TABLE>
The following table summarizes the stock options outstanding and exercisable
as of June 30, 1997 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OPTIONS EXERCISE
EXERCISABLE OUTSTANDING PRICE
----------- ----------- --------
<S> <C> <C>
16,675 94,499 $ 0.14
632,124 1,430,178 4.75-7.38
34,686 39,686 9.69-10.00
31,000 175,200 12.50-14.00
------- --------- -----------
714,485 1,739,563 $ 5.94
======= ========= ===========
</TABLE>
In February 1997, the Company repriced 455,000 options by cancelling and
granting those options at fair market value. The repriced options retained
their vesting provisions.
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
F-15
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and $410,000 and $535,000 for the six months ended June 30, 1996 and
1997, respectively. Future minimum rental commitments, which include office
space leased as of December 1996, are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31, 1997........................................ $ 875
1998................................................................. 844
1999................................................................. 765
2000................................................................. 496
2001................................................................. 83
------
$3,063
======
</TABLE>
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.
F-16
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUBSEQUENT EVENTS
In July 1997, the Company entered into a Master Equipment Lease Agreement to
finance $5.5 million of telecommunications equipment to expand and enhance its
teleservices and prepaid wireless service businesses. The lease is a line of
credit payable on demand bearing interest at LIBOR plus one percent. Once the
equipment has been fully financed the lease will be converted into a three-
year lease payable in equal installments at an interest rate of approximately
8.5%.
In April 1997, Robert Sproul filed suit against the Company and its 80%
subsidiary, Wireless America Corp. ("WAC") in the Circuit Court for Dade
County, Florida. Mr. Sproul owns the remaining 20% of WAC. The suit relates to
WAC's termination of Mr. Sproul's employment as the President of WAC in March
1997, pursuant to an employment contract that was to expire in 1998, and
relates to certain rights which Mr. Sproul may have to require the Company to
purchase his 20% interest in WAC. Mr. Sproul claimed the purchase price for
his 20% interest was in excess of $2.8 million. The Company and Mr. Sproul
have agreed in principle to settle all of the claims asserted by Mr. Sproul.
The terms of the agreement in principle require the Company to buy Mr.
Sproul's 20% interest in WAC for a purchase price of $1.3 million. The parties
will also exchange full mutual releases and expect to negotiate and execute
other customary documents associated with the settlement of litigation. The
settlement of the suit is conditioned upon the completion of definitive
documentation.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER TO SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Price Range of Common Stock.............................................. 14
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 29
Management............................................................... 40
Principal and Selling Shareholders....................................... 42
Description of Capital Stock............................................. 44
Underwriting............................................................. 45
Legal Matters............................................................ 46
Experts.................................................................. 46
Available Information.................................................... 46
Incorporation of Certain Information by Reference........................ 47
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 Shares
LOGO
Common Stock
-----------
PROSPECTUS
-----------
Alex. Brown & Sons
INCORPORATED
Donaldson, Lufkin & Jenrette
SECURITIES CORPORATION
Furman Selz
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates,
except for the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 49,898
NASD Filing Fee................................................. 5,417
Nasdaq National Market Listing Fee.............................. 17,500
Blue Sky Fees and Expenses...................................... 500
Transfer Agent and Registrar Fees............................... 5,000
Accounting Fees and Expenses.................................... 60,000
Legal Fees and Expenses......................................... 100,000
Printing, Engraving and Mailing Expenses........................ 90,000
Miscellaneous................................................... 71,685
--------
Total....................................................... $400,000
========
</TABLE>
- --------
The Company will bear all expenses shown above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 6 of the Company's Restated Articles of Organization provides that
the Company shall indemnify each person who is or was a director, officer,
employee or other agent of the Company, and each person who is or was serving
at the request of the Company as a director, trustee, officer, employee or
other agent of another organization in which it directly or indirectly owns
shares or of which it is directly or indirectly a creditor, against all
liabilities, costs and expenses reasonably incurred by any such persons in
connection with the defense or disposition of or otherwise in connection with
or resulting from any action, suit or other proceeding in which they may be
involved by reason of being or having been such a director, officer, employee,
agent or trustee, or by reason of any action taken or not taken in such
capacity, except with respect to any matter as to which such person shall have
been finally adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the Company. The provisions in the Company's articles
pertaining to indemnification may not be amended and no provision inconsistent
therewith may be adopted without the approval of either the Board of Directors
or the holders of at least a majority of the voting power of the Company.
