<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(x) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-28432
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Sylvan Road, Woburn, Massachusetts 01801
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(Address of principal executive offices)
Registrant's telephone number, including area code: (617)692-7000
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(Former name, former address, former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of July 30, 1998 the Company had outstanding 16,321,497 shares of common
stock, $.01 par value per share.
<PAGE>
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.............................3
Consolidated Statements of Operations...................4
Consolidated Statements of Cash Flows...................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................8
Certain Factors That May Affect Future Results.........11
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................14
Item 4. Submission of Matters to a Vote of Security Holders....14
Item 6. Exhibits and Reports on Form 8-K.......................14
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1997 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,601 $ 22,144
Short-term investments 10,103 6,113
Accounts receivable, net of allowance for
billing adjustments and doubtful accounts
of $ 1,304 in 1997 and $1,203 in 1998 12,445 16,069
Inventory 1,550 2,741
Deferred income taxes 1,564 1,564
Prepaid expenses and other assets 630 1,049
-------- --------
Total current assets 49,893 49,680
Property and equipment, net 38,087 37,724
Goodwill, net 4,067 3,764
Other assets 1,338 281
-------- --------
Total assets $ 93,385 $ 91,449
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,786 $ 863
Accrued expenses 7,304 9,218
Income taxes payable 466 206
Current maturities of capital lease
obligations 1,127 1,149
-------- --------
Total current liabilities 11,683 11,436
Capital lease obligations, net of current
maturities 1,598 1,014
Shareholders' equity:
Preferred Stock, par value $.01 per share,
2,000,000 shares authorized, 0 shares issued
and outstanding - -
Common Stock, voting, par value $.01 per share,
35,000,000 shares authorized, 16,273,947 and
16,317,047 shares issued in 1997 and 1998,
respectively 163 163
Additional paid-in capital 91,029 91,103
Treasury stock (46,420 shares, at cost) (372) (372)
Accumulated deficit (10,716) (11,895)
-------- --------
Total shareholders' equity 80,104 78,999
-------- --------
Total liabilities and
shareholders' equity $ 93,385 $ 91,449
======== ========
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1998 1997 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Roaming services $ 8,048 $ 7,059 $15,060 $14,855
Teleservices 4,375 6,226 8,164 10,815
Prepaid wireless services 1,513 4,043 2,303 6,977
System sales 2,417 3,932 6,445 8,996
------- ------- ------- -------
16,353 21,260 31,972 41,643
Expenses:
Cost of service revenues 10,882 12,899 20,301 24,940
Cost of system revenues 1,095 2,180 3,735 4,853
Engineering, research and development 1,168 1,176 2,197 2,579
Sales and marketing 1,230 1,308 2,293 2,643
General and administrative 824 1,469 1,473 2,883
Depreciation and amortization 1,203 2,695 2,093 5,146
Impairment of long-lived assets - 698 - 698
------- ------- ------- -------
Total operating expenses 16,402 22,425 32,092 43,742
------- ------- ------- -------
Operating loss (49) (1,165) (120) (2,099)
Interest income 135 326 397 712
------- ------- ------- -------
Income(loss) before income taxes 86 (839) 277 (1,387)
Provision(benefit) for income taxes 43 - 141 (208)
------- ------- ------- -------
Net income(loss) $ 43 $ (839) $ 136 $(1,179)
======= ======= ======= =======
Basic and diluted net income (loss)
per common share $ 0.00 $ (0.05) $ 0.01 $ (0.07)
======= ======= ======= =======
Shares used in computing basic and
diluted net income (loss) per
common share 13,261 16,269 13,055 16,262
======= ======= ======= =======
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income(loss) $ 136 $(1,179)
Adjustments to reconcile net income(loss) to net
cash used in operating activities:
Depreciation and amortization 2,092 5,146
Impairment of long-lived assets - 698
Changes in operating assets and liabilities:
Accounts receivable (3,999) (3,624)
Inventory (1,245) (1,191)
Prepaid expenses and other assets (566) (147)
Accounts payable and accrued expenses 1,471 (9)
Income taxes payable 63 (260)
-------- -------
Net cash used in operations (2,048) (566)
INVESTING ACTIVITIES
Purchases of property and equipment (16,327) (4,393)
Sales of short-term investments 17,536 12,119
Purchases of short-term investments - (8,129)
-------- -------
Net cash provided by (used in) investing activities 1,209 (403)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 753 74
Repayment of capital leases - (562)
-------- -------
Net cash provided by(used in) financing activities 753 (488)
-------- -------
Decrease in cash and cash equivalents (86) (1,457)
Cash and cash equivalents at beginning of period 923 23,601
-------- -------
Cash and cash equivalents at end of period $ 837 $22,144
======== =======
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements have been prepared by the
Company, without audit, and reflect all adjustments which in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. All adjustments were of a normal recurring nature with
the exception of the write down of assets no longer being used in the
business. Certain information and footnote disclosures normally included in
the annual consolidated financial statements which are prepared in accordance
with generally accepted accounting principles have been condensed or omitted
in accordance with rules of the United States Securities and Exchange
Commission. Accordingly, the Company believes that although the disclosures
are adequate to make the information presented not misleading, the
consolidated financial statements should be read in conjunction with the
footnotes contained in the Company's Form 10-K for the fiscal year ended
December 31, 1997.
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 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for the
current year. The Company believes that the adoption of these new accounting
standards will not have a material impact on the Company's consolidated
financial statements.
2. Earnings Per Share
In accordance with Financial Accounting Standards Board (FASB) Statement No.
128, Earnings per Share, the Company is required to calculate basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities and diluted earnings
per share is very similar to the previously reported fully diluted earnings
per share. Basic and diluted earnings per share are the same for the Company
for the three month and six month periods ended June 30, 1998 and 1997.
3. Inventory
Inventories consisted of the following at:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---- ----
<S> <C> <C>
Purchased parts $1,114 $2,349
Work-in-process 127 320
Finished goods 309 72
------ ------
$1,550 $2,741
====== ======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Contingencies
The Company received a letter from AT&T Wireless Services (AWS) stating that
it believes that it is entitled to indemnification from the Company in
respect to a certain claim presently pending in a case brought against AWS.
The letter asserts that the claim gives rise to an obligation on the part of
the Company to indemnify AWS. No legal action has been brought against the
Company and no amount of potential damages has been specified. Management
believes that the claim is without merit and that the outcome is unlikely to
have a material impact on the financial condition of the Company.
5. Property and Equipment
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 the impairment
whenever events or changes in circumstances indicate 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.
During the quarter ended June 30, 1998, the Company recorded an additional
impairment loss of $698,000 for equipment which had already been removed from
operations. The Company intends to sell these assets in 1998 and has adjusted
the net book value of the equipment to the estimated sales value.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998
- ----------------------------------------------
Service and system revenues
- ---------------------------
Total revenues increased 29.9% from $16.4 million in the three months ended June
30, 1997 to $21.3 million in the three months ended June 30, 1998 and increased
30.0% from $32.0 million in the six months ended June 30, 1997 to $41.6 million
in the six months ended June 30, 1998.
Roaming service revenues decreased 12.3% or $989,000 from the three months ended
June 30, 1997 compared to the same period ended June 30, 1998 and 1.4% or
$205,000 from the six month period ended June 30, 1997 compared to 1998. The
decrease in roaming service revenues reflects the suspension of the AT&T calling
card as a billing option until AT&T completes an upgrade of their system to make
it more compatible with the Company's system. The decrease also resulted from
the stabilization in the automatic roaming agreements between carriers versus
prior periods in which revenues were enhanced by the temporary suspension of
certain agreements.
Teleservice revenues increased 40.9% or $1.8 million and 31.7% or $2.6 million,
respectively, for the three month and six month periods ended June 30, 1998
compared to the same periods in the prior year. The increases resulted
primarily from the increases in volume and service offerings for existing
carriers in addition to new teleservices programs to support carriers utilizing
the Company's prepaid wireless services.
Revenues generated from prepaid wireless services (C2C) increased 167% or $2.5
million and 204% or $4.7 million, respectively for the three and six month
periods ended June 30, 1998 as compared to the same periods in the prior year.
The increases were due to the increase in the number of markets where C2C
prepaid services were commercially available, and an increase in subscribers and
usage in existing markets. As of June 30, 1998, 56 C2C network switches were
deployed in various markets throughout North America compared to 33 as of June
30, 1997. These switches were processing calls for approximately 487,000 C2C
subscribers as of June 30, 1998 compared to 139,000 subscribers as of June 30,
1997.
System sales increased 62.5% or $1.5 million from the three month period ended
June 30, 1997 to the same period ended June 30, 1998 and increased 40.6% or $2.6
million from the six month period ended June 30, 1997 to the same period ended
June 30, 1998. The increases resulted primarily from the sale of systems to
continue the expansion of prepaid wireless systems throughout South America.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
Cost of service revenues
- ------------------------
Cost of service revenues consist primarily of wireless network and landline
transmission costs in addition to the personnel costs associated with operator
assisted roaming service calls, teleservice calls and C2C operations. Cost of
service revenues decreased from 78.4% of service revenues for the three months
ended June 30, 1997 to 74.6% of service revenues for the three months ended June
30, 1998. Cost of service revenues decreased from 79.6% of service revenues for
the six months ended June 30, 1997 to 76.4% of service revenues for the six
months ended June 30, 1998. The decreases in cost of service revenues as a
percentage of service revenues were primarily due to significant increases in
revenues generated by C2C, which better absorbed its operating costs. The cost
of services revenues as a percentage of service revenues is expected to continue
to decrease as usage on the C2C network increases.
