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