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law
authorizes a corporation to indemnify its directors, officers, employees and
other agents unless such person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that such action was
in the best interests of the corporation.
Under Section [8] of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
The Company maintains directors' and officers' liability insurance for the
benefit of its directors and certain of its officers.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.
3.1* Restated Articles of Organization of the Company, as amended.
3.2* Form of Restated Articles of Organization of the Company.
3.3* Amended and Restated By-Laws of the Company.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value, of the Company.
5+ Opinion of Hale and Dorr LLP with respect to the validity of the securities being offered.
21* Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24+ Power of Attorney (appears on page II-3).
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form S-
1 (File No. 333-4128).
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling persons of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to abe part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON THIS 8TH DAY OF AUGUST,
1997.
Boston Communications Group, Inc.
By: /s/ Paul J. Tobin
---------------------------------
Paul J. Tobin
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Boston Communications Group,
Inc., hereby severally constitute and appoint Paul J. Tobin, Frederick von
Mering, Alan J. Bouffard and Thomas L. Barrette, Jr., and each of them singly,
our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, the
Registration Statement on Form S-3 filed herewith and any and all pre-
effective and post-effective amendments to said Registration Statement (or any
other registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act), and generally
to do all such things in our names and on our behalf in our capacities as
officers and directors to enable Boston Communications Group, Inc. to comply
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any
of them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Paul J. Tobin Chairman of the
- ------------------------------------- Board of Directors August 8, 1997
PAUL J. TOBIN President, Chief
Executive Officer
(Principal
Executive Officer)
* Vice President, August 8, 1997
- ------------------------------------- Finance and
FREDERICK VON MERING Administration
(Principal
Financial and
Accounting
Officer), Director
* Vice Chairman of the August 8, 1997
- ------------------------------------- Board of Directors
BRIAN E. BOYLE
* Director August 8, 1997
- -------------------------------------
JERROLD D. ADAMS
II-3
<PAGE>
SIGNATURE TITLE DATE
Director
* August 8, 1997
- -------------------------------------
CRAIG L. BURR
* Director August 8, 1997
- -------------------------------------
PAUL R. GUDONIS
* Director August 8, 1997
- -------------------------------------
GERALD SEGEL
*By: /s/ Paul J. Tobin
--------------------------------
PAUL J. TOBIN
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.
3.1* Restated Articles of Organization of the Company, as amended.
3.2* Form of Restated Articles of Organization of the Company.
3.3* Amended and Restated By-Laws of the Company.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value, of the Company.
5+ Opinion of Hale and Dorr LLP with respect to the validity of the securities being offered.
21* Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24+ Power of Attorney (appears on page II-3).
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-4128).
+ Previously filed.
<PAGE>
Exhibit 1
3,000,000 SHARES
BOSTON COMMUNICATIONS GROUP, INC.
Common Stock
(Par Value $.01 per share)
UNDERWRITING AGREEMENT
----------------------
August __, 1997
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
FURMAN SELZ LLC
As Representatives of the
Several Underwriters
c/o ALEX. BROWN & SONS INCORPORATED
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Boston Communications Group, Inc., a corporation organized under the laws of
the Commonwealth of Massachusetts (the "Company"), and certain shareholders of
the Company (the "Selling Shareholders"), propose to sell to the several
underwriters (the "Underwriters") named in Schedule I hereto for whom you are
acting as representatives (the "Representatives") an aggregate of 3,000,000
shares of the Company's Common Stock, par value $.01 per share (the "Firm
Shares") of which 2,775,000 shares will be sold by the Company and 225,000 will
be sold by the Selling Shareholders. The respective amounts of the Firm Shares
to be so purchased by the several Underwriters are set forth opposite their
names in Schedule I hereto and the respective amounts to be sold by the Selling
Shareholders are set forth opposite their names in Schedule II hereto. The
Company and certain of the Selling Shareholders, also propose to sell at the
Underwriters' option an aggregate of up to 450,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Shareholders
------------
-1-
<PAGE>
(a) The Company represents and warrants as follows:
(i) A registration statement on Form S-3 (File No. 333-____) with
respect to the Shares has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission under the Act. The Company has complied with the conditions for the
use of Form S-3. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses contained therein and the
exhibits, financial statements and schedules, as finally amended and revised,
have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance on Rule 430A and contained in the Prospectus referred to below, has
been declared effective by the Commission under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed by the
Company with the Commission pursuant to its Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares together with any term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the Commonwealth of
Massachusetts, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. Each of
the material subsidiaries of the Company as listed in Exhibit A hereto
(collectively the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with corporate power and authority to own or lease its
properties and conduct its business. The Company and each of the Subsidiaries
are duly qualified to transact business in all jurisdictions in which the
conduct of their business requires such qualification except where the failure
to qualify would not have a material adverse effect on the Company. The
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by the Company free and clear of all liens, encumbrances equities and claims;
and no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests of the Subsidiaries are outstanding.