Cost of system revenues
- -----------------------
Cost of system revenues represents the cost of prepaid and voice systems sold by
the Company's systems division. Cost of system revenues increased from 45.8% of
system revenues for the three months ended June 30, 1997 to 56.4% of system
revenues for the three months ended June 30, 1998. The higher margin in the
three months ended June 30, 1997 resulted from an international system sale
which yielded a favorable gross margin. Cost of system revenues decreased from
57.8% of system revenues for the six months ended June 30, 1997 to 54.4% of
system revenues for the six months ended June 30, 1998. This decrease in cost
of system revenues as a percentage of system revenues resulted from the
expansion of systems in Mexico in early 1997 at lower margins. System sales
margins can vary from period to period based on the size, type and installation
requirements of the systems sold.
Engineering, research and development expenses
- ----------------------------------------------
Engineering, research and development expenses primarily include the salaries
and benefits for software development and engineering personnel associated with
the development, implementation and maintenance of existing and new services and
systems. Engineering, research and development expenses remained relatively
constant for the three month periods ended June 30, 1997 and 1998 and increased
$382,000 or 17.4% from the six months ended June 30, 1997 to the six months
ended June 30, 1998. The increase was principally due to the costs, including
recruiting fees and other personnel costs, associated with the Company's hiring
of new personnel to support ongoing development and enhancements, implementation
and deployment of the C2C Network. Engineering, research and development
expenses are expected to decrease in proportion to revenues as more engineers
devote time to maintaining the existing C2C infrastructure.
Sales and marketing expenses
- ----------------------------
Sales and marketing expenses include direct sales force and product management
salaries, commissions, travel expenses, in addition to the cost of trade shows,
advertising and other promotional expenses. Sales and marketing expenses
increased $78,000 or 6.3% from the three months ended June 30, 1997 to the three
months ended June 30, 1998 and increased $350,000 or 15.3% from the six months
ended June 30, 1997 to the six months ended June 30, 1998. The increases in
sales and marketing expenses were primarily due to additional salaries,
commissions, benefits and other expenditures to augment the growth of the
prepaid wireless service and teleservice businesses.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
General and administrative expenses
- -----------------------------------
General and administrative expenses include salaries, benefits and other
expenses that provide administrative support to the Company. General and
administrative expenses increased $645,000 or 78.3% from the three months ended
June 30, 1997 to the three months ended June 30, 1998. For the six months ended
June 30, 1998, general and administrative expenses increased $1.4 million or
93.3% from the same period in the prior year. The increases resulted
principally from the addition of staff to support the Company's growth and the
organization of the Company into its four operating divisions.
As a result of the divisional structure, certain senior management personnel
changed their functional responsibilities from marketing and engineering to
general management and oversight of the divisions.
Depreciation and amortization expenses
- --------------------------------------
Depreciation and amortization expenses include depreciation of
telecommunications systems, furniture and equipment, leasehold improvements and
goodwill. The Company provides for depreciation using the straight-line method
over the estimated useful lives of the assets, which range from three to seven
years. Goodwill is being amortized over eight years. Depreciation and
amortization expenses increased $1.5 million or 125% and $3.0 million or 143%,
respectively, during the three and six-month periods ended June 30, 1998
compared to the same periods in the prior year. The increases were due
primarily to depreciation of additional technical equipment and software to
support the expansion and continuing development of the Company's prepaid
wireless network. Depreciation and amortization expenses are expected to
continue to increase in 1998 due to increased capital expenditures for
telecommunications systems to support the continued expansion and enhancement of
the C2C Network along with increased capital expenditures for a leased call
center facility in Florida to support expansion of the teleservices division.
Impairment of Long Lived Assets
- -------------------------------
During the quarter ended June 30, 1998, the Company recorded a pre-tax charge of
$698,000 for an additional impairment loss on equipment which had already been
removed from operations.
Interest income, net
- --------------------
Interest income increased $191,000 and $315,000, respectively, for the three and
six-month periods ended June 30, 1998 as compared to the same periods in the
prior year. Interest income was earned on the investment of proceeds from the
Company's public offerings. The increases in interest income resulted from
higher cash and investment balances than in the prior year partially
attributable to greater cash generated from operating income in the three months
ended June 30, 1998.
Provision for income taxes
- --------------------------
The Company's effective income tax benefit for the three and six-month periods
ended June 30, 1998 was 0% and 15%, respectively. As a result of non-deductible
goodwill amortization, the income tax rate may be significantly higher than
statutory income tax rates in the foreseeable future.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998 the Company had cash, cash equivalents and short-term
investments of $28.3 million as compared to $33.7 million at December 31, 1997.
Net cash used in operating activities for the six months ended June 30, 1998 was
$566,000 and resulted from an increase in accounts receivable and inventory
offset by increased depreciation expense. Accounts receivable increased $3.6
million primarily due to increased revenues from prepaid wireless services,
teleservices and systems and, to a lesser extent, extended payment terms granted
for two large system sales in 1998. Inventory balances increased in order to
meet customer demand for the Company's systems. These increases were offset by
depreciation and amortization expense of $5.1 million resulting from greater
capital investment made in the Company's C2C network.
Net cash used in investing activities was $403,000 for the six months ended June
30, 1998. Purchases of telecommunications systems equipment and software of
$4.4 million were made primarily to support the expansion of the Company's C2C
network. These purchases were offset by net proceeds of $4.0 million from sales
of short-term investments. The Company anticipates that over the next 12
months, additional capital investments will continue to be made to support
service enhancements and additional switches to support the C2C network.
Net cash used in financing activities for the six months ended June 30, 1998 was
$488,000 and consisted principally of capital lease payments.
The Company believes that existing cash balances and funds anticipated to be
generated from operations will be sufficient to finance the Company's operations
and the expansion of the C2C Network for at least the next 12 months.
The Company has begun to review its computer systems for Year 2000 compliance
and has designed a plan to test whether their systems will conform to Year 2000
requirements. The Company is expensing all costs associated with these system
changes and does not anticipate that these costs will have a material impact on
its financial position or results of operations. Although management does not
expect Year 2000 issues to have a material impact on its business or results of
operations, there can be no assurance that there will not be interruptions or
other limitations of system functionality.
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report contains forward-looking statements that involve risks and
uncertainties including statements regarding costs of deploying and supporting
the C2C network, decreases in cost of service revenues as a percentage of
service revenues, varying margins on system sales, greater costs of depreciation
and amortization and income tax rates significantly higher than statutory income
tax rates. 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 continue to support its C2C Network, the ability of the
Company's carrier customers to successfully market and sell C2C prepaid wireless
services, the Company's ability to retain existing customers and attract new
customers, increased competition and general economic factors.
Historically, a significant portion of the Company's revenues in any particular
period has 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
through these customers, the billing options available on the roaming services
platform, the services being performed for the teleservice programs and the
level of system sales. 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 has experienced fluctuations in its quarterly operating results and
anticipates that such fluctuations will continue and could intensify. The
Company experienced an operating loss in 1997 and the first two quarters of
1998, primarily due to expenses associated with the development of its C2C
Network. The Company's quarterly operating results may vary significantly
depending on a number of factors, including the timing of the introduction or
acceptance of new services offered by the Company or its competitors, changes in
the mix of services provided by the Company, variations in the level of system
sales, changes in regulations affecting the wireless industry, changes in the
Company's operating expenses, personnel changes and general economic conditions.
Due to all of the foregoing factors, it is possible that in some future quarter
the Company's results of operations will be below prior results or the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially and adversely affected.
The Company historically has provided its services almost exclusively to
wireless carriers. Although the wireless telecommunications 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 wireless carriers
will continue to use the Company's services. In addition, the prepaid wireless
and PCS services are relatively new services in new markets, 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.
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future success depends, in large part, on the continued use of its
existing services and systems, the acceptance of new services in the wireless
industry and the Company's ability to develop new services and systems that keep
pace with changes in the wireless telephone industry. Further, a rapid shift
away from the use of wireless in favor of other services could affect demand for
the Company's service offerings and could require the Company to develop
modified or alternative service offerings addressing the particular needs of
providers of such new services. In addition the development of better fraud
controls implemented by the carriers could decrease the demand for the Company's
roaming and other services. There can be no assurance that the Company will be
successful in developing or marketing its existing or future service offerings
or systems in a timely manner, or at all.
The Company is currently devoting significant resources toward the enhancement
and deployment of its prepaid wireless services and systems, including continued
expansion of its C2C Network. There can be no assurance that the Company will
successfully support and enhance the C2C Network effectively, that the market
for the Company's prepaid wireless services and systems will continue to
develop, or that the Company's C2C Network will successfully support current and
future growth. Furthermore, the Company has expended significant amounts of
capital to support the C2C agreements it has secured with its carrier customers.
Because C2C revenues are principally generated by prepaid subscriber minutes of
use, the Company's C2C revenues can be impacted by the carrier's ability to
successfully market and sell prepaid services. In addition, teleservices
revenues associated with billing inquiry support for C2C customers have become a
more significant portion of teleservices revenues and therefore these revenues
are dependent upon the size and growth of the C2C subscriber base.
The Company has expanded its operations rapidly, creating 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, ensure the quality of the
Company's services and retain key personnel, 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, many 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 and could have a material adverse effect on
the Company's business, financial condition or results of operations.
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
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
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 20, 1997, AT&T Wireless Services (AWS) sent a letter to
the Company stating that it believes that it is entitled to
indemnification from the Company in respect to a certain claim
presently pending in a case brought by Ronald A. Katz Technology
Licensing, L.P. and MCI Telecommunications Corporation against AT&T
Corp. in the United States District Court for the Eastern District of
Pennsylvania. The letter asserts that Count 13 of the complaint, which
relates in part to prepaid wireless service, gives rise to an
obligation on the part of the Company to indemnify AWS with respect to
that count. The amount in question is undetermined. The suit against
AT&T Corp. was filed on July 8, 1997. The contract between the Company
and AWS pursuant to which the Company presently provides prepaid
services to AWS, and upon which AWS's claim for indemnification is
based, was not executed until October 15, 1997. For this and other
reasons, the Company believes that the claim is without merit. No
legal action has been brought against the Company; however the Company
was served on April 2, 1998 with a subpoena seeking a deposition of a
Company representative and production of documents. The Company filed
a response and objections to the subpoena in May and is in the process
of producing documents in connection with the response.
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the 1998 Annual Meeting of Shareholders (the "Annual
Meeting") on May 21, 1998. At the Annual Meeting, the following
actions were taken:
1. The shareholders elected Jerrold D. Adams, Paul R. Gudonis, and
Frederic E. von Mering as Class II Directors of the Company to
serve 3 year terms. The table below outlines the voting results:
Number of Shares/Votes
----------------------
For Against
--- -------
Jerrold D. Adams 14,781,084 146,890
Paul R. Gudonis 14,780,984 146,990
Frederick E. von Mering 14,754,345 173,629
2. The shareholders ratified the appointment of Ernst & Young LLP as
the Company's independent auditors by a vote of 14,884,175 shares
of Common Stock for, 13,315 shares of Common Stock against and
30,484 shares of Common Stock abstained.
3. The shareholders ratified and approved the adoption of the
Company's 1998 Stock Incentive Plan by a vote of 13,005,692 shares
of Common Stock for, 1,846,894 shares of Common Stock against and
75,388 shares of Common Stock abstained.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index are part of or included in
this report.
b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
-------------------------------------
(Registrant)
Date: August 13, 1998 By: /s/ Fritz von Mering
--------------------
Fritz von Mering
Vice President, Finance
and Administration (Principal
Financial and Accounting
Officer and Duly Authorized
Officer)
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
*10.43 Agreement dated May 15, 1998 between the
Company and ICT Group, Inc.
*10.44 Agreement dated May 4, 1998 between the
Company and Smartalk Teleservices, Inc.
27 Financial Data Schedule
* Confidential treatment requested as to certain portions
<PAGE>
Exhibit 10.43
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
MANAGEMENT SERVICES AGREEMENT
INTRODUCTION
AGREEMENT is entered into on May 15, 1998 between ICT Group Inc. ("ICT"), 800
Town Center Drive, Langhorne, PA, 19047-1748 and Cellular Express, Inc., d/b/a
Boston Communications Group ("Client"), 100 Sylvan Road, Suite 100, Woburn, MA
01801.
BACKGROUND
ICT is in the business of providing call center services to the business
community. ICT and Client desire to enter into this Agreement pursuant to which,
ICT will furnish client with a call center in accordance with the terms and
conditions of the Agreement.
TERMS AND CONDITIONS
SECTION 1. SERVICE
1.1 Included Services. In consideration of the payment by Client to ICT of the
amounts due under this Agreement, ICT agrees that it will furnish the Client
with the specific Scope of Services described in Exhibit "A".
1.2 Supplemental Services. ICT may provide Supplemental Services, subject to
the availability and expertise of ICT personnel, at such additional cost for
such Supplemental Services as agreed by both parties. Any Supplemental Services
shall be provided in accordance with the terms and conditions of this Agreement
and shall be pursuant to an approved Service Enhancement Request (see Section
10).
SECTION 2. CERTAIN CLIENT OBLIGATIONS
2.1 Upon ICT's reasonable request, Client agrees to make its personnel,
including appropriate professional personnel, administrative personnel and other
employees, reasonably available for consultation at mutually convenient times in
order to assist ICT to perform its own obligations under this Agreement.
Confidential - Management Service Agreement -
<PAGE>
SECTION 3. TERM
3.1 Subject to the events of termination of Section 14, the initial term of
this Agreement shall commence on August 1, 1998 (Effective Date) and continue
until August 1, 2003.
3.2 This Agreement shall automatically renew for a period of one (1) year
unless prior written notification is provided to either party 180 days prior to
expiration of this Agreement or any renewal thereof.
SECTION 4. QUALITY ASSURANCE
4.1 ICT agrees to use its best efforts at all times to provide prompt and
efficient service.
SECTION 5. CONFIDENTIALITY
5.1 ICT agrees that confidential information, so marked by Client, is the
property of the Client and that it will keep the information in a confidential
fashion and shall not disclose the same to any third party except as may be
provided elsewhere in this Agreement. All confidential material including
lists, scripts, product literature, etc., will be returned to the Client, as
requested, at the conclusion of this Agreement.
5.2 ICT further agrees that it shall use the confidential information only as
required to perform the services it is contracted to perform in connection with
this Agreement.
5.3 ICT further agrees that it shall limit the dissemination of the
confidential information within its own organization to such individuals whose
duties justify their need to know such information, and then only provided that
there is a clear understanding by such individuals of their need to maintain the
confidential and proprietary nature of such information and to restrict its uses
to the purposes specified herein.
5.4 Neither party shall have any liability to the other hereunder for
disclosures made pursuant to subpoena or court order, provided that the
receiving party has notified the non-receiving party of any such demands for
disclosure prior to disclosing such information to provide non-receiving party
an opportunity to challenge such demand. If Client desires to resist disclosure
for any reason, Client will defend such actions at Client's expense.
5.5 The terms of this Section shall survive the termination of this Agreement
for any reason.
Confidential - Management Service Agreement - 2
<PAGE>
SECTION 6. WARRANTEES
6.1 ICT represents and warrants to Client that ICT has and will continue to
maintain all necessary licenses, permits or approvals required under this
Agreement in each and every jurisdiction having authority over the services ICT
performs under this Agreement, and that they will perform this agreement in
compliance with all local, state, federal and international laws and
regulations.
6.2 ICT agrees to conduct its services on behalf of Client in accordance with
all applicable federal, state and local laws governing advertising, marketing
practice and the transaction of business via mail, telephone and all other forms
involving the use of print or broadcast media. These include, but are not
limited to, the laws and regulations of the United States Postal Service,
Federal Communications Commission, Federal Trade Commission and the Federal
Reserve Board.
SECTION 7. INDEMNIFICATION
7.1 The undersigned Client does hereby indemnify, defend, and save harmless ICT
and its subsidiaries, affiliates, shareholders, officers, directors and
employees from any and all loss or liability arising from any and all
complaints, claims or legal actions, in any way resulting from any Client
products, and Client shall assume full responsibility for, and handling of, any
such complaint, claim or legal action as well as for payment of all expenses,
costs, counsel fees, judgment and/or settlements thereby incurred, except to
the extent that such complaint, claim or legal action, costs, counsel fees,
judgment or settlements result from or arise out of an act of commission or
omission by ICT, its agents and/or its employees. ICT shall notify Client
promptly of any complaint, claim or legal actions and shall cooperate in any
defense. ICT agrees that Client shall have sole control over such defense,
including but not limited to retaining counsel and all offers of settlement.
7.2 ICT does hereby indemnify, defend, and save harmless Client and its
subsidiaries, affiliates, shareholders, officers, directors and employees from
any and all loss or liability arising from any and all complaints, claims or
legal actions, which may result or arise out of ICT's performance under this
Agreement, and ICT shall assume full responsibility for, and handling of, any
such complaint, claim or legal action as well as for payment of all expenses,
costs, counsel fees, judgment and/or settlements thereby incurred, except to
the extent that such complaint, claim or legal action, costs, counsel fees,
judgment or settlements result from or arise out of an act of commission or
omission by Client, its agents and/or its employees. Client shall notify ICT
promptly of any complaint, claim or legal actions and shall cooperate in any
defense. Client agrees that ICT shall have sole control over such defense,
including but not limited to retaining counsel and all offers of settlement.
Confidential - Management Service Agreement - 3
<PAGE>
SECTION 8. LIMITATION OF LIABILITY
8.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES (INCLUDING WITHOUT LIMITATION, LOST
PROFITS, LOST FUTURE EARNINGS, LOST ECONOMIC ADVANTAGE) ARISING FROM OR RELATING
TO ANY DELAY, PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, EVEN IF A
PARTY HAS BEEN ADVISED OF THE POSSIBILITY, AND EACH PARTY HEREBY WAIVES AND
RELEASES ANY SUCH CLAIMS FOR SUCH DAMAGES AGAINST THE OTHER PARTY.
SECTION 9. FINANCIAL TERMS
Pricing is based on the complexity, duration, type and volume of services
required. Specific prices for the program are included in Exhibit C attached
hereto.
9.1 For the Included Services and related expenses, ICT will invoice Client
thirty (30) days prior to the due date, and Client will pay ICT the amounts set
forth in the Pricing Schedule Exhibit "C" on the first business day of each
month during the term of this Agreement.
9.2 Supplemental Services shall be invoiced monthly as such Supplemental
Services are provided.
9.3 All amounts under this Agreement shall be due thirty (30) days from the
date of invoice. Without waiving any other right, balances of any kind (other
than disputed charges) past due in excess of thirty (30) days shall bear
interest at the lesser of Prime Rate plus three (3%) percent or the highest
rate permitted by law. The term "Prime Rate" means interest at a fluctuating
rate per annum which at all times shall be the lowest rate of interest generally
charged from time to time (determined as of the first business day of each week,
which rate shall remain in effect until the first business day of the
immediately succeeding week) by Summit Bancorp, Princeton, New Jersey, and
publicly announced as its so-called "prime rate".