Except for the Subsidiaries and its interest in Wireless Americas Corp., the
Company has no equity or other interest in, or right to acquire, an equity or
other interest in, any corporation, partnership, trust or other entity.
(iii) The outstanding shares of Common Stock and Preferred Stock of
the Company, including all Shares to be sold by the Selling Shareholders, have
been duly authorized and validly issued and are fully paid and non-assessable;
the portion of the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully-paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof. Neither
the filing of the Registration Statement nor the offering or sale of shares as
contemplated by this Agreement gives rise to any rights other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform in all material
respects to the descriptions thereof contained in the Registration Statement.
The form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains and
the Prospectus and any amendments or supplements thereto will contain all
-2-
<PAGE>
statements which are required to be stated therein by, and in all material
respects conform or will conform, as the case may be, to the requirements of,
the Act and the Rules and Regulations. Neither the Registration Statement nor
any amendment thereto, and neither the Prospectus nor any supplement thereto,
contains or will contain, as the case may be, any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial position and
the consolidated results of operations and cash flows of the Company and the
Subsidiaries at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary and selected consolidated
financial and statistical data included in the Registration Statement present
fairly the information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company.
(vii) The Pro Forma Financial Statements and other pro forma financial
information of the Company included in the Prospectus and in the Registration
Statement have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma basis described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court, administrative agency, regulatory authority or
otherwise which might result in any material adverse change in the earnings,
business, management, properties, assets, rights, operation, condition or
prospects of the Company and the Subsidiaries taken as a whole or prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable title
to all of the properties and assets material to the conduct of the business of
the Company and the Subsidiaries reflected in the financial statements
hereinabove described (or as described in the Registration Statement), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming to the
description thereof set forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal, State,
local and foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due and are not
being contested in good faith. All tax liabilities have been adequately
provided for to the financial statements of the Company.
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition, financial or otherwise, or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of
-3-
<PAGE>
business, and there has not been any material transaction entered into by the
Company or the Subsidiaries, other than transactions in the ordinary course of
business and changes and transactions contemplated by the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is nor with the
giving of notice, lapse of time or both, will be in violation or default under
their respective Articles of Organization or By-Laws or any agreement, lease,
contract, indenture or other instrument or obligation to which they are a party
or by which they or any of their properties are bound and which default is of
material significance in respect of the condition of the Company and its
Subsidiaries taken as a whole. The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company or any
Subsidiary is a party, or of the Articles of Organization or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or may be necessary to
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws) has been obtained or made and is in full force and
effect.
(xiv) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their business other than those the failure to hold
would not have a material adverse effect on the business of the Company; and
neither the Company nor any of the Subsidiaries has infringed any patents,
patent rights, trade names, trademarks or copyrights, which infringement is
material to the business of the Company and the Subsidiaries taken as a whole.
The Company knows of no material infringement by others of material patents,
patent rights, trade names, trademarks or copyrights owned by or licensed to the
Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on The Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act.
(xvi) Ernst & Young LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(xvii) Neither the Company nor any Subsidiary has ever been, is not
now, and immediately after the sale of the Shares under this Agreement will not
be, an "investment company" within the meaning of the Investment Company Act of
1940, as amended and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded
-4-
<PAGE>
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xix) The Company and each of its Subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xx) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(xxi) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
- ---------------------------------------------------------
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's business with Cuba
or with any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(xxii) The Shares of the Company to be sold under this Agreement have
been approved for listing on the Nasdaq National Market subject to notice of
issuance.