9.4 ICT will at the annual anniversary date calculate any increases in charges
for equipment maintenance, insurance and facility Common Area Maintenance and
Real Estate Taxes cover by this agreement. ICT will bill the Client these
annual increase for payment as outlined in Section 9.1.
9.5 The obligation of Client to pay for services rendered in accordance with
the terms and conditions of this Agreement shall survive the termination of this
Agreement for any reason.
Confidential - Management Service Agreement - 4
<PAGE>
SECTION 10. SERVICE ENHANCEMENT REQUEST
10.1 Client may request changes to, modifications of, and work in addition to
that identified pursuant to Exhibit "A" by submitting a written Service
Enhancement Request to ICT from time to time during the term of this Agreement.
ICT shall have the right to accept or reject the Client's Service Enhancement
Request, in its sole discretion. Upon the approval of a Service Enhancement
Request by ICT, the amount to be paid ICT under this Agreement and the time of
performance shall be adjusted as specified in the Service Enhancement Request.
All such work shall be executed under the terms and conditions specified in this
Agreement and all approved Service Enhancement Requests will be appended to this
Agreement in Exhibit "D".
SECTION 11. COOPERATION
11.1 The parties acknowledge and agree that performance under this Agreement
will require the continued definition and setting of priorities, the balancing
of competing tasks and schedules, and the adjustment of priorities over
different tasks and different schedules. The parties will periodically define
in writing, and mutually agree the activities, schedules, and deliverables and
relative priorities with respect thereto, during the term of this Agreement.
SECTION 12. RIGHT USE NAME
12.1 Each party hereby grants to the other party the right to use the other
party's name in government filings without the necessity of obtaining the other
party's approval for such use. Neither party will use the other party's name in
a press release or other public announcement without the other party's prior
written consent, such consent not to be unreasonably withheld or delayed.
SECTION 13. ASSIGNMENT
13.1 This Agreement shall not be assigned by either the Client or ICT without
the express prior written consent of the other party, such consent not to be
unreasonably withheld or delayed, and this Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
SECTION 14. TERMINATION
14.1 This Agreement may be terminated:
a) By either party, to the extent permitted under applicable law, if the
other ceases to function as a going concern, becomes insolvent, makes
an assignment for the benefit of creditors, files a petition on
bankruptcy, permits a petition in the bankruptcy to be filed against
it and such
Confidential - Management Service Agreement - 5
<PAGE>
petition is not dismissed within sixty (60) days of filing, or admits
in writing its inability to pay its debts as they mature, or if a
receiver is appointed over a substantial part of its assets;
b) By either party by reason of any other material breach of this
Agreement by other party which breach has not been remedied or cured
after at least (90) days written notice delivered by the aggrieved
party to the other party;
(I) By ICT for Client's failure to pay any amounts or other charges
within thirty (30) days from the payment due date, it being
understood by ICT that Client may elect to make payment to ICT
with an express reservation of rights to assure continued
performance by ICT under this Agreement pending resolution of any
disputes.
(II) By Client for ICT's failure to meet the performance standards
provided in Exhibit "A"
14.2 If Client terminates this Agreement for any reason, other than provided in
section 3.2 or section 14.1, Client will:
a) Assume the De Land facility lease for the balance of the 5 year term/1/
b) With respect to the Initial 100 Workstations:
--------------------------------------------
- --------------------------
/1/ This presumes that lessor will; (i) permit Client to assume the
equipment & facility lease and; (ii) release ICT from further
obligation.
Confidential - Management Service Agreement - 6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(1) Assume the equipment lease [amortized at 5 years with fair market
value buyout at the end]/2/
(2) Pay ICT to Buyout the Initial 100 Workstations as follows:
Workstations are Non-Cancelable during the first 12 Months -
Client is responsible for the charges associated with 100
stations.
Buyout Charge for termination during [**]
Month 13 - Month 24:
Buyout Charge for termination during [**]
Month 25 - Month 36:
Buyout Charge for termination during [**]
Month 37 - Month 48:
Buyout Charge for termination during [**]
Month 49 - Month 60:
c) With respect to Additional Workstations:
----------------------------------------
(1) Assume the equipment lease [amortized at 5 years with fair market
value buyout at the end]/3/ beginning on the date of the
installation of such equipment
(2) Pay ICT to Buyout Additional Workstations as follows:
Workstations are Non-Cancelable during the first 12 Months -
Client is responsible for the charges associated with such
Additional Workstations beginning on the date of the installation
of such equipment.
Buyout Charge for termination during [**]/Workstation
Month 13 - Month 24:
Buyout Charge for termination during [**]/Workstation
Month 25 - Month 36:
- -----------------------
/2/
/3/
Confidential - Management Service Agreement - 7
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Buyout Charge for termination during [**]/Workstation
Month 37 - Month 48
Buyout Charge for termination during [**]/Workstation
Month 49 - Month 60:
d) Pay ICT all amounts due (subject to monthly minimums, if applicable)
through the date of termination for properly completed services received
by Client in accordance with the Scope of Services in Exhibit "A"; plus,
e) Pay ICT for all un-amortized, unpaid expenses, not covered under Section
14.2a, b, c and/or d, incurred on behalf of Client through the date of
termination including, but not limited to, applicable systems costs,
third party services, etc.
SECTION 15. INFORMAL DISPUTE RESOLUTION
15. Prior to the initiation of arbitration pursuant to Section 16, the parties
shall first attempt to resolve their dispute informally as follows:
a) Upon the written request of a Party, each Party shall appoint a
designated representative who does not devote substantially all of his
or her time to performance under this Agreement, whose task it will be
to meet for the purpose of endeavoring to resolve such dispute.
b) The designated representatives shall meet as often as they reasonably
deem necessary for each Party to gather and furnish to the other all
information with respect to the matter in issue which Parties believe
to be appropriate and germane in connection with its resolution. The
representatives shall discuss the problem and attempt to resolve the
dispute without necessity of any formal proceeding.
c) During the course of discussion, all reasonable requests made by one
Party to another for non-privileged information, reasonably related to
this Agreement, shall be honored in order that each of the Parties may
be fully advised of the other's position.
d) The specific format for the discussions shall be left to the discretion
of the designated representatives, but may include the preparation of
agreed-upon statements of fact or written statements of position.
Confidential - Management Service Agreement - 8
<PAGE>
e) Arbitration for the resolution of a dispute shall not be commenced
until the earlier of:
(i) the designated representatives concluding in good faith that
amicable resolution through continued negotiation of the matter
does not appear likely; or
(ii thirty (30) days after the initial written request to appoint a
designated representative pursuant to Paragraph (i) above (this
period shall be deemed to run notwithstanding any claim that the
process described in this Section X1.(a) was not followed).
15. This Section 15 shall not be construed to prevent a Party from instituting,
and a Party is authorized to institute, litigation earlier than prescribed in
Subparagraph 15.1 to (i) avoid the application of any applicable limitations
period, (ii) preserve a superior position with respect to other creditors, or
(iii) seek immediate injunctive relief.
SECTION 16. ARBITRATION
16.1 Differences between the Client and ICT on which an Agreement cannot be
reached will be decided by arbitration. The arbitrators will determine the
interpretation of the Agreement in accordance with usual business and insurance
practices rather than strict technicalities.
16.2 Any arbitration shall be conducted in accordance with the rules of the
American Arbitration Association.
16.3 Either party may serve upon the other party by certified mail a written
demand that the claim, dispute or controversy, be arbitrated, specifying in
reasonable detail the nature of the dispute or claim to be submitted to
arbitration. The demand, which shall be effective upon receipt, shall be made
within a reasonable time after the claim, dispute or controversy has arisen. In
no event shall the demand for arbitration be made more than one year after the
claim or cause of action arises.
16.4 Within thirty (30) days after service of a demand for arbitration, the
parties shall agree upon three (3) arbitrators. These arbitrators must have no
past or present relationship with the parties to this Agreement. One of the
arbitrators is to be appointed by Client and one by ICT and these two
arbitrators will select a third. If the two are unable to agree on a third
within thirty (30) days, the choice will be left to the American Arbitration
Association (Philadelphia Office). The rules governing the procedure of any
arbitration hereunder shall be in accordance with the rules provided by the
American Arbitration Association.
Confidential - Management Service Agreement - 9
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
16.5 All arbitration hearings shall be held in Philadelphia, Pennsylvania.
Judgment upon the award rendered by the arbitration may be entered in any court
having jurisdiction thereof.
16.6 The arbitrators are not bound by rules of law. Their decision will be by
majority vote and no appeal will be taken from it.
16.7 The cost of the arbitration will be borne evenly by each party unless the
arbitrators decide otherwise.
SECTION 17. RELATIONSHIP
17.1 Nothing contained herein shall be construed to create the relationship of
employer and employee between ICT and Client or between Client and any of ICT's
employees or agents. It is the express intent of the parties hereto that ICT is
not an employee of Client for any purpose, but is an independent contractor for
all purposes and in all situations. ICT and ICT's employees shall not represent
that they are employees of Client, nor shall they in any manner hold themselves
out to be employees of Client.
17.2 Neither party shall have the right to enter into any Agreement or
commitment in the name of or on the behalf of the other, or to bind the other in
any respect whatsoever, unless specifically authorized in writing by the other.
SECTION 18. INSURANCE
18.1 ICT, at its expense, shall secure and maintain at all times during the
period of performance of this Agreement, insurance as set forth in Section 18.3
below.
18.2 Upon receipt of Client's written request for Certification of Insurance,
ICT shall provide Client with Certificates of Insurance with respect to the
insurance maintained by ICT as provided in Section 18.3 below.