(b) Each of the Selling Shareholders severally and not jointly represents
and warrants as follows:
(i) Such Selling Shareholder now has and at the Closing Date and the
Option Closing Date, as the case may be, will have good and marketable title to
the Firm Shares and the Option Shares to be sold by such Selling Shareholder,
free of any liens, encumbrances, equities and claims, and full right, power and
authority to effect the sale and delivery of such Firm Shares and the Option
Shares; and upon the delivery of and payment for such Firm Shares and the Option
Shares pursuant to this Agreement, the Underwriters will acquire good and
marketable title thereto, free of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement, the Power of Attorney and the Custodian
Agreement and to perform its obligations under such Agreements. The execution
and delivery of this Agreement and the consummation by such Selling Shareholder
of the transactions contemplated herein and the fulfillment by such Selling
Shareholder of the terms hereof will not result in a breach of any of the terms
and provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other agreement or instrument to which such Selling Shareholder is a
party, or of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to result in, or which has
constituted, or which might reasonably be expected to cause or result in, the
stabilization or manipulation of the price of the Common Stock of the Company
and, other than as permitted by
-5-
<PAGE>
the Act, such Selling Shareholder will not distribute any prospectus or other
offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Shareholder is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has materially adversely affected or could
reasonably be expected to materially and adversely affect the business of the
Company or any of the Subsidiaries; and the sale of the Firm Shares and the
Option Shares by such Selling Shareholder pursuant hereto is not prompted by any
information concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement. The information pertaining to such Selling
Shareholder under the caption "Selling Shareholders" in the Prospectus is
complete and accurate in all material respects.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company and the
Selling Shareholders agree to sell to the Underwriters and each Underwriter
agrees, severally and not jointly, to purchase, at a price of $____ per share,
the number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
The number of Shares to be purchased by each Underwriter from the Company and
each Selling Shareholder shall be as nearly as practicable in the same
proportion to the total number of Shares being sold by each of the Company and
the Selling Shareholders as the number of Shares being purchased by each
Underwriter bears to the total number of Shares to be sold hereunder.
(b) Certificates in negotiable form for the total number of the Shares to be
sold hereunder by the Selling Shareholders have been placed in custody with the
Company as custodian (the "Custodian") pursuant to the Custodian Agreement
executed by each Selling Shareholder for delivery of all Firm Shares and any
Option Shares to be sold hereunder by the Selling Shareholders. Each of the
Selling Shareholders specifically agrees that the Firm Shares and any Option
Shares represented by the certificates held in custody for the Selling
Shareholders under the Custodian Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Shareholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Shareholder or the dissolution of a corporate
Selling Shareholder) or by the occurrence of any other event or events, except
as set forth in the Custodian Agreement. If any such event should occur prior
to the delivery to the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Option Shares, as the case
may be, shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian
is authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
immediately available funds by wire transfer or certified or bank cashier's
checks drawn to the order of the Company for the Shares to be sold by it and to
the order of Boston Communications Group, Inc., "as Custodian" for the Shares to
be sold by the Selling Shareholders in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of Alex.
Brown & Sons Incorporated, One South Street, Baltimore, Maryland 21202, at 10:00
A.M., Baltimore time, on the third business day after the date of this Agreement
or at such other time and date not later than three business days thereafter as
you and the Company shall agree upon, such time and date being herein referred
to as the "Closing Date." (As used herein, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in New York
are open for business and are not permitted by law or executive order to be
closed.) The certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives request in
-6-
<PAGE>
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Shareholders listed on Schedule III hereto hereby grant an
option to the several Underwriters to purchase the Option Shares at the price
per share as set forth in the first paragraph of this Section 2. The option
granted hereby may be exercised in whole or in part upon written notice (i) at
any time before the Closing Date and (ii) only once thereafter within 30 days
after the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company, the Attorney-in-Fact and the Custodian setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such certificates are to be
delivered. If the option granted hereby is exercised in part, the respective
number of Option Shares to be sold by the Company and each of the Selling
Shareholders listed in Schedule III hereto shall be determined on a pro rata
basis in accordance with the percentages set forth opposite their names on
Schedule III hereto, adjusted by you in such manner as to avoid fractional
shares. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of
the option is three or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
the total number of Option Shares being purchased as the number of Firm Shares
being purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company and the Attorney in Fact. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option Closing
Date in immediately available funds by wire transfer or certified or bank
cashier's check drawn to the order of the Company for the Option Shares to be
sold by it and for the Options Shares to be sold by the Selling Shareholders
against delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, One South Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the case may be, any
Selling Shareholder fails to sell the Firm Shares or Option Shares which such
Selling Shareholder has agreed to sell on such date as set forth in Schedule II
hereto, the Company agrees that it will sell or arrange for the sale of that
number of shares of Common Stock to the Underwriters which represents Firm
Shares or the Option Shares which such Selling Shareholder has failed to so
sell, as set forth in Schedule II hereto, or such lesser number as may be
requested by the Representatives.
3. Offering by the Underwriters. It is understood that the several
----------------------------
Underwriters are to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters
will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Shareholders.
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(a) The Company covenants and agrees with the several Underwriters that:
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(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) If during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer any event shall occur as a result of
which, in the judgment of the Company or in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive
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<PAGE>
months beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of the Act and
Rule 158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(viii) No offering, sale or other disposition of any Common Stock of
the Company will be made for a period of 90 days after the date of this
Agreement, directly or indirectly, by the Company otherwise than hereunder or
with the prior written consent of Alex. Brown & Sons Incorporated, except that
the Company may, without such consent, grant options and issue shares upon the
exercise of options issued pursuant to the Company's 1996 Stock Option Plan and
1996 Employee Stock Purchase Plan or issue shares as consideration for
acquisitions (provided that the recipient of shares in any such acquisition
agrees not to offer, sell or dispose of such shares until the expiration of such
90 day period).
(ix) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director and specific
shareholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to directly or
indirectly make or cause any offering, sale or other disposition (not including
the exercise of an option to purchase shares of Common Stock) of any shares of
Common Stock of the Company owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 90 days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
Alex. Brown & Sons Incorporated and except as otherwise provided in such letter
agreement ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale or other disposition (not including the exercise
of an option to purchase shares of Common Stock) of Common Stock of the Company
owned by the Selling Shareholder or request for registration for the offer or
sale of any of the foregoing (or as to which the Selling Shareholder has the
right to direct the disposition of) will be made for a period of 90 days after
the date of this Agreement, directly or indirectly,
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<PAGE>
by such Selling Shareholder otherwise than hereunder or with the prior written
consent of Alex. Brown & Sons Incorporated and except as specifically provided
in the Lockup Agreement delivered by such Selling Shareholder to the
Underwriters.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Shareholder will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
5. Costs and Expenses. The Company will pay all costs, expenses and fees
------------------
incident to the performance of the obligations of the Company and the Selling
Shareholders under this Agreement, including, without limiting the generality of
the foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of printing and delivering
to, or as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Agreement Among
Underwriters, the Underwriters' Selling Memorandum, the Underwriters'
Questionnaire, the Underwriters' Invitation Letter, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the fees and expenses incurred with respect to the listing of the
Shares on the Nasdaq National Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. To the
extent, if at all, that a Selling Stockholder engages special legal counsel to
represent him, her or it in connection with this offering, the fees and expenses
of such counsel shall be borne by such Selling Stockholder. Any transfer taxes
imposed on the sale of shares to the several Underwriters will be paid by the
Selling Stockholders pro rata. The Company agrees to pay all costs and expenses
of the Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of directed shares of the Common
Stock by the Underwriters to employees and persons having business relationships
with the Company and its Subsidiaries. The Company and the Selling Shareholders
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company or
the Selling Shareholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters. The several obligations
---------------------------------------------
of the Underwriters to purchase the Firm Shares on the Closing Date and the
Option Shares, if any, on the Option Closing Date are subject to the accuracy,
as of the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company or the Selling Shareholders
contained herein, and to the performance by the Company or the Selling
Shareholders of their covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and
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<PAGE>
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Hale and Dorr, counsel
for the Company, dated the Closing Date or the Option Closing Date, as the case
may be, addressed to the Underwriters (and stating that it may be relied on by
counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the Commonwealth of
Massachusetts, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus; each of the Subsidiaries
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with corporate
power and authority to own its properties and conduct its business as described
in the Prospectus; the Company and each of the Subsidiaries is duly qualified to
transact business in each of the jurisdictions listed on Schedule A attached
hereto. The outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and non-assessable;
and are owned of record by the Company. To such counsel's knowledge, (i) the
outstanding shares of capital stock of the Subsidiaries are owned free and clear
of all liens, encumbrances and security interests, and (ii) no options, warrants
or other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests of the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. The outstanding
shares of the Company's Common Stock, including the Shares to be sold by the
Selling Shareholders, have been duly authorized and are validly issued and are
fully paid and non-assessable; and all of the Shares conform to the description
thereof contained in the Prospectus. The certificates evidencing the Shares,
assuming they are in the form filed with the Commission, delivered to the
Representatives for the several accounts of the Underwriters, are in due and
proper form under Massachusetts law, and when duly countersigned by the
Company's transfer agent and registrar and delivered to you or upon your order
against payment of the agreed consideration therefore in accordance with the
provisions of the Underwriting Agreement, will be duly authorized and validly
issued, fully paid and non assessable.