18.3 ICT agrees to maintain comprehensive general liability insurance in the
following minimum amounts: Bodily Injury and Loss of Life --[**] per occurrence
and aggregate; Workers Compensation-Statutory Limits as required by Labor Code
of the State of Pennsylvania. ICT shall insure all contents of the call center
(except Client provided equipment) at full replacement value.
Confidential - Management Service Agreement - 10
<PAGE>
SECTION 19. GOVERNING LAW
19.1 This Agreement shall be construed in all respects under the laws of the
Commonwealth of Pennsylvania. If any part of this Agreement shall be held to be
void or unenforceable, such part will be treated as severable, leaving valid the
remainder of this Agreement notwithstanding the part or parts found to be void
or unenforceable.
SECTION 20. GENERAL
20.1 Modifications. This Agreement can only be modified by a written Agreement
duly signed by the persons authorized to sign agreements on behalf of ICT and of
Client.
20.2 Severability of Provisions. If any provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
be impaired thereby.
20.3 Limitations. No action, other than an action for non-payment, regardless
of form arising out of this Agreement may be brought by either party hereto more
than two (2) years after the cause of action has arisen.
20.4 Waivers. A waiver of a breach or default under this Agreement shall not be
a waiver of any other or subsequent breach or default. The failure or delay by
either party in enforcing compliance with any term or condition of this
Agreement shall not constitute a waiver of such term or condition unless such
term or condition is expressly waived in writing.
20.5 Force Majeure. Either party's failure to perform any of its obligations
hereunder, except for the obligation to pay monies when due hereunder, shall be
excused and shall not give rise to any claims for damages to the extent it is
caused by an event or occurrence beyond the reasonable control of such party
including, but not limited to, war, embargoes, government restrictions, riots,
severe weather or storms, floods, earthquakes, natural disasters, or other Acts
of God, strikes, power failures, power interruptions, nuclear or other civil or
military emergencies, or telecommunications or equipment failures or
interruptions caused by suppliers.
20.6 Captions. Captions contained in this Agreement are for reference purposes
only and do not constitute part of this Agreement.
20.7 Notices. All notices which are required to be given or submitted pursuant
to this Agreement shall be in writing and shall be sent by registered or
certified mail, return receipt requested, to the address set forth below or to
such other address as
Confidential - Management Service Agreement - 11
<PAGE>
ICT or Client may from time to time designate by written notice delivered in
accordance with this Section.
ADDRESS FOR NOTICES TO CLIENT: ADDRESS FOR NOTICES TO ICT:
- ------------------------------ ---------------------------
Boston Communications Group, Inc. ICT Group, Inc.
100 Sylvan Road, Suite 100 800 Town Center Drive
Woburn, MA 01801 Langhorne, PA 19047
Attention: General Counsel Attention: Chief Financial Officer
20.8 Authority: Each party represents that it has full power and authority to
enter into and perform this Agreement, and the person signing this
Agreement on behalf of it has been properly authorized and empowered to
enter into this Agreement.
SECTION 21. ENTIRE AGREEMENT
The parties acknowledge that this Agreement is the complete and exclusive
statement between the parties and no change or modification shall be made except
in writing.
CELLULAR EXPRESS, INC., D/B/A BOSTON ICT GROUP, INC.
COMMUNICATIONS GROUP
Accepted by: Jerry Confer Accepted by: Carle E. Smith
----------------------- ---------------------
Title: Vice President/GM Title: Sr. Vice President
----------------------------- ---------------------------
Signature: Signature:
------------------------- -----------------------
Date: Date:
------------------------------ ----------------------------
Confidential - Management Service Agreement - 12
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT "A"
SCOPE OF SERVICES
for
CELLULAR EXPRESS, INC. D/B/A BOSTON COMMUNICATIONS GROUP
--------------------------------------------------------
OVERVIEW:
- --------
ICT will supply Client with a turnkey call center for a 60 month term,
consisting initially of 100 seats, expandable to 150 seats within the initial
space allocation, and expansion up to 300 seats or more [with a minimum initial
step of 50 seats] if Client elects to add the additional 15,000 square feet of
space.
The center will occupy dedicated space within ICT's De Land, Florida facility
and will include the following:
FACILITY LEASE:............ Initial allocation is 15,000 sq. ft. space.
- --------------- Client will have the right to add an
additional 15,000 sq. ft. to the initial
15,000 sq. ft.. Client must notify ICT, in
writing, 60 days prior to the first
anniversary of this agreement, if Client
decides to add the additional 15,000 sq.
ft.
........................... If Client elects to add the space but not
equip additional workstations for that
space, the space will remain as raw
space and Client will pay to ICT [**] per
month for this space commencing on the
first anniversary date of this agreement.
........................... If Client elects to add the space
equipped with workstations, then the
monthly charge for the additional space
will be equal to: [**] X the number of
workstations added /100. If more than 100
stations are added, there will be no charge
for the additional space. Client will be
charged for the workstations at the prices
specified in Exhibit "C".
Confidential - Management Service Agreement - 13
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Astersks denote omissions.
STATION RAMP UP:........... ICT will ramp delivery of the initial 100
- ---------------- workstations in accordance with the
following schedule:
Delivery Timeframe Total Stations Installed
------------------ ------------------------
Month 1 [**]
Month 2 [**]
Month 3 [**]
FURNISHINGS:............... Fully furnished managers office,
- ------------ conference room, break room and 1 or 2
training rooms [per each 15,000 sq. ft.
with floorplan and station layout by
mutual agreement]. Copier (Model OCE
2050), Fax machine (Pitney Bowes
9640), Agent / Supervisor chairs,
workstations e/w drawers [see attached
Illustration #3 & #4] and/or desks, etc.
CENTER WIRING:............. Each workstation equipped with 1 Data
- -------------- Jack [category 5 wiring] and 1 Voice
Jack [category 3 wiring].
ADMIN. PHONE SYSTEM:....... Panasonic KX-T336 (or equivalent - see
- -------------------- attached brochure) Key system to
support 20- 25 stations. Optional 4 port
voice mail.
ACD:....................... An Aspect CallCenter ACD sufficient to
- ---- serve the aggregate number of seats in
use by Client [see K. Piza spec dated
4/29/98 which is attached], station &
trunk cards as required. ACD
Management software, 2 hour service
response time provided by Aspect, etc.
Confidential - Management Service Agreement - 14
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AGENT WORKSTATIONS:......... Client will provide the equipment. ICT
- ------------------- will setup and connect the equipment.
SUPERVISOR WORKSTATION:..... Client will provide the equipment. ICT
- ----------------------- will setup and connect the equipment.
ICT will provide Aspect Administrative
station software and installation.
DATA NETWORK:............... [**]
- -------------
Client will supply the NT
Administrative server.
MAINTENANCE & INSURANCE:.... Coverage for ACD, Office Equipment
- ------------------------ and all other contents (except Client
provided equipment) at full replacement
value.
SYSTEM SUPPORT: [OPTIONAL].. Team of 2 system technicians with
- --------------- manager support.
QA SUPPORT: [OPTIONAL]...... Team of 4 QA monitors feedback to
- ----------- CSR's and Client managers.
Confidential - Management Service Agreement - 15
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT "C"
PRICING_
for
CELLULAR EXPRESS, INC. D/B/A BOSTON COMMUNICATIONS GROUP
--------------------------------------------------------
CALL CENTER ONLY - no staff
- ----------------
PER WORKSTATION PER MONTH
- -------------------------
INITIAL 100 WORKSTATIONS [**]
- ------------------------
IV. Refer to Note 1
V. Rate includes cleaning service, utilities and taxes
ADDITIONAL WORKSTATIONS [over 100] [**]
- -----------------------
VI. Refer to Notes 1 & 4
VII. Rate includes cleaning service, utilities and taxes
PC CONFIGURATION PROVIDED BY CLIENT
- ----------------
VIII. Refer to Note 2
ACD SYSTEM CONFIGURATION INCLUDED
- ------------------------
IX. Refer to Note 3
X. Upgrade to 200R
ADDITIONAL SERVICES:
- --------------------
ADMIN. PHONE SYSTEM OPTIONS BILLED AT COST
- ---------------------------
XI. Example: 4 port voice mail
SYSTEMS SUPPORT - per month [**]
- ---------------------------
XII. Refer to Note 1
QA SUPPORT - per month [**]
- ----------------------
XIII. Refer to Note 1
Confidential - Management Service Agreement - 16
<PAGE>
NOTES:
- ------
XIV. Supplied as outlined within Exhibit "A" - Scope of
Services
XV. Client will provide Agent and Supervisor
workstations and Network servers.
XVI. As outlined by K. Piza in "Aspect Equipment and
Feature List" dated 4/29/98
XVII. Termination provisions are described in Section
14.2 of the Management Services Agreement.
Confidential - Management Service Agreement - 17
<PAGE>
EXHIBIT "D"
APPROVED SERVICE ENHANCEMENT REQUESTS
for
CELLULAR EXPRESS, INC. D/B/A BOSTON COMMUNICATIONS GROUP
--------------------------------------------------------
[To be provided]
Confidential - Management Service Agreement - 18
<PAGE>
Exhibit 10.44
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
STRATEGIC ALLIANCE AGREEMENT
This STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is entered into this
4th day of May, 1998, by and between SMARTALK TELESERVICES, INC., a California
corporation ("SmarTalk") and Boston Communications Group, Inc., a Massachusetts
corporation ("BCGI").