(iii) The shares of Common Stock, including the Option Shares, if any,
to be sold by the Company pursuant this Agreement have been duly authorized and
will be validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; no statutory preemptive rights exist with
respect to any of the Shares or the issue and sale thereof and, to such
counsel's knowledge, no preemptive rights of stockholders exist with respect to
any of the Shares or the issue and sale thereof.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order proceedings with respect
thereto have been instituted or are pending or threatened by the Commission.
(v) The Registration Statement, all Preliminary Prospectuses, the
Prospectus and each amendment or supplement thereto, when filed and declared
effective, complied as to form in all material respects with the requirements of
the Act and the applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial statements, schedules and
other financial information included therein). In passing on the form of such
documents, such counsel shall not be required to pass upon the statements made
therein or to take responsibility therefor, except as required herein.
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<PAGE>
(vi) The statements under the captions "Risk Factors--Shares Eligible
for Future Sale; Registration Rights," "Risk Factors--Antitakeover Effect of
Charter Provisions, By-Laws and Massachusetts Law," "Description of Capital
Stock," and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute matters of law or legal conclusions, have been reviewed by
us and are correct in all material respects.
(vii) Such counsel knows of no contracts or documents required by the
Act to be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed or described as
required, and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal proceedings or
regulatory or other claims pending or threatened against the Company or any of
the Subsidiaries required to be described in the Prospectus which are not
described as required.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Organization or By-Laws of the
Company, or any agreement or instrument filed as an exhibit to the Registration
Statement.
(x) This Agreement has been duly authorized, executed and delivered
by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the National Association of Securities
Dealers, Inc. or as required by State securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been obtained or made,
specifying the same.
(xii) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement, and the
application of the net proceeds therefrom as described in the Prospectus, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
In rendering such opinion, Hale and Dorr may rely as to matters governed by
the laws of states other than Massachusetts or Federal laws on local counsel in
such jurisdictions provided that in each case Hale and Dorr shall state that
they believe that they and the Underwriters are justified in relying on such
other counsel and such other counsel's opinion is also addressed to the
Underwriters. In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that (i) the Registration Statement, at
the time it became effective under the Act, (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information included therein). With
respect to such statement, Hale and Dorr may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received on the Closing Date the
opinion of Hale and Dorr, counsel for the Selling Shareholders, dated the
Closing Date, addressed to the Underwriters to the effect that:
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<PAGE>
(i) To such counsel's knowledge, the execution and delivery of this
Agreement and the consummation of the sale of Shares by each Selling Shareholder
as herein contemplated do not and will not conflict with or result in a breach
of any terms or provisions of, or constitute a default under, any agreement or
instrument known to such counsel to which such Selling Shareholder is a party or
by which such Selling Shareholder may be bound.
(ii) To such counsel's knowledge, each Selling Shareholder has full
legal right, power and authority, and any approval required by law (other than
as may be required by State securities and Blue Sky laws, as to which such
counsel need express no opinion), to sell, assign, transfer and, deliver the
Shares to be sold by such Selling Shareholder.
(iii) The Custodian Agreement and the Power of Attorney executed and
delivered by each Selling Shareholder, and this Underwriting Agreement, are
valid and binding on each such Selling Shareholder.
(iv) Assuming the Underwriters purchased the Shares to be sold by the
Selling Shareholders pursuant to this Agreement in good faith and without notice
of any adverse claim within the meaning of Section 8-302 of the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, the
Underwriters will have acquired all rights of the Selling Shareholders in such
Shares free of any adverse claim, any lien in favor the Company, and any
restrictions on transfer imposed by the Company.