WHEREAS, SmarTalk is engaged in the business of promoting, selling and
providing pre-paid telephone calling cards and related services, primarily
through retail distribution channels; and
WHEREAS, BCGI owns and operates the BCGI C2C prepaid wireless service
bureau that facilitates the management of providing wireless services; and
WHEREAS, SmarTalk and BCGI desire to offer their respective services in a
bundled product which will expand each of SmarTalk and BCGI's presence in the
prepaid wireless market, all on the terms and conditions of this Agreement; and
WHEREAS, SmarTalk and BCGI desire to process more than two hundred and
fifty million (250,000,000) prepaid wireless minutes within four (4) years or
less under a plan calling for forty-eight million minutes within the first and
second years after the Product becomes commercially available; seventy-two
million minutes during the third year; and one hundred thirty million minutes
within the fourth year that such Product is commercially available until the end
of the Initial Tenn.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
Section 1. The Product.
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BCGI and SmarTalk hereby agree to jointly market to third party carriers of
wireless services ("Carriers") an integrated service offering (on a convenient
and cost effective basis) which will afford Carriers the opportunity to utilize
SmarTalk's prepaid calling cards and national sales and retail distribution
capabilities through BCGI's C2C prepaid wireless service bureau (the "Product").
Section 2. BCGI Responsibilities. During the term of this Agreement,
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BCGI agrees to perform the following:
<PAGE>
2.1 BCGI will act as a service bureau to SmarTalk and Carriers to enable
the provision of their prepaid wireless telephony service offerings to their end
users or their resellers. BCGI's C2C system includes, but is not limited to,
the following significant components and features:
a. Integration with Carriers switching systems and voice network on
a "localized" basis to enable handset independent prepaid wireless service
offerings.
b. Utilization of centralized, networked database to enable inter-
carrier prepaid roaming debiting and settlement through the U.S. and Canada.
c. Call processing and reporting features to enable Carriers to
offer prepaid wireless service capability to their switchless resellers, and
other retail points of distribution.
BCGI will also provide outsourced billing inquiry and customer service support
to Carriers' prepaid wireless subscribers.
2.2 Within thirty (30) days of the execution hereof, BCGI will produce a
project plan to expeditiously (but in no event to exceed six months) enhance its
C2C system as may be necessary for BCGI to act as the service bureau for
SmarTalk's prepaid cellular products, which will include, without limitation,
the following:
a. Inbound call handling from SmarTalk prepaid card holders.
b. Validation of wireline PINs (currency) resident in SmarTalk
database.
c. Transferring balances on SmarTalk PINs to BCGI's platform PINs
for prepaid cellular service.
d. Carrier's wireless access network and wireline/wireless egress
network.
e. Customer service for wireless prepaid users.
f. Decrementing of PINs in both minute and monetary denominations
with both forms available through one access point.
2.3 BCGI will incorporate any SmarTalk proprietary MINS or MIN ranges (in
minimum increments of 1,000 number ranges) into BCGI's network databases and
process such calls on the BCGI and/or SMTK platform.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.4 In addition to the foregoing, BCGI will, with the cooperation of
SmarTalk and on mutually acceptable terms, enhance and develop its C2C system as
may be mutually desirable by the parties for prepaid two-way voice wireless
services and to offer additional prepaid wireless services, including, without
limitation, voice/fax mailbox, conference calling, internet access, speed
dialing and message delivery, as mutually agreed by the parties; provided,
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however, that BCGI shall pay for all developments and modifications to its C2C
platform for prepaid two-way voice wireless services. Responsibility for
payment of all other non-two-way voice prepaid wireless service developments and
modifications shall be as mutually agreed by the parties. In each case the
parties will discuss in advance the nature and the scope of the proposed
enhancement the implementation schedule shall be as mutually agreed upon by the
parties.
2.5 BCGI agrees that, [**] (i) form a [**] to any third party entity [**]
through independent retail distribution, [**]; or (ii) [**]. If BCGI [**], and
the parties agree to meet together during the period of thirty (30) days
following such notice to discuss the proposal in good faith.
2.6 BCGI shall [**] (for similar services based upon comparable terms and
conditions). BCGI will notify SmarTalk within five (5) business days of any
modifications to its pricing structure, [**] (for similar services based upon
comparable terms and conditions) [**].
Section 3. SmarTalk Responsibilities. During the term of this
-------------------------
Agreement, SmarTalk shall perform the following:
3.1 SmarTalk will commit a minimum of [**] to develop and promote the
SmarTalk prepaid phone cards with cellular capability. These expenditures shall
include, without limitation, expenditures relating to: advertising, marketing,
MDF, co-op, take or pay terms with cellular network providers, long distance
network providers, any other marketing related costs, or other product
development costs that may be paid to BCGI, including, but not limited to, the
costs of modifying the BCGI C2C system to provide the Product, including the
work described in Section 2.2, subject to SmarTalk's prior approval and
agreement to pay for such work, in an amount to be agreed upon by the parties.
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.2 SmarTalk will provide prepaid landline service to BCGI. SmarTalk shall
[**] (for similar services based upon comparable terms and conditions). SmarTalk
will notify BCGI within five (5) business days of any modifications to its
pricing structure, [**] (for similar services based upon comparable terms and
conditions) [**].
3.3 SmarTalk agrees that, [**] (i) [**] to any third party entity [**]; or
(ii) [**]. If SmarTalk [**] and the parties agree to meet together during the
period of thirty (30) days following such notice to discuss the proposal in good
faith.
3.4 SmarTalk shall purchase twelve (12) new and fully-equipped EXCEL
switches, as described in Exhibit I attached hereto and made a part of this
Agreement, from BCGI at a total purchase price of [**] (which BCGI represents to
be [**]. These costs shall include but are not limited to EX CPU processors, EX
chassis, EX power configuration, EX cooling system (2 fans each), SS-7
functionality, and X-NET functionality. Such sale shall take place on or before
July 15, 1998, or such other date as the parties shall mutually agree upon,
provided that SmarTalk is able to obtain a definitive commitment from EXCEL on
or before July 15, 1998 to deliver and install the necessary upgrades to the
twelve (12) EXCEL switches on or before September 1, 1998. SmarTalk may cancel
the sale of the switches at any time on or before July 15,1998, at its option,
should the cost of the aforementioned upgrade exceed [**]. SmarTalk shall
inform BCGI as soon as possible in advance of July 15, 1998, of the cost of such
upgrades, and BCGI may, at its option, cancel the sale of the switches to
SmarTalk, by written notice to SmarTalk on or before July 15, 1998. In the
event such purchase is not consummated, the parties shall negotiate in good
faith regarding additional contributions to the strategic alliance.
Section 4. Mutual Obligations. During the term of this Agreement, the
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parties shall jointly perform the following:
4.1 In addition to employees necessary to fulfill other obligations
associated with services to be provided, BCGI and SmarTalk will each allocate a
minimum of two (2) full time employees to the promotion and development of this
strategic alliance.
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4.2 BCGI and SmarTalk will define the joint programs and functional
requirements necessary to enable SmarTalk to offer prepaid wireless services and
integrate such services with SmarTalk's existing landline service offerings.
4.3 BCGI and SmarTalk will dedicate the necessary resources to the
development, promotion and achievement of objectives of the Product and this
strategic alliance.
4.4 BCGI and SmarTalk will define the feasibility of and program
requirements for additional prepaid service offerings (i.e., prepaid voice/fax
mailbox, conference calling, Internet access, etc.).
4.5 BCGI and SmarTalk will define the programs and functional requirements
to enable BCGI to offer prepaid landline telephony services to wireless Carriers
and wireless subscribers where not precluded by an exclusive contract.
Section 5. Term and Termination.
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5.1 The term of this Agreement shall commence on the date hereof (the
"Effective Date") and continue for a period of five (5) years unless earlier
terminated in accordance with this Section 5 (the "Initial Term"). Effective as
of the expiration of the Initial Term and as of each renewal period, the term of
this Agreement shall be extended for additional periods of two (2) years unless,
not later than three (3) months prior to each such respective date, either party
hereto shall have given written notice to the other that the term shall not be
so extended.
5.2 In accordance with the following, this Agreement may be terminated
prior to the expiration date as follows:
a. Beginning after the second anniversary of the date hereof, either
party may terminate this Agreement upon three (3) months written notice if, in
any year during the term, the "Minimum Targets" have not been met. As used
herein, the term "Minimum Targets" shall mean, commencing with the date the
Product is first commercially available, the following:
Year Number of Minutes
1 and 2 combined [**]
3 [**]
4+ (until end of term) [**]
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b. In the event that either the SmarTalk or BCGI commits a material
breach or material default under this Agreement which breach or default is not
cured by the breaching/defaulting party within sixty (60) days from its receipt
of notice of the breach or default from the other party, or, in the case of a
breach or default which is incapable of being cured within such sixty-day
period, the breaching or defaulting party has not commenced curing such breach
or default within such sixty-day period in a manner which should result in a
full cure, then the non-breaching/non-defaulting party may terminate this
Agreement in its discretion at any time after such sixty-day period.
c. Either party may terminate this Agreement with immediate effect:
(1) upon the institution by the other party of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the other party to institution of
bankruptcy or insolvency proceedings against it or the filing by the other party
of a petition or answer or consent seeking reorganization or release under the
Federal Bankruptcy Act, or any other applicable Federal or state law, or the
consent by the other party to the filing of any such petition or the appointment
of a receiver, liquidator, assignee, trustee, or other similar official of the
other party or of all or any substantial part of its property, or the making by
the other party of an assignment for the benefit of creditors, or the admission
in writing by the other party of its inability to pay its debts generally as
they become due or the taking of corporate action by the other party in
furtherance of any such actions; (2) if, within 60 days after the commencement
of an action against the other party seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar relief under any present or
future law or regulation, such action shall not have been dismissed or all
orders or proceedings thereunder affecting the operations or the business of the
other party stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within 60 days after the appointment without the
consent or acquiescence of the other party of any trustee, receiver or
liquidator or similar official of the other party, or of all or any substantial
part of the property of the other party, such appointment shall not have been
vacated.