(d) The Representatives shall have received from Piper & Marbury L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv), (v) and (viii) of Paragraph (b) of this Section
6, and that the Company is a validly organized and existing corporation under
the laws of the Commonwealth of Massachusetts. In rendering such opinion Piper
& Marbury L.L.P. may rely as to all matters governed other than by the laws of
the State of Maryland or Federal laws on the opinion of counsel referred to in
paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that the
Registration Statement, as of the time it became effective under the Act, and
the Prospectus or any amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b), as of the date of effectiveness of the Registration
Statement and the Registration Statement and the Prospectus, or any amendment or
supplement thereto, as of the Closing Date or the Option Closing Date, as the
case may be, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial information included
therein). With respect to such statement, Piper & Marbury L.L.P. may state that
their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(e) The Representatives shall have received at or prior to the Closing Date
from Piper & Marbury L.L.P. a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a signed letter from Ernst & Young LLP,
dated the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the Registration
Statement comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations; and
containing such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus.
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<PAGE>
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) He has been orally advised by a member of the Commission that
the Registration Statement has become effective under the Act and no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for such purpose have been taken or are, to his knowledge,
contemplated by the Commission.
(ii) He does not know of any litigation instituted or threatened
against the Company or any of the Subsidiaries of a character required to be
disclosed in the Registration Statement which is not so disclosed; he does not
know of any material contract required to be filed as an exhibit to the
Registration Statement which is not so filed; and the representations and
warranties of the Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case may be.
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement, were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading and, in his opinion, since the effective date
of the Registration Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus which has not been so
set forth in such supplement or amendment.
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business.
(h) The Company and the Selling Shareholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representatives may reasonably have requested.
(i) The Firm Shares, and Option Shares, if any, have been approved for
listing upon official notice of issuance on the Nasdaq National Market.
(j) The Representatives shall have received from each officer and director
of the Company a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which such person shall agree not to directly or
indirectly make or cause any offering, sale or other disposition (not including
the exercise of an option to purchase shares of Common Stock) of any shares of
Common Stock of the Company owned by such person (or as to which such person has
the right to direct the disposition of) for a period of 90 days after the date
of this Agreement, except with the prior written consent of Alex. Brown & Sons
Incorporated and except as specifically set forth therein.
The opinions and certificates mentioned in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters.
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<PAGE>
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Shareholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Company, the Selling Shareholders and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Company and the Selling
------------------------------------------------------------
Shareholders. The obligations of the Company and the Selling Shareholders to
- -------------
sell and deliver the portion of the Shares required to be delivered as and when
specified in this Agreement are subject to the conditions that at the Closing
Date or the Option Closing Date, as the case may be, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
8. Indemnification
---------------
(a) The Company and Paul J. Tobin, Frederick E. von Mering, Brian E. Boyle,
Denise Archer-Allen, Paul Senn, Robert J. Sullivan, Karen Walker and Beverly
Watts (the "Indemnifying Shareholders") jointly and severally agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages or
liabilities to which such Underwriter or such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company and the
Indemnifying Shareholders will not be liable in any such case to the extent that
(i) any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof; or (ii) a statement or omission
described in the immediately preceding clause (i) was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (a) any such loss,
claim, damage or liability suffered or incurred by any Underwriter (or any
person who controls any Underwriter) resulted from an action, claim or suit by
any person who purchased Shares which are the subject thereof from such
Underwriter in the offering and (b) such Underwriter failed to deliver or
provide a copy of the Prospectus to such person at or prior to the confirmation
of the sale of such Shares in any case where such delivery is required by the
Act. In no event, however, shall the aggregate liability of any Indemnifying
Shareholder for indemnification under this Section 8(a) exceed the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total Shares sold hereunder
which is being sold by such Indemnifying Shareholder, or (ii) the net proceeds
after underwriters discounts and commissions received by such Indemnifying
Shareholder from the Underwriters in the offering. This indemnity agreement will
be in addition to any liability which the Company or the Indemnifying
Shareholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Indemnifying Shareholders and each
person, if any, who controls the Company or the Indemnifying Shareholders within
the meaning of the Act, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, Indemnifying Shareholder or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based (i) upon any untrue
-15-
<PAGE>
statement or alleged untrue statement of any material fact contained or
incorporated by reference in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made; and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, Indemnifying Shareholder or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a) or (b)
shall be available to any party who shall fail to give notice as provided in
this Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or until 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them, or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company and the Selling Shareholders in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received
-16-
<PAGE>
by the Company and the Selling Shareholders on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under Section
8(c) above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Shareholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Shareholder from the Underwriters in the offering and (iii) no
Selling Shareholder shall be required to contribute any amount in excess of the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
-17-
<PAGE>
9. Default by Underwriters. If on the Closing Date or the Option Closing
-----------------------
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the Company
or a Selling Shareholder), you, as Representatives of the Underwriters, shall
use your best efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. Notices. All communications hereunder shall be in writing and, except
-------
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Scott A.