5.3 Upon the expiration or termination of this Agreement, each of SmarTalk
and BCGI shall, upon the other's request, provide the following assistance: (A)
continue to provide the services necessary to support the Product for the
remainder of all unexpired or unused calling time up to one (1) year; (B) answer
third party providers' questions relating to the Product on an as needed basis;
and (C) deliver to the other party copies of any reports, customer records,
databases and other documentation information relating to the Product still in
that party's possession.
5.4 Upon the expiration or termination of this Agreement, each of the
parties shall make their respective platforms accessible on a non-exclusive
basis to the other for a period of one year on terms and conditions equivalent
to the terms set forth in this Agreement. Upon the expiration or termination of
this Agreement, each
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<PAGE>
party shall provide contractual arrangements for the continuation of all pricing
in effect in accordance with this Section.
Section 6. Options.
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6.1 SmarTalk Grant. SmarTalk hereby grants to BCGI an option (the
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"SmarTalk Option") to purchase five hundred thousand (500,000) shares of common
stock, no par value, of SmarTalk ("SmarTalk Common Stock"). The exercise price
per share of SmarTalk Common Stock covered by the SmarTalk Option (the "SmarTalk
Option Price") shall be the product of (i) the closing price of SmarTalk's
Common Stock on the Nasdaq national securities market (the "Nasdaq") on the date
of execution hereof and (ii) one hundred and fifteen percent (115%).
6.2 BCGI Grant. BCGI hereby grants to SmarTalk an option (the "BCGI
Option" and, together with the SmarTalk Option, the "Options") to purchase five
hundred thousand (500,000) shares of common stock, $.0l par value, of BCGI
("BCGI Common Stock"). The exercise price per share of BCGI Common Stock
covered by the BCGI Option (the "BCGI Option Price") shall be the product of (i)
the closing price of BCGI's Common Stock on the Nasdaq on the date of execution
hereof and (ii) one hundred and fifteen percent (115%).
6.3 Vesting. Each of SmarTalk's and BCGI's right to purchase shares of
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common stock under the Options shall vest in ten percent (10%) increments each
time twenty-five million (25,000,000) incremental minutes of prepaid wireless
time are serviced hereunder.
6.4 Tenn and Termination of Option. The term of the Options (the "Option
------------------------------
Term") shall commence on the date hereof and shall expire with respect to vested
shares on the fifth anniversary following vesting of the shares unless the
Options shall have been earlier terminated in accordance with the terms hereof.
The Options shall expire with respect to unvested shares on the seventh
anniversary of the date hereof Shares of common stock as to which the Options
become exercisable may be purchased at any time during the Option Term. The
unexercised portion of the Options shall automatically terminate and shall
become null and void and be of no further force or effect upon expiration.
6.5 Procedure for Exercise.
----------------------
(a) The Options may be exercised, in whole or part (for the purchase
of whole shares only), by delivery of a written notice (the "Notice") from the
exercising optionee (the "Optionee") to the Secretary of the granting company
(the "Grantor") at the Grantor's principal office, which Notice shall:
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i) state that the Optionee elects to exercise the Option;
ii) state the number of shares with respect to which the
Optionee is exercising the Option (the "Optioned Shares");
iii) state the method of payment for the Optioned Shares; and
iv) include any representation of the Optionee required pursuant
to Section 6(d) hereof.
(b) Payment of the Option Price for the Optioned Shares shall be made
(i) by wire transfer of immediately available funds, (ii) by delivery of stock
certificates (in negotiable form) representing shares of Grantor's Common Stock
having a fair market value on the trading date immediately preceding the date of
exercise equal to the aggregate Option Price of the Optioned Shares or (iii) a
combination of the methods set forth in the foregoing clauses (i) and (ii).
(c) Within ninety (90 )days following the date of any exercise, the
Optioned Shares shall be registered by the Grantor at its expense pursuant to a
valid registration statement under the Securities Act of 1933, as amended, and
the Grantor shall thereupon cause such Optioned Shares to become freely tradable
on Nasdaq by the Optionee within such ninety (90) days.
(d) Each party represents that:
i) it has evaluated the merits and risks of investing in the
other party's securities;
(ii) it is able to bear the economic risks of such investment,
including the complete loss of such investment; and
(iii) it has had such opportunity as it has deemed adequate
to obtain from representatives of the other party such information as is
necessary to permit it to evaluate the merits and risks of its investment in
such other party.
6.6 Adjustments. If at any time while the Options are outstanding, the
-----------
number of outstanding shares of SmarTalk Common Stock or BCGI Common Stock is
changed by reason of a reorganization, recapitalization, stock split or any
similar events, the number and kind of shares subject to the Options and/or the
Option Price of such shares shall be adjusted accordingly.
6.7 Restriction on Transfer of Option. The Options may not be
---------------------------------
transferred, pledged, assigned, hypothecated or otherwise disposed of in any
way; provided, however, that the Options may be assigned in connection with a
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change of control of
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<PAGE>
a sale of all or substantially all of the assets of either SmarTalk or BCGI. The
Options shall not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
the Options contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Options, shall be null and void and
without effect. Notwithstanding the foregoing, the parties agree that their
intent is that there be no adverse consequence with respect to subsequent
pooling of interest" accounting with respect to any acquisition, and the parties
agree that should an adverse consequence arise, the parties shall use their best
efforts to modify the terms of this Agreement so as to preserve "pooling of
interests" accounting treatment without unnecessarily changing the underlying
economics of this Section 6.
Section 7. Indemnification and Hold Harmless.
---------------------------------
7.1 Each party (the "Indemnifying Party") shall indemnify and hold
harmless the other party, its respective parent, subsidiaries and affiliates and
their respective successors, assignees, directors, officers, agents and
employees (each an "Indemnitee") from and against any loss, damage, cost,
expense, liability, and settlement, including without limitation, any reasonable
attorney fees and court costs (each of the foregoing a "Claim") reasonably
incurred by any Indemnitee which Claim arises out of or in connection with (i)
the intentional or negligent act or omission of the Indemnifying Party or its
officers, directors, employees, contractors or agents (collectively, the
"Agents") in the course of the performance of the Indemnifying Party's duties
and obligations under this Agreement; (ii) the failure of the Indemnifying Party
or its Agents, as the case may be, to comply in all material respects with the
terms of this Agreement; or (iii) the material failure of the Indemnifying Party
(including without limitation its Agents who perform on behalf of the
Indemnifying Party hereunder) to comply with its obligations under any and all
laws, rules, or regulations applicable to the Indemnifying Party or its Agent as
the case may be.
7.2 BCGI shall indemnify and hold harmless SmarTalk, its respective
parent, subsidiaries and affiliates and their respective successors, assignees,
directors, officers, agents and employees from and against any Claim reasonably
incurred by SmarTalk which claim arises out of or in connection with the
attempted enforcement by any third party of any violation or alleged violation
involving any Intellectual Property (as defined herein) now or hereinafter
acquired by BCGI.
7.3 SmarTalk shall indemnify and hold harmless BCGI, its respective
parent, subsidiaries and affiliates and their respective successors, assignees,
directors, officers, agents and employees from and against any Claim reasonably
incurred by BCGI which claim arises out of or in connection with the attempted
enforcement by any third party of any violation or alleged violation involving
any Intellectual Property (as defined herein) now or hereinafter acquired by
SmarTalk.
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7.4 Each Indemnitee seeking indemnification under this Agreement shall
give prompt notice to the Indemnifying Party along with such Indemnitee's
request for indemnification, of any Claim for which it is seeking
indemnification. The parties understand and further agree that no settlement of
an indemnified Claim shall be made by an Indemnitee without the concurrence of
the Indemnifying Party. The Indemnifying Party shall control the settlement or
defense of any Claim; provided, however, that the Indemnitee may, at its cost,
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engage its own attorneys. The Indemnitee will fully cooperate with the
Indemnifying Party to enable it to fulfill its obligations with respect to such
Claim. The provisions of this Section 7 shall survive the termination of this
Agreement.
Section 8. Publicity. Neither SmarTalk nor BCGI shall issue
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advertising, promotional activity or publicity release relating to the Product
or this Agreement without securing the prior written consent of the other,
except as required by law.
Section 9. Confidentiality.
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9.1 SmarTalk and BCGI acknowledge that as a result of the performance of
their responsibilities under this Agreement, each party will obtain access to
confidential and proprietary information concerning the other, its business,
customers, methodologies, and strategies. All such information shall be deemed
to be confidential unless it is: (i) clearly intended for public distribution in
the public domain; (ii) information known to the other party prior to the
commencement of discussions between the SmarTalk and BCGI concerning the subject
matter hereof; (iii) or information lawfully obtained from a third party by the
other party without a duty not to disclose. This Agreement, including without
limitations all exhibits hereto, is hereby designated as confidential within the
meaning of this Section 9 and shall not be disclosed to a third party without
the prior written consent of the other party, except as may be required by law.
SmarTalk and BCGI shall each take the same measures to protect the
confidentiality of such information received by them as they take with respect
to their own confidential information, including, but not limited to,
instructing their employees, vendors, agents, and independent contractors of the
foregoing and requiring them to be bound by appropriate confidentiality
agreements. Each of SmarTalk and BCGI is permitted to provide confidential
information to its employees, vendors, agents, affiliates, advisors and
independent contractors retained in connection herewith or to provide the
Product, solely for the purposes of performing their duties, provided the
preceding sentence is complied with. SmarTalk and BCGI shall not use any such
information for any purpose other than to perform their responsibilities under
this Agreement. A party required or ordered to disclose the other party's
confidential information shall notify the other party immediately upon receipt
of such an order or requirement to disclose and shall use reasonable efforts to
resist, or to assist the other party in resisting, such disclosure and, if such
disclosure must be made, shall use reasonable efforts to obtain a
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protective order or comparable assurance that the confidential information
disclosed shall be held in confidence by such governmental body and not be
further disclosed absent the original disclosing party's written consent. Except
as required by law and subject to the preceding sentence, SmarTalk and BCGI
agree that any public communication or announcements may not be made with regard
to this Agreement without the prior written approval of both parties which
approval shall not be unreasonably withheld.
9.2 Each party acknowledges that irreparable injury would be caused to the
other party in the event of unauthorized use of the other party's confidential
information, and agrees that preliminary and permanent injunctive relief would
be appropriate in the event of breach of this Section 9. Upon termination or
expiration of this Agreement, each party agrees to promptly return the
confidential information of the other party or to acknowledge in writing that
all confidential information of the other party has been destroyed.
9.3 Except as required to operate the Product or as otherwise expressly
provided herein, BCGI shall not knowingly solicit or communicate with any
wireless end users whose names, telephone numbers and/or addresses are acquired
by BCGI pursuant to the services rendered under the terms of this Agreement,
unless agreed upon in writing by SmarTalk prior to such use. In the event BCGI
uses a third party vendor to perform a substantial portion of the services for
the Product, BCGI shall obtain SmarTalk's prior consent in writing and such
vendor shall agree in writing to the terms of this Section 9.
9.4 This Section, in its entirety, shall survive the termination of this
Agreement.
Section 10. Warranties. The parties represent and warrant as follows:
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10.1 SmarTalk represents and warrants that it has full power and authority
to execute this Agreement and to take all actions required by, and to perform
the agreements contained in, this Agreement, and that SmarTalk's obligations
under this Agreement do not conflict with its obligations under any other
agreement to which SmarTalk is a party.
10.2 BCGI represents and warrants that it has full power and authority to
execute this Agreement and to take all actions required by, and to perform the
agreements contained in, this Agreement, and that BCGI's obligations under this
Agreement do not conflict with its obligations under any other agreement to
which BCGI is a party.
10.3 SmarTalk represents and warrants that the performance of its
obligations under this Agreement in connection with the Product complies with
all
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applicable federal, state, local and foreign laws and regulations. SmarTalk will
inform BCGI immediately of any changes in such laws or regulations of which it
shall have knowledge and which may require a change in the Product.
10.4 BCGI represents and warrants that the performance of its obligations
under this Agreement in connection with the Product complies with all applicable
federal, state, local and foreign laws and regulations. With respect to any
sale by BCGI of SmarTalk's wireline service BCGI will comply with applicable
SmarTalk tariffs as may exist during the term hereof. BCGI covenants to inform
SmarTalk immediately of any changes in such laws or regulations of which it
shall have knowledge and which may require a change in the Product.
Section 11. Intellectual Property. Notwithstanding any other provision
---------------------
of this Agreement, each party shall retain its sole and exclusive ownership to
all patents, patent applications, trademarks, service marks, trade names,
copyrights, trade secrets, know how, technology or other intellectual property,
whether pending or filed, perfected or unperfected, registered or unregistered
(collectively, "Intellectual Property") now or hereafter owned by such party.
Except in connection with specific applications in support of the Product, each
as may be mutually agreed upon from time to time by the parties hereto, neither
party shall acquire any ownership, license or other right of use in the
Intellectual Property of the other by virtue of this Agreement or the
transactions contemplated hereby. All such rights to use the Intellectual
Property of the other party shall immediately cease upon termination or
expiration of the Agreement. No party shall refer to the other party directly
or indirectly, in connection with any product, promotion or publication without
the prior written approval of that party.
Section 12. Notices. All notices and other communications hereunder
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shall be in writing and shall be sent properly addressed by any prepaid method
(including but not limited to U.S. Mail, private courier service, or telex) to
the other party at its respective addresses as follows:
If to BCGI: Boston Communications Group, Inc.
100 Sylvan Road
Woburn, MA 01801
Attn: Vice President & General Manager, Prepaid Services
Copy to: Boston Communications Group, Inc.
100 Sylvan Road
Woburn, MA 01801
Attn: General Counsel
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If to SmarTalk: SmarTalk Teleservices, Inc.
5500 Frantz Road
Suite 125
Dublin, Ohio 43017
Attn: General Counsel
Copy to: SmarTalk Teleservices, Inc.
5500 Frantz Road
Suite 125
Dublin, Ohio 43017
Attn: Vice President of Wireless Services
Each party may change its address for receiving written notice under this
Agreement by written notice pursuant to this Section 12.
Section 13. Miscellaneous.
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13.1 Headings. Headings stated in this Agreement are for convenience of
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reference only and are not intended as a summary of such sections and do not
affect, limit, modify, or construe the contents thereof.
13.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original, but all of which
together shall constitute one instrument notwithstanding that all parties are
not signatories to the same counterparts.
13.3 Audit Rights. Upon request from any party, such requesting party
------------
shall be given reasonable access and audit and verification documentation as the
requesting party may reasonably request in order to assure the other party's
compliance with the terms of this Agreement including but not limited to data
security. Such requests shall be limited to the scope of this Agreement and
shall not be made more frequently than once in any one year.
13.4 Insurance. Each of SmarTalk and BCGI agrees to maintain, at its own
---------
expense, insurance to the extent, in such amounts and for such liabilities or
risks as are maintained by companies in similar businesses similarly situated.
13.5 Alternative Dispute Resolution. The parties shall attempt in good
------------------------------
faith to resolve any dispute arising out of or relating to this Agreement
promptly by negotiations between executives who have authority to settle the
controversy. Any party may give the other party written notice of any dispute
not resolved in the normal course of business. Within twenty (20) days after
delivery of said notice, executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to exchange relevant
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information and to attempt to resolve the dispute. If the matter has not been
resolved within sixty (60) days of the disputing party's notice, or if the
parties fail to meet within twenty (20) days, either party may initiate
mediation of the controversy or claim as provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given advance notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
If the above referenced dispute has not been resolved by negotiation as
provided above, the parties shall endeavor to settle the dispute by mediation
under the then current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. One neutral third party will be selected from
the CPR Panels of Neutrals to mediate the dispute. If the parties encounter
difficulty in agreeing on a neutral, they will seek the assistance of CPR in the
selection process.
In the event of a dispute arising out of or relating to this contract or
the breach, termination or validity thereof, which has not been resolved by non-
binding means as provided in this Section 13.5 above within sixty (60) days of
the initiation of such procedure, either party may seek any remedy available at
law or equity, including recourse to the courts.
13.6 Delaware Law. This Agreement shall be governed by and construed in
------------
accordance with the laws of the State of Delaware, without reference to its
conflict of laws principles.
13.7 Non-Waiver; Cumulative Rights. No failure or delay (in whole or in
-----------------------------
part) on the part of any party to exercise its respective right or remedy under
this Agreement or provided by law shall be deemed a waiver of such right or
remedy, or operate as a waiver thereof, or affect any other right or remedy.
All rights and remedies hereunder are cumulative and are not exclusive of any
other rights or remedies provided hereunder or by law.
13.8 Severability. If any provision contained in this Agreement is or
------------
becomes invalid, illegal, or unenforceable in whole or in part, such invalidity,
legality, or unenforceability shall not affect the remaining provisions and
portions of this Agreement.
13.9 Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party; provided, however, that
--------
either party may assign this Agreement to its parent, a subsidiary or an
affiliate without the other's prior written consent, provided that the original
party shall remain liable.
-14-
<PAGE>
13.10 Entire Agreement. This Agreement constitutes the entire
----------------
Agreement between the parties with respect to the subject matter hereof and
supersedes all prior contemporaneous oral or written understandings or
agreements among the parties which relate to the subject matter hereof. No
modification or amendment of this Agreement or any of its provisions shall be
binding upon any party unless made in writing and duly executed by authorized
representatives of all parties.
13.11 Consents. In the case of any provision of this Agreement which
--------
requires the consent or approval of either or both parties to this Agreement,
each party shall respond in a timely manner. In considering whether to consent
to actions specifically contemplated or provided for in this Agreement the party
from whom consent is requested will act in a commercially reasonable manner.
13.12 Exhibits. All exhibits, attachments, annexes and addenda
--------
referred to herein shall be considered a part of this Agreement as fully as if
and with the same force and effect as if such exhibit, attachment, annex and
addendum had been included herein in full.
IN WITNESS WHEREOF, SmarTalk and BCGI, intending to be legally bound by the
terms of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives as of the date and year first above written.
SMARTALK TELESERVICES, INC.,
a California corporation
By: /s/ Erich Spangenberg
-----------------------------
Name: Erich Spangenberg
Title: CEO
BOSTON COMMUNICATIONS GROUP, INC.,
a Massachusetts corporation
By: /s/ E.Y. Snowden
------------------------------
Name: E.Y. Snowden
Title: President & CEO
-15-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Strategic Alliance Agreement
SmarTalk Teleservices, Inc.
and
Boston Communications Group, Inc.
Schedule 2.5
[**]
-16-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Strategic Alliance Agreement
SmarTalk Teleservices, Inc.
and
Boston Communications Group, Inc.
Schedule 3.3
An arrangement with one of the following three entities as a strategic
partner for the procuring of nationwide roaming agreements:
[**]
-17-
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