Wieler, Managing Director; if to the Company or a Selling Shareholder, to Boston
Communications Group, Inc., Attention: Paul J. Tobin, President and Chief
Executive Officer.
11. Termination. This Agreement may be terminated by you by notice to the
-----------
Company and the Selling Shareholders as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 9:00 A.M.,
Baltimore time, on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and of the Subsidiaries taken
as a whole or the earnings, business affairs, management or business prospects
of the Company and of the Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency after the date hereof or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the United
States would, in your reasonable judgment, make the offering or delivery of the
Shares impracticable or inadvisable, (iii) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange or the American Stock Exchange, the NASD, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your reasonable opinion materially and adversely affects or will materially or
adversely affect the business
-18-
<PAGE>
or operations of the Company and of the Subsidiaries taken as a whole (v)
declaration of a banking moratorium by either federal or New York State
authorities, (vi) the suspension of trading of the Company's Common Stock by the
Commission on the Nasdaq National Market; (vii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States or elsewhere, or (viii) any litigation or
proceeding is pending or threatened against the Underwriters which seeks to
enjoin or otherwise restrain, or seeks damages in connection with, or questions
the legality or validity of this Agreement or the transactions contemplated
hereby; or
(c) as provided in Sections 6 and 9 of this Agreement.
13. Information Provided by Underwriters. The Company, the Selling
-------------------------------------
Shareholders and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. Successors. This Agreement has been and is made solely for the benefit
----------
of the Underwriters and the Company and the Selling Shareholders and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase.
15. Miscellaneous. The reimbursement, indemnification and contribution
-------------
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
Any person executing and delivering this Agreement as Attorney-in-Fact for a
Selling Shareholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
BOSTON COMMUNICATIONS GROUP, INC.
By:
------------------------------------------
Paul J. Tobin
President and Chief Executive Officer
Selling Shareholders
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<PAGE>
By:
-------------------------------------------
Paul J. Tobin
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
FURMAN SELZ INCORPORATED
As Representatives of the
several Underwriters listed
on Schedule I
By ALEX. BROWN & SONS INCORPORATED
By
--------------------------------
Authorized Officer
-20-
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
NUMBER OF
---------
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated................
Donaldson, Lufkin & Jenrette Securities
Corporation...................................
Furman Selz LLC
Total.......................................
</TABLE>
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<PAGE>
SCHEDULE II
Schedule of Selling Shareholders
Number of Firm Shares
Selling Shareholder to be Sold
- ------------------- -------------------------------------------------
Paul J. Tobin....................... 55,000
Frederick E. von Mering............. 50,000
Brian E. Boyle...................... 50,000
Denise Archer-Allen................. 18,000
Paul Senn........................... 10,000
Robert J. Sullivan.................. 25,000
Karen Walker........................ 10,000
Beverly Watts....................... 7,000
-------
Total............................... 225,000
=======
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<PAGE>
SCHEDULE III
Schedule of Option Shares
<TABLE>
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
-------------- ---------------- ---------------
<S> <C> <C>
Boston Communications Group, Inc. 225,000 50%
[Selling Shareholders] 225,000 50%
------- ---
Total 450,000 100%
---
</TABLE>
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<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 11, 1997, except for Note 10, as to which
the date is July 22, 1997, in the Registration Statement (Form S-3) and
related Prospectus of Boston Communications Group, Inc. for the registration
of 3,450,000 shares of common stock.
We also consent to the incorporation by reference therein to our report
dated February 11, 1997, with respect to the financial statement schedule of
Boston Communications Group, Inc. for the years ended December 31, 1996, 1995
and 1994, included in the Annual Report (Form 10-K) for 1996 filed with the
Securities and Exchange Commission.
Boston, Massachusetts
August 7, 1997
